e10vk
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form 10-K
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(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the fiscal year ended
December 31,
2010
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
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For the transition period
from to
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Commission file number
000-51963
COLE CREDIT PROPERTY
TRUST II, INC.
(Exact name of registrant as
specified in its charter)
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Maryland
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20-1676382
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(State or other jurisdiction
of
incorporation or organization)
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(I.R.S. Employer
Identification Number)
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2555 East Camelback Road, Suite 400
Phoenix, Arizona, 85016
(Address of principal
executive offices; zip code)
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(602) 778-8700
(Registrant’s telephone
number,
including area code)
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Securities registered pursuant to Section 12(b) of the
Act:
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Title of Each Class
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Name of Exchange on Which Registered
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None
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None
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Securities registered pursuant to Section 12(g) of the
Act: Common Stock, par value $0.01 per share
Indicate by check mark if the registrant is a well-known
seasoned issuer, as defined in Rule 405 of the Securities
Act. Yes o No þ
Indicate by check mark if the registrant is not required to file
reports pursuant to Section 13 or Section 15(d) of the
Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed
all reports required to be filed by Section 13 or 15(d) of
the Securities Exchange Act of 1934 during the preceding
12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been
subject to such filing requirements for the past
90 days. Yes þ No o
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
during the preceding 12 months (or for such shorter period
that the registrant was required to submit and post such
files). Yes o No o
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of
Regulation S-K
is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or
information statements incorporated by reference in
Part III of this Annual Report on
Form 10-K
or any amendment to this Annual Report on
Form 10-K. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
“large accelerated filer,” “accelerated
filer” and “smaller reporting company” in
Rule 12b-2
of the Exchange Act. (Check one):
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Large accelerated
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Accelerated
filer o
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Non-accelerated
filer þ
(Do not check if a smaller reporting company)
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Smaller reporting
company o
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Indicate by check mark whether the registrant is a shell company
(as defined in
Rule 12b-2
of the Exchange
Act). Yes o No þ
While there is no established market for the registrant’s
shares of common stock, the registrant has made initial and
follow-on public offerings of its shares of common stock
pursuant to registration statements on
Form S-11.
The registrant ceased offering shares of common stock in its
follow-on public offering on January 2, 2009. The last
price paid to acquire a share in the registrant’s follow-on
public offering was $10.00, excluding shares purchased through
the distribution reinvestment plan. On June 22, 2010, the
board of directors of the registrant approved an estimated value
per share of the registrant’s common stock of $8.05, as of
June 22, 2010. There were approximately 207.2 million
shares of common stock held by non-affiliates at June 30,
2010, the last business day of the registrant’s most
recently completed second fiscal quarter.
The number of shares of common stock outstanding as of
March 30, 2011 was 209,651,817.
Documents
Incorporated by Reference:
The Registrant incorporates by reference portions of the Cole
Credit Property Trust II, Inc. Definitive Proxy Statement
for the 2011 Annual Meeting of Stockholders (into Items 10,
11, 12, 13 and 14 of Part III).
CAUTIONARY
NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on
Form 10-K
of Cole Credit Property Trust II, Inc., other than
historical facts may be considered forward-looking statements
within the meaning of Section 27A of the Securities Act of
1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as
amended (the “Exchange Act”). We intend for all such
forward-looking statements to be covered by the safe harbor
provisions for forward-looking statements contained in
Section 27A of the Securities Act and Section 21E of
the Exchange Act, as applicable by law. Such statements include,
in particular, statements about our plans, strategies, and
prospects and are subject to certain risks and uncertainties, as
well as known and unknown risks, which could cause actual
results to differ materially from those projected or
anticipated. Therefore, such statements are not intended to be a
guarantee of our performance in future periods. Such
forward-looking statements can generally be identified by our
use of forward-looking terminology such as “may,”
“will,” “would,” “could,”
“should,” “expect,” “intend,”
“anticipate,” “estimate,”
“believe,” “continue,” or other similar
words. Forward-looking statements that were true at the time
made may ultimately prove to be incorrect or false. We caution
readers not to place undue reliance on forward-looking
statements, which reflect our management’s view only as of
the date this Annual Report on
Form 10-K
is filed with the Securities and Exchange Commission (the
“SEC”). We make no representation or warranty (express
or implied) about the accuracy of any such forward-looking
statements contained in this Annual Report on
Form 10-K.
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. The forward-looking statements should be read
in light of the risk factors identified in
“Item 1A — Risk Factors” of this Annual
Report on
Form 10-K.
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PART I
Formation
Cole Credit Property Trust II, Inc. (the
“Company,” “we,” “our,” or
“us”) is a Maryland corporation formed on
September 29, 2004, that elected to be taxed, and currently
qualifies, as a real estate investment trust (“REIT”)
for federal income tax purposes. We were organized 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. As of December 31, 2010, we
owned 725 properties comprising 20.6 million rentable
square feet of single and multi-tenant retail and commercial
space located in 45 states and the U.S. Virgin
Islands. As of December 31, 2010, the rentable space at
these properties was 94% leased. As of December 31, 2010,
we also owned 69 mortgage notes receivable secured by 43
restaurant properties and 26 single-tenant retail properties,
each of which is subject to a net lease. Through two joint
ventures, we had a majority indirect interest in a
386,000 square foot multi-tenant retail building in
Independence, Missouri and a majority indirect interest in a
ten-property storage facility portfolio as of December 31,
2010. In addition, we owned six commercial mortgage-backed
securities (“CMBS”) bonds as of December 31, 2010.
Substantially all of our business is conducted through our
operating partnership, Cole Operating Partnership II, LP
(“Cole OP II”), a Delaware limited partnership
organized in 2004. The Company is the sole general partner of
and owns a 99.99% interest in Cole OP II. Cole REIT Advisors II,
LLC (“Cole Advisors II”), the advisor to the Company,
is the sole limited partner and owns an insignificant
noncontrolling partnership interest of less than 0.01% of Cole
OP II.
Our sponsor, Cole Real Estate Investments, which is comprised of
a group of affiliated entities, including our advisor, has
sponsored various prior real estate investment programs. Cole
Advisors II, pursuant to an advisory agreement with us, is
responsible for managing our affairs on a
day-to-day
basis and for identifying and making acquisitions and
investments on our behalf. Our charter provides that our
independent directors are responsible for reviewing the
performance of our advisor and determining whether the
compensation paid to our advisor and its affiliates is
reasonable. The advisory agreement with Cole Advisors II is
for a one-year term and is reconsidered on an annual basis by
our board of directors.
On June 27, 2005, we 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 SEC under the Securities Act (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 were able to elect to have their distributions
reinvested in additional shares of our 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, we increased
the aggregate amount of the Initial 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, we 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 $541.4 million and a maximum of
1,202,000 shares was available under the DRIP for an
aggregate offering price of $11.4 million.
We commenced our principal operations on September 23,
2005, when we issued the initial 486,000 shares of our
common stock in the Initial Offering. Prior to such date, we
were considered a development stage company. We terminated the
Initial Offering on May 22, 2007. As of the close of
business on May 22, 2007, we 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 us of $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 the Initial Offering
were deregistered.
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On May 23, 2007, we commenced our follow-on public offering
of up to 150,000,000 shares of common stock (the
“Follow-on Offering”). We terminated the Follow-on
Offering on January 2, 2009. As of the close of business on
January 2, 2009, we had issued a total of
147,454,259 shares in the Follow-on Offering, including
141,520,572 shares sold in the primary offering and
5,933,687 shares sold pursuant to the DRIP, resulting in
gross offering proceeds to us of $1.5 billion. At the
completion of the Follow-on Offering, a total of
1,595,741 shares of common stock remained unsold, including
1,529,428 shares that remained unsold in the primary
offering and 66,313 shares of common stock that remained
unsold pursuant to the DRIP. Unsold shares in the Follow-on
Offering were deregistered.
On September 18, 2008, we registered 30,000,000 additional
shares to be offered pursuant to the DRIP in a Registration
Statement on
Form S-3
(the “DRIP Offering”) (collectively with the Initial
Offering and Follow-on Offering, the “Offerings”). On
June 22, 2010, our board of directors amended the DRIP to
provide that reinvestments of distributions made on or after
July 15, 2010 will be made at a price equal to the most
recent estimated per share value of our common stock as
determined by our board of directors. Our board of directors
determined that the estimated share value of our common stock as
of June 22, 2010, was $8.05 per share, so that amount will
be the price used for the purchase of shares pursuant to the
DRIP until such time as the board of directors provides a new
estimate of share value. As of December 31, 2010, we had
issued 15,790,886 shares of our common stock in the DRIP
Offering, resulting in gross proceeds of $144.5 million.
Combined with the gross proceeds from the Initial Offering and
Follow-on Offering, the Company had aggregate gross proceeds
from the Offerings of $2.2 billion (including shares sold
pursuant to the DRIP) as of December 31, 2010, before
offering costs, selling commissions, and dealer management fees
of $188.3 million and before share redemptions of
$82.2 million.
Our stock is not currently listed on a national securities
exchange. Our goal is to sell our company, liquidate our
portfolio or list our shares of common stock for trading on a
national securities exchange at a time and in a method
recommended by our advisor and determined by our independent
directors to be in the best interest of our stockholders. At
this time, we have no present intention to sell our company,
liquidate our portfolio or list our shares. We do not anticipate
that there would be any market for our common stock until our
shares are listed on a national securities exchange. In the
event we do not obtain listing prior to May 22, 2017, our
charter requires that we either: (1) seek stockholder
approval of an extension or elimination of this listing
deadline; or (2) seek stockholder approval to adopt a plan
of liquidation. If neither proposal is approved, we may continue
to operate as before.
Investment
Objectives and Policies
Our objective is to invest primarily in freestanding,
single-tenant, retail properties net leased to investment grade
and other creditworthy tenants. We may also invest in mortgage
loans, CMBS or other investments related to real property or
entities or joint ventures that make similar investments. Our
primary investment objectives are:
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to provide current income to our stockholders through the
payment of cash distributions; and
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to preserve and return our stockholders’ capital
contributions.
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We also seek capital gains from our investments. We cannot
assure investors that we will achieve these investment
objectives or that our capital will not decrease.
Decisions relating to the purchase or sale of our investments
are made by our advisor, subject to oversight by our board of
directors, a majority of whom are independent directors. Our
board of directors may revise our investment policies, as
described below, without the concurrence of our stockholders.
However, our board of directors will not amend our charter,
including any investment policies that are provided in our
charter, without the concurrence of a majority of the
outstanding shares, except for amendments that do not adversely
affect the rights, preferences and privileges of our
stockholders. Our independent directors will review our
investment policies at least annually to determine that our
policies are in the best interest of our stockholders.
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Acquisition
and Investment Policies
Types
of Investments
We invest primarily in freestanding, single-tenant, retail
properties under long-term net leases to investment grade and
other creditworthy tenants. We also invest in multi-tenant
retail “power centers,” which are net leased to
national big box retailers and smaller retail establishments,
and single tenant office and industrial properties under
long-term net leases to investment grade and other creditworthy
tenants. In addition, we have acquired, and may continue to
acquire mortgage loans secured by similar types of commercial
properties in our portfolio.
For over three decades, our sponsor, Cole Real Estate
Investments, has developed and utilized this investment approach
in acquiring and managing core commercial real estate assets
primarily in the retail sector but in the office and industrial
sectors as well. We believe that our sponsor’s experience
in assembling real estate portfolios, which principally focus on
national and regional creditworthy tenants subject to long-term
leases, will provide us with a competitive advantage. In
addition, our sponsor has built a business of over
200 employees, who are experienced in the various aspects
of acquiring, financing and managing commercial real estate, and
that our access to these resources also will provide us with an
advantage.
Many of our properties are leased to single-tenants of large
national retail chains or franchises, including “big
box” retailers, which operate stores in the home
improvement, drug, sporting goods, specialty, convenience and
restaurant industries. Other properties are 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 seeks to
identify properties on our behalf that will 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
also offers highly competitive sale-leaseback investment
opportunities.
We believe that our general focus on the acquisition of
freestanding, single-tenant, retail properties net leased to
investment grade and other creditworthy tenants under long-term
leases 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 have acquired a diversified portfolio comprised
primarily of single-tenant properties and a smaller number of
multi-tenant retail 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 acquired properties that are geographically
diverse, we believe we have minimized 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 the industry and brand
of tenants enhances 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 have acquired a well-balanced
portfolio diversified by geographic location, age of the
property and lease maturity. We pursued, and continue to pursue,
properties with tenants that represent a variety of industries
so as to avoid concentration in any one industry. These
industries include all types of retail establishments, such as
“big box” retailers, convenience stores, drug stores
and restaurant properties. Tenants of our properties are
diversified between national, regional and local brands. We
generally target properties with lease terms in excess of ten
years. We have acquired, and may continue to 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
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value by virtue of their size, location, quality and condition
and lease characteristics. We expect any future acquisitions to
be made in the United States, including United States
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
enables 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 have acquired, or may continue to acquire, or on the
percentage of net proceeds of the Offerings that have been or
may be invested in a single property. The number and mix of
properties we will hold at any given time depends primarily upon
real estate market conditions and other circumstances existing
at that time.
We incur debt to acquire properties if our advisor determines
that incurring such debt is in our best interest. In addition,
from time to time, we acquire properties without financing and
later incur mortgage debt secured by one or more of such
properties if favorable financing terms are available. We
generally use the proceeds from such loans to acquire additional
properties. See the section below captioned
“— Borrowing Policies” for a more detailed
explanation of our borrowing intentions and limitations.
Real
Estate Underwriting Process
In evaluating potential property and mortgage loan 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. The underwriting process includes analyzing
the financial data and other available information about the
tenant, such as income statements, balance sheets, net worth,
cash flow, business plans, data provided by industry credit
rating services,
and/or other
information our advisor may deem relevant. 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.
In evaluating the credit worthiness of a tenant or prospective
tenant, our advisor may not always use specific quantifiable
standards, and may consider many factors, including debt rating
agencies, such as Moody’s and Standard &
Poor’s,
and/or the
proposed terms of the acquisition. A tenant will be considered
“investment grade” when the tenant has a debt rating
by Moody’s Investors Service (“Moody’s”) of
Baa3 or better or a credit rating by Standard &
Poor’s Financial Services, LLC (“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
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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 other debt
rating agencies, such as Dun and Bradstreet,
and/or 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
“net” 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 of the building, or other aspects of
the property, while the tenant is responsible for all remaining
expenses associated with the property. With respect to our
multi-tenant properties, we 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.
The majority of our properties had lease terms of ten years or
more at the time we acquired them. We may acquire in the future,
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 for our properties also may 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 net 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 has obtained and
may obtain in the future, 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.
Some leases require that we procure insurance for both
commercial general liability and property damage insurance;
however, the premiums are fully reimbursable from the tenant.
When 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.
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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 the tenant from its
obligations under the lease.
Other
Possible Investments
Although we expect that most of our additional property
acquisitions will be of the types described above, we have made
and may continue to make other investments. For example, we are
not limited to investments in single-tenant, freestanding retail
properties or properties leased to investment grade and other
creditworthy tenants and complimentary multi-tenant properties.
We have invested and may continue to 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 have invested, and may continue to
invest, in CMBS and mortgage loans generally secured by the same
types of commercial properties that we generally acquire. We
also have invested, and may continue to invest, in other
investments related to real property or entities or joint
ventures that make similar investments.
Our criteria for investing in CMBS and mortgage loans are
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 direct or indirect 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 oversight 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, 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 and property condition report, our advisor also, to the
extent such information is available, considers the following:
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tenant rolls and tenant creditworthiness;
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a property condition report;
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unit level store performance;
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property location, visibility and access;
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age of the property, physical condition and curb appeal;
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neighboring property uses;
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local market conditions including vacancy rates;
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area demographics, including trade area population and average
household income;
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neighborhood growth patterns and economic conditions;
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presence of nearby properties that may positively impact store
sales at the subject property; and
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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, termination options,
projected net cash flow yield and projected internal rates of
return.
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Our advisor considers whether properties are leased by, or have
leases guaranteed by, companies that maintain an investment
grade rating by either Standard and 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 “— Real Estate
Underwriting Process” above.
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:
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plans and specifications;
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surveys;
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evidence of marketable title, subject to such liens and
encumbrances as are acceptable to Cole Advisors II;
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financial statements covering recent operations of properties
having operating histories;
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title and liability insurance policies; and
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tenant estoppel certificates.
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We generally will 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 assess 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
vicinity 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 substantially 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 substantially
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 “Item 1A — Risk
Factors — General Risks Related to Investments in Real
Estate.”
9
Ownership
Structure
Our investment in real estate generally takes the form of
holding fee title or a long-term leasehold estate. In addition,
we invest in mortgages acquired in the secondary market and
secured by commercial properties. We acquire such assets 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
“— Joint Venture Investments” section below.
In addition, we have purchased, and may continue to purchase,
properties and lease them back to the sellers of such
properties. While we 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.
Joint
Venture Investments
We may enter into joint ventures, partnerships, co-tenancies and
other co-ownership arrangements with affiliated entities of our
advisor, including other real estate programs sponsored by
affiliates of our advisor, and other third parties for the
acquisition, development or improvement of properties or the
acquisition of other real estate-related investments. We have
and may continue to 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, our advisor will evaluate the underlying real
property or other real estate-related investment using the same
criteria described above in “— Real Estate
Investment Decisions” for the selection of our real
property investments. Our advisor also will evaluate the joint
venture or co-ownership partner and the proposed terms of the
joint venture or a co-ownership arrangement.
Our general policy is to invest in joint ventures only when we
would have substantial decision-making rights and 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 and its officers and key persons may have
conflicts of interest in determining which real estate program
sponsored by our sponsor, Cole Real Estate Investments, 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, if the joint venture is with an
affiliate, 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 real estate programs
sponsored by Cole Real Estate Investments 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 unaffiliated joint
venturers.
10
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 have more funds available
for investment in properties. This allows 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 accounting principles generally accepted in the United
States of America (“GAAP”), we will include it in the
leverage restriction calculations, unless the issuance of the
preferred stock is approved or ratified by our stockholders.
Our advisor uses its best efforts to obtain financing on the
most favorable terms available to us. Our advisor has
substantial discretion with respect to the financing we obtain,
subject to our borrowing policies, which are approved by our
board of 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 if 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 continue to 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.
Beginning in late 2007, domestic and international financial
markets experienced significant disruptions that were brought
about in large part by challenges in the world-wide banking
system. These disruptions severely impacted the availability of
credit and have contributed to rising costs associated with
obtaining credit. Recently, the volume of mortgage lending for
commercial real estate has increased and lending terms have
improved; however, such lending activity is significantly less
than previous levels. Although lending market conditions have
improved, we have experienced, and may continue to experience,
more stringent lending criteria, which may affect our ability to
finance certain property acquisitions or refinance our debt at
maturity. For properties for which we are able to obtain
financing, the interest rates and other terms on such loans may
be unacceptable. Additionally, if we are able to refinance our
existing debt as it matures, it may be at lower leverage levels
or at rates and terms which are less favorable than our existing
debt or, if we elect to extend the maturity dates of the
mortgage notes in accordance with the
hyper-amortization
provisions, the interest rates charged to us will be higher,
each of which may adversely affect our results of operations and
the distribution rate we are able to pay to our investors. We
have managed, and expect to continue to manage, the current
mortgage lending environment by utilizing borrowings on our
amended and restated $350.0 million line of credit (the
“Credit Facility”), and considering alternative
lending sources, including the securitization of debt, utilizing
fixed rate loans, short-term variable rate loans, assuming
existing mortgage loans in connection with property
acquisitions, or entering into interest rate lock or swap
agreements, or any combination of the foregoing. We have
acquired, and may continue to acquire, our properties for cash
without financing. If we are unable to obtain suitable financing
for future acquisitions or 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
11
alternatives in the current market, including purchasing or
originating debt backed by real estate, which could produce
attractive yields in the current market environment.
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. During the years ended December 31, 2010 and 2009
we did not acquire any properties or borrow any funds from Cole
Advisors II or its affiliates.
Disposition
Policies
We intend to hold each property we acquire for an extended
period of time, generally eight to ten years from the time of
acquisition. 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. As of December 31, 2010, we had not
sold any properties.
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. There can be no assurance that
this objective will be realized. The selling price of a property
that is net leased will be determined in part by the amount of
rent payable remaining under the lease and the economic
conditions at that time. 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 customs in the area in which the property being
sold is located and the then-prevailing economic conditions.
Acquisition
of Properties from Affiliates
We may acquire properties or interests in properties from or in
co-ownership arrangements with entities affiliated with our
advisor, including properties acquired from affiliates of our
advisor engaged in construction and development of commercial
real properties. We will not acquire any property from an
affiliate unless a majority of our directors (including a
majority of our independent directors) not otherwise interested
in the transaction determine that the transaction is fair and
reasonable to us. The purchase price that we will pay for any
property we acquire from affiliates of our advisor, 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 the 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. During the years
ended December 31, 2010 and 2009, we did not purchase any
properties from our advisor’s affiliates.
Conflicts
of Interest
We are subject to various conflicts of interest arising out of
our relationship with Cole Advisors II and its affiliates,
including conflicts related to the arrangements pursuant to
which we will compensate our advisor and its affiliates. While
our independent directors will act on our behalf, our agreements
and compensation arrangements with our advisor and its
affiliates may not be determined by arm’s-length
negotiations, since the approval process may be impacted by the
fact that our stockholders invested with the understanding and
expectation that an affiliate of Cole Real Estate Investments
would act as our advisor. Some of the potential conflicts of
interest in our transactions with our advisor and its
affiliates, and certain conflict resolution procedures set forth
in our charter, are described below.
Our officers and affiliates of our advisor will try to balance
our interests with the interests of real estate programs
sponsored by Cole Real Estate Investments. However, to the
extent that these persons 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 our stockholders and the value of our stock.
In addition,
12
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.
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
Affiliates of our advisor act as an advisor to, and our
executive officers and two of our directors act as officers
and/or
directors of Cole Credit Property Trust, Inc.
(“CCPT”),
and/or Cole
Credit Property Trust III, Inc. (“CCPT III”),
and/or Cole
Corporate Income Trust, Inc. (“CCIT”), each a real
estate investment trust that has investment objectives and
targeted assets similar to ours. CCPT is no longer offering
shares for investment, and currently is not pursuing
acquisitions of additional properties. In the event that CCPT
sells one or more of its assets, it may seek to acquire
additional properties, which may be similar to properties in
which we invest. CCPT III is offering up to a maximum of
250,000,000 shares of common stock in a primary offering
and up to 25,000,000 additional shares pursuant to a
distribution reinvestment plan, and is currently pursuing
acquisitions of properties which are similar to properties in
which we invest. CCIT is offering up to a maximum of
250,000,000 shares of common stock in a primary offering
and up to 50,000,000 shares pursuant to a distribution
reinvestment plan, and is currently pursuing acquisitions of
properties. We anticipate that certain investments that will be
appropriate for investment by us also will be appropriate for
investment by CCIT. Affiliates of our advisor also act as an
advisor to, and our executive officers act as officers
and/or
directors of two additional real estate investment programs that
currently are in registration for their initial public
offerings. 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 investment objectives and policies
similar to ours. 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, as well as our
officers and our affiliated directors, 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 our assets. We will
seek to achieve any operating efficiencies or similar savings
that may result from affiliated management of competitive
assets. 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, any of its affiliates or another real estate
program sponsored by Cole Real Estate Investments.
Other
Activities of Cole Advisors II and its
Affiliates
We rely on Cole Advisors II for the
day-to-day
operation of our business pursuant to an advisory agreement. As
a result of the interests of members of its management in other
real estate programs sponsored by Cole Real Estate Investments
and the fact that they have also 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 real estate programs sponsored by Cole
Real Estate Investments 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 real estate programs
sponsored by Cole Real Estate Investments and other ventures in
which they are involved.
13
In addition, each of our executive officers, including
Christopher H. Cole, who also serves as the chairman of our
board of directors, also serve as an officer of our advisor, our
property 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.
Competition
in Acquiring, Leasing and Operating of Properties
Conflicts of interest may exist to the extent that we may
acquire properties or enter into joint ventures that own
properties in the same geographic areas where properties owned
by real estate programs sponsored by Cole Real Estate
Investments are located. In such a case, a conflict could arise
in the leasing of properties in the event that we and another
real estate program sponsored by Cole Real Estate Investments
were to compete for the same tenants in negotiating leases, or a
conflict could arise in connection with the resale of properties
in the event that we and another real estate program sponsored
by Cole Real Estate Investments 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 resale
or leasing of the various properties.
Affiliated
Dealer Manager
Since Cole Capital Corporation (“Cole Capital”), our
dealer manager, is an affiliate of Cole Advisors II, we did 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 our Offerings.
Affiliated
Property Manager
Our properties are, and we anticipate that properties we acquire
will be, managed and leased by our affiliated property manager,
Cole Realty Advisors, Inc. (“Cole Realty Advisors”),
pursuant to a property management and leasing agreement. Our
agreement with Cole Realty Advisors has a one year term. We
expect Cole Realty Advisors to also serve 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 gross revenue received by the managed properties.
Receipt
of Fees and Other Compensation by Cole Advisors II and its
Affiliates
We have incurred commissions, fees and other compensation
payable to Cole Advisors II and its affiliates in
connection with the Offerings, including selling commissions,
dealer manager fees, and organization and offering expenses. In
addition, we have incurred, and expect to continue to incur,
commissions, fees and expenses payable to Cole Advisors II
and its affiliates in connection with the acquisition and
management of our assets, including acquisition and advisory
fees, financing coordination fees, property management and
leasing fees, asset management fees, acquisition expenses and
operating expenses. In connection with the sale of properties,
we may pay Cole Advisors II and its affiliates real estate
commissions and subordinated participation in net sale proceeds
and subordinated performance fees. However, the subordinated
participation in net sale proceeds and the subordinated
performance fees payable or reimbursable to Cole
Advisors II and its affiliates relating to the net sale
proceeds from the sale of properties will only be 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
14
payable to Cole Advisors II and its affiliates regardless
of the quality of the properties acquired or the services
provided to us.
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 to 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:
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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.
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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.
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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) 2.0% of our average invested assets for that fiscal
year, or (ii) 25.0% 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.
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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:
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the anticipated cash flow of the property to be acquired and the
cash requirements of each program;
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the effect of the acquisition on diversification of each
program’s investments by type of property, geographic area
and tenant concentration;
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the policy of each program relating to leverage of properties;
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the income tax effects of the purchase to each program;
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the size of the investment; and
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the amount of funds available to each program and the length of
time such funds have been available for investment.
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If, in the judgment of our advisor, the investment opportunity
may be equally appropriate for more than one program, 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 ensure that
this method is applied fairly to us.
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.
We will not enter into any 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.
Employees
We have no direct employees. The employees of Cole
Advisors II and its affiliates provide services to us
related to acquisition and disposition, property management,
asset management, financing, accounting, investor relations, and
administration. The employees of Cole Capital, our affiliated
dealer manager, provide wholesale brokerage services.
We are dependent on our advisor and its affiliates for services
that are essential to us, including the sale of shares of our
common stock, asset acquisition decisions, property management
and other general administrative responsibilities. In the event
that these companies were unable to provide these services to
us, we would be required to obtain such services from other
sources.
We reimburse Cole Advisors II and its affiliates for
expenses incurred in connection with its provision of
administrative, acquisition, property management, asset
management, financing, accounting and investor relation
services, including personnel costs, subject to certain
limitations. During the years ended December 31, 2010 and
2009, we incurred $3.8 million and $2.0 million,
respectively, for such services provided by Cole
Advisors II or its affiliates. During the year ended
December 31, 2008, no amounts were recorded for such
services.
Insurance
See sections captioned ‘‘— Acquisition and
Investment Policies — Description of Leases”
and “— Environmental Matters.”
Reportable
Segments
We operate and report our results on a consolidated basis in our
commercial properties segment. See Note 2 to our
consolidated financial statements in this Annual Report on
Form 10-K.
Competition
As we purchase properties, we are in competition with other
potential buyers for the same properties and may have to pay
more to purchase the property than if there were no other
potential acquirers or we may have to locate another property
that meets our investment criteria. In addition, the leasing of
real estate is highly competitive in the current market, and we
may continue to experience competition for tenants from owners
16
and managers of competing projects. As a result, we may have to
provide free rent, incur charges for tenant improvements, or
offer other inducements, or we might not be able to timely lease
the space, all of which may have an adverse impact on our
results of operations. At the time we elect to dispose of our
properties, we may also be in competition with sellers of
similar properties to locate suitable purchasers for our
properties.
Concentration
of Credit Risk
As of December 31, 2010, we had cash on deposit, including
restricted cash, in five financial institutions, four of which
had deposits in excess of current federally insured levels
totaling $47.9 million; however, we have not experienced
any losses in such accounts. We limit significant cash holdings
to accounts held by financial institutions with high credit
standing; therefore, we believe we are not exposed to any
significant credit risk on cash.
No single tenant accounted for greater than 10% of our gross
annualized rental revenues for the year ended December 31,
2010. Tenants in the specialty retail, drugstore and restaurant
industries comprised 18%, 16% and 13%, respectively, of our
gross annualized rental revenues for the year ended
December 31, 2010. Additionally, we have certain geographic
concentrations in our property holdings. In particular, as of
December 31, 2010, 165 of our properties were located in
Texas and 22 were located in Florida, accounting for 16% and 10%
of our 2010 gross annualized rental revenues, respectively.
Litigation
In the ordinary course of business, we may become subject to
litigation or claims. We are not aware of any material pending
legal proceedings of which the outcome is reasonably likely to
have a material adverse effect on our results of operation or
financial condition.
Environmental
Matters
In connection with the ownership and operation of real estate,
we may be potentially liable for costs and damages related to
environmental matters. We have acquired certain properties that
are subject to environmental remediation, in which 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 us against future remediation costs. In
addition, we carry environmental liability insurance on our
properties that provides coverage for remediation liability and
pollution liability for third-party bodily injury and property
damage claims. See “Item 1.
Business — Acquisitions and Investment
Policies — Conditions to Closing Our
Acquisitions” for a description of the steps we may take to
ensure environmental compliance in the properties we acquire.
Available
Information
We electronically file our Annual Reports on
Form 10-K,
Quarterly Reports on
Form 10-Q,
Current Reports on
Form 8-K
and all amendments to those reports with the SEC. We have also
filed registration statements, amendments to our registration
statements, and supplements to our prospectus in connection with
our Offerings with the SEC. Copies of our filings with the SEC
may be obtained from the SEC’s website, at
http://www.sec.gov.
Access to these filings is free of charge.
17
The factors described below represent our principal risks. Other
factors may exist that we do not consider to be significant
based on information that is currently available or that we are
not currently able to provide.
Risks
Related to an Investment in Cole Credit Property Trust II,
Inc.
There
is no public trading market for our shares and there may never
be one; therefore, it will be difficult for you to sell your
shares.
There currently is no public market for our shares and there may
never be one. In addition, we do not have a fixed liquidation
date. If you are able to find a buyer for your shares, you may
not sell your shares unless the buyer meets applicable
suitability and minimum purchase standards. Our charter also
prohibits the ownership of more than 9.8% of our stock, or more
than 9.8% in value or number of shares (whichever is more
restrictive) of our common stock, by a single investor, unless
exempted by our board of directors, which may inhibit large
investors from desiring to purchase your shares. Moreover, our
share redemption program includes numerous restrictions that
would limit your ability to sell your shares to us. Our board of
directors may reject any request for redemption of shares, or
amend, suspend or terminate our share redemption program upon
30 days’ notice. Our board of directors suspended our
share redemption program on November 10, 2009. On
June 22, 2010, our board of directors reinstated our share
redemption program, effective August 1, 2010, and adopted
several amendments to the program. In particular, 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 and the cash available for redemption is limited
to the proceeds from the sale of shares pursuant to our DRIP
during such calendar year. In addition, we will redeem shares on
a quarterly basis, at the rate of approximately one-fourth of 3%
of the weighted average number of shares outstanding during the
prior calendar year (including shares requested for redemption
upon the death of a stockholder). Funding for redemptions for
each quarter will be limited to the net proceeds we receive from
the sale of shares, during such quarter, under our DRIP.
Therefore, it will be difficult for you to sell your shares
promptly or at all. If you are able to sell your shares, you
will likely have to sell them at a substantial discount to the
price you paid for the shares. It also is likely that your
shares would not be accepted as the primary collateral for a
loan. You should purchase the shares only as a long-term
investment because of the illiquid nature of the shares.
You
will not have the opportunity to evaluate our future investments
before we make them, which makes an investment in us more
speculative.
We will seek to use the net offering proceeds, after the payment
of fees and expenses of our Offerings and other sources of
capital, to continue to acquire a portfolio of commercial real
estate comprised primarily of a large number of freestanding,
single-tenant, retail properties net leased to investment grade
or other creditworthy tenants and a smaller number of
multi-tenant properties that compliment our overall investment
objectives. We may also, in the discretion of our advisor,
invest in other types of real estate or in entities that invest
in real estate. In addition, our advisor may make or invest in
mortgage loans or participations therein on our behalf if our
board of directors determines, due to the state of the real
estate market or in order to diversify our investment portfolio
or otherwise, that such investments are advantageous to us. We
will not provide you with information to evaluate our future
investments prior to our acquisition of properties. We have
established policies relating to the creditworthiness of tenants
of our properties, but our board of directors has wide
discretion in implementing these policies.
We may
suffer from delays in locating suitable additional investments,
which could adversely affect our ability to make distributions
and the value of your investment.
Our ability to achieve our investment objectives and to pay
distributions is dependent upon the performance of our advisor
in the acquisition of our investments, the selection of our
tenants and the determination of any financing arrangements. You
must rely entirely on the management ability of our advisor and
the oversight of our board of directors. We could suffer from
delays in locating suitable additional investments, particularly
as a result of our reliance on our advisor at times when
management of our advisor is
18
simultaneously seeking to locate suitable investments for other
affiliated programs. Delays we encounter in the selection,
acquisition and, in the event we develop properties, development
of income-producing properties, would adversely affect our
ability to make distributions and the value of your overall
returns. In such event, we may pay a portion of our
distributions from the proceeds of the Offerings or from
borrowings in anticipation of future cash flow, which may
constitute a return of your capital. Distributions from the
proceeds of our offering or from borrowings also could reduce
the amount of capital we ultimately invest in properties. This,
in turn, would reduce the value of your investment. In
particular, if we acquire properties prior to the start of
construction or during the early stages of construction, it will
typically take several months to complete construction and rent
available space. Therefore, you could suffer delays in the
receipt of cash distributions attributable to those particular
properties. If Cole Advisors II is unable to obtain
suitable investments, we will hold proceeds from the Offerings
in an interest-bearing account or invest the proceeds in
short-term, investment-grade investments.
If our
advisor loses or is unable to obtain key personnel, our ability
to achieve our investment objectives could be delayed or
hindered, which could adversely affect our ability to pay
distributions to you and the value of your
investment.
Our success depends to a significant degree upon the
contributions of certain of our executive officers and other key
personnel of our advisor, each of whom would be difficult to
replace. Our advisor does not have an employment agreement with
any of these key personnel and we cannot guarantee that all, or
any particular one, will remain affiliated with us
and/or
advisor. If any of our key personnel were to cease their
affiliation with our advisor, our operating results could
suffer. Further, we do not intend to separately maintain key
person life insurance on Mr. Cole or any other person. We
believe that our future success depends, in large part, upon our
advisor’s ability to hire and retain highly skilled
managerial, operational and marketing personnel. Competition for
such personnel is intense, and we cannot assure you that our
advisor will be successful in attracting and retaining such
skilled personnel. If our advisor loses or is unable to obtain
the services of key personnel, our ability to implement our
investment strategies could be delayed or hindered, and the
value of your investment may decline.
If we
pay distributions from sources other than our cash flow from
operations, we will have fewer funds available for the
acquisition of properties, and your overall return may be
reduced.
Our organizational documents permit us to make distributions
from any source. If we fund distributions from financings or the
net proceeds from the Offerings, we will have fewer funds
available for acquiring properties and other investments, and
your overall value of your investment may be reduced. Further,
to the extent distributions exceed cash flow from operations, a
stockholder’s basis in our stock will be reduced and, to
the extent distributions exceed a stockholder’s basis, the
stockholder may recognize capital gain.
If we
internalize our management functions, your interest in us could
be diluted, and we could incur other significant costs
associated with being self-managed.
Our strategy may involve internalizing our management functions.
If we internalize our management functions, we may elect to
negotiate to acquire our advisor’s assets and personnel. At
this time, we cannot be sure of the form or amount of
consideration or other terms relating to any such acquisition.
Such consideration could take many forms, including cash
payments, promissory notes and shares of our stock. The payment
of such consideration could result in dilution of your interests
as a stockholder and could reduce the net income per share and
funds from operations per share attributable to your investment.
In addition, while we would no longer bear the costs of the
various fees and expenses we expect to pay to our advisor under
the advisory agreement, our direct expenses would include
general and administrative costs, including legal, accounting,
and other expenses related to corporate governance, SEC
reporting and compliance. We would also incur the compensation
and benefits costs of our officers and other employees and
consultants that we now expect will be paid by our advisor or
its affiliates. In addition, we may issue equity awards to
officers, employees and consultants, which awards would decrease
net income and funds from operations and may further dilute your
investment. We cannot reasonably estimate the amount of fees to
our
19
advisor we would save and the costs we would incur if we became
self-managed. If the expenses we assume as a result of an
internalization are higher than the expenses we avoid paying to
our advisor, our net income per share and funds from operations
per share would be lower as a result of the internalization than
it otherwise would have been, potentially decreasing the amount
of funds available to distribute to you and the value of our
shares.
As currently organized, we do not directly have any employees.
If we elect to internalize our operations, we would employ
personnel and would be subject to potential liabilities commonly
faced by employers, such as worker’s disability and
compensation claims, potential labor disputes and other
employee-related liabilities and grievances. Upon any
internalization of our advisor, certain key personnel of our
advisor may not be employed by us, but instead may remain
employees of our advisor or its affiliates.
If we internalize our management functions, we could have
difficulty integrating these functions as a stand-alone entity.
Currently, our advisor and its affiliates perform asset
management and general and administrative functions, including
accounting and financial reporting, for multiple entities. They
have a great deal of know-how and can experience economies of
scale. We may fail to properly identify the appropriate mix of
personnel and capital needs to operate as a stand-alone entity.
An inability to manage an internalization transaction
effectively could thus result in our incurring excess costs
and/or
suffering deficiencies in our disclosure controls and procedures
or our internal control over financial reporting. Such
deficiencies could cause us to incur additional costs, and our
management’s attention could be diverted from most
effectively managing our properties.
Our
rights and the rights of our stockholders to recover claims
against our officers, directors and our advisor are limited,
which could reduce your and our recovery against them if they
cause us to incur losses.
Maryland law provides that a director has no liability in that
capacity if he or she performs his or her duties in good faith,
in a manner he or she reasonably believes to be in the
corporation’s best interests and with the care that an
ordinarily prudent person in a like position would use under
similar circumstances. Our charter, in the case of our
directors, officers, employees and agents, and the advisory
agreement, in the case of our advisor, require us to indemnify
our directors, officers, employees and agents and our advisor
and its affiliates for actions taken by them in good faith and
without negligence or misconduct. Additionally, our charter
limits the liability of our directors and officers for monetary
damages to the fullest extent permitted under Maryland law,
subject to the limitations required by the Statement of Policy
Regarding Real Estate Investment Trusts published by the North
American Securities Administrators Associations, also known as
the NASAA REIT Guidelines. Although our charter does not allow
us to exonerate and indemnify our directors and officers to a
greater extent than permitted under Maryland law and the NASAA
REIT Guidelines, we and our stockholders may have more limited
rights against our directors, officers, employees and agents,
and our advisor and its affiliates, than might otherwise exist
under common law, which could reduce your and our recovery
against them. In addition, we may be obligated to fund the
defense costs incurred by our directors, officers, employees and
agents or our advisor in some cases which would decrease the
cash otherwise available for distribution to you.
Risks
Related to Conflicts of Interest
We will be subject to conflicts of interest arising out of our
relationships with our advisor and its affiliates, including the
material conflicts discussed below. The “Conflicts of
Interest” section of Part I, Item 1 of this
Annual Report on
Form 10-K
provides a more detailed discussion of the conflicts of interest
between us and our advisor and its affiliates, and our policies
to reduce or eliminate certain potential conflicts.
A
number of real estate programs sponsored by Cole Real Estate
Investments use investment strategies that are similar to ours,
therefore our advisor and its and our executive officers will
face conflicts of interest relating to the purchase and leasing
of properties, and such conflicts may not be resolved in our
favor.
Our sponsor may have simultaneous offerings of funds that have a
substantially similar mix of fund characteristics, including
targeted investment types, investment objectives and criteria,
and anticipated fund terms. As a result, we may be buying
properties and other real estate-related investments at the same
time as
20
one or more of the other real estate programs sponsored by Cole
Real Estate Investments managed by officers and key personnel of
our advisor
and/or its
affiliates, and these other real estate programs sponsored by
Cole Real Estate Investments may use investment strategies and
have investment objectives that are similar to ours. In
particular, CCPT III and CCIT are currently offering shares of
their common stock pursuant to effective registration statements
and pursuing acquisitions of assets that may be suitable for us
to acquire. Additionally, our sponsor is sponsoring two
additional real estate investment programs that currently are in
registration for their initial public offerings. Our executive
officers and the executive officers of our advisor also are the
executive officers, general partners,
and/or the
advisors or fiduciaries of other real estate programs sponsored
by Cole Real Estate Investments. There is a risk that our
advisor will choose a property that provides lower returns to us
than a property purchased by another real estate program
sponsored by Cole Real Estate Investments. In the event these
conflicts arise, our best interests may not be met when officers
and key persons acting on behalf of our advisor and on behalf of
advisors and managers of other real estate programs sponsored by
Cole Real Estate Investments decide whether to allocate any
particular property to us or to another real estate program
sponsored by Cole Real Estate Investments or affiliate that has
an investment strategy similar to ours. In addition, we may
acquire properties in geographic areas where other real estate
programs sponsored by Cole Real Estate Investments own
properties. If one of the other real estate programs sponsored
by Cole Real Estate Investments attracts a tenant that we are
competing for, we could suffer a loss of revenue due to delays
in locating another suitable tenant. Similar conflicts of
interest may arise if we acquire properties from or sell
properties to other real estate programs sponsored by Cole Real
Estate Investments, or if our advisor recommends that we make or
purchase mortgage loans or participations in mortgage loans,
since other real estate programs sponsored by Cole Real Estate
Investments may be competing with us for these investments.
Cole
Advisors II faces conflicts of interest relating to joint
ventures, which could result in a disproportionate benefit to
the other venture partners at our expense.
We may enter into joint ventures with other real estate programs
sponsored by Cole Real Estate Investments for the acquisition,
development or improvement of properties. Cole Advisors II
may have conflicts of interest in determining which real estate
programs sponsored by Cole Real Estate Investments 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 assume liabilities
related to the joint venture that exceed the percentage of our
investment in the joint venture.
We may
participate in 1031 exchange programs with affiliates of our
advisor that will not be the result of arm’s-length
negotiations and will result in conflicts of
interest.
Cole Capital Partners, LLC (“Cole Capital Partners”),
an affiliate of our advisor, has developed programs to
facilitate the acquisition of real estate properties in
co-ownership arrangements with persons who are looking to invest
proceeds from a sale of real estate in order to qualify for
like-kind exchange treatment under Section 1031 of the
Internal Revenue Code (a “Section 1031 Program”).
Section 1031 Programs are structured as co-ownership
arrangements with other investors in the property
(“Section 1031 Participants”) who are seeking to
defer taxes under Section 1031 of the Internal Revenue
Code. These programs are structured either as a
tenant-in-common
program or by use of a Delaware Statutory Trust. When Cole
Capital Partners develops such a program, it generally organizes
a new entity (a “Cole Exchange Entity”) to acquire all
or part of a property. We may participate in the program by
either co-investing in the property with the Cole Exchange
Entity or purchasing a co-ownership interest from the Cole
Exchange Entity, generally at the Cole Exchange Entity’s
cost. In that event, as a co-owner of properties, we will be
subject to the risks inherent in the co-ownership arrangements
with unrelated third parties. Our purchase of co-ownership
interests will present
21
conflicts of interest between us and affiliates of our advisor.
The business interests of Cole Capital Partners and the Cole
Exchange Entity may be adverse to, or to the detriment of, our
interests. Further, any agreement that we enter into with a Cole
Exchange Entity will not be negotiated in an arm’s-length
transaction and, as a result of the affiliation between our
advisor, Cole Capital Partners and the Cole Exchange Entity, our
advisor may be reluctant to enforce the agreements against such
entities.
Cole
Advisors II and its officers and key personnel and certain
of our key personnel face competing demands relating to their
time, and this may cause our operating results to
suffer.
Cole Advisors II and its officers and employees and certain
of our key personnel and their respective affiliates are key
personnel, general partners and sponsors of other real estate
programs that have investment objectives, targeted assets and
legal and financial obligations similar to ours and may have
other business interests as well. Because these persons have
competing demands on their time and resources, they may have
conflicts of interest in allocating their time between our
business and these other activities. During times of intense
activity in other programs and ventures, they may devote less
time and fewer resources to our business than is necessary or
appropriate. If this occurs, the returns on our investments may
suffer.
Our
officers face conflicts of interest related to the positions
they hold with affiliated entities, which could hinder our
ability to successfully implement our business strategy and to
generate returns to you.
Each of our executive officers, including Mr. Cole, who
also serves as the chairman of our board of directors, are also
officers of our advisor, our property manager,
and/or other
affiliated entities. As a result, these individuals owe
fiduciary duties to these other entities and their stockholders
and limited partners, which fiduciary duties may conflict with
the duties that they owe to us and our stockholders. Their
loyalties to these other entities could result in actions or
inactions that are detrimental to our business, which could harm
the implementation of our business strategy and our investment
and leasing opportunities. Conflicts with our business and
interests are most likely to arise from involvement in
activities related to (i) allocation of new investments and
management time and services between us and the other entities,
(ii) our purchase of properties from, or sale of
properties, to affiliated entities, (iii) the timing and
terms of the investment in or sale of an asset,
(iv) development of our properties by affiliates,
(v) investments with affiliates of our advisor,
(vi) compensation to our advisor, and (vii) our
relationship with our dealer manager and property manager. If we
do not successfully implement our business strategy, we may be
unable to generate cash needed to make distributions to our
stockholders and to maintain or increase the value of our assets.
Cole
Advisors II faces conflicts of interest relating to the
incentive fee structure under our advisory agreement, which
could result in actions that are not necessarily in the
long-term best interests of our stockholders.
Under our advisory agreement, Cole Advisors II is entitled
to fees that are structured in a manner intended to provide
incentives to our advisor to perform in our best interests and
in the best interests of our stockholders. However, because our
advisor does not maintain a significant equity interest in us
and is entitled to receive substantial minimum compensation
regardless of performance, our advisor’s interests are not
wholly aligned with those of our stockholders. In that regard,
our advisor could be motivated to recommend riskier or more
speculative investments in order for us to generate the
specified levels of performance or sales proceeds that would
entitle our advisor to fees. In addition, our advisor’s
entitlement to fees upon the sale of our assets and to
participate in sale proceeds could result in our advisor
recommending sales of our investments at the earliest possible
time at which sales of investments would produce the level of
return that would entitle the advisor to compensation relating
to such sales, even if continued ownership of those investments
might be in our best long-term interest. Our advisory agreement
requires us to pay a performance-based termination fee to our
advisor in the event that we terminate the advisor prior to the
listing of our shares for trading on an exchange or, absent such
listing, in respect of its participation in net sales proceeds.
To avoid paying this fee, our independent directors may decide
against terminating the advisory agreement prior to our listing
of our shares or disposition of our investments even if, but for
the termination fee, termination of the advisory agreement would
be in our best interest. In addition, the requirement to pay the
fee to the advisor at
22
termination could cause us to make different investment or
disposition decisions than we would otherwise make, in order to
satisfy our obligation to pay the fee to the terminated advisor.
Moreover, our advisor has the right to terminate the advisory
agreement upon a change of control of our company and thereby
trigger the payment of the performance fee, which could have the
effect of delaying, deferring or preventing the change of
control.
There
is no separate counsel for us and our affiliates, which could
result in conflicts of interest.
Morris, Manning & Martin, LLP acts as legal counsel to
us and also represents our advisor and some of its affiliates.
There is a possibility in the future that 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. If any situation
arises in which our interests appear to be in conflict with
those of our advisor or its affiliates, additional counsel may
be retained by one or more of the parties to assure that their
interests are adequately protected. Moreover, should a conflict
of interest not be readily apparent, Morris, Manning &
Martin, LLP may inadvertently act in derogation of the interest
of the parties which could affect our ability to meet our
investment objectives.
Risks
Related to Our Corporate Structure
The
limit on the number of shares a person may own may discourage a
takeover that could otherwise result in a premium price to our
stockholders.
Our charter, with certain exceptions, authorizes our directors
to take such actions as are necessary and desirable to preserve
our qualification as a REIT for federal income tax purposes.
Unless exempted by our board of directors, no person may own
more than 9.8% in value of our outstanding stock or more than
9.8% in value or number of shares (whichever is more
restrictive), of our outstanding common stock. This restriction
may have the effect of delaying, deferring or preventing a
change in control of us, including an extraordinary transaction
(such as a merger, tender offer or sale of all or substantially
all of our assets) that might provide a premium to the price of
our common stock for our stockholders.
Our
charter permits our board of directors to issue stock with terms
that may subordinate the rights of common stockholders or
discourage a third party from acquiring us in a manner that
might result in a premium price to our
stockholders.
Our charter permits our board of directors to issue up to
250,000,000 shares of stock. In addition, our board of
directors, without any action by our stockholders, may amend our
charter from time to time to increase or decrease the aggregate
number of shares or the number of shares of any class or series
of stock that we have authority to issue. Our board of directors
may classify or reclassify any unissued common stock or
preferred stock and establish the preferences, conversion or
other rights, voting powers, restrictions, limitations as to
distributions, qualifications and terms or conditions of
redemption of any such stock. Thus, our board of directors could
authorize the issuance of preferred stock with terms and
conditions that could have a priority as to distributions and
amounts payable upon liquidation over the rights of the holders
of our common stock. Preferred stock could also have the effect
of delaying, deferring or preventing a change in control of us,
including an extraordinary transaction (such as a merger, tender
offer or sale of all or substantially all of our assets) that
might provide a premium price for our stockholders.
Maryland
law prohibits certain business combinations, which may make it
more difficult for us to be acquired and may limit your ability
to exit the investment.
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:
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any person who beneficially owns 10% or more of the voting power
of the corporation’s shares; or
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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.
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A person is not an interested stockholder under the statute if
the board of directors approved in advance the transaction by
which he or she 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.
After the five-year prohibition, any business combination
between the Maryland corporation and an interested stockholder
generally must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding
shares of voting stock of the corporation; and
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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.
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These super-majority vote requirements do not apply if the
corporation’s stockholders receive a minimum price, as
defined under Maryland law, for their shares in the form of cash
or other consideration in the same form as previously paid by
the interested stockholder for its shares. The business
combination statute permits various exemptions from its
provisions, including business combinations that are exempted by
the board of directors prior to the time that the interested
stockholder becomes an interested stockholder. Pursuant to the
statute, our board of directors has exempted any business
combination involving Cole Advisors II or its affiliates.
Consequently, the five-year prohibition and the super-majority
vote requirements will not apply to business combinations
between us and Cole Advisors II or its affiliates. As a
result, Cole Advisors II and any of its affiliates 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.
Maryland
law also limits the ability of a third party to buy a large
stake in us and exercise voting power in electing
directors.
Maryland law provides a second anti-takeover statute, its
Control Share Acquisition Act, which provides that “control
shares” of a Maryland corporation acquired in a
“control share acquisition” have no voting rights
except to the extent approved by the corporation’s
disinterested stockholders by a vote of two-thirds of the votes
entitled to be cast on the matter. Shares of stock owned by
interested stockholders, that is, by the acquirer, by officers
or by directors who are employees of the corporation, are
excluded from shares entitled to vote on the matter.
“Control shares” are voting shares of stock that would
entitle the acquirer to exercise voting power in electing
directors within specified ranges of 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”
means the acquisition of control shares. The control share
acquisition statute does not apply (a) to shares acquired
in a merger, consolidation or share exchange if the corporation
is a party to the transaction or (b) to acquisitions
approved or exempted by the articles of incorporation or bylaws
of the corporation. Our bylaws contain a provision exempting
from the Control Share Acquisition Act any and all acquisitions
of our common stock by Cole Advisors II or any of its
affiliates. This statute could have the effect of discouraging
offers from third parties to acquire us and increasing the
difficulty of successfully completing this type of offer by
anyone other than our affiliates or any of their affiliates.
24
If we
are required to register as an investment company under the
Investment Company Act of 1940, we could not continue our
business, which may significantly reduce the value of your
investment.
We are not registered as an investment company under the
Investment Company Act of 1940, as amended (the “Investment
Company Act”), pursuant to the exclusion set forth in
Section 3(c)(5)(C) of the Investment Company Act and
certain no-action letters issued by the Securities and Exchange
Commission. Accordingly, (1) at least 55% of our assets
must consist of real estate fee interests or loans secured
exclusively by real estate or both, (2) at least 25% of our
assets must consist of loans secured primarily by real estate
(this percentage will be reduced by the amount by which the
percentage in (1) above is increased); and (3) up to
20% of our assets may consist of miscellaneous investments. We
intend to monitor compliance with these requirements on an
ongoing basis. If we were obligated to register as an investment
company, we would have to comply with a variety of substantive
requirements under the Investment Company Act imposing, among
other things:
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limitations on capital structure;
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restrictions on specified investments;
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prohibitions on transactions with affiliates; and
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compliance with reporting, record keeping, voting, proxy
disclosure and other rules and regulations that would
significantly change our operations.
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To maintain compliance with the Investment Company Act
exemption, we may be unable to sell assets we would otherwise
want to sell and may need to sell assets we would otherwise wish
to retain. In addition, we may have to acquire additional income
or loss generating assets that we might not otherwise have
acquired or may have to forgo opportunities to acquire interests
in companies that we would otherwise want to acquire and would
be important to our investment strategy. If we were required to
register as an investment company but failed to do so, we would
be prohibited from engaging in our business, and criminal and
civil actions could be brought against us. In addition, our
contracts would be unenforceable unless a court was to require
enforcement, and a court could appoint a receiver to take
control of us and liquidate our business.
If you
do not agree with the decisions of our board of directors, you
only have limited control over changes in our policies and
operations and may not be able to change such policies and
operations.
Our board of directors determines our major policies, including
our policies regarding investments, financing, growth, debt
capitalization, REIT qualification and distributions. Our board
of directors may amend or revise these and other policies
without a vote of the stockholders. Under the Maryland General
Corporation Law and our charter, our stockholders have a right
to vote only on the following:
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the election or removal of directors;
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any amendment of our charter (including a change in our
investment objectives), except that our board of directors may
amend our charter without stockholder approval, to increase or
decrease the aggregate number of our shares, to increase or
decrease the number of our shares of any class or series that we
have the authority to issue, or to classify or reclassify any
unissued shares by setting or changing the preferences,
conversion or other rights, restrictions, limitations as to
distributions, qualifications or terms and conditions of
redemption of such shares, provided however, that any such
amendment does not adversely affect the rights, preferences and
privileges of the stockholders;
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our liquidation or dissolution;
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a reorganization of our company, as provided in our
charter; and
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any merger, consolidation or sale or other disposition of
substantially all of our assets.
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All other matters are subject to the discretion of our board of
directors.
25
Our
board of directors may change certain of our investment policies
without stockholder approval, which could alter the nature of
your investment.
Our charter requires that our independent directors review our
investment policies at least annually to determine that the
policies we are following are in the best interest of the
stockholders. These policies may change over time. The methods
of implementing our investment policies may also vary, as new
real estate development trends emerge and new investment
techniques are developed. Our investment policies, the methods
for their implementation, and our other objectives, policies and
procedures may be altered by our board of directors without the
approval of our stockholders, unless otherwise provided in our
organizational documents. As a result, the nature of your
investment could change without your consent.
You
are limited in your ability to sell your shares pursuant to our
share redemption program and may have to hold your shares for an
indefinite period of time.
Our board of directors may amend the terms of our share
redemption program without stockholder approval. Our board also
is free to suspend or terminate the program upon 30 days
notice or to reject any request for redemption. Our board of
directors suspended our share redemption program on
November 10, 2009. On June 22, 2010, our board of
directors reinstated our share redemption program, effective
August 1, 2010, and adopted several amendments to the
program. In particular, 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 and the cash
available for redemption is limited to the proceeds from the
sale of shares pursuant to our DRIP during such calendar year.
In addition, we will redeem shares on a quarterly basis, at the
rate of approximately one-fourth of 3% of the weighted average
number of shares outstanding during the prior calendar year
(including shares requested for redemption upon the death of a
stockholder). Funding for redemptions for each quarter will be
limited to the net proceeds we receive from the sale of shares,
during such quarter, under our DRIP. These limits might prevent
us from accommodating all redemption requests made in any year.
These restrictions severely limit your ability to sell your
shares should you require liquidity, and limit your ability to
recover the value you invested or the fair market value of your
shares.
The
estimated value per share of our common stock may not reflect
the value that stockholders will receive for their
investment.
In February 2009, the Financial Industry Regulatory Authority
(“FINRA”) informed broker dealers that sell shares of
non-traded REITs that broker dealers may not report, in a
customer account statement, an estimated value per share that is
developed from data more than 18 months old. To assist
broker dealers in complying with the FINRA notice, our board of
directors established an estimated value of our common stock, as
of June 22, 2010, of $8.05 per share.
As with any valuation methodology, the methodologies utilized by
our board of directors, in reaching an estimate of the value of
our shares, are based upon a number of estimates, assumptions,
judgments and opinions that may, or may not, prove to be
correct. The use of different estimates, assumptions, judgments
or opinions would likely have resulted in significantly
different estimates of the value of our shares.
Furthermore, in reaching an estimate of the value of our shares,
the board of directors did not include a liquidity discount, in
order to reflect the fact that our shares are not currently
traded on a national securities exchange; a discount for debt
that may include a prepayment obligation or a provision
precluding assumption of the debt by a third party; or the costs
that are likely to be incurred in connection with an appropriate
exit strategy, whether that strategy might be a listing of our
shares of common stock on a national securities exchange, a
merger, or a sale of our portfolio. As a result, there can be no
assurance that:
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any stockholder will be able to realize the estimated share
value, upon attempting to sell their shares;
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we will be able to achieve, for our stockholders, the estimated
value per share, upon a listing of our shares of common stock on
a national securities exchange, a merger, or a sale of our
portfolio; or
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the estimated share value, or the methodologies used by the
board of directors to estimate the share value, will be found by
any regulatory authority to comply with ERISA, FINRA or any
other regulatory requirements.
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The board believes that the estimate of share value reflects a
number of recent negative events that transpired, in both the
real estate and capital markets, and that these events adversely
impacted the value of our shares, as of June 22, 2010. The
board expects that the value of our shares will fluctuate over
time, in response to future developments related to individual
assets in the portfolio, as well as in response to future events
in the real estate and capital markets.
Our board of directors will update our estimated value per share
on a periodic basis, but in no event less frequently than every
18 months.
For a full description of the methodologies used to value our
assets and liabilities in connection with the calculation of the
estimated value per share, see our
Form 8-K
filed with the SEC on June 22, 2010.
Your
interest in us will be diluted if we issue additional
shares.
Existing stockholders and potential investors in the DRIP
Offering do not have preemptive rights to any shares issued by
us in the future. Our charter currently has authorized
250,000,000 shares of stock, of which
240,000,000 shares are designated as common stock and
10,000,000 are designated as preferred stock. Subject to any
limitations set forth under Maryland law, our board of directors
may increase the number of authorized shares of stock, increase
or decrease the number of shares of any class or series of stock
designated, or reclassify any unissued shares without the
necessity of obtaining stockholder approval. All of such shares
may be issued in the discretion of our board of directors.
Existing stockholders and investors purchasing shares in the
DRIP Offering likely will suffer dilution of their equity
investment in us, in the event that we (1) sell shares in
our offering or sell additional shares in the future,
(2) sell securities that are convertible into shares of our
common stock, (3) issue shares of our common stock in a
private offering of securities to institutional investors,
(4) issue shares of our common stock upon the exercise of
the options granted to our independent directors, (5) issue
shares to our advisor, its successors or assigns, in payment of
an outstanding fee obligation as set forth under our advisory
agreement, or (6) issue shares of our common stock to
sellers of properties acquired by us in connection with an
exchange of limited partnership interests of Cole OP II,
existing stockholders and investors purchasing shares in our
offering will likely experience dilution of their equity
investment in us. In addition, the partnership agreement for
Cole OP II contains provisions that would allow, under certain
circumstances, other entities, including other real estate
programs sponsored by Cole Real Estate Investments, to merge
into or cause the exchange or conversion of their interest for
interests of Cole OP II. Because the limited partnership
interests of Cole OP II may, in the discretion of our board of
directors, be exchanged for shares of our common stock, any
merger, exchange or conversion between Cole OP II and another
entity 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. Because of
these and other reasons described in this “Risk
Factors” section, you should not expect to be able to own a
significant percentage of our shares.
Payment
of fees to Cole Advisors II and its affiliates reduces cash
available for investment and distribution.
Cole Advisors II and its affiliates perform services for us
in connection with the offer and sale of our shares, the
selection and acquisition of our investments, and the management
and leasing of our properties, the servicing of our mortgage
loans, if any, and the administration of our other investments.
They are paid substantial fees for these services, which reduces
the amount of cash available for investment in properties or
distribution to stockholders.
We may
be unable to pay or maintain cash distributions or increase
distributions over time.
There are many factors that can affect the availability and
timing of cash distributions to stockholders. Distributions will
be based principally on cash available from our operations. The
amount of cash available for distributions is affected by many
factors, such as our ability to buy properties as offering
proceeds become
27
available, rental income from such properties, and our operating
expense levels, as well as many other variables. Actual cash
available for distributions may vary substantially from
estimates. We may not be able to pay or maintain our current
level of distributions or increase distributions over time.
Rents from the properties may not increase, or may decrease, we
may experience increased vacancies, the securities we buy may
not increase in value or provide constant or increased
distributions over time, and future acquisitions of real
properties, mortgage loans and any investments in securities may
not increase our cash available for distributions to
stockholders. Our actual results may differ significantly from
the assumptions used by our board of directors in establishing
the distribution rate to stockholders. We may not have
sufficient cash from operations to make a distribution required
to maintain our REIT status.
General
Risks Related to Investments in Real Estate
Our
operating results will be affected by economic and regulatory
changes that have an adverse impact on the real estate market in
general, which may prevent us from being profitable or from
realizing growth in the value of our real estate
properties.
Our operating results are subject to risks generally incident to
the ownership of real estate, including:
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changes in general economic or local conditions;
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changes in supply of or demand for similar or competing
properties in an area;
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changes in interest rates and availability of permanent mortgage
funds that may render the sale of a property difficult or
unattractive;
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the illiquidity of real estate investments generally;
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changes in tax, real estate, environmental and zoning
laws; and
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periods of high interest rates and tight money supply.
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These risks and other factors may prevent us from being
profitable, or from maintaining or growing the value of our real
estate properties.
Many
of our retail properties depend upon a single tenant, or a
limited number of major tenants, for all or a majority of its
rental income; therefore, our financial condition and ability to
make distributions to you may be adversely affected by the
bankruptcy or insolvency, a downturn in the business, or a lease
termination of a single tenant.
Many of our properties are occupied by only one tenant or derive
a majority of its rental income from a limited number of major
tenants and, therefore, the success of those properties is
materially dependent on the financial stability of such tenants.
Lease payment defaults by tenants could cause us to reduce the
amount of distributions we pay. A default of a tenant on its
lease payments to us would cause us to lose revenue from the
property and force us to find an alternative source of revenue
to meet any expenses associated with the property and prevent a
foreclosure if the property is subject to a mortgage. In the
event of a default by a single or major tenant, we may
experience delays in enforcing our rights as landlord and may
incur substantial costs in protecting our investment and
re-letting the property. If a lease is terminated, we may not be
able to lease the property for the rent previously received or
sell the property without incurring a loss. A default by a
tenant, the failure of a guarantor to fulfill its obligations or
other premature termination of a lease, or a tenant’s
election not to extend a lease upon its expiration, could have
an adverse effect on our financial condition and our ability to
pay distributions to you.
A high
concentration of our properties in a particular geographic area,
or with tenants in a similar industry, would magnify the effects
of downturns in that geographic area or industry.
We expect that our properties will continue to be diverse
according to geographic area and industry of our tenants.
However, in the event that we have a concentration of properties
in any particular geographic area, any adverse situation that
disproportionately effects that geographic area would have a
magnified adverse
28
effect on our portfolio. Similarly, if tenants of our properties
become concentrated in a certain industry or industries, any
adverse effect to that industry generally would have a
disproportionately adverse effect on our portfolio.
If a
major tenant declares bankruptcy, we may be unable to collect
balances due under relevant leases, which could have a material
adverse effect on our financial condition and ability to pay
distributions.
We may experience concentration in one or more tenants. Any of
our tenants, or any guarantor of one of our tenant’s lease
obligations, could be subject to a bankruptcy proceeding
pursuant to Title 11 of the bankruptcy laws of the United
States. Such a bankruptcy filing would bar us from attempting to
collect pre-bankruptcy debts from the bankrupt tenant or its
properties unless we receive an enabling order from the
bankruptcy court. Post-bankruptcy debts would be paid currently.
If we assume a lease, all pre-bankruptcy balances owing under it
must be paid in full. If a lease is rejected by a tenant in
bankruptcy, we would have a general unsecured claim for damages.
If a lease is rejected, it is unlikely we would receive any
payments from the tenant because our claim would be capped at
the rent reserved under the lease, without acceleration, for the
greater of one year or 15% of the remaining term of the lease,
but not greater than three years, plus rent already due but
unpaid. This claim could be paid only in the event funds were
available, and then only in the same percentage as that realized
on other unsecured claims.
The bankruptcy of a tenant or lease guarantor could delay our
efforts to collect past due balances under the relevant lease,
and could ultimately preclude full collection of these sums.
Such an event also could cause a decrease or cessation of
current rental payments, reducing our cash flow and the amount
available for distributions to you. In the event a tenant or
lease guarantor declares bankruptcy, the tenant or its trustee
may not assume our lease or its guaranty. If a given lease or
guaranty is not assumed, our operating cash flows and the
amounts available for distributions to you may be adversely
affected.
If a
sale-leaseback transaction is re-characterized in a
tenant’s bankruptcy proceeding, our financial condition
could be adversely affected.
We have entered, and may continue to enter, into sale-leaseback
transactions, whereby we would purchase a property and then
lease the same property back to the person from whom we
purchased it. In the event of the bankruptcy of a tenant, a
transaction structured as a sale-leaseback may be
re-characterized as either a financing or a joint venture,
either of which outcomes could adversely affect our financial
condition, cash flow and the amount available for distributions
to you.
If the sale-leaseback were re-characterized as a financing, we
might not be considered the owner of the property, and as a
result would have the status of a creditor in relation to the
tenant. In that event, we would no longer have the right to sell
or encumber our ownership interest in the property. Instead, we
would have a claim against the tenant for the amounts owed under
the lease, with the claim arguably secured by the property. The
tenant/debtor might have the ability to propose a plan
restructuring the term, interest rate and amortization schedule
of its outstanding balance. If confirmed by the bankruptcy
court, we could be bound by the new terms, and prevented from
foreclosing our lien on the property. If the sale-leaseback were
re-characterized as a joint venture, our lessee and we could be
treated as co-venturers with regard to the property. As a
result, we could be held liable, under some circumstances, for
debts incurred by the lessee relating to the property.
Properties
that have vacancies for a significant period of time could be
difficult to sell, which could diminish the return on your
investment.
A property may incur vacancies either by the continued default
of a tenant under its leases, the expiration of a tenant lease
or early termination of a lease by a tenant. If vacancies
continue for a long period of time, we may suffer reduced
revenues resulting in less cash to be distributed to you. In
addition, because a property’s market value depends
principally upon the value of the property’s leases, the
resale value of a property with prolonged vacancies could
decline, which could further reduce your return.
29
We may
be unable to secure funds for future tenant improvements or
capital needs, which could adversely impact our ability to pay
cash distributions to you.
When tenants do not renew their leases or otherwise vacate their
space, it is usual that, in order to attract replacement
tenants, we will be required to expend substantial funds for
tenant improvements and tenant refurbishments to the vacated
space. In addition, although we expect that our leases with
tenants will require tenants to pay routine property maintenance
costs, we will likely be responsible for any major structural
repairs, such as repairs to the foundation, exterior walls and
rooftops. We will use substantially all of the gross proceeds
from the Offerings to buy real estate and real estate-related
investments and to pay various fees and expenses. We reserve
only approximately 0.1% of the gross proceeds from our Offerings
for future capital needs. Accordingly, if we need additional
capital in the future to improve or maintain our properties or
for any other reason, we will have to obtain financing from
other sources, such as cash flow from operations, borrowings,
property sales or future equity offerings. These sources of
funding may not be available on attractive terms or at all. If
we cannot procure additional funding for capital improvements,
our investments may generate lower cash flows or decline in
value, or both.
We may
obtain only limited warranties when we purchase a property and
would have only limited recourse in the event our due diligence
did not identify any issues that lower the value of our
property.
The seller of a property often sells such property in its
“as is” condition on a “where is” basis and
“with all faults,” without any warranties of
merchantability or fitness for a particular use or purpose. In
addition, purchase agreements may contain only limited
warranties, representations and indemnifications that will only
survive for a limited period after the closing. The purchase of
properties with limited warranties increases the risk that we
may lose some or all of our invested capital in the property, as
well as the loss of rental income from that property.
Our
inability to sell a property when we desire to do so could
adversely impact our ability to pay cash distributions to
you.
The real estate market is affected by many factors, such as
general economic conditions, availability of financing, interest
rates, supply and demand, and other factors that are beyond our
control. We cannot predict whether we will be able to sell any
property for the price or on the terms set by us, or whether any
price or other terms offered by a prospective purchaser would be
acceptable to us. We may be required to expend funds to correct
defects or to make improvements before a property can be sold.
We may not have adequate funds available to correct such defects
or to make such improvements. Moreover, in acquiring a property,
we may agree to restrictions that prohibit the sale of that
property for a period of time or impose other restrictions, such
as a limitation on the amount of debt that can be placed or
repaid on that property. We cannot predict the length of time
needed to find a willing purchaser and to close the sale of a
property. Our inability to sell a property when we desire to do
so may cause us to reduce our selling price for the property.
Any delay in our receipt of proceeds, or diminishment of
proceeds, from the sale of a property could adversely impact our
ability to pay distributions to you.
We may
not be able to sell our properties at a price equal to, or
greater than, the price for which we purchased such property,
which may lead to a decrease in the value of our
assets.
Many of our leases will not contain rental increases over time.
When that is the case, the value of the leased property to a
potential purchaser may not increase over time, which may
restrict our ability to sell that property, or if we are able to
sell that property, may result in a sale price less than the
price that we paid to purchase the property.
We may
acquire or finance properties with lock-out provisions, which
may prohibit us from selling a property, or may require us to
maintain specified debt levels for a period of years on some
properties.
A lock-out provision is a provision that prohibits the
prepayment of a loan during a specified period of time. Lock-out
provisions may include terms that provide strong financial
disincentives for borrowers to
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prepay their outstanding loan balance and exist in order to
protect the yield expectations of investors. We expect that many
of our properties will be subject to lock-out provisions.
Lock-out provisions could materially restrict us from selling or
otherwise disposing of or refinancing properties when we may
desire to do so. Lock-out provisions may prohibit us from
reducing the outstanding indebtedness with respect to any
properties, refinancing such indebtedness on a non-recourse
basis at maturity, or increasing the amount of indebtedness with
respect to such properties. Lock-out provisions could impair our
ability to take other actions during the lock-out period that
could be in the best interests of our stockholders and,
therefore, may have an adverse impact on the value of our shares
relative to the value that would result if the lock-out
provisions did not exist. In particular, lock-out provisions
could preclude us from participating in major transactions that
could result in a disposition of our assets or a change in
control even though that disposition or change in control might
be in the best interests of our stockholders.
Increased
operating expenses could reduce cash flow from operations and
funds available to acquire investments or make
distributions.
Our properties, including those that we acquire in the future,
are and will be, subject to operating risks common to real
estate in general, any or all of which may negatively affect us.
If any property is not fully occupied or if rents are being paid
in an amount that is insufficient to cover operating expenses,
we could be required to expend funds with respect to that
property for operating expenses. The properties will be subject
to increases in tax rates, utility costs, insurance costs,
repairs and maintenance costs, administrative costs and other
operating expenses. While many of our property leases require
the tenants to pay all or a portion of these expenses, some of
our leases or future leases may not be negotiated on that basis,
in which event we may have to pay these costs. If we are unable
to lease properties on terms that require the tenants to pay all
or some of the properties’ operating expenses, if our
tenants fail to pay these expenses as required, or if expenses
we are required to pay exceed our expectations, we could have
less funds available for future acquisitions or cash available
for distributions to you.
The
current market environment may adversely affect our operating
results, financial condition and ability to pay distributions to
our stockholders.
The global financial markets have undergone pervasive and
fundamental disruptions since mid-2007. The disruptions in the
global financial markets had an adverse impact on the
availability of credit to businesses generally. To the extent
that the global economic recession continues and/or intensifies,
it has the potential to materially adversely affect the value of
our properties and other investments we make, the availability
or the terms of financing that we may anticipate utilizing, and
our ability to make principal and interest payments on, or
refinance, any outstanding debt when due, and/or, for our leased
properties, the ability of our tenants to enter into new leasing
transactions or satisfy rental payments under existing leases.
The current market environment also could affect our operating
results and financial condition as follows:
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Debt Market — Although there are signs of
recovery, the real estate debt markets are currently
experiencing volatility as a result of certain factors,
including the tightening of underwriting standards by lenders
and credit rating agencies. Should overall borrowing costs
increase, either by increases in the index rates or by increases
in lender spreads, our operations may generate lower returns. In
addition, the recent dislocations in the debt markets have
reduced the amount of capital that is available to finance real
estate, which, in turn: (1) limits the ability of real
estate investors to make new acquisitions and to potentially
benefit from reduced real estate values or to realize enhanced
returns on real estate investments; (2) has slowed real
estate transaction activity; and (3) may result in an
inability to refinance debt as it becomes due. In addition, the
state of the debt markets could have a material adverse impact
on the overall amount of capital being invested in real estate,
which may result in price or value decreases of real estate
assets and impact our ability to raise equity capital. In
addition, the failure of any lending source with which we
entered, or enter, into a credit facility or line of credit
would adversely affect our ability to meet our obligations if we
were unable to replace the funding source.
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Real Estate Market — The recent global economic
recession has caused commercial real estate values to decline
substantially. As a result, there may be uncertainty in the
valuation, or in the stability of the value, of the properties
we acquire that could result in a substantial decrease in the
value of our properties after we purchase them. Consequently, we
may not be able to recover the carrying amount of our
properties, which may require us to recognize an impairment
charge in earnings.
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Government Intervention — The disruptions in
the global financial markets have led to extensive and
unprecedented government intervention. Although the government
intervention is intended to stimulate the flow of capital and to
strengthen the U.S. economy in the short term, it is
impossible to predict the actual effect of the government
intervention and what effect, if any, additional interim or
permanent governmental intervention may have on the financial
markets
and/or the
effect of such intervention on us.
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Adverse
economic and geopolitical conditions may negatively affect our
returns and profitability.
Our operating results may be affected by market and economic
challenges, which may result from a continued or exacerbated
general economic downturn experienced by the nation as a whole,
by the local economies where our properties may be located, or
by the real estate industry including the following:
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poor economic conditions may result in tenant defaults under
leases;
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poor economic conditions may result in lower revenue to us from
retailers who pay us a percentage of their revenues under
percentage rent leases;
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re-leasing may require concessions or reduced rental rates under
the new leases;
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constricted access to credit may result in tenant defaults or
non-renewals under leases; and
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increased insurance premiums may reduce funds available for
distribution or, to the extent such increases are passed through
to tenants, may lead to tenant defaults. Increased insurance
premiums may make it difficult to increase rents to tenants on
turnover, which may adversely affect our ability to increase our
returns.
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The length and severity of any economic slow down or downturn
cannot be predicted. Our operations could be negatively affected
to the extent that an economic slow down or downturn is
prolonged or becomes more severe.
The United States’ armed conflict in various parts of the
world could have a further impact on our tenants. The
consequences of any armed conflict are unpredictable, and we may
not be able to foresee events that could have an adverse effect
on our business or your investment. More generally, any of these
events could result in increased volatility in or damage to the
United States and worldwide financial markets and economy. They
also could result in higher energy costs and increased economic
uncertainty in the United States or abroad. Our revenues will be
dependent upon payment of rent by retailers, which may be
particularly vulnerable to uncertainty in the local economy.
Adverse economic conditions could affect the ability of our
tenants to pay rent, which could have a material adverse effect
on our operating results and financial condition, as well as our
ability to pay distributions to you.
The
failure of any bank in which we deposit our funds could reduce
the amount of cash we have available to pay distributions and
make additional investments.
We diversify our cash and cash equivalents, and will continue to
do so, among several banking institutions in an attempt to
minimize exposure to any one of these entities. However, the
Federal Deposit Insurance Corporation, or “FDIC,” only
insures amounts up to $250,000 per depositor per insured bank.
As of December 31, 2010, we had cash and cash equivalents
and restricted cash deposited in five financial institutions,
four of which had deposits in excess of current federally
insured levels. If any of the banking institutions in which we
have deposited funds ultimately fails, we may lose our deposits
over the federally insured level. The loss of our deposits could
reduce the amount of cash we have available to distribute or
invest and could result in a decline in the value of your
investment.
32
If we
suffer losses that are not covered by insurance or that are in
excess of insurance coverage, we could lose invested capital and
anticipated profits.
Generally, each of our tenants is, and we expect will be,
responsible for insuring its goods and premises and, in some
circumstances, may be required to reimburse us for a share of
the cost of acquiring comprehensive insurance for the property,
including casualty, liability, fire and extended coverage
customarily obtained for similar properties in amounts that our
advisor determines are sufficient to cover reasonably
foreseeable losses. Tenants of single-user properties leased on
a
triple-net-lease
basis typically are required to pay all insurance costs
associated with those properties. Material losses may occur in
excess of insurance proceeds with respect to any property, as
insurance may not be sufficient to fund the losses. However,
there are types of losses, generally of a catastrophic nature,
such as losses due to wars, acts of terrorism, earthquakes,
floods, hurricanes, pollution or environmental matters, which
are either uninsurable or not economically insurable, or may be
insured subject to limitations, such as large deductibles or
co-payments. Insurance risks associated with potential terrorism
acts could sharply increase the premiums we pay for coverage
against property and casualty claims. Additionally, mortgage
lenders in some cases insist that commercial property owners
purchase specific coverage against terrorism as a condition for
providing mortgage loans. It is uncertain whether such insurance
policies will be available, or available at reasonable cost,
which could inhibit our ability to finance or refinance our
potential properties. In these instances, we may be required to
provide other financial support, either through financial
assurances or self-insurance, to cover potential losses. We may
not have adequate, or any, coverage for such losses. The
Terrorism Risk Insurance Act of 2002 is designed for a sharing
of terrorism losses between insurance companies and the federal
government. We cannot be certain how this act will impact us or
what additional cost to us, if any, could result. If such an
event damaged or destroyed one or more of our properties, we
could lose both our invested capital and anticipated profits
from such property.
Real
estate related taxes may increase, and if these increases are
not passed on to tenants, our income will be
reduced.
Local real property tax assessors may reassess our properties,
which may result in increased taxes. Generally, property taxes
increase as property values or assessment rates change, or for
other reasons deemed relevant by property tax assessors. An
increase in the assessed valuation of a property for real estate
tax purposes will result in an increase in the related real
estate taxes on that property. Although some tenant leases may
permit us to pass through such tax increases to the tenants for
payment, renewal leases or future leases may not be negotiated
on the same basis. Tax increases not passed through to tenants
may adversely affect our income, cash available for
distributions, and the amount of distributions to you.
CC&Rs
may restrict our ability to operate a property.
Some of our properties are, and we expect certain additional
properties will be, contiguous to other parcels of real
property, comprising part of the same retail center. In
connection with such properties, we are subject to significant
covenants, conditions and restrictions, known as
“CC&Rs,” restricting the operation of such
properties and any improvements on such properties, and related
to granting easements on such properties. Moreover, the
operation and management of the contiguous properties may impact
such properties. Compliance with CC&Rs may adversely affect
our operating costs and reduce the amount of funds that we have
available to pay distributions to you.
Our
operating results may be negatively affected by potential
development and construction delays and resultant increased
costs and risks.
While we do not currently intend to do so, we may acquire
properties upon which we will construct improvements. If we
engage in development or construction projects, we will be
subject to uncertainties associated with re-zoning for
development, environmental concerns of governmental entities
and/or
community groups, and our builder’s ability to build in
conformity with plans, specifications, budgeted costs, and
timetables. If a builder fails to perform, we may resort to
legal action to rescind the purchase or the construction
contract or to compel performance. A builder’s performance
may also be affected or delayed by conditions beyond the
builder’s control. Delays in completion of construction
could also give tenants the right to terminate preconstruction
leases. We may incur additional risks if we make periodic
progress payments or
33
other advances to builders before they complete construction.
These and other such factors can result in increased costs of a
project or loss of our investment. In addition, we will be
subject to normal
lease-up
risks relating to newly constructed projects. We also must rely
on rental income and expense projections and estimates of the
fair market value of property upon completion of construction
when agreeing upon a price at the time we acquire the property.
If our projections are inaccurate, we may pay too much for a
property, and our return on our investment could suffer.
While we do not currently intend to do so, we may invest in
unimproved real property. Returns from development of unimproved
properties are also subject to risks associated with re-zoning
the land for development and environmental concerns of
governmental entities
and/or
community groups. Although we intend to limit any investment in
unimproved real property to real property we intend to develop,
your investment, nevertheless, is subject to the risks
associated with investments in unimproved real property.
If we
contract with a development company for newly developed
property, our earnest money deposit made to the development
company may not be fully refunded.
We may enter into one or more contracts, either directly or
indirectly through joint ventures, with affiliates or others, to
acquire real property from an affiliated or unaffiliated
development company that is engaged in construction and
development of commercial real properties. Properties acquired
from a development company may be either existing
income-producing properties, properties to be developed or
properties under development. We anticipate that we will be
obligated to pay a substantial earnest money deposit at the time
of contracting to acquire such properties. In the case of
properties to be developed by a development company, we
anticipate that we will be required to close the purchase of the
property upon completion of the development of the property. At
the time of contracting and the payment of the earnest money
deposit by us, the development company typically will not have
acquired title to any real property. Typically, the development
company will only have a contract to acquire land, a development
agreement to develop a building on the land and an agreement
with one or more tenants to lease all or part of the property
upon its completion. We may be entitled to a refund of our
earnest money, in the following circumstances:
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take possession under their leases for any reason; or
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we do not have sufficient proceeds to pay the purchase price at
closing.
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The obligation of the development company to refund our earnest
money will be unsecured, and we may not be able to obtain a
refund of such earnest money deposit from it under these
circumstances since the development company may be an entity
without substantial assets or operations. However, if the
development company is an affiliate of our advisor, its
obligation to refund our earnest money deposit may be guaranteed
by Cole Realty Advisors, our property manager, which will enter
into contracts to provide property management and leasing
services to various real estate programs sponsored by Cole Real
Estate Investments, including us, for substantial monthly fees.
As of the time Cole Realty Advisors may be required to perform
under any guaranty, Cole Realty Advisors may not have sufficient
assets to refund all of our earnest money deposit in a lump sum
payment. If we were forced to collect our earnest money deposit
by enforcing the guaranty of Cole Realty Advisors, we would
likely be required to accept installment payments over time
payable out of the revenues of Cole Realty Advisors’
operations. We may not be able to collect the entire amount of
our earnest money deposit under such circumstances.
Competition
with third parties in acquiring properties and other investments
may reduce our profitability and the return on your
investment.
We compete with many other entities engaged in real estate
investment activities, including individuals, corporations, bank
and insurance company investment accounts, other REITs, real
estate limited partnerships, and other entities engaged in real
estate investment activities, many of which have greater
resources than we do. Larger competitors may enjoy significant
advantages that result from, among other things, a lower cost of
34
capital and enhanced operating efficiencies. In addition, the
number of entities and the amount of funds competing for
suitable investments may increase. Any such increase could
result in increased demand for these assets and therefore
increased prices paid for them. If we pay higher prices for
properties and other investments as a result of competition with
third parties without a corresponding increase in tenant lease
rates, our profitability will be reduced, and you may experience
a lower return on your investment.
Our
properties face competition that may affect tenants’
ability to pay rent and the amount of rent paid to us may affect
the cash available for distributions to you and the amount of
distributions.
We typically acquire properties located in developed areas.
Therefore, there are and will be numerous other retail
properties within the market area of each of our properties that
will compete with us for tenants. The number of competitive
properties could have a material effect on our ability to rent
space at our properties and the amount of rents charged. We
could be adversely affected if additional competitive properties
are built in close proximity to our properties, causing
increased competition for customer traffic and creditworthy
tenants. This could result in decreased cash flow from tenants
and may require us to make capital improvements to properties
that we would not have otherwise made, thus affecting cash
available for distributions to you and the amount of
distributions we pay.
Acquiring
or attempting to acquire multiple properties in a single
transaction may adversely affect our operations.
From time to time, we acquire multiple properties in a single
transaction. Portfolio acquisitions are more complex and
expensive than single property acquisitions, and the risk that a
multiple-property acquisition does not close may be greater than
in a single-property acquisition. Portfolio acquisitions may
also result in us owning additional investments in
geographically dispersed markets, placing additional demands on
our ability to manage the properties in the portfolio. In
addition, a seller may require that a group of properties be
purchased as a package even though we may not want to purchase
one or more properties in the portfolio. In these situations, if
we are unable to identify another person or entity to acquire
the unwanted properties, we may be required to operate or
attempt to dispose of these properties. To acquire multiple
properties in a single transaction we may be required to
accumulate a large amount of cash. We would expect the returns
that we earn on such cash to be less than the ultimate returns
on real property, therefore accumulating such cash could reduce
our funds available for distributions to you. Any of the
foregoing events may have an adverse effect on our operations.
If we
set aside insufficient capital reserves, we may be required to
defer necessary capital improvements.
If we do not have enough reserves for capital to supply needed
funds for capital improvements throughout the life of the
investment in a property and there is insufficient cash
available from our operations, we may be required to defer
necessary improvements to a property, which may cause that
property to suffer from a greater risk of obsolescence or a
decline in value, or a greater risk of decreased cash flow as a
result of fewer potential tenants being attracted to the
property. If this happens, we may not be able to maintain
projected rental rates for affected properties, and our results
of operations may be negatively impacted.
Costs
of complying with environmental laws and regulations may
adversely affect our income and the cash available for any
distributions.
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 hazardous
materials, and the remediation of contamination associated with
disposals. Some of these laws and regulations may impose joint
and several liability on tenants, owners or operators for the
costs of investigation or remediation of contaminated
properties, regardless of fault or whether the acts causing the
contamination were legal. This liability could be substantial.
We have acquired certain properties that are subject to
environmental remediation in which the seller, the tenant
and/or
another third party has been identified as the responsible
35
party for environmental remediation costs related to the
property. Although we do not believe that the environmental
matters identified at such properties will have a material
adverse effect on our results of operations, the presence of
hazardous substances at these properties or in general, or the
failure to properly remediate such substances, may adversely
affect our ability to sell or rent such property or to use such
property as collateral for future borrowing.
Compliance with new or more stringent laws or regulations or
stricter interpretation of existing laws may require material
expenditures by us. Future laws, ordinances or regulations may
impose material environmental liability. Additionally, our
properties may be affected by our tenants’ operations, the
existing condition of land when we buy it, operations in the
vicinity of our properties, such as the presence of underground
storage tanks, or activities of unrelated third parties. In
addition, there are various local, state and federal fire,
health, life-safety and similar regulations that we may be
required to comply with, and that may subject us to liability in
the form of fines or damages for noncompliance. Any material
expenditures, fines, or damages we must pay will reduce our
ability to make distributions to you and may reduce the value of
your investment.
We may not obtain an independent third-party environmental
assessment for every property we acquire. In addition, any such
assessment that we do obtain may not reveal all environmental
liabilities. The cost of defending against claims of liability,
of compliance with environmental regulatory requirements, of
remediating any contaminated property, or of paying personal
injury claims would materially adversely affect our business,
assets or results of operations and, consequently, amounts
available for distribution to you.
Discovery
of previously undetected environmentally hazardous conditions
may adversely affect our operating results.
Under various federal, state and local environmental laws,
ordinances and regulations, a current or previous owner or
operator of real property may be liable for the cost of removal
or remediation of hazardous or toxic substances on, under or in
such property. The costs of removal or remediation could be
substantial. Such laws often impose liability whether or not the
owner or operator knew of, or was responsible for, the presence
of such hazardous or toxic substances. Environmental laws also
may impose restrictions on the manner in which property may be
used or businesses may be operated, and these restrictions may
require substantial expenditures. Environmental laws provide for
sanctions in the event of noncompliance and may be enforced by
governmental agencies or, in certain circumstances, by private
parties. Certain environmental laws and common law principles
could be used to impose liability for release of and exposure to
hazardous substances, including asbestos-containing materials
into the air, and third parties may seek recovery from owners or
operators of real properties for personal injury or property
damage associated with exposure to released hazardous
substances. The cost of defending against claims of liability,
of compliance with environmental regulatory requirements, of
remediating any contaminated property, or of paying personal
injury claims could materially adversely affect our business,
assets or results of operations and, consequently, amounts
available for distribution to you.
If we
sell properties by providing financing to purchasers, defaults
by the purchasers would adversely affect our cash
flows.
If we decide to sell any of our properties, we intend to use our
best efforts to sell them for cash. However, in some instances
we may sell our properties by providing financing to purchasers.
When we provide financing to purchasers, we will bear the risk
that the purchaser may default on its obligations under the
financing, which could negatively impact cash flows and
distributions to stockholders. Even in the absence of a
purchaser default, the distribution of sale proceeds to our
stockholders, or their reinvestment in other assets, will be
delayed until the promissory notes or other property we may
accept upon the sale are actually paid, sold, refinanced or
otherwise disposed of. In some cases, we may receive initial
down payments in cash and other property in the year of sale in
an amount less than the selling price, and subsequent payments
will be spread over a number of years. If any purchaser defaults
under a financing arrangement with us, it could negatively
impact our ability to pay cash distributions to you.
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Our
recovery of an investment in a mortgage that has defaulted may
be limited.
There is no guarantee that the mortgage, loan or deed of trust
securing an investment will, following a default, permit us to
recover the original investment and interest that would have
been received absent a default. The security provided by a
mortgage, deed of trust or loan is directly related to the
difference between the amount owed and the appraised market
value of the property. Although we intend to rely on a current
real estate appraisal when we make the investment, the value of
the property is affected by factors outside our control,
including general fluctuations in the real estate market,
re-zoning, neighborhood changes, highway relocations and failure
by the borrower to maintain the property.
Our
costs associated with complying with the Americans with
Disabilities Act of 1990, as amended, may affect cash available
for distributions.
Our properties generally are subject to the Americans with
Disabilities Act of 1990, as amended (the “Disabilities
Act”). Under the Disabilities Act, all places of public
accommodation are required to comply with federal requirements
related to access and use by disabled persons. The Disabilities
Act has separate compliance requirements for “public
accommodations” and “commercial facilities” that
generally require that buildings and services be made accessible
and available to people with disabilities. The Disabilities
Act’s requirements could require removal of access barriers
and could result in the imposition of injunctive relief,
monetary penalties, or, in some cases, an award of damages. We
will attempt to acquire properties that comply with the
Disabilities Act or place the burden on the seller or other
third party, such as a tenant, to ensure compliance with the
Disabilities Act. However, we may not be able to acquire
properties or allocate responsibilities in this manner. If we
cannot, our funds used for Disabilities Act compliance may
affect cash available for distributions and the amount of
distributions to you.
A
proposed change in U.S. accounting standards for leases could
reduce the overall demand to lease our properties.
The existing accounting standards for leases require lessees to
classify their leases as either capital or operating leases.
Under a capital lease, both the leased asset, which represents
the tenant’s right to use the property, and the contractual
lease obligation are recorded on the tenant’s balance sheet
if one of the following criteria are met: (i) the lease
transfers ownership of the property to the lessee by the end of
the lease term; (ii) the lease contains a bargain purchase
option; (iii) the non-cancellable lease term is more than
75% of the useful life of the asset; or (iv) if the present
value of the minimum lease payments equals 90% or more of the
leased property’s fair value. If the terms of the lease do
not meet these criteria, the lease is considered an operating
lease, and no leased asset or contractual lease obligation is
recorded by the tenant.
In order to address concerns raised by the Securities and
Exchange Commission regarding the transparency of contractual
lease obligations under the existing accounting standards for
operating leases, the U.S. Financial Accounting Standards
Board (“FASB”) and the International Accounting
Standards Board (“IASB”) initiated a joint project to
develop new guidelines to lease accounting. The FASB and IASB
(collectively, the “Boards”) issued an Exposure Draft
on August 17, 2010 (the “Exposure Draft”), which
proposes substantial changes to the current lease accounting
standards, primarily by eliminating the concept of operating
lease accounting. As a result, a lease asset and obligation will
be recorded on the tenant’s balance sheet for all lease
arrangements. In order to mitigate the effect of the proposed
lease accounting, tenants may seek to negotiate certain terms
within new lease arrangements or modify terms in existing lease
arrangements, such as shorter lease terms, which would generally
have less impact on tenant balance sheets. Also, tenants may
reassess their lease-versus-buy strategies. This could result in
a greater renewal risk, a delay in investing proceeds from our
Offerings, or shorter lease terms, all of which may negatively
impact our operations and ability to pay distributions.
The Exposure Draft does not include a proposed effective date,
and is still being deliberated and subject to change; however,
the Boards have indicated that they plan to issue a final
standard regarding lease accounting in 2011.
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Risks
Associated with Debt Financing
We
have incurred, and expect to continue to incur, mortgage
indebtedness and other borrowings, which may increase our
business risks, hinder our ability to make distributions, and
decrease the value of your investment.
We expect to incur additional indebtedness. We expect that in
most instances, we will acquire real properties by using either
existing financing or borrowing new funds. In addition, we may
incur mortgage debt and pledge all or some of our real
properties as security for that debt to obtain funds to acquire
additional real properties. We may borrow if we need funds to
satisfy the REIT tax qualification requirement that we
distribute at least 90% of our annual taxable income to our
stockholders. We may also borrow if we otherwise deem it
necessary or advisable to assure that we maintain our
qualification as a REIT for federal income tax purposes.
Our advisor believes that utilizing borrowing is consistent with
our investment objective of maximizing the return to investors.
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. This
level of borrowing is less than, and our borrowings will not
exceed, 300% of our net assets, as set forth in the NASAA REIT
Guidelines.
If there is a shortfall between the cash flow from a property
and the cash flow needed to service mortgage debt on a property,
then the amount available for distributions to stockholders may
be reduced. In addition, incurring mortgage debt increases the
risk of loss since defaults on indebtedness secured by a
property may result in lenders initiating foreclosure actions.
In that case, we could lose the property securing the loan that
is in default, thus reducing the value of our stockholders’
investments. For tax purposes, a foreclosure of any of our
properties would be treated as a sale of the property for a
purchase price equal to the outstanding balance of the debt
secured by the mortgage. If the outstanding balance of the debt
secured by the mortgage exceeds our tax basis in the property,
we would recognize taxable income on foreclosure, but would not
receive any cash proceeds. In such event, we may be unable to
pay the amount of distributions required in order to maintain
our REIT status. We may give full or partial guarantees to
lenders of mortgage debt to the entities that own our
properties. When we provide a guaranty on behalf of an entity
that owns one of our properties, we will be responsible to the
lender for satisfaction of the debt if it is not paid by such
entity. If any mortgages contain cross-collateralization or
cross-default provisions, a default on a single property could
affect multiple properties. If any of our properties are
foreclosed upon due to a default, our ability to pay cash
distributions to our stockholders will be adversely affected,
which could result in losing our REIT status and would result in
a decrease in the value of our stockholders’ investment.
High
interest rates may make it difficult for us to finance or
refinance properties, which could reduce the number of
properties we can acquire and the amount of cash distributions
we can make to you.
We run the risk of being unable to finance or refinance our
properties on favorable terms or at all. If interest rates are
higher when we desire to mortgage our properties or when
existing loans come due and the properties need to be
refinanced, we may not be able to finance the properties and we
would be required to use cash to purchase or repay outstanding
obligations. Our inability to use debt to finance or refinance
our properties could reduce the number of properties we can
acquire, which could reduce our operating income and the amount
of cash distributions we can make to you. Higher costs of
capital also could negatively impact operating income and
returns on our investments.
Lenders
may require us to enter into restrictive covenants relating to
our operations, which could limit our ability to make
distributions to our stockholders.
In connection with providing us financing, a lender could impose
restrictions on us that affect our distribution and operating
policies and our ability to incur additional debt. Loan
documents we enter into may contain covenants that limit our
ability to further mortgage the property, discontinue insurance
coverage or
38
replace Cole Advisors II as our advisor. These or other
limitations may adversely affect our flexibility and our ability
to achieve our investment and operating objectives.
Increases
in interest rates could increase the amount of our debt payments
and adversely affect our ability to pay distributions to our
stockholders.
To the extent that we incur variable rate debt, increases in
interest rates would increase our interest costs, which could
reduce our cash flows and our ability to pay distributions to
our stockholders. In addition, if we need to repay existing debt
during periods of rising interest rates, we could be required to
liquidate one or more of our investments in properties at times
that may not permit realization of the maximum return on such
investments.
We
have broad authority to incur debt, and high debt levels could
hinder our ability to make distributions and could decrease the
value of your investment.
Our charter generally limits us to incurring debt no greater
than 60% of the greater of cost (before deducting depreciation
or other non-cash reserves) or fair market value of all of our
assets, unless any excess borrowing is approved by a majority of
our independent directors and disclosed to our stockholders in
our next quarterly report, along with a justification for such
excess borrowing. High debt levels would cause us to incur
higher interest charges, would result in higher debt service
payments, and could be accompanied by restrictive covenants.
These factors could limit the amount of cash we have available
to distribute and could result in a decline in the value of your
investment. As of December 31, 2010, we had
$1.7 billion in total debt outstanding and the ratio of
debt to total gross real estate and related assets net of gross
intangible lease liabilities was 50%.
Interest-only
indebtedness may increase our risk of default and ultimately may
reduce our funds available for distribution to
you.
We have financed, and may continue to finance, our property
acquisitions using interest-only mortgage indebtedness. During
the interest-only period, the amount of each scheduled payment
will be less than that of a traditional amortizing mortgage
loan. The principal balance of the mortgage loan will not be
reduced (except in the case of prepayments) because there are no
scheduled monthly payments of principal during this period.
After the interest-only period, we will be required either to
make scheduled payments of amortized principal and interest or
to make a lump-sum or “balloon” payment at maturity.
These required principal or balloon payments will increase the
amount of our scheduled payments and may increase our risk of
default under the related mortgage loan. If the mortgage loan
has an adjustable interest rate, the amount of our scheduled
payments also may increase at a time of rising interest rates.
Increased payments and substantial principal or balloon maturity
payments will reduce the funds available for distribution to our
stockholders because cash otherwise available for distribution
will be required to pay principal and interest associated with
these mortgage loans.
To
hedge against exchange rate and interest rate fluctuations, we
may use derivative financial instruments that may be costly and
ineffective and may reduce the overall returns on your
investment.
We have used, and may continue to use, derivative financial
instruments to hedge our exposure to changes in exchange rates
and interest rates on loans secured by our assets and
investments in CMBS. Derivative instruments may include interest
rate swap contracts, interest rate cap or floor contracts,
futures or forward contracts, options or repurchase agreements.
Our actual hedging decisions will be determined in light of the
facts and circumstances existing at the time of the hedge and
may differ from time to time.
To the extent that we use derivative financial instruments to
hedge against exchange rate and interest rate fluctuations, we
will be exposed to credit risk, basis risk and legal
enforceability risks. In this context, credit risk is the
failure of the counterparty to perform under the terms of the
derivative contract. If the fair value of a derivative contract
is positive, the counterparty owes us, which creates credit risk
for us. We intend to manage credit risk by dealing only with
major financial institutions that have high credit ratings.
Basis risk occurs when the index upon which the contract is
based is more or less variable than the index upon which the
hedged asset or liability is based, thereby making the hedge
less effective. We intend to manage basis risk
39
by matching, to a reasonable extent, the contract index to the
index upon which the hedged asset or liability is based.
Finally, legal enforceability risks encompass general
contractual risks, including the risk that the counterparty will
breach the terms of, or fail to perform its obligations under,
the derivative contract. We intend to manage legal
enforceability risks by ensuring, to the best of our ability,
that we contract with reputable counterparties and that each
counterparty complies with the terms and conditions of the
derivative contract. If we are unable to manage these risks
effectively, our results of operations, financial condition and
ability to pay distributions to you will be adversely affected.
If we
enter into financing arrangements involving balloon payment
obligations, it may adversely affect our ability to make
distributions to you.
Some of our financing arrangements may require us to make a
lump-sum or “balloon” payment at maturity. Our ability
to make a balloon payment at maturity is uncertain and may
depend upon our ability to obtain additional financing or our
ability to sell the property. At the time the balloon payment is
due, we may or may not be able to refinance the balloon payment
on terms as favorable as the original loan, or at all, or sell
the property at a price sufficient to make the balloon payment.
The effect of a refinancing or sale could affect the rate of
return to stockholders and the projected time of disposition of
our assets. In addition, payments of principal and interest made
to service our debts may leave us with insufficient cash to pay
the distributions that we are required to pay to maintain our
qualification as a REIT. Any of these results would have a
significant, negative impact on your investment.
Risks
Associated with Co-Ownership Transactions
Our
participation in a co-ownership arrangement would subject us to
risks that otherwise may not be present in other real estate
investments.
We may enter in co-ownership arrangements with respect to a
portion of the properties we acquire. Co-ownership arrangements
involve risks generally not otherwise present with an investment
in real estate such as the following:
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the risk that a co-owner may at any time have economic or
business interests or goals that are or become inconsistent with
our business interests or goals;
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the risk that a co-owner may be in a position to take action
contrary to our instructions or requests or contrary to our
policies or objectives;
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the possibility that an individual co-owner might become
insolvent or bankrupt, or otherwise default under the applicable
mortgage loan financing documents, which may constitute an event
of default under all of the applicable mortgage loan financing
documents or allow the bankruptcy court to reject the agreements
entered into by the co-owners owning interests in the property;
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the possibility that a co-owner might not have adequate liquid
assets to make cash advances that may be required in order to
fund operations, maintenance and other expenses related to the
property, which could result in the loss of current or
prospective tenants and may otherwise adversely affect the
operation and maintenance of the property, and could cause a
default under the mortgage loan financing documents applicable
to the property and may result in late charges, penalties and
interest, and may lead to the exercise of foreclosure and other
remedies by the lender;
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the risk that a co-owner could breach agreements related to the
property, which may cause a default, or result in personal
liability for, the applicable mortgage loan financing documents,
violate applicable securities law, result in a foreclosure or
otherwise adversely affect the property and the co-ownership
arrangement;
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we could have limited control and rights, with management
decisions made entirely by a third-party; or
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the possibility that we will not have the right to sell the
property at a time that otherwise could result in the property
being sold for its maximum value.
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40
Any of the above might subject a property to liabilities in
excess of those contemplated and thus reduce the amount
available for distribution to our stockholders.
In the event that our interests become adverse to those of the
other co-owners, we will not have the contractual right to
purchase the co-ownership interests from the other co-owners.
Even if we are given the opportunity to purchase such
co-ownership interests in the future, we cannot guarantee that
we will have sufficient funds available at the time to purchase
co-ownership interests from the co-owners.
We might want to sell our co-ownership interests in a given
property at a time when the other co-owners in such property do
not desire to sell their interests. Therefore, because we
anticipate that it will be much more difficult to find a willing
buyer for our co-ownership interests in a property than it would
be to find a buyer for a property we owned outright, we may not
be able to sell our interest in a property at the time we would
like to sell.
Risks
Associated with Investments in Mortgage, Bridge and Mezzanine
Loans and Real Estate-Related Securities
Investing
in mortgage, bridge or mezzanine loans, could adversely affect
our return on our loan investments.
We may make or acquire mortgage, bridge or mezzanine loans, or
participations in such loans, to the extent our advisor
determines that it is advantageous for us to do so. However, if
we make or acquire mortgage, bridge or mezzanine loans, we will
be at risk of defaults on those loans caused by many conditions
beyond our control, including local and other economic
conditions affecting real estate values, interest rate changes,
rezoning, and failure by the borrower to maintain the property.
If there are defaults under these loans, we may not be able to
repossess and sell quickly any properties securing such loans.
An action to foreclose on a property securing a loan is
regulated by state statutes and regulations and is subject to
many of the delays and expenses of any lawsuit brought in
connection with the foreclosure if the defendant raises defenses
or counterclaims. In the event of default by a mortgagor, these
restrictions, among other things, may impede our ability to
foreclose on or sell the mortgaged property or to obtain
proceeds sufficient to repay all amounts due to us on the loan,
which could reduce the value of our investment in the defaulted
loan. In addition, investments in mezzanine loans involve a
higher degree of risk than long-term senior mortgage lending
secured by income-producing real property because the investment
may become unsecured as a result of foreclosure on the
underlying real property by the senior lender.
We may
invest in various types of real estate-related
securities.
Aside from investments in real estate, we are permitted to
invest in real estate-related securities, including securities
issued by other real estate companies, CMBS, mortgage, bridge,
mezzanine or other loans and Section 1031
tenant-in-common
interests, and we may invest in real estate-related securities
of both publicly traded and private real estate companies. We
are focused, however, on acquiring interests in retail and other
income-producing properties. We may not have the expertise
necessary to maximize the return on our investment in real
estate-related securities. If our advisor determines that it is
advantageous to us to make the types of investments in which our
advisor or its affiliates do not have experience, our advisor
intends to employ persons, engage consultants or partner with
third parties that have, in our advisor’s opinion, the
relevant expertise necessary to assist our advisor in
evaluating, making and administering such investments.
Investments
in real estate-related securities are subject to specific risks
relating to the particular issuer of the securities and may be
subject to the general risks of investing in subordinated real
estate securities, which may result in losses to
us.
Our investments in real estate-related securities will involve
special risks relating to the particular issuer of the
securities, including the financial condition and business
outlook of the issuer. Issuers of real estate-related equity
securities generally invest in real estate or real
estate-related assets and are subject to the inherent risks
associated with real estate-related investments discussed
elsewhere herein, including risks relating to rising interest
rates.
41
Real estate-related securities are often unsecured and also may
be subordinated to other obligations of the issuer. As a result,
investments in real estate-related securities are subject to
risks of (1) limited liquidity in the secondary trading
market in the case of unlisted or thinly traded securities,
(2) substantial market price volatility resulting from
changes in prevailing interest rates in the case of traded
equity securities, (3) subordination to the prior claims of
banks and other senior lenders to the issuer, (4) the
operation of mandatory sinking fund or call/redemption
provisions during periods of declining interest rates that could
cause the issuer to reinvest redemption proceeds in lower
yielding assets, (5) the possibility that earnings of the
issuer may be insufficient to meet its debt service and
distribution obligations and (6) the declining
creditworthiness and potential for insolvency of the issuer
during periods of rising interest rates and economic slow down
or downturn. These risks may adversely affect the value of
outstanding real estate-related securities and the ability of
the issuers thereof to repay principal and interest or make
distribution payments.
The
CMBS in which we have invested, and may continue to invest, are
subject to all of the risks of the underlying mortgage loans,
the risks of the securitization process and dislocations in the
mortgage-backed securities market in general.
CMBS are securities that evidence interests in, or are secured
by, a single commercial mortgage loan or a pool of commercial
mortgage loans. Accordingly, these securities are subject to all
of the risks of the underlying mortgage loans. In a rising
interest rate environment, the value of CMBS may be adversely
affected when payments on underlying mortgages do not occur as
anticipated, resulting in the extension of the security’s
effective maturity and the related increase in interest rate
sensitivity of a longer-term instrument. The value of CMBS may
also change due to shifts in the market’s perception of
issuers and regulatory or tax changes adversely affecting the
mortgage securities market as a whole. In addition, CMBS are
subject to the credit risk associated with the performance of
the underlying mortgage properties. CMBS are issued by
investment banks, not financial institutions, and are not
insured or guaranteed by the U.S. government.
CMBS are also subject to several risks created through the
securitization process. Subordinate CMBS are paid interest only
to the extent that there are funds available to make payments.
To the extent the collateral pool includes delinquent loans,
there is a risk that interest payments on subordinate CMBS will
not be fully paid. Subordinate CMBS are also subject to greater
credit risk than those CMBS that are more highly rated. In
certain instances, third-party guarantees or other forms of
credit support can reduce the credit risk.
Although we intend to invest only in mortgage-backed securities
collateralized by commercial loans, the value of such CMBS can
be negatively impacted by any dislocation in the mortgage-backed
securities market in general. The mortgage-backed securities
market has recently suffered from a severe dislocation created
by mortgage pools that included
sub-prime
mortgages secured by residential real estate.
Sub-prime
loans often have high interest rates and are often made to
borrowers with credit scores that would not qualify them for
prime conventional loans. In recent years, banks made a great
number of the
sub-prime
residential mortgage loans with high interest rates, floating
interest rates, interest rates that reset from time to time,
and/or
interest-only payment features that expire over time. These
terms, coupled with rising interest rates, have caused an
increasing number of homeowners to default on their mortgages.
Purchasers of mortgage-backed securities collateralized by
mortgage pools that include risky
sub-prime
residential mortgages have experienced severe losses as a result
of the defaults and such losses have had a negative impact on
the CMBS market.
Federal
Income Tax Risks
Failure
to maintain our qualification as a REIT would adversely affect
our operations and our ability to make
distributions.
We currently qualify as a REIT for federal income tax purposes.
If we fail maintain our qualification as a REIT for any taxable
year, we will be subject to federal income tax on our taxable
income at corporate rates. In addition, we would generally be
disqualified from treatment as a REIT for the four taxable years
following the year of losing our REIT status. Losing our REIT
status would reduce our net earnings available for investment or
distribution to stockholders because of the additional tax
liability. In addition, distributions to stockholders would no
longer qualify for the dividends paid deduction, and we would no
longer be required to
42
make distributions. If this occurs, we might be required to
borrow funds or liquidate some investments in order to pay the
applicable tax.
Re-characterization
of the Section 1031 programs may result in a 100% tax on
income from a prohibited transaction, which would diminish our
cash distributions to our stockholders.
The Internal Revenue Service could re-characterize transactions
under the Section 1031 program such that Cole OP II, rather
than the co-owner in the program (Section 1031
Participant), is treated as the bona fide owner, for tax
purposes, of properties acquired and resold by a
Section 1031 Participant in connection with the
Section 1031 program. Such re-characterization could result
in the fees paid to Cole OP II by a Section 1031
Participant as being deemed income from a prohibited
transaction, in which event the fee income paid to us in
connection with the Section 1031 programs would be subject
to a 100% penalty tax. If this occurs, our ability to pay cash
distributions to our stockholders will be adversely affected. We
expect to obtain a legal opinion in connection with each
co-ownership 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 take a
position contrary to such an opinion.
Re-characterization
of sale-leaseback transactions may cause us to lose our REIT
status.
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,” thereby allowing us
to be treated as the owner of the property for federal income
tax purposes, the IRS could challenge such characterization. In
the event that any sale-leaseback transaction is challenged and
re-characterized as a financing transaction or loan for federal
income tax purposes, deductions for depreciation and cost
recovery relating to such property would be disallowed. If a
sale-leaseback transaction were so recharacterized, we might
fail to satisfy the REIT qualification “asset tests”
or the “income tests” and, consequently, lose our REIT
status effective with the year of recharacterization.
Alternatively, the amount of our taxable income could be
recalculated which might also cause us to fail to meet the
distribution requirement for a taxable year.
You
may have current tax liability on distributions you elect to
reinvest in our common stock.
If you participate in our DRIP, you will be deemed to have
received, and for income tax purposes will be taxed on, the
amount reinvested in common stock to the extent the amount
reinvested was not a tax-free return of capital. As a result,
unless you are a tax-exempt entity, you may have to use funds
from other sources to pay your tax liability on the value of the
common stock received.
If our
operating partnership fails to maintain its status as a
partnership, its income may be subject to taxation, which would
reduce the cash available to us for distribution to
you.
We intend to maintain the status of Cole OP II, our operating
partnership, as a partnership for federal income tax purposes.
However, if the Internal Revenue Service were to successfully
challenge the status of our operating partnership as an entity
taxable as a partnership, Cole OP II would be taxable as a
corporation. In such event, this would reduce the amount of
distributions that the operating partnership could make to us.
This could also result in losing our REIT status, and becoming
subject to a corporate level tax on our income. This would
substantially reduce the cash available to us to make
distributions to you and the return on your investment. In
addition, if any of the partnerships or limited liability
companies through which Cole OP II owns its properties, in whole
or in part, loses its characterization as a partnership for
federal income tax purposes, it would be subject to taxation as
a corporation, thereby reducing distributions to our operating
partnership. Such a re-characterization of an underlying
property owner also could threaten our ability to maintain our
REIT status for federal income tax purposes.
43
In
certain circumstances, we may be subject to federal and state
income taxes as a REIT, which would reduce our cash available
for distribution to our stockholders.
Even if we maintain our status as a REIT, we may be subject to
federal income taxes or state taxes. For example, net income
from the sale of properties that are “dealer”
properties sold by a REIT (a “prohibited transaction”
under the Internal Revenue Code) will be subject to a 100% tax.
We may not be able to make sufficient distributions to avoid
excise taxes applicable to REITs. We may also decide to retain
income we earn from the sale or other disposition of our
property and pay income tax directly on such income. In that
event, our stockholders would be treated as if they earned that
income and paid the tax on it directly. However, stockholders
that are tax-exempt, such as charities or qualified pension
plans, would have no benefit from their deemed payment of such
tax liability. We may also be subject to state and local taxes
on our income or property, either directly or at the level of
Cole OP II, or at the level of the other companies through which
we indirectly own our assets. Any federal or state taxes we pay
will reduce our cash available for distribution to stockholders.
Legislative
or regulatory action could adversely affect our
stockholders.
Changes to the tax laws are likely to occur, and such changes
may adversely affect the taxation of a stockholder. Any such
changes could have an adverse effect on an investment in our
shares or on the market value or the resale potential of our
assets.
Congress passed major federal tax legislation in 2003, with
modifications to that legislation in 2005 and in 2010. One of
the changes affected by that legislation generally reduced the
tax rate on dividends paid by corporations to individuals to a
maximum of 15% prior to 2013. REIT distributions generally do
not qualify for this reduced rate. The tax changes did not,
however, reduce the corporate tax rates. Therefore, the maximum
corporate tax rate of 35% has not been affected. However, as a
REIT, we generally would not be subject to federal or state
corporate income taxes on that portion of our ordinary income or
capital gain that we distribute currently to our stockholders,
and we thus expect to avoid the “double taxation” that
other corporations are typically subject to.
Although REITs continue to receive substantially better tax
treatment than entities taxed as corporations, it is possible
that future legislation would result in a REIT having fewer tax
advantages, and it could become more advantageous for a company
that invests in real estate 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 power, under certain
circumstances, 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 our stockholders 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.
Foreign
holders of our common stock may be subject to FIRPTA tax upon
the sale of their shares.
A foreign person disposing of a U.S. real property
interest, including shares of a U.S. corporation whose
assets consist principally of U.S. real property interests,
is generally subject to a tax, known as FIRPTA tax, on the gain
recognized on the disposition. Such FIRPTA tax does not apply,
however, to the disposition of stock in a REIT if the REIT is
“domestically controlled.” A REIT is
“domestically controlled” if less than 50% of the
REIT’s stock, by value, has been owned directly or
indirectly by persons who are not qualifying U.S. persons
during a continuous five-year period ending on the date of
disposition or, if shorter, during the entire period of the
REIT’s existence. We cannot assure you that we will qualify
as a “domestically controlled” REIT. If we were to
fail to so qualify, gain realized by foreign investors on a sale
of our shares would be subject to FIRPTA tax, unless our shares
were traded on an established securities market and the foreign
investor did not at any time during a specified testing period
directly or indirectly own more than 5% of the value of our
outstanding common stock.
44
In
order to avoid triggering additional taxes and/or penalties, if
you have invested in our shares through pension or
profit-sharing trusts or IRAs, you should consider additional
factors.
If you are investing the assets of a pension, profit-sharing,
401(k), Keogh or other qualified retirement plan or the assets
of an IRA in our common stock, you should satisfy yourself that,
among other things:
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your investment is consistent with your fiduciary obligations
under ERISA and the Internal Revenue Code;
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your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your
plan’s investment policy;
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your investment satisfies the prudence and diversification
requirements of ERISA and other applicable provisions of ERISA
and the Internal Revenue Code;
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your investment will not impair the liquidity of the plan or IRA;
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your investment will not produce UBTI for the plan or IRA;
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you will be able to value the assets of the plan annually in
accordance with ERISA requirements and applicable provisions of
the plan or IRA; and
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your investment will not constitute a prohibited transaction
under Section 406 of ERISA or Section 4975 of the
Internal Revenue Code.
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Failure to satisfy the fiduciary standards of conduct and other
applicable requirements of ERISA and the Internal Revenue Code
may result in the imposition of civil and criminal penalties and
could subject the fiduciary to equitable remedies. In addition,
if an investment in our shares constitutes a prohibited
transaction under ERISA or the Internal Revenue Code, the
fiduciary who authorized or directed the investment may be
subject to the imposition of excise taxes with respect to the
amount invested.
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ITEM 1B.
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UNRESOLVED
STAFF COMMENTS
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None.
As of December 31, 2010, we owned 725 properties comprising
20.6 million rentable square feet of single and
multi-tenant retail and commercial space located in
45 states and the U.S. Virgin Islands. As of
December 31, 2010, 412 of the properties were freestanding,
single-tenant retail properties, 292 of the properties were
freestanding, single-tenant commercial properties and 21 of the
properties were multi-tenant retail properties. Of the leases
related to these properties, 13 were classified as direct
financing leases, as discussed in Note 4 to our
consolidated financial statements. As of December 31, 2010,
94% of the rentable square feet of these properties was leased,
with a weighted-average remaining lease term of 11.2 years.
As of December 31, 2010, we had outstanding debt of
$1.7 billion, secured by properties in our portfolio and
their related tenant leases and other real estate related assets
on which the debt was placed. Through two joint ventures, we had
a majority indirect interest in a 386,000 square foot
multi-tenant retail building in Independence, Missouri and a
majority indirect interest in a ten-property storage facility
portfolio as of December 31, 2010. As of December 31,
2010, the total assets held within the unconsolidated joint
ventures was $148.6 million and the face value of the
non-recourse mortgage notes payable was $111.6 million.
45
Property
Statistics
The following table shows the tenant diversification of our
consolidated real estate assets, based on gross annualized
rental revenue, as of December 31, 2010:
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2010 Gross
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Percentage of
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Total
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Leased
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Annualized
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2010 Gross
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Number
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Square
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Rental Revenue
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Annualized
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Tenant
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of Leases
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Feet(1)
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(In thousands)
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Rental Revenue
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Walgreens — drug store
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58
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839,503
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$
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19,500
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8%
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Church’s Chicken — restaurant
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1
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244,067
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13,210
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6%
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Academy Sports — sporting goods
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9
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1,915,411
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11,645
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5%
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Circle K — convenience store
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83
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263,162
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11,550
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5%
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CVS — drug store
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35
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385,579
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8,876
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4%
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Ferguson Enterprises — specialty retail
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8
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1,111,843
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6,940
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3%
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Petsmart — specialty retail
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8
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1,035,471
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6,146
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3%
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Lowe’s — home improvement
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8
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1,061,679
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6,067
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3%
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PepBoys — automotive parts
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2
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380,363
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5,478
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2%
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Tractor Supply — specialty retail
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22
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507,404
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5,418
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2%
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Other
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479
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11,750,689
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144,689
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59%
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713
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19,495,171
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$
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239,519
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100%
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(1) |
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Including square feet of the buildings on land that is subject
to ground leases. |
The following table shows the tenant industry diversification of
our consolidated real estate assets, based on gross annualized
rental revenue, as of December 31, 2010:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Gross
|
|
|
Percentage of
|
|
|
|
|
Total
|
|
|
Leased
|
|
|
Annualized
|
|
|
2010 Gross
|
|
|
|
|
Number
|
|
|
Square
|
|
|
Rental Revenue
|
|
|
Annualized
|
|
|
Industry
|
|
of Leases
|
|
|
Feet(1)
|
|
|
(In thousands)
|
|
|
Rental Revenue
|
|
|
|
|
Specialty retail
|
|
|
195
|
|
|
|
4,652,183
|
|
|
$
|
42,631
|
|
|
|
18%
|
|
|
Drugstore
|
|
|
125
|
|
|
|
1,649,854
|
|
|
|
37,636
|
|
|
|
16%
|
|
|
Restaurant
|
|
|
96
|
|
|
|
757,594
|
|
|
|
30,972
|
|
|
|
13%
|
|
|
Sporting goods
|
|
|
16
|
|
|
|
2,190,642
|
|
|
|
15,317
|
|
|
|
6%
|
|
|
Home improvement
|
|
|
13
|
|
|
|
1,616,082
|
|
|
|
13,131
|
|
|
|
5%
|
|
|
Convenience store
|
|
|
84
|
|
|
|
277,478
|
|
|
|
12,563
|
|
|
|
5%
|
|
|
Automotive parts
|
|
|
30
|
|
|
|
679,910
|
|
|
|
9,812
|
|
|
|
4%
|
|
|
Distribution
|
|
|
12
|
|
|
|
1,335,076
|
|
|
|
9,016
|
|
|
|
4%
|
|
|
Fitness and health
|
|
|
17
|
|
|
|
494,542
|
|
|
|
8,408
|
|
|
|
4%
|
|
|
Electronics retail
|
|
|
13
|
|
|
|
539,138
|
|
|
|
6,904
|
|
|
|
3%
|
|
|
Other
|
|
|
112
|
|
|
|
5,302,672
|
|
|
|
53,129
|
|
|
|
22%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
713
|
|
|
|
19,495,171
|
|
|
$
|
239,519
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of the buildings on land that is subject
to ground leases. |
46
The following table shows the geographic diversification of our
consolidated real estate assets, based on gross annualized
rental revenue, as of December 31, 2010:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Gross
|
|
|
Percentage of
|
|
|
|
|
Total
|
|
|
Rentable
|
|
|
Annualized
|
|
|
2010 Gross
|
|
|
|
|
Number
|
|
|
Square
|
|
|
Rental Revenue
|
|
|
Annualized
|
|
|
Location
|
|
of Properties
|
|
|
Feet(1)
|
|
|
(In thousands)
|
|
|
Rental Revenue
|
|
|
|
|
Texas
|
|
|
165
|
|
|
|
3,584,465
|
|
|
$
|
38,133
|
|
|
|
16%
|
|
|
Florida
|
|
|
22
|
|
|
|
2,067,129
|
|
|
|
24,008
|
|
|
|
10%
|
|
|
Illinois
|
|
|
23
|
|
|
|
1,741,747
|
|
|
|
18,820
|
|
|
|
8%
|
|
|
Georgia
|
|
|
57
|
|
|
|
1,014,195
|
|
|
|
17,386
|
|
|
|
7%
|
|
|
Ohio
|
|
|
63
|
|
|
|
623,563
|
|
|
|
12,538
|
|
|
|
5%
|
|
|
Missouri
|
|
|
25
|
|
|
|
715,083
|
|
|
|
9,387
|
|
|
|
4%
|
|
|
Tennessee
|
|
|
38
|
|
|
|
510,358
|
|
|
|
7,995
|
|
|
|
3%
|
|
|
Nevada
|
|
|
2
|
|
|
|
1,009,278
|
|
|
|
7,119
|
|
|
|
3%
|
|
|
Virginia
|
|
|
12
|
|
|
|
992,590
|
|
|
|
6,810
|
|
|
|
3%
|
|
|
North Carolina
|
|
|
18
|
|
|
|
787,071
|
|
|
|
6,566
|
|
|
|
3%
|
|
|
Other
|
|
|
300
|
|
|
|
7,589,088
|
|
|
|
90,757
|
|
|
|
38%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
725
|
|
|
|
20,634,567
|
|
|
$
|
239,519
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of the buildings on land subject to ground
leases. |
Leases
Although there are variations in the specific terms of the
leases of our properties, the following is a summary of the
general structure of our leases. Generally, the leases of the
properties owned provide for initial terms of 10 to
20 years. As of December 31, 2010, the weighted
average remaining lease term was 11.2 years. The properties
are generally leased under net leases pursuant to which the
tenant bears responsibility for substantially all property costs
and expenses associated with ongoing maintenance and operation,
including utilities, property taxes and insurance. Certain of
the leases require us to maintain the roof and structure of the
building. The leases of the properties provide for annual base
rental payments (payable in monthly installments) ranging from
$10,000 to $13.2 million (average of $336,000). Certain
leases provide for limited increases in rent as a result of
fixed increases, increases in the consumer price index,
and/or
increases in the tenant’s sales volume.
Generally, the property leases provide the tenant with one or
more multi-year renewal options, subject to generally the same
terms and conditions as the initial lease term. Certain leases
also provide that in the event we wish to sell the property
subject to that lease, we first must offer the lessee the right
to purchase the property on the same terms and conditions as any
offer which we intend to accept for the sale of the property.
47
The following table shows lease expirations of our consolidated
real estate assets as of December 31, 2010, during each of
the next ten years and thereafter, assuming no exercise of
renewal options or termination rights:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Gross
|
|
|
Percentage of
|
|
|
|
|
Total
|
|
|
Leased
|
|
|
Annualized
|
|
|
2010 Gross
|
|
|
|
|
Number
|
|
|
Square Feet
|
|
|
Rental Revenue
|
|
|
Annualized
|
|
|
Year of Lease Expiration
|
|
of Leases
|
|
|
Expiring(1)
|
|
|
(In thousands)
|
|
|
Rental Revenue
|
|
|
|
|
2011
|
|
|
19
|
|
|
|
127,944
|
|
|
$
|
1,366
|
|
|
|
< 1%
|
|
|
2012
|
|
|
47
|
|
|
|
295,673
|
|
|
|
4,431
|
|
|
|
2%
|
|
|
2013
|
|
|
55
|
|
|
|
519,213
|
|
|
|
6,298
|
|
|
|
3%
|
|
|
2014
|
|
|
23
|
|
|
|
415,223
|
|
|
|
3,901
|
|
|
|
2%
|
|
|
2015
|
|
|
44
|
|
|
|
1,349,364
|
|
|
|
11,735
|
|
|
|
5%
|
|
|
2016
|
|
|
39
|
|
|
|
1,702,517
|
|
|
|
17,438
|
|
|
|
7%
|
|
|
2017
|
|
|
59
|
|
|
|
1,584,311
|
|
|
|
17,019
|
|
|
|
7%
|
|
|
2018
|
|
|
66
|
|
|
|
1,328,768
|
|
|
|
18,124
|
|
|
|
8%
|
|
|
2019
|
|
|
17
|
|
|
|
470,607
|
|
|
|
7,067
|
|
|
|
3%
|
|
|
2020
|
|
|
23
|
|
|
|
529,715
|
|
|
|
6,851
|
|
|
|
3%
|
|
|
Thereafter
|
|
|
321
|
|
|
|
11,171,836
|
|
|
|
145,289
|
|
|
|
59%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
713
|
|
|
|
19,495,171
|
|
|
$
|
239,519
|
|
|
|
100%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of the buildings on land that is subject
to ground leases. |
Notes
Payable Information
As of December 31, 2010, we had $1.7 billion of debt
outstanding, consisting of (i) $1.5 billion in fixed
rate mortgage loans (the “Fixed Rate Debt”), which
includes $122.5 million of variable rate mortgage loans
swapped to fixed rates, (ii) $38.3 million in variable
rate mortgage loans (the “Variable Rate Debt”),
(iii) $100.0 million outstanding under the Credit
Facility and (iv) $54.3 million outstanding under the
repurchase agreement (the “Repurchase Agreement”). The
Fixed Rate Debt has annual interest rates ranging from 4.46% to
7.22%, with a weighted average annual interest rate of 5.88%,
and various maturity dates ranging from January, 2011 through
August, 2031. The Variable Rate Debt has annual interest rates
ranging from LIBOR plus 200 to 325 basis points, and
various maturity dates in September, 2011. The Credit Facility
allows us to borrow up to $215.0 million in revolving loans
and a $100.0 million term loan. Loans under the Credit
Facility bear interest at variable rates depending on the type
of loan used. Eurodollar rate loans have variable rates which
are generally equal to the one-month, two-month, three-month, or
six-month LIBOR plus 275 to 400 basis points, determined by
the leverage ratio of the Company in accordance with the
agreement. Base rate committed loans have variable rates equal
to the greater of (a) the Federal Funds Rate plus 0.5%;
(b) Bank of America’s prime rate; or (c) the
Eurodollar Rate plus 1.0%; plus 175 to 300 basis points,
determined by the leverage ratio of the Company in accordance
with the agreement. The Credit Facility matures on
December 17, 2013. The Repurchase Agreement provides for
short-term financing in which we pledge our marketable
securities as collateral to secure loans made by the lender and
generally has a term of seven to 90 days with annual
interest rates based on a spread to LIBOR. See Note 10 to
our consolidated financial statements in this Annual Report on
Form 10-K
for additional terms of the Credit Facility and the Repurchase
Agreement.
As of December 31, 2010, the interest rate in effect for
borrowings under the Credit Facility was the Bank of America
prime rate plus 250 basis points, and the weighted average
interest rate in effect for the Repurchase Agreement was 1.68%.
On February 24, 2011, we executed an interest rate swap
agreement which fixed the interest rate for term loan borrowings
under the Credit Facility to 4.94% per annum based on our
overall leverage levels at the time of the transaction. The
ratio of debt to total gross real estate and related assets net
of gross intangible lease liabilities, as of December 31,
2010, was 50% and the weighted average years to maturity was
5.0 years. Except for the notes payable under the Credit
Facility, which are unsecured
48
obligations, the notes payable are secured by the respective
properties on which the debt was placed and their related tenant
leases and other real estate related assets. The notes payable
and the Repurchase Agreement are generally non-recourse to us
and Cole OP II, but both are liable for customary non-recourse
carve-outs.
Generally, the notes payable may not be prepaid, in whole or in
part, except under the following circumstances:
(i) prepayment may be made subject to payment of a yield
maintenance premium or through defeasance, (ii) full
prepayment may be made on any of the three monthly payment dates
occurring immediately prior to the maturity date, and
(iii) 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, we 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.
Generally, in the event that a mortgage note is not paid off on
the respective maturity date, most mortgage notes include
hyper-amortization
provisions. Under the
hyper-amortization
provisions, the individual mortgage note maturity date will be
extended by 20 years. During such period, the lender will
apply 100% of the rents collected to the following items in the
order indicated: (i) payment of accrued interest at the
original fixed interest rate, (ii) all payments for escrow
or reserve accounts, (iii) any operating expenses of the
property pursuant to an approved annual budget, (iv) any
extraordinary expenses and (v) the balance of the rents
collected will be applied to the following in such order as the
lender may determine: (1) any other amounts due in
accordance with the loan documents, (2) the reduction of
the principal balance of the mortgage note, and
(3) capitalized interest at an interest rate equal to the
greater of (A) the initial fixed interest rate as stated on
the respective mortgage note agreement plus 2.0% per annum or
(B) the then current Treasury Constant Maturity Yield Index
plus 2.0% per annum.
|
|
|
ITEM 3.
|
LEGAL
PROCEEDINGS
|
In the ordinary course of business, we may become subject to
litigation or claims. We are not aware of any material pending
legal proceedings other than ordinary routine litigation
incidental to our business.
|
|
|
ITEM 4.
|
REMOVED
AND RESERVED
|
49
PART II
|
|
|
ITEM 5.
|
MARKET
FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS
AND ISSUER PURCHASES OF EQUITY SECURITIES
|
Market
Information
As of March 30, 2011, we had approximately
209.7 million shares of common stock outstanding, held by a
total of 41,243 stockholders of record. The number of
stockholders is based on the records of DST Systems, Inc., who
serves as our registrar and transfer agent.
There is no established trading market for our common stock.
Therefore, there is a risk that a stockholder may not be able to
sell our stock at a time or price acceptable to the stockholder,
or at all. Unless and until our shares are listed on a national
securities exchange, we do not expect that a public market for
the shares will develop.
To assist fiduciaries of tax-qualified pension, stock bonus or
profit-sharing plans, employee benefit plans and annuities
described in Section 403(a) or (b) of the Internal
Revenue Code or an individual retirement account or annuity
described in Section 408 of the Internal Revenue Code
subject to the annual reporting requirements of ERISA and IRA
trustees or custodians in preparation of reports relating to an
investment in the shares, we intend to provide reports of the
per share estimated value of the shares to those fiduciaries who
request such reports. In addition, in order for FINRA members
and their associated persons to participate in any offering and
sale of our shares of common stock, we are required pursuant to
FINRA Rule 5110(f)(2)(M) to disclose in each annual report
distributed to investors a per share estimated value of the
shares, the method by which it was developed, and the date of
the data used to develop the estimated value. For these
purposes, the estimated share value is $8.05 as of
December 31, 2010, which is based solely on our board of
director’s approval on June 22, 2010 of an estimated
per share value of $8.05 (the “Estimated Share Value”).
In determining the Estimated Share Value, the board of directors
relied upon information provided by an independent consultant
that specializes in valuing commercial real estate companies,
and information provided by our advisor. The board of directors
relied on valuation methodologies that are commonly used in the
commercial real estate industry, including, among others, a
discounted cash flow analysis, which projects a range of the
estimated future stream of cash flows reasonably likely to be
generated by our portfolio of properties, and discounts the
projected future cash flows to a present value. In addition, the
board of directors reviewed current, historical and projected
capitalization rates for commercial properties similar to the
properties we own, and the values of publicly traded REITs with
portfolios comparable to our portfolio. The board of directors
also took into account the estimated value of our other assets
and liabilities, including a reasonable estimate of the value of
our debt obligations. However, as set forth above, there is no
public trading market for the shares at this time and
stockholders may not receive $8.05 per share if a market did
exist.
The board of directors expects that the value of our shares will
fluctuate over time, in response to future developments related
to individual assets in the portfolio, as well as in response to
future events in the real estate and capital markets. Our board
of directors will update our estimated value per share on a
periodic basis, but in no event less frequently than every
18 months.
Share
Redemption Program
Our board of directors has adopted a share redemption program
that enables our stockholders to sell their shares to us in
limited circumstances. Our share redemption program permits
stockholders to sell their shares back to us after they have
held them for at least one year, subject to the significant
conditions and limitations described below.
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
50
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, or our advisor or its affiliates any fees to complete
any transactions under our share redemption program.
On November 10, 2009, our board of directors voted to
temporarily suspend our share redemption program other than for
requests made upon the death of a stockholder, which we
continued to accept. On June 22, 2010, our board of
directors reinstated our share redemption program, effective
August 1, 2010, and adopted several amendments to the
program. In particular, 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 and the cash
available for redemption is limited to the proceeds from the
sale of shares pursuant to our DRIP Offering during such
calendar year. In addition, we will redeem shares on a quarterly
basis, at the rate of approximately one-fourth of 3% of the
weighted average number of shares outstanding during the prior
calendar year (including shares requested for redemption upon
the death of a stockholder). Funding for redemptions for each
quarter will be limited to the net proceeds we receive from the
sale of shares, during such quarter, under our DRIP.
Pursuant to the share redemption program, as amended, the
redemption price per share is dependent on the length of time
the shares are held and the Estimated Share Value. 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 Estimated Share Value;
after two years from the purchase date — 95% of the
Estimated Share Value; after three years from the purchase
date — 97.5% of the Estimated Share Value; and after
four years from the purchase date — 100% of the
Estimated Share Value. Shares redeemed in connection with a
stockholder’s death will be redeemed at a redemption price
per share equal to 100% of the Estimate Share Value. In all
circumstances, however, 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 subsequent to the
establishment of the Estimated Share Value, the per share
redemption price will be reduced by the net sale proceeds per
share distributed to investors prior to the redemption date. 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 may conduct a
Uniform Commercial Code search to ensure that no liens are held
against the shares. We will not redeem any shares that are
subject to a lien. Any costs in conducting the Uniform
Commercial Code search will be borne by us.
We will redeem our shares on the last business day of the month
following the end of each fiscal quarter. Requests for
redemption must 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 month following the end of the fiscal quarter in which
you make your redemption request. You may withdraw your request
to have your shares redeemed at any time prior to the last day
of the applicable quarter.
We will determine whether we have sufficient funds
and/or
shares available as soon as practicable after the end of each
quarter, but in any event prior to the applicable payment date.
If we cannot purchase all shares presented for redemption in any
quarter, based upon the limit on the number of shares we may
redeem during any calendar quarter or any calendar year
and/or
insufficient cash available, we will attempt to honor redemption
requests on a pro rata basis; provided, however, that we may
give priority to the redemption of a deceased stockholder’s
shares. Following such redemption period, if you would like to
resubmit the unsatisfied portion of the prior redemption request
for redemption, you must submit a new request for redemption of
such shares, prior to the last day of the new quarter.
Unfulfilled requests for redemption will not be carried over
automatically to subsequent redemption periods.
Our board of directors may choose to amend, suspend or terminate
our share redemption program upon 30 days notice at any
time. Additionally, because the redemption of shares will be
funded with the net proceeds we receive from the sale of shares
under the DRIP Offering, the discontinuance or termination of
the DRIP Offering would adversely affect our ability to redeem
shares under the share redemption program. While
51
we intend to maintain an effective registration statement
relating to the DRIP Offering for the foreseeable future, we
will be required to discontinue sales of shares under the DRIP
Offering in the event that an effective registration statement
relating to the DRIP Offering is suspended or withdrawn. The
DRIP Offering will also be terminated on the date that we sell
all of the shares registered for sale under that plan. In the
event that the redemption program is terminated, we will notify
our stockholders of such developments (i) in our next
annual or quarterly report or (ii) by means of a separate
mailing to you, accompanied by disclosure in a current or
periodic report under the Securities Exchange Act of 1934, as
amended.
Our share redemption program is only intended to provide interim
liquidity for stockholders until a liquidity event occurs, such
as the 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 are
cancelled and returned to the status of authorized but unissued
shares. We do not intend to resell such shares to the public
unless they are first registered with the SEC under the
Securities Act and under appropriate state securities laws or
otherwise sold in compliance with such laws.
During the year ended December 31, 2010, we redeemed
2.4 million shares under our share redemption program, at
an average redemption price of $9.08 per share for an aggregate
redemption price of $21.6 million. During the year ended
December 31, 2009, we redeemed 5.1 million shares
under our share redemption program, at an average redemption
price of $9.46 per share for an aggregate redemption price of
$48.3 million. Subsequent to December 31, 2010, we
redeemed 1.5 million shares for $11.9 million.
Redemption requests related to 6.5 million shares that were
received during the year ended December 31, 2010 went
unfulfilled, including shares unfulfilled and resubmitted in a
subsequent period. See the section titled “Share
Redemptions” in “Item 7 —
Management’s Discussion and Analysis of Financial Condition
and Results of Operation” appearing elsewhere in this
Annual Report on
Form 10-K,
and Note 17 to our consolidated financial statements
included in this Annual Report on
Form 10-K
for additional share redemption information.
During the three-month period ended December 31, 2010, we
redeemed shares as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of Shares
|
|
|
Maximum Number of
|
|
|
|
|
Total Number
|
|
|
|
|
|
Purchased as Part
|
|
|
Shares that May Yet Be
|
|
|
|
|
of Shares
|
|
|
Average Price
|
|
|
of Publicly Announced
|
|
|
Purchased Under the
|
|
|
|
|
Redeemed
|
|
|
Paid per Share
|
|
|
Plans or Programs
|
|
|
Plans or Programs
|
|
|
|
|
October 2010
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
November 2010
|
|
|
1,238,461
|
|
|
$
|
8.27
|
|
|
|
1,238,461
|
|
|
|
(1
|
)
|
|
December 2010
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
1,238,461
|
|
|
|
|
|
|
|
1,238,461
|
|
|
|
(1
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
A description of the maximum number of shares that may be
purchased under our redemption program is included in the
narrative preceding this table. |
Distributions
We qualified as a REIT for federal income tax purposes
commencing with our taxable year ended December 31, 2005.
As a REIT, we have made, and intend to make, distributions each
taxable year (not including a return of capital for federal
income tax purposes) equal to at least 90% of our taxable
income. One of our primary goals is to pay regular (monthly)
distributions to our stockholders.
For income tax purposes, distributions to common stockholders
are characterized as ordinary dividends, capital gain dividends,
or nontaxable distributions. To the extent that we make a
distribution in excess of our current or accumulated earnings
and profits, the distribution will be a non-taxable 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.
52
On September 20, 2010, our board of directors authorized a
daily distribution, based on 365 days in the calendar year,
of $0.001712523 per share (which equates to 6.25% on an
annualized basis calculated at the current rate, assuming a
$10.00 per share purchase price, and an annualized return of
approximately 7.76%, based on the most recent estimate of the
value of our shares of $8.05 per share) for stockholders of
record as of the close of business on each day of the period,
commencing on October 1, 2010 and ending on
December 31, 2010. On November 10, 2010, our board of
directors authorized a daily distribution, based on
365 days in the calendar year, of $0.001712523 per share
(which equates to 6.25% on an annualized basis calculated at the
current rate, assuming a $10.00 per share purchase price, and an
annualized return of approximately 7.76%, based on the most
recent estimate of the value of our shares of $8.05 per share)
for stockholders of record as of the close of business on each
day of the period, commencing on January 1, 2011 and ending
on March 31, 2011.
The following table shows the distributions we paid during the
years ended December 31, 2010 and 2009 (in thousands,
except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
Distributions Paid
|
|
|
|
|
|
Year
|
|
Distributions Paid
|
|
per Common Share
|
|
Return of Capital
|
|
Ordinary Income
|
|
|
|
2010
|
|
$
|
129,251
|
|
|
$
|
0.62
|
|
|
$
|
0.40
|
|
|
$
|
0.22
|
|
|
2009
|
|
$
|
134,983
|
|
|
$
|
0.67
|
|
|
$
|
0.41
|
|
|
$
|
0.26
|
|
Use of
Public Offering Proceeds
We registered 50,000,000 shares of our common stock in our
Initial Offering (SEC File
no. 333-121094,
effective June 27, 2005), of which we registered
45,000,000 shares at $10.00 per share to be offered to the
public and 5,000,000 shares offered to our investors
pursuant to our DRIP at $9.50 per share, for an aggregate
offering price of $497.5 million. In November 2006, we
filed an additional registration statement to increase the
aggregate number of shares available in our primary offering to
49,390,000 and the aggregate number of shares available in our
DRIP to 5,952,000 for an aggregate offering price after such
increase of $550.4 million. We terminated the Initial
Offering on May 22, 2007. We registered
150,000,000 shares of our common stock in our Follow-on
Offering (SEC File
no. 333-138444,
effective May 11, 2007). The Follow-on Offering included up
to 143,050,000 shares to be offered for sale at $10.00 per
share in the primary offering and up to 6,000,000 shares to
be offered for sale pursuant to the Company’s DRIP, for an
aggregate follow-on offering price of $1.5 billion. On
January 2, 2009, we terminated the Follow-on Offering. As
of the close of business on January 2, 2009, we had issued
a total of 147,454,259 shares of common stock in the
Follow-on Offering, including 141,520,572 shares of common
stock sold in the primary offering and 5,933,687 shares
sold pursuant to the DRIP, resulting in gross proceeds from the
Follow-on Offering of $1.5 billion. At the completion of
the Follow-on Offering, a total of 1,595,741 shares of
common stock remained unsold, including 1,529,428 shares of
common stock that remained unsold in the primary offering and
66,313 shares of common stock that remained unsold pursuant
to the DRIP. All unsold shares in the Follow-on Offering were
deregistered.
On September 18, 2008, we registered 30,000,000 additional
shares to be offered pursuant to our DRIP in our DRIP Offering,
for an aggregate DRIP Offering price of $285.0 million. As
of December 31, 2010, we were authorized to issue
10,000,000 shares of preferred stock, but had none issued
or outstanding. As of December 31, 2010, we had issued an
aggregate of 218,078,817 shares of common stock, excluding
redemptions, in our Offerings, raising gross offering proceeds
of $2.2 billion. From this amount, we paid
$68.1 million in acquisition fees to Cole Realty Advisors,
$171.8 million in selling commissions and dealer manager
fees to Cole Capital (of which $144.9 million was reallowed
to third-party broker dealers), $20.8 million in finance
coordination fees to Cole Advisors II and
$16.3 million in organization and offering costs to Cole
Advisors II. We paid no selling commissions, dealer manager fees
or organization and offering costs to Cole Capital during the
year ended December 31, 2010. With the net offering
proceeds and indebtedness, we acquired $3.4 billion in
total gross real estate and related assets net of gross
intangible lease liabilities.
53
As of March 30, 2011, we had issued approximately
17.6 million shares in the DRIP Offering at an aggregate
gross offering price of $159.4 million. As of
March 30, 2011, we had approximately 12.4
million million shares available in the DRIP Offering.
Unregistered
Sale of Securities and Issuance of Stock Options
We issued 20,000 shares of our common stock to Cole
Holdings Corporation (“Cole Holdings”) in connection
with our inception in 2004 at $10.00 per share. On each of
May 2, 2005, May 23, 2006, August 15, 2007,
May 29, 2008, and May 29, 2009, we issued options to
purchase 10,000 shares of our common stock to our
independent directors under our Independent Director Stock
Option Plan. During the year ended December 31, 2009, 5,000
options to purchase shares were exercised. These shares and
options were not registered under the Securities Act and were
issued in reliance on Section 4(2) of the Securities Act.
The following table provides information regarding our equity
compensation plan as of December 31, 2010:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Securities
|
|
|
Weighted-Average
|
|
|
Number of Securities
|
|
|
|
|
to be Issued Upon
|
|
|
Exercise Price of
|
|
|
Remaining Available for
|
|
|
|
|
Exercise of
|
|
|
Outstanding
|
|
|
Future Issuance Under
|
|
|
|
|
Outstanding Options,
|
|
|
Options, Warrants
|
|
|
Equity Compensation
|
|
|
Plan Category
|
|
Warrants and Rights
|
|
|
and Rights
|
|
|
Plans
|
|
|
|
|
Equity compensation plans approved by security holders
|
|
|
45,000
|
|
|
$
|
9.12
|
|
|
|
950,000
|
|
|
Equity compensation plans not approved by security holders
|
|
|
—
|
|
|
|
N/A
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
45,000
|
|
|
$
|
9.12
|
|
|
|
950,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54
|
|
|
ITEM 6.
|
SELECTED
FINANCIAL DATA
|
The following data should be read in conjunction with our
consolidated financial statements and the notes thereto and
“Item 7 — Management’s Discussion and
Analysis of Financial Condition and Results of Operations”
appearing elsewhere in this Annual Report on
Form 10-K.
The selected financial data (in thousands, except share and per
share amounts) presented below was derived from our consolidated
financial statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
2007
|
|
|
2006
|
|
|
|
|
Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in real estate assets, net
|
|
$
|
3,154,692
|
|
|
$
|
3,131,639
|
|
|
$
|
3,127,334
|
|
|
$
|
1,794,352
|
|
|
$
|
446,544
|
|
|
Investment in mortgages notes receivable, net
|
|
$
|
79,778
|
|
|
$
|
82,500
|
|
|
$
|
84,994
|
|
|
$
|
87,100
|
|
|
$
|
—
|
|
|
Marketable securities
|
|
$
|
81,995
|
|
|
$
|
56,366
|
|
|
$
|
24,583
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Investment in unconsolidated joint ventures
|
|
$
|
38,324
|
|
|
$
|
40,206
|
|
|
$
|
25,792
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Cash and cash equivalents
|
|
$
|
45,791
|
|
|
$
|
28,417
|
|
|
$
|
106,485
|
|
|
$
|
43,517
|
|
|
$
|
37,566
|
|
|
Total assets
|
|
$
|
3,485,335
|
|
|
$
|
3,413,104
|
|
|
$
|
3,432,028
|
|
|
$
|
1,967,698
|
|
|
$
|
500,421
|
|
|
Notes payable and line of credit
|
|
$
|
1,673,243
|
|
|
$
|
1,607,473
|
|
|
$
|
1,550,314
|
|
|
$
|
1,055,682
|
|
|
$
|
218,266
|
|
|
Repurchase agreement
|
|
$
|
54,312
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Acquired below market lease intangibles, net
|
|
$
|
140,797
|
|
|
$
|
149,832
|
|
|
$
|
156,813
|
|
|
$
|
80,032
|
|
|
$
|
2,649
|
|
|
Redeemable common stock
|
|
$
|
12,237
|
|
|
$
|
87,760
|
|
|
$
|
65,046
|
|
|
$
|
21,660
|
|
|
$
|
3,521
|
|
|
Stockholders’ equity
|
|
$
|
1,560,375
|
|
|
$
|
1,521,984
|
|
|
$
|
1,614,976
|
|
|
$
|
781,086
|
|
|
$
|
266,236
|
|
|
Operating Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
269,150
|
|
|
$
|
275,455
|
|
|
$
|
201,004
|
|
|
$
|
89,842
|
|
|
$
|
19,520
|
|
|
General and administrative
|
|
$
|
6,989
|
|
|
$
|
7,020
|
|
|
$
|
5,632
|
|
|
$
|
2,011
|
|
|
$
|
953
|
|
|
Property operating expenses
|
|
$
|
20,294
|
|
|
$
|
25,821
|
|
|
$
|
16,796
|
|
|
$
|
6,467
|
|
|
$
|
1,417
|
|
|
Property and asset management fees
|
|
$
|
16,447
|
|
|
$
|
14,904
|
|
|
$
|
9,762
|
|
|
$
|
4,184
|
|
|
$
|
937
|
|
|
Depreciation and amortization
|
|
$
|
85,162
|
|
|
$
|
90,750
|
|
|
$
|
63,859
|
|
|
$
|
30,482
|
|
|
$
|
6,469
|
|
|
Impairment of real estate assets
|
|
$
|
4,500
|
|
|
$
|
13,500
|
|
|
$
|
3,550
|
|
|
$
|
5,400
|
|
|
$
|
—
|
|
|
Operating income
|
|
$
|
132,317
|
|
|
$
|
120,219
|
|
|
$
|
101,405
|
|
|
$
|
41,298
|
|
|
$
|
9,744
|
|
|
Interest expense
|
|
$
|
102,977
|
|
|
$
|
98,997
|
|
|
$
|
78,063
|
|
|
$
|
39,076
|
|
|
$
|
8,901
|
|
|
Net income
|
|
$
|
30,430
|
|
|
$
|
22,406
|
|
|
$
|
25,092
|
|
|
$
|
4,480
|
|
|
$
|
1,346
|
|
|
Modified funds from operations(1)
|
|
$
|
125,880
|
|
|
$
|
132,691
|
|
|
$
|
92,566
|
|
|
$
|
40,362
|
|
|
$
|
7,815
|
|
|
Cash Flow Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operating activities
|
|
$
|
105,627
|
|
|
$
|
116,872
|
|
|
$
|
96,073
|
|
|
$
|
43,366
|
|
|
$
|
7,861
|
|
|
Cash flows used in investing activities
|
|
$
|
(110,207
|
)
|
|
$
|
(45,497
|
)
|
|
$
|
(1,216,078
|
)
|
|
$
|
(1,364,777
|
)
|
|
$
|
(320,177
|
)
|
|
Cash flows provided by (used in) financing activities
|
|
$
|
21,954
|
|
|
$
|
(149,443
|
)
|
|
$
|
1,182,973
|
|
|
$
|
1,327,362
|
|
|
$
|
345,307
|
|
|
Per Share Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income — basic and diluted
|
|
$
|
0.15
|
|
|
$
|
0.11
|
|
|
$
|
0.17
|
|
|
$
|
0.07
|
|
|
$
|
0.10
|
|
|
Weighted average dividends declared
|
|
$
|
0.62
|
|
|
$
|
0.66
|
|
|
$
|
0.70
|
|
|
$
|
0.68
|
|
|
$
|
0.64
|
|
|
Weighted average shares outstanding — basic
|
|
|
207,198,078
|
|
|
|
202,686,670
|
|
|
|
146,198,235
|
|
|
|
60,929,996
|
|
|
|
13,275,635
|
|
|
Weighted average shares outstanding — diluted
|
|
|
207,198,078
|
|
|
|
202,690,094
|
|
|
|
146,201,399
|
|
|
|
60,931,316
|
|
|
|
13,275,635
|
|
|
|
|
|
(1) |
|
See “Item 7 — Management’s
Discussion and Analysis of Financial Condition and Results
of Operations — Funds From Operations and Modified
Funds from Operations” for information regarding why we
present modified funds from operations and for a reconciliation
of this non-GAAP financial measure to net income. |
55
|
|
|
ITEM 7.
|
MANAGEMENT’S
DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
|
The following discussion and analysis should be read in
conjunction with the “Selected Financial Data” and our
accompanying consolidated financial statements and notes
thereto. See also “Cautionary Note Regarding
Forward-Looking Statements” preceding Part I.
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 the Initial Offering.
We have no paid employees and are externally advised and managed
by Cole Advisors II, our advisor. We currently qualify, and
intend to continue to elect to 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 indebtedness. Rental and other property
income accounted for 89%, 87% and 89% of total revenue for the
years ended December 31, 2010, 2009 and 2008, respectively.
As 94% of our rentable square feet was under lease as of
December 31, 2010, with a weighted average remaining lease
term of 11.2 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 (if any) 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 December 31, 2010, the debt leverage ratio of our
consolidated real estate assets, which is the ratio of debt to
total gross real estate and related assets net of gross
intangible lease liabilities, was 50%, with 8.0% of the debt, or
$138.3 million, including $100.0 million outstanding
under the Credit Facility, subject to variable interest rates.
Should we acquire additional commercial real estate, we will be
subject to changes in real estate prices and changes in interest
rates on any new indebtedness used to acquire the properties. We
may manage our risk of changes in real estate prices on future
property acquisitions, if any, by entering into purchase
agreements and loan commitments simultaneously so that our
operating yield is determinable at the time we enter into a
purchase agreement, by contracting with developers for future
delivery of properties, or by entering into sale-leaseback
transactions. We manage our interest rate risk by monitoring the
interest rate environment in connection with our future property
acquisitions, if any, 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. If we are unable to acquire suitable properties or
obtain suitable financing terms for future acquisitions or
refinancing, our results of operations may be adversely affected.
Recent
Market Conditions
Beginning in late 2007, domestic and international financial
markets experienced significant disruptions that were brought
about in large part by challenges in the world-wide banking
system. These disruptions severely impacted the availability of
credit and have contributed to rising costs associated with
obtaining credit. Recently, the volume of mortgage lending for
commercial real estate has increased and lending terms have
improved; however, such lending activity is significantly less
than previous levels. Although lending market conditions have
improved, we have experienced, and may continue to experience,
more stringent lending criteria, which may affect our ability to
finance certain property acquisitions or refinance our debt at
maturity. For properties for which we are able to obtain
financing, the interest rates and other terms on such
56
loans may be unacceptable. Additionally, if we are able to
refinance our existing debt as it matures, it may be at lower
leverage levels or at rates and terms which are less favorable
than our existing debt or, if we elect to extend the maturity
dates of the mortgage notes in accordance with the
hyper-amortization
provisions, the interest rates charged to us will be higher,
each of which may adversely affect our results of operations and
the distribution rate we are able to pay to our investors. We
have managed, and expect to continue to manage, the current
mortgage lending environment by utilizing borrowings on our
Credit Facility, and considering alternative lending sources,
including the securitization of debt, utilizing fixed rate
loans, short-term variable rate loans, assuming existing
mortgage loans in connection with property acquisitions, or
entering into interest rate lock or swap agreements, or any
combination of the foregoing. We have acquired, and may continue
to acquire, our properties for cash without financing. If we are
unable to obtain suitable financing for future acquisitions or
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.
The economic downturn has led to high unemployment rates and a
decline in consumer spending. These economic trends have
adversely impacted the retail and real estate markets, causing
higher tenant vacancies, declining rental rates and declining
property values. Recently, the economy has improved and
continues to show signs of recovery. Additionally, the real
estate markets have recently observed an improvement in
occupancy rates; however, occupancy and rental rates continue to
be below those previously experienced before the economic
downturn. As of December 31, 2010, 94% of our rentable
square feet was under lease. During the year ended
December 31, 2010, our percentage of rentable square feet
under lease remained stable. However, if the current economic
uncertainty persists, we may experience additional vacancies or
be required to further reduce rental rates on occupied space.
Our advisor is actively seeking to lease all of our vacant
space, however, as retailers and other tenants have been
delaying or eliminating their store expansion plans, the amount
of time required to re-lease a property has increased.
Application
of Critical Accounting Policies
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.
The critical accounting policies outlined below have been
discussed with members of the audit committee of the board of
directors.
Investment
in and Valuation of Real Estate and Related 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 and amortization. Amounts capitalized
to real estate assets consist of the cost of acquisition,
excluding acquisition related expenses effective January 1,
2009, construction and any tenant improvements, major
improvements and betterments that extend the useful life of the
related asset and leasing costs. All repairs and maintenance are
expensed as incurred.
57
Assets, other than land, are depreciated or amortized on a
straight-line basis. The estimated 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
|
We continually monitor events and changes in circumstances that
could indicate that the carrying amounts of our real estate and
related intangible assets may not be recoverable. Impairment
indicators that we consider 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, we assess the
recoverability of the assets by determining whether the carrying
value of the assets will be recovered through the undiscounted
future operating 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 value,
we will adjust the real estate and related intangible assets to
their fair value and recognize an impairment loss.
We continue to monitor certain properties for which we have
identified impairment indicators. As of December 31, 2010,
we had eight properties with an aggregate book value of
$60.8 million for which we assessed the recoverability of
the carrying values. For each of these properties, the
undiscounted future operating cash flows expected from the use
of these properties and their related intangible assets and
their eventual disposition continued to exceed the carrying
value of these assets as of December 31, 2010. Should the
conditions of any of these properties change, the undiscounted
future operating cash flows expected may change and adversely
affect the recoverability of the carrying values related to
these properties. During the year ended December 31, 2010,
we identified one property with impairment indicators for which
the undiscounted future operating 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 reassessed and reduced the carrying
values of both the real estate assets and the related intangible
assets to their estimated fair value and recorded an impairment
loss of $4.5 million during the year ended
December 31, 2010. In addition, we identified one property
during each of the years ended December 31, 2009 and 2008
with impairment indicators for which the undiscounted future
operating cash flows expected from the use of the respective
property and related intangible assets and their eventual
dispositions were less than the carrying value of the respective
assets. As a result, we reassessed and reduced the carrying
values of both the real estate and related intangible assets to
their estimated fair values and recorded an impairment loss of
$13.5 million and $3.6 million during the years ended
December 31, 2009 and 2008, respectively.
Projections of expected future cash flows require us to use
estimates such as current market rental rates on vacant
properties, future market rental income amounts subsequent to
the expiration of current lease agreements, property operating
expenses, terminal capitalization and discount rates, the number
of months it takes to re-lease the property, required tenant
improvements and the number of years the property is held for
investment. The use of alternative assumptions in the future
cash flow analysis could result in a different assessment of the
property’s future cash flow and a different conclusion
regarding the existence of an impairment, the extent of such
loss, if any, as well as the carrying value of our real estate
and related intangible assets.
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 estimated 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, net of selling costs.
Allocation
of Purchase Price of Real Estate and Related
Assets
Upon the acquisition of real properties, we allocate the
purchase price of such properties to acquired tangible assets,
consisting of land, building 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
58
each case on their fair values. Effective January 1, 2009,
acquisition related expenses are expensed as incurred. 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). We obtain an independent
appraisal for each real property acquisition. The information in
the appraisal, along with any additional information available
to us, 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 us in
estimating the allocation of purchase price to the building and
to lease intangibles. 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 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
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 values are capitalized as
intangible lease assets or liabilities. Above market lease
values are amortized as an adjustment of rental income over the
lesser of the useful life or the remaining terms of the
respective leases. Below market leases are amortized as an
adjustment of rental income over the remaining terms of the
respective leases, including any bargain renewal periods. If a
lease is terminated prior to its stated expiration, all
unamortized amounts of above market and below market in-place
lease values relating to that lease would be recorded as an
adjustment to rental income.
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 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 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 costs are capitalized as 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. If a lease is
terminated prior to its stated expiration, all unamortized
amounts of in-place lease assets relating to that lease would be
expensed.
We estimate the fair value of assumed mortgage notes payable
based upon indications of current market pricing for similar
types of debt with similar maturities. Assumed mortgage notes
payable are initially recorded at their estimated fair value as
of the assumption date, and the difference between such
estimated fair value and the respective note’s outstanding
principal balance is amortized to interest expense over the term
of the mortgage note payable.
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, capitalization and discount rates, interest 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 the Accounting Standards
Codification (“ASC”) 840, Leases. 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 the leased property. Actual
residual values realized could differ from these estimates. We
evaluate the collectability of future minimum lease payments on
each direct financing lease to determine
59
collectability primarily through the evaluation of payment
history. We do not provide for an allowance based on the
grouping of direct financing leases as we believe the
characteristics of each direct financing lease are not
sufficiently similar to allow an evaluation as a group for a
possible allowance. As such, all of our direct financing leases
are evaluated individually for this purpose. Any write-downs of
estimated residual value are recognized as 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 and 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, and amortize them as an adjustment of the mortgage notes
receivable’s yield over the term of the related mortgage
receivable. We evaluate the collectability of both interest and
principal on each mortgage note receivable to determine whether
it is collectible, primarily through the evaluation of credit
quality indicators such as underlying collateral and payment
history. We do not provide for an allowance for loan losses
based on the grouping of loans as we believe the characteristics
of the loans are not sufficiently similar to allow for an
evaluation of these loans as a group for a possible loan loss
allowance. As such, all of our loans are evaluated individually
for this purpose. 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. If 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 to the
value of the underlying collateral if the mortgage note
receivable is collateral dependent. Interest income on
performing mortgage note receivable is accrued as earned.
Interest income on impaired mortgage notes receivable is
recognized on a cash basis.
Investment
in Marketable Securities
Investments in marketable securities consist of investments in
CMBS. ASC 470, Debt, requires us to classify our
investments in real estate securities as trading,
available-for-sale
or
held-to-maturity.
We classify our investments as
available-for-sale
as we intend to hold our investments until maturity, however we
may sell them prior to their maturity. These investments are
carried at estimated fair value, with unrealized gains and
losses reported in accumulated other comprehensive income
(loss). Upon the sale of a security, the realized net gain or
loss is computed on a specific identification basis.
Our marketable securities are carried at fair value and are
valued using Level 3 inputs. We primarily use estimated
quoted market prices from third party trading desks, where
available, for similar CMBS tranches that actively participate
in the CMBS market, and adjusted for industry benchmarks, such
as the CMBX Index, where applicable. We receive non-binding
quotes from established financial institutions, where available,
and estimate a fair value using the quotes received. Market
conditions, such as interest rates, liquidity, trading activity
and credit spreads may cause significant variability to the
received quotes. If we are unable to obtain quotes from third
parties or if we believe quotes received are inaccurate, we will
estimate fair value using internal models that primarily
consider the CMBX Index, expected cash flows, known and expected
defaults and rating agency reports. Changes in market
conditions, as well as changes in the assumptions or methodology
used to estimate fair value, could result in a significant
increase or decrease in the recorded amount of the financial
asset or liability. As of December 31, 2010 and 2009, no
marketable securities were valued using internal models.
Significant judgment is involved in valuations and different
judgments and assumptions used in our valuation could result in
different valuations. If there continues to be significant
disruptions to the financial markets, our estimates of fair
value may have significant volatility.
We monitor our
available-for-sale
securities for impairments. A loss is recognized when we
determine that a decline in the estimated fair value of a
security below its amortized cost is
other-than-temporary.
We consider many factors in determining whether the impairment
of a security is deemed to be
other-than-temporary,
including, but not limited to, any changes in expected cash
flows, the length of time the security has had a
60
decline in estimated fair value below its amortized cost, the
amount of the unrealized loss, our intent and ability to hold
the security for a period of time sufficient for a recovery in
value, recent events specific to the issuer or industry,
external credit ratings and recent changes in such ratings. The
analysis of determining whether the impairment of a security is
deemed to be
other-than-temporary
requires significant judgments and assumptions. The use of
different judgments and assumptions could result in a different
conclusion.
Unamortized premiums and discounts on securities
available-for-sale
are recognized in interest income on marketable securities over
the contractual life, adjusted for actual prepayments, of the
securities using the effective interest method.
Investment
in Unconsolidated Joint Ventures
Investment in unconsolidated joint ventures as of
December 31, 2010, consists of our non-controlling majority
interest in a joint venture that owns a multi-tenant property in
Independence, Missouri and a majority interest in a joint
venture that owns a ten-property storage facility portfolio.
Consolidation of these investments is not required as the
entities do not qualify as a variable interest entity
(“VIE”) and do not meet the control requirements for
consolidation, as defined in ASC 810, Consolidation
(“ASC 810”). Each of us and the respective joint
venture partner must approve decisions about the respective
entity’s activities that have a significant effect on the
success of the entity. As of December 31, 2010, the
aggregate carrying value of total assets held within the
unconsolidated joint ventures was $148.6 million and the
face value of the non-recourse mortgage notes payable was
$111.6 million. As of December 31, 2009, the aggregate
carrying value of total assets held within the unconsolidated
joint ventures was $152.3 million and the face value of the
non-recourse mortgage notes payable was $113.5 million.
We account for the unconsolidated joint ventures using the
equity method of accounting per guidance established under
ASC 323, Investments — Equity Method and Joint
Ventures (“ASC 323”). The equity method of
accounting requires these investments to be initially recorded
at cost and subsequently adjusted for our share of equity in the
joint ventures’ earnings and distributions. We evaluate the
carrying amount of each investment for impairment in accordance
with ASC 323. The unconsolidated joint ventures are
reviewed for potential impairment if the carrying amount of the
investment exceeds its fair value. To determine whether
impairment is
other-than-temporary,
we consider whether we have the ability and intent to hold the
investment until the carrying value is fully recovered. The
evaluation of an investment in a joint venture for potential
impairment can require us to exercise significant judgments and
assumptions. The use of different judgments and assumptions
could result in different conclusions.
Revenue
Recognition
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. 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
We qualified and elected to be taxed as a REIT for federal
income tax purposes under Sections 856 through 860 of the
Internal Revenue Code of 1986, as amended. We generally are not
subject to federal corporate income tax to the extent we
distribute our taxable income to our stockholders, and so long
as we distribute at least 90% of our taxable income (excluding
capital gains). REITs are subject to a number of other
organizational and operational requirements. Even if we maintain
our qualification 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.
61
Derivative
Instruments and Hedging Activities
ASC 815, Derivatives and Hedging (“ASC 815”),
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. All derivatives
are carried at fair value. Accounting for changes in the fair
value of a derivative instrument depends on the intended use of
the derivative instrument and the designation of the derivative
instrument. The change in fair value of the effective portion of
the derivative instrument that is designated as a hedge is
recorded as other comprehensive income (loss). The changes in
fair value for derivative instruments that are not designated as
a hedge or that do not meet the hedge accounting criteria of
ASC 815 are recorded as a gain or loss to operations.
Considerable judgment is necessary to develop estimated fair
values of financial assets and liabilities, and the
determination of hedge effectiveness can involve significant
estimates. If we incorrectly estimate the fair value of
derivatives and hedge effectiveness, our net income could be
impacted.
Results
of Operations
Our results of operations are influenced by the timing of
acquisitions and the operating performance of our real estate
investments. The following table shows the property statistics
of our consolidated real estate assets as of December 31,
2010, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Number of commercial properties
|
|
|
725
|
|
|
|
693
|
|
|
|
673
|
|
|
Approximate rentable square feet(1)
|
|
|
20.6 million
|
|
|
|
19.5 million
|
|
|
|
18.9 million
|
|
|
Percentage of rentable square feet leased
|
|
|
94
|
%
|
|
|
94
|
%
|
|
|
99
|
%
|
|
|
|
|
(1) |
|
Including square feet of the buildings on land that is subject
to ground leases. |
The following table summarizes our consolidated real estate
investment activity during the years ended December 31,
2010, 2009 and 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Commercial properties acquired
|
|
|
31
|
(1)
|
|
|
20
|
|
|
|
340
|
|
|
Approximate purchase price of acquired properties
|
|
$
|
107.5 million
|
|
|
$
|
113.8 million
|
|
|
$
|
1.3 billion
|
|
|
Approximate rentable square feet(2)
|
|
|
1.1 million
|
|
|
|
581,000
|
|
|
|
7.7 million
|
|
|
|
|
|
(1) |
|
Excludes two properties substituted for one property under a
master lease agreement with one of the Company’s tenants,
as discussed in Note 5 to our consolidated financial
statements in this Annual Report on
Form 10-K. |
| |
|
(2) |
|
Including square feet of the buildings on land that is subject
to ground leases. |
62
Year
Ended December 31, 2010 Compared to the Year Ended
December 31, 2009
Revenue. Revenue decreased $6.3 million,
or 2%, to $269.2 million for the year ended
December 31, 2010, compared to $275.5 million for the
year ended December 31, 2009. Our revenue consisted
primarily of rental and other property income from net leased
commercial properties, which accounted for 89% and 87% of total
revenues during the years ended December 31, 2010 and 2009,
respectively.
Rental and other property income decreased $1.6 million, or
1%, to $238.7 million for the year ended December 31,
2010, compared to $240.3 million for the year ended
December 31, 2009. The decrease was primarily related to a
decrease in our occupancy rate from 99% to 94% during 2009 which
was primarily due to the bankruptcy of certain tenants for which
we continue to seek replacement tenants. Our vacancy rate has
remained stable during the year ended December 31, 2010.
This decrease was partially offset by rental revenue from the
acquisition of 31 new properties subsequent to December 31,
2009. In addition, tenant reimbursement income decreased
$5.1 million, or 27%, to $14.0 million for the year
ended December 31, 2010, compared to $19.1 million for
the year ended December 31, 2009. The decrease is primarily
due to a decrease in certain operating expenses related to these
properties that are subject to reimbursement by the tenant,
primarily property tax expense incurred during year ended
December 31, 2010.
Earned income from direct financing leases remained relatively
constant, increasing $155,000, or 8%, to $2.1 million for
the year ended December 31, 2010, compared to
$1.9 million for the year ended December 31, 2009. We
owned 13 properties accounted for as direct financing leases for
each of the years ended December 31, 2010 and 2009. The
increase was due to an amendment of one lease for which the
minimum annual rentals under the lease increased.
Interest income on mortgage notes receivable remained relatively
constant, decreasing $206,000, or 3%, to $6.7 million for
the year ended December 31, 2010, compared to
$6.9 million for the year ended December 31, 2009, as
we recorded interest income on 69 amortizing mortgage notes
receivable during each of the years ended December 31, 2010
and 2009.
Interest income on marketable securities increased $423,000, or
6%, to $7.7 million for the year ended December 31,
2010, compared to $7.2 million for the year ended
December 31, 2009. The increase was due to the additional
interest income earned on two CMBS bonds with an aggregate face
amount of $19.8 million, which were acquired during the
year ended December 31, 2009.
General and Administrative Expenses. General
and administrative expenses remained relatively constant, at
$7.0 million for the year ended December 31, 2010 and
2009. The primary general and administrative expense items are
operating expenses reimbursable to our advisor, legal and
accounting fees, state franchise and income taxes, escrow and
trustee fees, and other licenses and fees.
Property Operating Expenses. Property
operating expenses decreased $5.5 million, or 21%, to
$20.3 million for the year ended December 31, 2010,
compared to $25.8 million for the year ended
December 31, 2009. The decrease was primarily due to a
decrease in bad debt expense of $2.3 million, as our
occupancy rate has remained stable since December 31, 2009,
compared to a decrease in our occupancy rate during the year
ended December 31, 2009 due primarily to certain tenant
bankruptcies. In addition, property taxes decreased
$3.2 million, as an increased number of tenants have
elected to pay the respective property taxes directly. The
primary property operating expense items are property taxes,
repairs and maintenance, insurance and bad debt expense.
Property and Asset Management
Expenses. Pursuant to the advisory agreement with
our advisor, as amended, we are required to pay to our advisor a
monthly asset management fee equal to one-twelfth of 0.25% of
the aggregate valuation of our invested assets, as determined by
our board of directors. Additionally, we reimburse costs
incurred by our advisor in providing asset management services,
subject to certain limitations, as set forth in the advisory
agreement. Pursuant to the property management agreement with
our affiliated property manager, we are required to pay to our
property manager a property management fee in an amount up to 2%
of gross revenues received from each of our single-tenant
properties and up to 4% of gross revenues received from each of
our multi-tenant properties, less all payments to third-party
management subcontractors. We reimburse Cole Realty
Advisors’ costs of managing and leasing the properties,
subject to certain limitations as set forth in the property
management agreement.
63
Property and asset management expenses increased
$1.5 million, or 10%, to $16.4 million for the year
ended December 31, 2010, compared to $14.9 million for
the year ended December 31, 2009. Of this amount, property
management expenses increased $1.5 million to
$8.0 million for the year ended December 31, 2010 from
$6.5 million for the year ended December 31, 2009,
primarily due to an increase in property management expenses
incurred by our advisor in providing management and leasing
services to us, which are reimbursable to our advisor pursuant
to the advisory agreement, during the year ended
December 31, 2010. No expenses for such services were
reimbursed during the first six months of the year ended
December 31, 2009.
Asset management expenses, asset management expenses remained
relatively constant, increasing $70,000 to $8.5 million for
the year ended December 31, 2010, from $8.4 million
for the year ended December 31, 2009, primarily due to an
increase in asset management fees related to 31 new properties
acquired subsequent to December 31, 2009.
Acquisition Related Expenses. Acquisition
related expenses remained relatively constant, increasing
$200,000, or 6%, to $3.4 million for the year ended
December 31, 2010, compared to $3.2 million for the
year ended December 31, 2009. The increase was a result of
the acquisition related expenses recorded on 31 properties
purchased during the year ended December 31, 2010, compared
to 20 properties during the year ended December 31, 2009.
Pursuant to the advisory agreement with our advisor, we pay an
acquisition fee to our advisor of 2% of the contract purchase
price of each property or asset acquired. We may also be
required to reimburse our advisor for acquisition expenses
incurred in the process of acquiring property or in the
origination or acquisition of a loan.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
decreased $5.6 million, or 6%, to $85.2 million for
the year ended December 31, 2010, compared to
$90.8 million for the year ended December 31, 2009.
The decrease was primarily related to a decrease in the
amortization of leases in place during the year ended
December 31, 2010 compared to the year ended
December 31, 2009, which resulted from the write-off of
intangible lease assets due to increased vacancies during 2009.
Our vacancy rate has remained stable during the year ended
December 31, 2010.
Impairment of Real Estate Assets. Impairment
on real estate assets decreased $9.0 million, or 67%, to
$4.5 million for the year ended December 31, 2010,
from $13.5 million for the year ended December 31,
2009. Impairment losses were recorded on one property during the
year ended December 31, 2010 and on one property during the
year ended December 31, 2009, as discussed in Note 2
to our consolidated financial statements in this Annual Report
on
Form 10-K.
Equity in Income of Unconsolidated Joint
Ventures. Equity in income of unconsolidated
joint ventures increased $353,000, or 58%, to $965,000 during
the year ended December 31, 2010, compared to $612,000 for
the year ended December 31, 2009. During the year ended
December 31, 2009, we acquired an indirect interest in a
ten-property storage facility portfolio, through a joint
venture. The increase was primarily due to increased income
recorded for one of our joint venture properties, combined with
a decrease in our percentage of the acquired joint
venture’s loss recorded during the year ended
December 31, 2010, as compared to the year ended
December 31, 2009.
Interest and other income. Interest and other
income decreased $447,000, or 78%, to $125,000 for the year
ended December 31, 2010, from $572,000 for the year ended
December 31, 2009. The decrease was primarily related to a
gain recognized as a result of an easement condemnation during
the year ended December 31, 2009 compared with no easement
condemnation occurring during the year ended December 31,
2010.
Interest Expense. Interest expense increased
$4.0 million, or 4%, to $103.0 million for the year
ended December 31, 2010, compared to $99.0 million
during the year ended December 31, 2009, primarily due to
an increase of $88.6 million in the average outstanding
debt balance.
64
Year
Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
Our results of operations for the year ended December 31,
2009, as compared to the year ended December 31, 2008,
reflect significant increases in most categories primarily due
to the ownership of the 340 properties acquired during the year
ended December 31, 2008 for the full year in 2009.
Revenue. Revenue increased $74.5 million,
or 37%, to $275.5 million for the year ended
December 31, 2009, compared to $201.0 million for the
year ended December 31, 2008. Our revenue consisted
primarily of rental and other property income from net leased
commercial properties, which accounted for 87% and 89% of total
revenues during the years ended December 31, 2009 and 2008,
respectively.
Rental and other property income increased $62.0 million,
or 35%, to $240.3 million for the year ended
December 31, 2009, compared to $178.3 million for the
year ended December 31, 2008. The increase was primarily
due to the acquisition of 20 new properties during the year
ended December 31, 2009, and the ownership of the 340
properties acquired during the year ended December 31, 2008
for the full year in 2009. In addition, we paid certain
operating expenses related to these properties subject to
reimbursement by the tenant, which resulted in
$19.1 million of tenant reimbursement income during the
year ended December 31, 2009 compared to $12.2 million
during the year ended December 31, 2008.
Earned income from direct financing leases decreased $271,000,
or 12%, to $1.9 million for the year ended
December 31, 2009, compared to $2.2 million for the
year ended December 31, 2008. During the year ended
December 31, 2008, the leases on two of the 13 properties
accounted for as direct financing leases were amended, resulting
in lower annual rents over an extended lease term.
Interest income on mortgage notes receivable remained relatively
constant, decreasing $214,000, or 3%, to $6.9 million for
the year ended December 31, 2009, compared to
$7.1 million for the year ended December 31, 2008, as
we recorded interest income on 69 amortizing mortgage notes
receivable during each of the years ended December 31, 2009
and 2008.
Interest income on marketable securities increased
$6.0 million, or 495%, to $7.2 million for the year
ended December 31, 2009, compared to $1.2 million for
the year ended December 31, 2008. The increase was due to
the additional interest income earned as a result of the
acquisition of three CMBS bonds with an aggregate face amount of
$33.6 million, during the fourth quarter of the year ended
December 31, 2008, and the acquisition of two CMBS bonds
with an aggregate face amount of $19.8 million, during the
year ended December 31, 2009.
General and Administrative Expenses. General
and administrative expenses increased $1.4 million, or 25%,
to $7.0 million for the year ended December 31, 2009,
compared to $5.6 million for the year ended
December 31, 2008. The increase was primarily due to the
recording of $906,000 of expenses incurred by our advisor in
providing administrative services to us during the year ended
December 31, 2009, which are reimbursable to our advisor
pursuant to the advisory agreement. No expenses incurred by our
advisor for such services were reimbursed, or required to be
reimbursed, during the year ended December 31, 2008. In
addition, administrative costs, escrow and trustee fees and
service fees related to our Credit Facility increased. The
primary general and administrative expense items were legal and
accounting fees, escrow and trustee fees, state franchise and
income taxes and operating expenses reimbursable to our advisor.
Property Operating Expenses. Property
operating expenses increased $9.0 million, or 54%, to
$25.8 million for the year ended December 31, 2009,
compared to $16.8 million for the year ended
December 31, 2008. The increase was primarily due to an
increase in property taxes, repairs and maintenance and
insurance expense, primarily for multi-tenant shopping centers,
for which we initially pay certain operating expenses and are
reimbursed by the tenant in accordance with the respective lease
agreements. During the year ended December 31, 2009, we
owned an average of 2.9 million square feet of multi-tenant
shopping center space, compared to an average of
2.2 million square feet of multi-tenant shopping center
space during the year ended December 31, 2008. The primary
property operating expense items are property taxes, repairs and
maintenance, insurance and bad debt expense.
65
Property and Asset Management
Expenses. 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. Additionally, we reimburse costs
incurred by our advisor in providing asset management services,
subject to limitations as set forth in the advisory agreement.
Pursuant to the property management agreement with our
affiliated property manager, we are required to pay to our
property manager a property management fee in an amount up to 2%
of gross revenues received from each of our single-tenant
properties and up to 4% of gross revenues received from each of
our multi-tenant properties, less all payments to third-party
management subcontractors. We reimburse Cole Realty
Advisors’ costs of managing and leasing the properties,
subject to limitations as set forth in the property management
agreement.
Property and asset management expenses increased
$5.1 million, or 53%, to $14.9 million for the year
ended December 31, 2009, compared to $9.8 million for
the year ended December 31, 2008. Property management fees
increased $1.7 million to $5.5 million for the year
ended December 31, 2009 from $3.8 million for the year
ended December 31, 2008. The increase in property
management fees was primarily due to an increase in rental and
other property income to $240.3 million for the year ended
December 31, 2009, from $178.3 million for the year
ended December 31, 2008, due to annualized operations from
the 340 commercial properties acquired during the year ended
December 31, 2008 as well as the acquisition of 20
additional rental income producing properties during the year
ended December 31, 2009.
Asset management fees increased $2.4 million to
$8.4 million for the year ended December 31, 2009,
from $6.0 million for the year ended December 31,
2008. The increase in asset management fees was primarily due to
an increase in the average gross aggregate book value of
properties to $3.3 billion for the year ended
December 31, 2009 from $2.6 billion for the year ended
December 31, 2008. The increase in the average gross
aggregate book value of properties was due to the acquisition of
20 additional properties during the year ended December 31,
2009 and the ownership of 340 properties acquired during the
year ended December 31, 2008 for the full year in 2009.
In addition, during the year ended December 31, 2009, we
recorded $1.0 million related to reimbursement of expenses
incurred by our advisor in performing property and asset
management services. No such expenses were required to be
reimbursed during the year ended December 31, 2008, as our
advisor did not elect to be reimbursed.
Acquisition Related Expenses. In accordance
with ASC 805, acquisition costs are required to be expensed
beginning January 1, 2009. Prior to January 1, 2009,
acquisition costs were capitalized. We expensed
$3.2 million of acquisition expenses during the year ended
December 31, 2009 in connection with the acquisition of 20
new rental income producing properties.
Depreciation and Amortization
Expenses. Depreciation and amortization expenses
increased $26.9 million, or 42%, to $90.8 million for
the year ended December 31, 2009, compared to
$63.9 million for the year ended December 31, 2008.
The increase was primarily due to an increase in the average
gross aggregate book value of properties we owned to
$3.3 billion as of December 31, 2009, from
$2.6 billion as of December 31, 2008, as a result of
the acquisition of 20 new properties during the year ended
December 31, 2009 and the ownership of 340 properties
acquired during the year ended December 31, 2008 for the
full year in 2009.
Impairment of Real Estate Assets. Impairment
on real estate assets increased $9.9 million, or 280%, to
$13.5 million for the year ended December 31, 2009,
compared to $3.6 million for the year ended
December 31, 2008. Impairment losses were recorded on one
property during the year ended December 31, 2009 and on one
property during the year ended December 31, 2008, as
discussed in Note 2 to our consolidated financial
statements in this Annual Report on
Form 10-K.
Equity in Income of Unconsolidated Joint
Ventures. Equity in income of unconsolidated
joint ventures increased $141,000, or 30%, to $612,000 during
the year ended December 31, 2009, compared to $471,000 in
equity in income of unconsolidated joint ventures during the
year ended December 31, 2008. Through a joint venture that
we entered into during the year ended December 31, 2008, we
acquired an interest in a 386,000 square foot multi-tenant
retail building. The increase was primarily due to the ownership
of the joint
66
venture for a full year during the year ended December 31,
2009 compared to the year ended December 31, 2008. This
increase was partially offset by the acquisition of an indirect
interest in a ten-property storage facility portfolio, through a
joint venture, during the year ended December 31, 2009,
which recorded a loss for the year ended December 31, 2009.
Interest and Other Income. Interest and other
income decreased $707,000, or 55%, to $572,000 during the year
ended December 31, 2009, compared to $1.3 million for
the year ended December 31, 2008. The decrease was
primarily due to lower average uninvested cash during the year
ended December 31, 2009 as compared to the year ended
December 31, 2008. The average cash balance was
$34.8 million and $61.5 million during the years ended
December 31, 2009 and 2008, respectively.
Interest Expense. Interest expense increased
$20.9 million, or 27%, to $99.0 million for the year
ended December 31, 2009, compared to $78.1 million
during the year ended December 31, 2008. The increase was
primarily due to an increase in the average aggregate amount of
notes payable and line of credit outstanding to
$1.6 billion during the year ended December 31, 2009
from $1.3 billion for the year ended December 31,
2008, with weighted average interest rates of 5.88% and 5.89% as
of December 31, 2009 and 2008, respectively.
Portfolio
Information
Real
Estate Portfolio
As of December 31, 2010, we directly owned 725 properties
located in 45 states and the U.S. Virgin Islands, the
gross rentable space of which was 94% leased with an average
lease term remaining of 11.2 years. Of the leases related
to these properties, 13 were classified as direct financing
leases, as discussed in Note 4 to our consolidated
financial statements in this Annual Report on
Form 10-K.
As of December 31, 2010, our five highest tenant
concentrations, based on gross annualized rental revenue, were
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Gross
|
|
|
Percentage of
|
|
|
|
|
Total
|
|
|
Leased
|
|
|
Annualized
|
|
|
2010 Gross
|
|
|
|
|
Number
|
|
|
Square
|
|
|
Rental Revenue
|
|
|
Annualized
|
|
|
Tenant
|
|
of Leases
|
|
|
Feet(1)
|
|
|
(In thousands)
|
|
|
Rental Revenue
|
|
|
|
|
Walgreens — drug store
|
|
|
58
|
|
|
|
839,503
|
|
|
$
|
19,500
|
|
|
|
8
|
%
|
|
Church’s Chicken — restaurant
|
|
|
1
|
|
|
|
244,067
|
|
|
|
13,210
|
|
|
|
6
|
%
|
|
Academy Sports — sporting goods
|
|
|
9
|
|
|
|
1,915,411
|
|
|
|
11,645
|
|
|
|
5
|
%
|
|
Circle K — convenience store
|
|
|
83
|
|
|
|
263,162
|
|
|
|
11,550
|
|
|
|
5
|
%
|
|
CVS — drug store
|
|
|
35
|
|
|
|
385,579
|
|
|
|
8,876
|
|
|
|
4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
186
|
|
|
|
3,647,722
|
|
|
$
|
64,781
|
|
|
|
28
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of the buildings on land that is subject
to ground leases. |
67
As of December 31, 2010, our five highest tenant industry
concentrations, based on gross annualized rental revenue, were
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Gross
|
|
|
Percentage of
|
|
|
|
|
Total
|
|
|
Leased
|
|
|
Annualized
|
|
|
2010 Gross
|
|
|
|
|
Number
|
|
|
Square
|
|
|
Rental Revenue
|
|
|
Annualized
|
|
|
Industry
|
|
of Leases
|
|
|
Feet(1)
|
|
|
(In thousands)
|
|
|
Rental Revenue
|
|
|
|
|
Specialty retail
|
|
|
195
|
|
|
|
4,652,183
|
|
|
$
|
42,631
|
|
|
|
18
|
%
|
|
Drugstore
|
|
|
125
|
|
|
|
1,649,854
|
|
|
|
37,636
|
|
|
|
16
|
%
|
|
Restaurant
|
|
|
96
|
|
|
|
757,594
|
|
|
|
30,972
|
|
|
|
13
|
%
|
|
Sporting goods
|
|
|
16
|
|
|
|
2,190,642
|
|
|
|
15,317
|
|
|
|
6
|
%
|
|
Home improvement
|
|
|
13
|
|
|
|
1,616,082
|
|
|
|
13,131
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
445
|
|
|
|
10,866,355
|
|
|
$
|
139,687
|
|
|
|
58
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of the buildings on land that is subject
to ground leases. |
As of December 31, 2010, our five highest geographic
concentrations, based on gross annualized rental revenue, were
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010 Gross
|
|
|
Percentage of
|
|
|
|
|
Total
|
|
|
Leased
|
|
|
Annualized
|
|
|
2010 Gross
|
|
|
|
|
Number of
|
|
|
Square
|
|
|
Rental Revenue
|
|
|
Annualized
|
|
|
Location
|
|
Properties
|
|
|
Feet(1)
|
|
|
(In thousands)
|
|
|
Rental Revenue
|
|
|
|
|
Texas
|
|
|
165
|
|
|
|
3,584,465
|
|
|
$
|
38,133
|
|
|
|
16
|
%
|
|
Florida
|
|
|
22
|
|
|
|
2,067,129
|
|
|
|
24,008
|
|
|
|
10
|
%
|
|
Illinois
|
|
|
23
|
|
|
|
1,741,747
|
|
|
|
18,820
|
|
|
|
8
|
%
|
|
Georgia
|
|
|
57
|
|
|
|
1,014,195
|
|
|
|
17,386
|
|
|
|
7
|
%
|
|
Ohio
|
|
|
63
|
|
|
|
623,563
|
|
|
|
12,538
|
|
|
|
5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
330
|
|
|
|
9,031,099
|
|
|
$
|
110,885
|
|
|
|
46
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Including square feet of the buildings on land that is subject
to ground leases. |
Mortgage
Notes Receivable Portfolio
At December 31, 2010, the Company owned two portfolios of
mortgage notes receivable with a balance of $79.8 million
consisting of 69 mortgage notes receivable, secured by 43
restaurant properties and 26 retail properties with a weighted
average maturity of 9.70 years.
Investment
in Marketable Securities
At December 31, 2010, we owned six CMBS bonds, with an
aggregate fair value of $82.0 million with a weighted
average maturity of 5.41 years.
Investment
in Unconsolidated Joint Venture
Through two joint ventures, we have a majority indirect interest
in an 386,000 square foot multi-tenant retail building in
Independence, Missouri and a majority indirect interest in a
ten-property storage facility portfolio, for an aggregate net
investment of $38.3 million, as of December 31, 2010.
Funds
From Operations and Modified Funds From Operations
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, and gains and losses on the sale of real estate
assets. Depreciation
68
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 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.
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 defined by our company, excludes
from FFO acquisition related costs and real estate impairment
charges, 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 costs from MFFO provides investors
with supplemental performance information that is consistent
with the performance models and analysis used by management, and
provides investors a view of the performance of our portfolio
over time, including after the company ceases 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, 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.
Additionally, impairment charges are items that management does
not include in its evaluation of the operating performance of
its real estate investments, as management believes that the
impact of these items will be reflected over time through
changes in rental income or other related costs. As many other
non-traded REITs exclude impairments in reporting their MFFO, we
believe that our calculation and reporting of MFFO will assist
investors and analysts in comparing our performance versus other
non-traded REITs.
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, particularly after our acquisition stage,
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. Neither the SEC, NAREIT, nor 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.
Our calculation of FFO and MFFO, and reconciliation to net
income, which is the most directly comparable GAAP financial
measure, is presented in the table below for the years ended
December 31, 2010, 2009, and 2008 (in thousands). FFO and
MFFO are influenced by the timing of acquisitions and the
operating performance of our real estate investments.
69
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
NET INCOME
|
|
$
|
30,430
|
|
|
$
|
22,406
|
|
|
$
|
25,092
|
|
|
Depreciation of real estate assets
|
|
|
56,615
|
|
|
|
56,122
|
|
|
|
42,647
|
|
|
Amortization of lease related costs
|
|
|
28,547
|
|
|
|
34,628
|
|
|
|
21,212
|
|
|
Depreciation and amortization of real estate assets in
unconsolidated joint ventures
|
|
|
2,347
|
|
|
|
2,655
|
|
|
|
99
|
|
|
Loss (gain) on easement and condemnation of assets
|
|
|
—
|
|
|
|
139
|
|
|
|
(34
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Funds from operations (FFO)
|
|
|
117,939
|
|
|
|
115,950
|
|
|
|
89,016
|
|
|
Acquisition related expenses
|
|
|
3,441
|
|
|
|
3,241
|
|
|
|
—
|
|
|
Impairment on real estate assets
|
|
|
4,500
|
|
|
|
13,500
|
|
|
|
3,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Modified funds from operations (MFFO)
|
|
$
|
125,880
|
|
|
$
|
132,691
|
|
|
$
|
92,566
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Set forth below is additional information 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 $11.8 million,
$10.7 million and $9.7 million during the years ended
December 31, 2010, 2009 and 2008, respectively. In
addition, related to our unconsolidated joint ventures,
straight-line revenue of $48,000, $123,000 and $20,000 for the
years ended December 31, 2010, 2009 and 2008, respectively,
is included in equity in income of unconsolidated joint ventures
on the consolidated statement of operations.
|
| |
| |
•
|
Amortization of deferred financing costs and amortization of
fair value adjustments of mortgage notes assumed totaled
$8.4 million, $7.4 million and $5.9 million
during the years ended December 31, 2010, 2009 and 2008,
respectively. In addition, related to our unconsolidated joint
ventures, amortization of deferred financing costs and
amortization of fair value adjustments of mortgage notes assumed
totaled $601,000 and $766,000 for the years ended
December 31, 2010 and 2009, respectively, which is included
in equity in income of unconsolidated joint ventures on the
consolidated statement of operations. No amortization of
deferred financing costs and amortization of fair value
adjustments of mortgage notes assumed were recorded from our
unconsolidated joint ventures during the year ended
December 31, 2008.
|
Distributions
On September 20, 2010, our board of directors authorized a
daily distribution, based on 365 days in the calendar year,
of $0.001712523 per share (which equates to 6.25% on an
annualized basis calculated at the current rate, assuming a
$10.00 per share purchase price, and an annualized return of
approximately 7.76%, based on the most recent estimate of the
value of our shares of $8.05 per share) for stockholders of
record as of the close of business on each day of the period,
commencing on October 1, 2010 and ending on
December 31, 2010. On November 10, 2010, our board of
directors authorized a daily distribution, based on
365 days in the calendar year, of $0.001712523 per share
(which equates to 6.25% on an annualized basis calculated at the
current rate, assuming a $10.00 per share purchase price, and an
annualized return of approximately 7.76%, based on the most
recent estimate of the value of our shares of $8.05 per share)
for stockholders of record as of the close of business on each
day of the period, commencing on January 1, 2011 and ending
on March 31, 2011.
During the years ended December 31, 2010 and 2009,
respectively, we paid distributions of $129.3 million and
$135.0 million, including $61.4 million and
$71.0 million, respectively, through the issuance of shares
pursuant to our DRIP. Our 2010 distributions were funded by net
cash provided by operating activities of $105.6 million,
return of capital from unconsolidated joint ventures of
$1.6 million, proceeds from the Offerings of
$3.4 million, and borrowings of $18.7 million. Our
2009 distributions were funded by net cash provided by operating
activities of $116.9 million, proceeds from the Offerings
of $3.2 million, excess operating cash flows from prior
periods of $6.8 million, and borrowings of
$8.1 million.
70
Net cash provided by operating activities for the years ended
December 31, 2010 and 2009, reflects a reduction for real
estate acquisition related expenses incurred and expensed of
$3.4 million and $3.2 million, respectively, in
accordance with Accounting Standards Codification 805, Business
Combinations. We treat our real estate acquisition expenses as
funded by proceeds from the offering of our shares. Therefore,
for consistency, proceeds from the issuance of common stock for
the years ended December 31, 2010 and 2009, respectively,
have been reported as a source of distributions to the extent
that acquisition expenses have reduced net cash flows from
operating activities.
Share
Redemptions
Our share redemption program provides that we will redeem shares
of our common stock from requesting stockholders, subject to the
terms and conditions of the share redemption program. On
November 10, 2009, our Board of Directors voted to
temporarily suspend our share redemption program other than for
requests made upon the death of a stockholder. On June 22,
2010, our board of directors reinstated our share redemption
program, effective August 1, 2010, and adopted several
amendments to the program. In particular, 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 and
the cash available for redemption is limited to the proceeds
from the sale of shares pursuant to our DRIP during such
calendar year. In addition, we will redeem shares on a quarterly
basis, at the rate of approximately one-fourth of 3% of the
weighted average number of shares outstanding during the prior
calendar year (including shares requested for redemption upon
the death of a stockholder). Funding for redemptions for each
quarter will be limited to the net proceeds we receive from the
sale of shares, during such quarter, under our DRIP Offering.
Pursuant to the share redemption program, as amended, the
redemption price per share is dependent on the length of time
the shares are held and the Estimated Share Value. Prior to the
reinstatement of the share redemption program, as amended, we
received redemption requests due to death relating to
approximately 1.1 million shares, all of which were
fulfilled during the year ended December 31, 2010 for an
aggregate price of $11.1 million at an average price of
$9.96 per share. Subsequent to the reinstatement of the share
redemption program, we received valid redemption requests
pursuant to the share redemption program, as amended, relating
to approximately 9.1 million shares and requests relating
to approximately 2.5 million shares were redeemed for
$19.7 million at an average price of $7.85 per share.
Requests relating to approximately 1.5 million of the
2.5 million share redemptions were fulfilled subsequent to
December 31, 2010. The remaining redemption requests
relating to approximately 6.5 million shares went
unfulfilled. A valid redemption request is one that complies
with the applicable requirements and guidelines of our share
redemption program, as amended, and set forth in our
Form 8-K
filed on June 22, 2010. We have funded and intend to
continue funding share redemptions with proceeds from our DRIP
Offering. See Note 17 to our consolidated financial
statements included in this Annual Report on
Form 10-K
for additional terms of the share redemption program.
Liquidity
and Capital Resources
General
Our principal demands for funds are for the payment of principal
and interest on our outstanding indebtedness, operating and
property maintenance expenses and distributions to and
redemptions by our stockholders. We may also acquire additional
real estate and real estate-related investments. Generally, cash
needs for payments of interest, operating and property
maintenance expenses and distributions to stockholders will be
generated from cash flows from operations from our real estate
assets. The sources of our operating cash flows are primarily
driven by the rental income received from leased properties,
interest income earned on mortgage notes receivable, marketable
securities and on our cash balances and by distributions from
our unconsolidated joint ventures. We expect to utilize the
available cash from issuance of shares under the DRIP Offering,
available borrowings on our Credit Facility and Repurchase
Agreement and possible additional financings and refinancings to
repay our outstanding indebtedness and complete possible future
property acquisitions.
As of December 31, 2010, we had cash and cash equivalents
of $45.8 million and available borrowings of
$214.5 million under our Credit Facility. Subsequent to
December 31, 2010, an amendment was made to the Credit
71
Facility, which increased the amount available for borrowing
under our Credit Facility from $315.0 million to
$350.0 million. As of March 30, 2011 we had an
aggregate of $117.1 million outstanding under the Credit
Facility and $232.4 million available in borrowings under
the Credit Facility. Additionally, as of December 31, 2010,
we had unencumbered properties with a gross book value of
$721.8 million, including assets that are part of the
Credit Facility’s unencumbered borrowing base, that may be
used as collateral to secure additional financing in future
periods or as additional collateral to facilitate the
refinancing of current mortgage debt as it becomes due, subject
to certain covenants and leverage and borrow base restrictions
related to our Credit Facility.
Short-term
Liquidity and Capital Resources
We expect to meet our short-term liquidity requirements through
cash provided by property operations. As of December 31,
2010, we had a total of $193.0 million of debt maturing
within the next 12 months, including $100.4 million of
the Fixed Rate Debt, $38.3 million of the Variable Rate
Debt, and $54.3 million outstanding under the Repurchase
Agreement. Of the $193.0 million of debt maturing in the
next 12 months, $66.3 million contains extension
options, including amounts outstanding under the Repurchase
Agreement. In addition, $50.1 million of the
$193.0 million includes
hyper-amortization
provisions that would require us to apply 100% of the rents
received from the properties securing the debt to pay interest
due on the loans, reserves, if any, and principal reductions
until such balance is paid in full through the extended maturity
dates, all of which will adversely affect our available cash for
distributions should we exercise these options. If we are unable
to extend, finance, or refinance the amounts maturing of
$193.0 million, we expect to pay down any remaining amounts
through a combination of the use of cash provided by property
operations, available borrowings on our Credit Facility, under
which $214.5 million was available as of December 31,
2010, and $232.4 million was available as of March 30,
2011, borrowings on our unencumbered properties, proceeds from
our DRIP Offering,
and/or the
strategic sale of real estate and related assets. In addition,
we may elect to extend the maturity dates of the mortgage notes
in accordance with the
hyper-amortization
provisions, if available. If we are able to refinance our
existing debt as it matures it may be at rates and terms that
are less favorable than our existing debt or, if we elect to
extend the maturity dates of the mortgage notes in accordance
with the
hyper-amortization
provisions, the interest rates charged to us will be higher than
each respective current interest rate, each of which may
adversely affect our results of operations and the distributions
we are able to pay to our investors. The Credit Facility and
certain notes payable contain customary affirmative, negative
and financial covenants, including requirements for minimum net
worth, debt service coverage ratios and leverage ratios, in
addition to variable rate debt and investment restrictions.
These covenants may limit our ability to incur additional debt
and the amount of available borrowings on our Credit Facility.
Long-term
Liquidity and Capital Resources
We expect to meet our long-term liquidity requirements through
proceeds from secured or unsecured financings from banks and
other lenders, borrowing on our Credit Facility, available cash
from issuance of shares under the DRIP Offering , 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 and other asset acquisitions and the payment of
tenant improvements, operating expenses, including debt service
payments on any outstanding indebtedness, and distributions and
redemptions to our stockholders.
We expect that substantially all 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, including
the proceeds from the DRIP Offering to the extent that the
proceeds are in excess of our share redemptions, cash advanced
to us by our advisor, borrowings on our Credit Facility
and/or
borrowings on unencumbered properties. To the extent that cash
flows from operations are lower due to lower than expected
returns on the properties or we elect to retain cash flows from
operations to make additional real estate investments or reduce
our outstanding debt, distributions paid to our stockholders may
be lower. We expect that substantially all net cash resulting
from equity issuance or debt financing will be used to fund
acquisitions, for certain capital expenditures, for repayments
of outstanding debt, or for any distributions to stockholders in
excess of cash flows from operations and to fund redemption of
shares to our stockholders.
72
As of December 31, 2010, we had received and accepted
subscriptions for approximately 218.1 million shares of
common stock in the Offerings for gross proceeds of
$2.2 billion. As of December 31, 2010, we had redeemed
a total of approximately 8.8 million shares of common stock
for a cost of $82.2 million. Redemption requests relating
to approximately 6.5 million shares that were received
during the year ended December 31, 2010 went unfulfilled.
As of December 31, 2010, we had $1.7 billion of debt
outstanding, consisting of (i) $1.5 billion in Fixed
Rate Debt, which includes $122.5 million of variable rate
mortgage loans swapped to fixed rates,
(ii) $38.3 million in Variable Rate Debt,
(iii) $100.0 million outstanding under the Credit
Facility and (iv) $54.3 million outstanding under the
Repurchase Agreement. See Note 10 to our consolidated
financial statements in this Annual Report on
Form 10-K
for additional terms of the Credit Facility and the Repurchase
Agreement. The Fixed Rate Debt has annual interest rates ranging
from 4.46% to 7.22%, with a weighted average annual interest
rate of 5.88%, and various maturity dates ranging from January,
2011 through August, 2031. The Variable Rate Debt has annual
interest rates ranging from LIBOR plus 200 to 325 basis
points, and various maturity dates in September, 2011.
As of December 31, 2010, the interest rate in effect for
borrowings under the Credit Facility was the Bank of America
prime rate plus 250 basis points, and the weighted average
interest rate in effect for the Repurchase Agreement was 1.68%.
On February 24, 2011, we executed an interest rate swap
agreement which fixed the interest rate for term loan borrowings
under the Credit Facility to 4.94% per annum based on our
overall leverage levels at the time of the transaction. The
ratio of debt to total gross real estate and related assets net
of gross intangible lease liabilities, as of December 31,
2010, was 50% and the weighted average years to maturity was
5.0 years.
Our contractual obligations as of December 31, 2010 were as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period(1)(2)(3)
|
|
|
|
|
|
|
|
Less Than 1
|
|
|
|
|
|
|
|
|
More Than 5
|
|
|
|
|
Total
|
|
|
Year
|
|
|
1-3 Years
|
|
|
4-5 Years
|
|
|
Years
|
|
|
|
|
Principal payments — fixed rate debt(4)
|
|
$
|
1,547,135
|
|
|
$
|
104,841
|
|
|
$
|
147,637
|
|
|
$
|
454,663
|
|
|
$
|
839,994
|
|
|
Interest payments — fixed rate debt(5)
|
|
|
509,635
|
|
|
|
106,328
|
|
|
|
238,829
|
|
|
|
129,022
|
|
|
|
35,456
|
|
|
Principal payments — variable rate debt
|
|
|
38,250
|
|
|
|
38,250
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest payments — variable rate debt(6)
|
|
|
637
|
|
|
|
637
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Principal payments — repurchase agreement(7)
|
|
|
54,312
|
|
|
|
54,312
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest payments — repurchase agreement
|
|
|
36
|
|
|
|
36
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Principal payments — credit facility
|
|
|
100,000
|
|
|
|
—
|
|
|
|
100,000
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest payments — credit facility(8)
|
|
|
17,282
|
|
|
|
5,830
|
|
|
|
11,452
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,267,287
|
|
|
$
|
310,234
|
|
|
$
|
497,918
|
|
|
$
|
583,685
|
|
|
$
|
875,450
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The table does not include amounts due to our advisor or its
affiliates pursuant to our advisory agreement because such
amounts are not fixed and determinable. |
| |
|
(2) |
|
Principal paydown amounts are included in payments due by period. |
| |
|
(3) |
|
The table above does not include loan amounts associated with
the two unconsolidated joint ventures, totaling
$111.6 million which matures in January 2012 (with
extension option to January 2019) and January 2016, as
these loans are non- recourse to us. |
| |
|
(4) |
|
Principal payment amounts reflect actual payments based on face
amount of notes payable. As of December 31, 2010, the fair
value adjustment, net of amortization, of mortgage notes assumed
was $12.1 million. |
| |
|
(5) |
|
As of December 31, 2010, we had $122.5 million of
variable rate debt fixed through the use of interest rate swaps.
We used the fixed rates under the swap agreement to calculate
the debt payment obligations in future periods. |
73
|
|
|
|
(6) |
|
Rates ranging from 2.26% to 3.51% were used to calculate the
variable rate debt payment obligations in future periods. These
were the rates effective as of December 31, 2010. |
| |
|
(7) |
|
The company may elect to renew the terms under the Repurchase
Agreement for periods ranging from seven days to
90 days until the CMBS bonds, which are held as collateral,
mature. |
| |
|
(8) |
|
Based on interest rate of 5.75% in effect as of
December 31, 2010. |
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 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.
Cash Flow
Analysis
Year
Ended December 31, 2010 Compared to the Year Ended
December 31, 2009
Operating Activities. Net cash provided by
operating activities decreased $11.2 million, or 10%, to
$105.6 million for the year ended December 31, 2010,
compared to $116.9 million for the year ended
December 31, 2009. The decrease was primarily due to a
decrease in distributions of earnings from unconsolidated joint
ventures of $1.7 million combined with an increase in net
income before impairment charges of $1.0 million, a
decrease in bad debt expense of $2.3 million and a decrease
in the change in accounts payable and accrued expenses of
$5.1 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 $64.7 million, or 142%, to
$110.2 million for the year ended December 31, 2010
compared to $45.5 million for the year ended
December 31, 2009. The increase was primarily due to an
increase of $94.5 million of cash used in conjunction with
our real estate acquisitions during the year ended
December 31, 2010. During the year ended December 31,
2010, we used cash of $107.5 million to purchase 31
properties, compared to cash paid of $13.0 million combined
with the assumption of mortgage notes payable with a face value
of $100.8 million and a fair value of $87.8 million to
purchase 20 properties during the year ended December 31,
2009. In addition, during the year ended December 31, 2010,
we received a return of capital from unconsolidated joint
ventures of $1.6 million compared to no return of capital
received during 2009. These increases were partially offset by
the purchase of two CMBS bonds at a discounted price of
$10.5 million, including acquisition costs, and the
acquisition of an interest in an unconsolidated joint venture
for $16.8 million, including acquisition costs, during the
year ended December 31, 2009. No similar purchases were
made during the year ended December 31, 2010.
Financing Activities. Net cash provided by
financing activities increased $171.4 million, or 115% to
$22.0 million for the year ended December 31, 2010,
compared to net cash used of $149.4 million for the year
ended December 31, 2009. The change was primarily due to an
increase in proceeds from mortgage notes payable, the Credit
Facility and our Repurchase Agreement of $340.1 million and
a decrease in the redemptions of common stock of
$26.7 million, offset primarily by an increase in repayment
of mortgage notes payable and our Credit Facility of
$189.8 million.
Year
Ended December 31, 2009 Compared to the Year Ended
December 31, 2008
Operating Activities. Net cash provided by
operating activities increased $20.8 million, or 22%, to
$116.9 million for the year ended December 31, 2009,
compared to $96.1 million for the year ended
December 31, 2008. The increase was primarily due to an
increase in depreciation and amortization expenses totaling
$19.8 million, an increase in impairment of real estate
assets of $9.9 million and an increase in distributions
from unconsolidated joint ventures of $2.6 million,
partially offset by a decrease in net income of
$2.7 million and a decrease in the change in accounts
payable and accrued expenses of $11.3 million for the year
ended December 31, 2009. See “Results of
Operations” for a more complete discussion of the factors
impacting our operating performance.
74
Investing Activities. Net cash used in
investing activities decreased $1.2 billion, or 96%, to
$45.5 million for the year ended December 31, 2009
compared to $1.2 billion for the year ended
December 31, 2008. The decrease was primarily due to the
acquisition of 20 properties, with an average purchase price of
$6.2 million during the year ended December 31, 2009,
compared to the acquisition of 340 properties, with an average
purchase price of $3.8 million during year ended
December 31, 2008. In addition, we purchased two CMBS bonds
at a discounted price of $10.5 million, including
acquisition costs, and invested in an unconsolidated joint
venture for $16.8 million, including acquisition costs,
during the year ended December 31, 2009, as compared to the
purchase of four CMBS bonds at a discounted price of
$50.0 million, including acquisition costs, and the
acquisition of an indirect interest in a multi-tenant retail
building for $53.7 million, including acquisition costs,
during the year ended December 31, 2008.
Financing Activities. During the year ended
December 31, 2009, net cash used in financing activities
was $149.4 million, compared to net cash provided by
financing activities of $1.2 billion for the year ended
December 31, 2008, resulting in a change of
$1.3 billion, or 113%. The change was primarily due to a
decrease in proceeds from issuance of common stock of
$1.0 billion, a decrease in the proceeds from mortgage
notes payable of $612.4 million and an increase in
redemptions of common stock of $38.2 million, offset
primarily by a decrease in repayment of mortgage notes payable
of $257.1 million and a decrease in offering costs of
$99.8 million. The decrease in proceeds from issuance of
common stock and in offering costs was due to the termination of
the Follow-on Offering on January 2, 2009.
Election
as a REIT
We are taxed as a REIT 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
with regard to the dividends paid deduction 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 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 consolidated financial statements.
Inflation
We are exposed to inflation risk as income from long-term leases
is the primary source of our cash flows from operations. There
are provisions in certain of our tenant leases that are intended
to protect us from, and mitigate the risk of, the impact of
inflation. These provisions include rent steps and clauses
enabling us to receive payment of additional rent calculated as
a percentage of the tenants’ gross sales above
pre-determined thresholds. In addition, most of our leases
require the tenant to 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. However, due to the long-term nature of
the leases, the leases may not re-set frequently enough to
adequately offset the effects of inflation.
75
Commitments
and Contingencies
We are subject to certain contingencies and commitments with
regard to certain transactions. Refer to Note 13 to our
consolidated financial statements accompanying this Annual
Report on
Form 10-K
for further explanations.
Related-Party
Transactions and Agreements
We have entered into agreements with Cole Advisors II and
its affiliates, whereby we have paid, and will continue to pay,
certain fees to, or reimburse certain expenses of, Cole
Advisors II or its affiliates for acquisition and advisory
fees and expenses, financing coordination fees, organization and
offering costs, sales commissions, dealer manager fees, asset
and property management fees and expenses, leasing fees and
reimbursement of certain operating costs. See Note 14 to
our consolidated financial statements included in this Annual
Report on
Form 10-K
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 other real estate-related programs, including
CCPT, CCPT III and CCIT. As such, there are conflicts of
interest where Cole Advisors II or its affiliates, while
serving in the capacity as sponsor, general partner, key
personnel or advisor for other real estate programs sponsored by
Cole Real Estate Investments, may be in conflict with us in
connection with providing services to other real-estate related
programs related to property acquisitions, property
dispositions, and property management among others. The
compensation arrangements between affiliates of Cole
Advisors II and these other real estate programs sponsored
by Cole Real Estate Investments could influence the advice to
us. See “Item 1. Business — Conflicts of
Interest” in this Annual Report on
Form 10-K.
Subsequent
Events
Certain events occurred subsequent to December 31, 2010
through the filing date of this Annual Report on
Form 10-K.
Refer to Note 21 to our consolidated financial statements
included in this Annual Report on
Form 10-K
for further explanation. Such events include:
|
|
|
| |
•
|
Issuance of shares of common stock through the DRIP Offering;
|
| |
| |
•
|
Redemption of shares of common stock;
|
| |
| |
•
|
Real estate acquisitions;
|
| |
| |
•
|
Amendment of the Credit Facility;
|
| |
| |
•
|
Borrowings and repayment of notes payable and the Credit
Facility;
|
| |
| |
•
|
Execution of interest rate swap agreement;
|
| |
| |
•
|
Distributions declared; and
|
| |
| |
•
|
Sale of marketable securities
|
Impact of
Recent Accounting Pronouncements
Reference is made to Note 2 to the consolidated financial
statements included in this Annual Report on
Form 10-K
regarding the impact of recent accounting pronouncements. There
are no new accounting pronouncements that have been issued but
not yet applied by us that we believe will have a material
impact on our consolidated financial statements.
76
Off
Balance Sheet Arrangements
As of December 31, 2010 and 2009, we had no material
off-balance sheet arrangements that had or are reasonably likely
to have a current or future effect on our financial condition,
results of operations, liquidity or capital resources.
|
|
|
ITEM 7A.
|
QUANTITATIVE
AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|
In connection with property acquisitions, we have obtained
variable rate debt financing to fund certain property
acquisitions, and therefore we are exposed to changes in LIBOR
and a bank’s prime rate. Our objectives in managing
interest rate risk will be to limit the impact of interest rate
changes on operations and cash flows, and to lower overall
borrowing costs. To achieve these objectives we will borrow
primarily at interest rates with the lowest margins available
and, in some cases, with the ability to convert variable
interest rates to fixed rates. We have entered and expect to
continue to enter into derivative financial instruments such as
interest rate swaps and caps in order to mitigate our interest
rate risk on a given financial instrument. We have not entered,
and do not intend to enter, into derivative or interest rate
transactions for speculative purposes. We may enter into rate
lock arrangements to lock interest rates on future borrowings.
As of December 31, 2010, $138.3 million of the
$1.7 billion outstanding on notes payable, the Credit
Facility and Repurchase Agreement was subject to variable
interest rates. Amounts due under the Credit Facility bore
interest at Bank of America’s prime rate plus
250 basis points. The remaining variable rate debt bore
interest at the one-month LIBOR plus 200 to 325 basis
points. As of December 31, 2010, a 1% change in interest
rates would result in a change in interest expense of
$1.4 million per year, assuming all of our derivatives
remain effective hedges.
As of December 31, 2010, we had five interest rate swap
agreements outstanding, which mature on various dates from
September 2011 through March 2016, with an aggregate notional
amount under the swap agreements of $122.5 million and an
aggregate net fair value of ($3.7) million. The fair value
of these interest rate swaps is dependent upon existing market
interest rates and swap spreads. As of December 31, 2010,
an increase of 50 basis points in interest rates would
result in an increase to the fair value of these interest rate
swaps of $1.0 million.
We do not have any foreign operations and thus we are not
exposed to foreign currency fluctuations.
|
|
|
ITEM 8.
|
FINANCIAL
STATEMENTS AND SUPPLEMENTARY DATA
|
The financial statements and supplementary data filed as part of
this report are set forth beginning on
page F-1
of this report.
|
|
|
ITEM 9.
|
CHANGES
IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
|
There were no changes in or disagreements with our independent
registered public accountants during the year ended
December 31, 2010.
|
|
|
ITEM 9A.
|
CONTROLS
AND PROCEDURES
|
Evaluation
of Disclosure Controls and Procedures
As required by
Rules 13a-15(b)
and
15d-15(b) of
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
Annual Report on
Form 10-K.
Based on that evaluation, our Chief Executive Officer and Chief
Financial Officer concluded that our disclosure controls and
procedures, as of December 31, 2010, were effective in all
material respects to ensure that information required to be
disclosed by us in this Annual Report on
Form 10-K
is recorded, processed, summarized and reported within the time
periods specified by the rules and forms promulgated under the
Exchange Act, and is
77
accumulated and communicated to management, including our Chief
Executive Officer and Chief Financial Officer, as appropriate to
allow timely decisions regarding required disclosures.
Management’s
Report on Internal Control over Financial Reporting
Cole Credit Property Trust II, Inc. is responsible for
establishing and maintaining adequate internal control over
financial reporting, as such term is defined in
Rules 13a-15(f)
and
15d-15(f)
under the Exchange Act. Internal control over financial
reporting is a process to provide reasonable assurance regarding
the reliability of our financial reporting and the preparation
of financial statements for external purposes in accordance with
GAAP. Because of its inherent limitations, internal control over
financial reporting is not intended to provide absolute
assurance that a misstatement of our financial statements would
be prevented or detected. Also, projections of any evaluation of
internal control effectiveness to future periods are subject to
the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the
policies or procedures may deteriorate.
Under the supervision and with the participation of our
management, including our Chief Executive Officer and Chief
Financial Officer, we conducted an evaluation of the
effectiveness of Cole Credit Property Trust II Inc.’s
internal control over financial reporting based on the framework
in Internal Control — Integrated Framework
issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
Based on this evaluation, management has concluded that Cole
Credit Property Trust II Inc.’s internal control over
financial reporting was effective as of December 31, 2010.
Changes
in Internal Control Over Financial Reporting
No change occurred in our internal control over financial
reporting (as defined in
Rules 13a-15(f)
and 15d -15(f) of the Exchange Act) in connection with the
foregoing evaluations that occurred during the three months
ended December 31, 2010 that has materially affected, or is
reasonably likely to materially affect, our internal control
over financial reporting.
|
|
|
ITEM 9B.
|
OTHER
INFORMATION
|
None.
78
|
|
|
ITEM 10.
|
DIRECTORS,
EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
|
The information required by this Item is incorporated by
reference to our definitive proxy statement to be filed with the
SEC with respect to our 2011 annual meeting of stockholders.
|
|
|
ITEM 11.
|
EXECUTIVE
COMPENSATION
|
The information required by this Item is incorporated by
reference to our definitive proxy statement to be filed with the
SEC with respect to our 2011 annual meeting of stockholders.
|
|
|
ITEM 12.
|
SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND
RELATED STOCKHOLDER MATTERS
|
The information required by this Item is incorporated by
reference to our definitive proxy statement to be filed with the
SEC with respect to our 2011 annual meeting of stockholders.
|
|
|
ITEM 13.
|
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS
INDEPENDENCE
|
The information required by this Item is incorporated by
reference to our definitive proxy statement to be filed with the
SEC with respect to our 2011 annual meeting of stockholders.
|
|
|
ITEM 14.
|
PRINCIPAL
ACCOUNTING FEES AND SERVICES
|
The information required by this Item is incorporated by
reference to our definitive proxy statement to be filed with the
SEC with respect to our 2011 annual meeting of stockholders.
79
|
|
|
ITEM 15.
|
EXHIBITS,
FINANCIAL STATEMENT SCHEDULES
|
(a) List of Documents Filed.
1. The list of the financial statements contained herein is
set forth on
page F-1
hereof.
2. Financial Statement Schedules —
Schedule II — Valuation and Qualifying Accounts
is set forth beginning on
page S-1
hereof.
Schedule III — Real Estate Assets and Accumulated
Depreciation is set forth beginning on
page S-2
hereof.
Schedule IV — Mortgage Loans on Real Estate is
set forth beginning on page S-18 hereof.
All other schedules for which provision is made in the
applicable accounting regulations of the SEC are not required
under the related instructions or are not applicable and
therefore have been omitted.
3. The Exhibits filed in response to Item 601 of
Regulation S-K
are listed on the Exhibit Index attached hereto.
(b) See (a) 3 above.
(c) See (a) 2 above.
80
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
|
Financial Statements
|
|
Page
|
|
|
|
|
|
|
F-2
|
|
|
|
|
|
F-3
|
|
|
|
|
|
F-4
|
|
|
|
|
|
F-5
|
|
|
|
|
|
F-6
|
|
|
|
|
|
F-7
|
|
F-1
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, 2010 and 2009, and
the related consolidated statements of operations,
stockholders’ equity, and cash flows for each of the three
years in the period ended December 31, 2010. Our audits
also included the financial statement schedules listed in the
Index at Item 15. These financial statements and financial
statement schedules are the responsibility of the Company’s
management. Our responsibility is to express an opinion on the
financial statements and financial statement schedules 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 Cole
Credit Property Trust II, Inc. and subsidiaries as of
December 31, 2010 and 2009, and the results of their
operations and their cash flows for each of the three years in
the period ended December 31, 2010, in conformity with
accounting principles generally accepted in the United States of
America. Also, in our opinion, such financial statement
schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all
material respects the information set forth therein.
As discussed in Note 2 to the consolidated financial
statements, effective January 1, 2009, the Company changed
its method of accounting for business combinations.
/s/ DELOITTE &
TOUCHE LLP
Phoenix, Arizona
March 30, 2011
F-2
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
ASSETS
|
|
Investment in real estate assets:
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
833,833
|
|
|
$
|
808,109
|
|
|
Buildings and improvements, less accumulated depreciation of
$178,906 and $122,887, respectively
|
|
|
1,943,307
|
|
|
|
1,928,786
|
|
|
Real estate assets under direct financing leases, less unearned
income of $15,284 and $16,794, respectively
|
|
|
36,946
|
|
|
|
37,736
|
|
|
Acquired intangible lease assets, less accumulated amortization
of $97,387 and $67,253, respectively
|
|
|
340,606
|
|
|
|
357,008
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate assets, net
|
|
|
3,154,692
|
|
|
|
3,131,639
|
|
|
Investment in mortgage notes receivable, net
|
|
|
79,778
|
|
|
|
82,500
|
|
|
|
|
|
|
|
|
|
|
|
|
Total real estate and mortgage assets, net
|
|
|
3,234,470
|
|
|
|
3,214,139
|
|
|
Cash and cash equivalents
|
|
|
45,791
|
|
|
|
28,417
|
|
|
Restricted cash
|
|
|
8,345
|
|
|
|
9,536
|
|
|
Marketable securities
|
|
|
—
|
|
|
|
56,366
|
|
|
Marketable securities pledged as collateral
|
|
|
81,995
|
|
|
|
—
|
|
|
Investment in unconsolidated joint ventures
|
|
|
38,324
|
|
|
|
40,206
|
|
|
Rents and tenant receivables, less allowance for doubtful
accounts of $646 and $1,648, respectively
|
|
|
45,616
|
|
|
|
33,544
|
|
|
Prepaid expenses and other assets
|
|
|
3,866
|
|
|
|
4,253
|
|
|
Deferred financing costs, less accumulated amortization of
$13,599 and $11,713, respectively
|
|
|
26,928
|
|
|
|
26,643
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
3,485,335
|
|
|
$
|
3,413,104
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY
|
|
Notes payable and line of credit
|
|
$
|
1,673,243
|
|
|
$
|
1,607,473
|
|
|
Repurchase agreement
|
|
|
54,312
|
|
|
|
—
|
|
|
Accounts payable and accrued expenses
|
|
|
15,597
|
|
|
|
20,023
|
|
|
Due to affiliates
|
|
|
1,496
|
|
|
|
509
|
|
|
Acquired below market lease intangibles, less accumulated
amortization of
|
|
|
|
|
|
|
|
|
|
$32,095 and $21,470, respectively
|
|
|
140,797
|
|
|
|
149,832
|
|
|
Distributions payable
|
|
|
11,097
|
|
|
|
10,851
|
|
|
Deferred rent, derivative and other liabilities
|
|
|
16,181
|
|
|
|
14,672
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,912,723
|
|
|
|
1,803,360
|
|
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
Redeemable common stock
|
|
|
12,237
|
|
|
|
87,760
|
|
|
|
|
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY:
|
|
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 10,000,000 shares
authorized, none issued and outstanding
|
|
|
—
|
|
|
|
—
|
|
|
Common stock, $0.01 par value; 240,000,000 shares
authorized, 209,317,346 and 204,662,620 shares issued and
outstanding, respectively
|
|
|
2,093
|
|
|
|
2,047
|
|
|
Capital in excess of par value
|
|
|
1,878,118
|
|
|
|
1,762,904
|
|
|
Accumulated distributions in excess of earnings
|
|
|
(332,547
|
)
|
|
|
(233,480
|
)
|
|
Accumulated other comprehensive income (loss)
|
|
|
12,711
|
|
|
|
(9,487
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total stockholders’ equity
|
|
|
1,560,375
|
|
|
|
1,521,984
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity
|
|
$
|
3,485,335
|
|
|
$
|
3,413,104
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-3
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Revenues:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other property income
|
|
$
|
238,706
|
|
|
$
|
240,303
|
|
|
$
|
178,297
|
|
|
Tenant reimbursement income
|
|
|
14,044
|
|
|
|
19,124
|
|
|
|
12,225
|
|
|
Earned income from direct financing leases
|
|
|
2,067
|
|
|
|
1,912
|
|
|
|
2,183
|
|
|
Interest income on mortgage notes receivable
|
|
|
6,661
|
|
|
|
6,867
|
|
|
|
7,081
|
|
|
Interest income on marketable securities
|
|
|
7,672
|
|
|
|
7,249
|
|
|
|
1,218
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
269,150
|
|
|
|
275,455
|
|
|
|
201,004
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
|
6,989
|
|
|
|
7,020
|
|
|
|
5,632
|
|
|
Property operating expenses
|
|
|
20,294
|
|
|
|
25,821
|
|
|
|
16,796
|
|
|
Property and asset management expenses
|
|
|
16,447
|
|
|
|
14,904
|
|
|
|
9,762
|
|
|
Acquisition related expenses
|
|
|
3,441
|
|
|
|
3,241
|
|
|
|
—
|
|
|
Depreciation
|
|
|
56,615
|
|
|
|
56,122
|
|
|
|
42,647
|
|
|
Amortization
|
|
|
28,547
|
|
|
|
34,628
|
|
|
|
21,212
|
|
|
Impairment of real estate assets
|
|
|
4,500
|
|
|
|
13,500
|
|
|
|
3,550
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
136,833
|
|
|
|
155,236
|
|
|
|
99,599
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
132,317
|
|
|
|
120,219
|
|
|
|
101,405
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated joint ventures
|
|
|
965
|
|
|
|
612
|
|
|
|
471
|
|
|
Interest and other income
|
|
|
125
|
|
|
|
572
|
|
|
|
1,279
|
|
|
Interest expense
|
|
|
(102,977
|
)
|
|
|
(98,997
|
)
|
|
|
(78,063
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expense
|
|
|
(101,887
|
)
|
|
|
(97,813
|
)
|
|
|
(76,313
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,430
|
|
|
$
|
22,406
|
|
|
$
|
25,092
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
207,198,078
|
|
|
|
202,686,670
|
|
|
|
146,198,235
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
207,198,078
|
|
|
|
202,690,094
|
|
|
|
146,201,399
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted
|
|
$
|
0.15
|
|
|
$
|
0.11
|
|
|
$
|
0.17
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-4
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
Accumulated
|
|
|
|
|
|
|
|
Common Stock
|
|
|
Capital in
|
|
|
Distributions
|
|
|
Other
|
|
|
Total
|
|
|
|
|
Number of
|
|
|
|
|
|
Excess
|
|
|
in Excess of
|
|
|
Comprehensive
|
|
|
Stockholders’
|
|
|
|
|
Shares
|
|
|
Par Value
|
|
|
of Par Value
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Equity
|
|
|
|
|
Balance, January 1, 2008
|
|
|
93,621,094
|
|
|
$
|
936
|
|
|
$
|
824,676
|
|
|
$
|
(44,526
|
)
|
|
$
|
—
|
|
|
$
|
781,086
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
109,719,921
|
|
|
|
1,097
|
|
|
|
1,092,615
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,093,712
|
|
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(102,495
|
)
|
|
|
—
|
|
|
|
(102,495
|
)
|
|
Commissions on stock sales and related dealer manager fees
|
|
|
—
|
|
|
|
—
|
|
|
|
(93,004
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(93,004
|
)
|
|
Other offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,397
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(7,397
|
)
|
|
Redemptions of common stock
|
|
|
(1,044,267
|
)
|
|
|
(10
|
)
|
|
|
(10,080
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(10,090
|
)
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
|
—
|
|
|
|
—
|
|
|
|
8
|
|
|
Redeemable common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(43,386
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(43,386
|
)
|
|
Comprehensive loss:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
25,092
|
|
|
|
—
|
|
|
|
25,092
|
|
|
Unrealized loss on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(25,756
|
)
|
|
|
(25,756
|
)
|
|
Unrealized loss on interest rate swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(2,794
|
)
|
|
|
(2,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,458
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008
|
|
|
202,296,748
|
|
|
$
|
2,023
|
|
|
$
|
1,763,432
|
|
|
$
|
(121,929
|
)
|
|
$
|
(28,550
|
)
|
|
$
|
1,614,976
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
7,473,804
|
|
|
|
75
|
|
|
|
70,988
|
|
|
|
—
|
|
|
|
—
|
|
|
|
71,063
|
|
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(133,957
|
)
|
|
|
—
|
|
|
|
(133,957
|
)
|
|
Other offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(563
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(563
|
)
|
|
Redemptions of common stock
|
|
|
(5,107,932
|
)
|
|
|
(51
|
)
|
|
|
(48,252
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(48,303
|
)
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
|
—
|
|
|
|
—
|
|
|
|
13
|
|
|
Redeemable common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
(22,714
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(22,714
|
)
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
22,406
|
|
|
|
—
|
|
|
|
22,406
|
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
19,072
|
|
|
|
19,072
|
|
|
Unrealized loss on interest rate swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
(9
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41,469
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2009
|
|
|
204,662,620
|
|
|
$
|
2,047
|
|
|
$
|
1,762,904
|
|
|
$
|
(233,480
|
)
|
|
$
|
(9,487
|
)
|
|
$
|
1,521,984
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock
|
|
|
7,037,054
|
|
|
|
70
|
|
|
|
61,307
|
|
|
|
—
|
|
|
|
—
|
|
|
|
61,377
|
|
|
Distributions
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(129,497
|
)
|
|
|
—
|
|
|
|
(129,497
|
)
|
|
Other offering costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(9
|
)
|
|
Redemptions of common stock
|
|
|
(2,382,328
|
)
|
|
|
(24
|
)
|
|
|
(21,614
|
)
|
|
|
—
|
|
|
|
—
|
|
|
|
(21,638
|
)
|
|
Stock compensation expense
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
|
—
|
|
|
|
—
|
|
|
|
7
|
|
|
Decrease in redeemable common stock
|
|
|
—
|
|
|
|
—
|
|
|
|
75,523
|
|
|
|
—
|
|
|
|
—
|
|
|
|
75,523
|
|
|
Comprehensive income:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
30,430
|
|
|
|
—
|
|
|
|
30,430
|
|
|
Unrealized gain on marketable securities
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
23,051
|
|
|
|
23,051
|
|
|
Unrealized loss on interest rate swaps
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
(853
|
)
|
|
|
(853
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
52,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2010
|
|
|
209,317,346
|
|
|
$
|
2,093
|
|
|
$
|
1,878,118
|
|
|
$
|
(332,547
|
)
|
|
$
|
12,711
|
|
|
$
|
1,560,375
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-5
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
30,430
|
|
|
$
|
22,406
|
|
|
$
|
25,092
|
|
|
Adjustments to reconcile net income to net cash provided by
operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
|
|
|
56,615
|
|
|
|
56,122
|
|
|
|
42,647
|
|
|
Amortization of intangible lease assets and below market lease
intangibles, net
|
|
|
20,695
|
|
|
|
22,606
|
|
|
|
15,893
|
|
|
Amortization of deferred financing costs
|
|
|
6,580
|
|
|
|
5,969
|
|
|
|
5,814
|
|
|
Amortization of premiums on mortgage notes receivable
|
|
|
687
|
|
|
|
671
|
|
|
|
635
|
|
|
Accretion of discount on marketable securities
|
|
|
(2,578
|
)
|
|
|
(2,216
|
)
|
|
|
(310
|
)
|
|
Amortization of fair value adjustments of mortgage notes payable
assumed
|
|
|
1,849
|
|
|
|
1,421
|
|
|
|
78
|
|
|
Bad debt (recovery) expense
|
|
|
(257
|
)
|
|
|
1,993
|
|
|
|
1,933
|
|
|
Stock compensation expense
|
|
|
7
|
|
|
|
13
|
|
|
|
8
|
|
|
Impairment of real estate assets
|
|
|
4,500
|
|
|
|
13,500
|
|
|
|
3,550
|
|
|
Equity in income of unconsolidated joint ventures
|
|
|
(965
|
)
|
|
|
(612
|
)
|
|
|
(471
|
)
|
|
Return on investment in unconsolidated joint ventures
|
|
|
1,285
|
|
|
|
2,957
|
|
|
|
376
|
|
|
Property condemnation and easement loss (gain)
|
|
|
—
|
|
|
|
139
|
|
|
|
(34
|
)
|
|
Changes in assets and liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rents and tenant receivables
|
|
|
(11,815
|
)
|
|
|
(13,325
|
)
|
|
|
(16,047
|
)
|
|
Prepaid expenses and other assets
|
|
|
246
|
|
|
|
771
|
|
|
|
(2,215
|
)
|
|
Accounts payable and accrued expenses
|
|
|
(3,436
|
)
|
|
|
1,687
|
|
|
|
12,945
|
|
|
Due to affiliates, deferred rent and other liabilities
|
|
|
1,784
|
|
|
|
2,770
|
|
|
|
6,179
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities
|
|
|
105,627
|
|
|
|
116,872
|
|
|
|
96,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate and related assets
|
|
|
(107,492
|
)
|
|
|
(13,018
|
)
|
|
|
(1,146,670
|
)
|
|
Other additions to real estate and related assets
|
|
|
(8,298
|
)
|
|
|
(6,104
|
)
|
|
|
(1,095
|
)
|
|
Investment in marketable securities
|
|
|
—
|
|
|
|
(10,495
|
)
|
|
|
(50,029
|
)
|
|
Investment in unconsolidated joint ventures
|
|
|
—
|
|
|
|
(16,759
|
)
|
|
|
(53,744
|
)
|
|
Return of investment from unconsolidated joint ventures
|
|
|
1,562
|
|
|
|
—
|
|
|
|
28,046
|
|
|
Investment in mortgage notes receivable and related acquisition
costs
|
|
|
—
|
|
|
|
—
|
|
|
|
(102
|
)
|
|
Principal repayments from mortgage notes receivable and real
estate assets under direct financing leases
|
|
|
2,825
|
|
|
|
1,823
|
|
|
|
1,573
|
|
|
Proceeds from easement and condemnation of assets
|
|
|
5
|
|
|
|
27
|
|
|
|
475
|
|
|
Change in restricted cash
|
|
|
1,191
|
|
|
|
(971
|
)
|
|
|
5,468
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(110,207
|
)
|
|
|
(45,497
|
)
|
|
|
(1,216,078
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock
|
|
|
—
|
|
|
|
46
|
|
|
|
1,040,237
|
|
|
Offering costs on issuance of common stock
|
|
|
(9
|
)
|
|
|
(563
|
)
|
|
|
(100,402
|
)
|
|
Redemptions of common stock
|
|
|
(21,638
|
)
|
|
|
(48,303
|
)
|
|
|
(10,090
|
)
|
|
Distributions to investors
|
|
|
(67,874
|
)
|
|
|
(63,966
|
)
|
|
|
(42,575
|
)
|
|
Proceeds from notes payable and line of credit
|
|
|
391,000
|
|
|
|
105,242
|
|
|
|
717,604
|
|
|
Repayment of notes payable and line of credit
|
|
|
(327,079
|
)
|
|
|
(137,325
|
)
|
|
|
(394,390
|
)
|
|
Proceeds from repurchase agreement
|
|
|
54,312
|
|
|
|
—
|
|
|
|
—
|
|
|
Refund of loan deposits
|
|
|
2,145
|
|
|
|
795
|
|
|
|
5,169
|
|
|
Payment of loan deposits
|
|
|
(2,145
|
)
|
|
|
(770
|
)
|
|
|
(5,194
|
)
|
|
Escrowed investor proceeds liability
|
|
|
—
|
|
|
|
(18
|
)
|
|
|
(12,720
|
)
|
|
Deferred financing costs paid
|
|
|
(6,758
|
)
|
|
|
(4,581
|
)
|
|
|
(14,666
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) financing activities
|
|
|
21,954
|
|
|
|
(149,443
|
)
|
|
|
1,182,973
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
17,374
|
|
|
|
(78,068
|
)
|
|
|
62,968
|
|
|
Cash and cash equivalents, beginning of year
|
|
|
28,417
|
|
|
|
106,485
|
|
|
|
43,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year
|
|
$
|
45,791
|
|
|
$
|
28,417
|
|
|
$
|
106,485
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these
consolidated financial statements.
F-6
NOTE 1 —
ORGANIZATION AND BUSINESS
Cole Credit Property Trust II, Inc. (the
“Company”) is a Maryland corporation formed on
September 29, 2004, that 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 II, LP (“Cole OP
II”), a Delaware limited partnership. The Company is the
sole general partner of and owns a 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 insignificant noncontrolling
partnership interest of less than 0.01% of Cole OP II.
As of December 31, 2010, the Company owned 725 properties
comprising 20.6 million rentable square feet of single and
multi-tenant retail and commercial space located in
45 states and the U.S. Virgin Islands. As of
December 31, 2010, the rentable space at these properties
was 94% leased. As of December 31, 2010, the Company also
owned 69 mortgage notes receivable secured by 43 restaurant
properties and 26 single-tenant retail properties, each of which
is subject to a net lease. Through two joint ventures, the
Company had a majority indirect interest in a
386,000 square foot multi-tenant retail building in
Independence, Missouri and a majority indirect interest in a
ten-property storage facility portfolio as of December 31,
2010. In addition, the Company owned six commercial
mortgage-backed securities (“CMBS”) bonds as of
December 31, 2010.
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 Initial 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 $541.4 million and a maximum of
1,202,000 shares was available under the DRIP for an
aggregate offering price of $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.
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
$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. Unsold shares in the
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 its common stock
(the “Follow-on Offering”). The Company terminated the
Follow-on Offering on January 2, 2009. As of the close of
business on January 2, 2009, the Company had issued a total
of 147,454,259 shares in the Follow-on Offering, including
141,520,572 shares sold in the primary offering and
5,933,687 shares sold pursuant to the DRIP, resulting in
gross offering proceeds of $1.5 billion. At the completion
of the Follow-on Offering, a total of 1,595,741 shares of
common stock remained unsold, including 1,529,428 shares
that remained unsold in the primary offering and
66,313 shares of common stock that remained unsold pursuant
to the DRIP. Unsold shares in the Follow-on Offering were
deregistered.
On September 18, 2008, the Company registered 30,000,000
additional shares to be offered pursuant to its DRIP in a
Registration Statement on
Form S-3
(the “DRIP Offering”) (collectively with the Initial
Offering
F-7
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and Follow-on Offering, the “Offerings”). On
June 22, 2010, the Company’s board of directors
amended the DRIP to provide that reinvestments of distributions
made on or after July 15, 2010 will be made at a price
equal to the most recent estimated per share value of the
Company’s common stock as determined by the board of
directors. The board of directors determined that the estimated
value of the Company’s common stock, as of June 22,
2010, was $8.05 per share, which will be the price used for the
purchase of shares pursuant to the DRIP until such time as the
board provides a new share value estimate. As of
December 31, 2010, the Company had issued
15,790,886 shares of common stock in the DRIP Offering,
resulting in gross proceeds of $144.5 million. Combined
with the gross proceeds from the Initial Offering and Follow-on
Offering, the Company had aggregate gross proceeds from the
Offerings of $2.2 billion (including shares sold pursuant
to the DRIP) as of December 31, 2010, before offering
costs, selling commissions, and dealer management fees of
$188.3 million and before share redemptions of
$82.2 million.
The Company’s stock is not currently listed on a national
securities exchange. The Company may seek to list its common
stock for trading on a national securities exchange only if a
majority of its independent directors believes 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 on a national securities exchange.
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 elimination of this
listing deadline; or (2) seek stockholder approval to adopt
a plan of liquidation. If neither proposal is approved, the
Company may continue to operate as before.
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 accounting principles generally accepted 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 accompanying consolidated financial statements include the
accounts of the Company and its
wholly-owned
subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
The Company evaluates the need to consolidate joint ventures
based on standards set forth in the Financial Accounting
Standards Board (“FASB”) Accounting Standards
Codification (“ASC”) 810, Consolidation. In
determining whether the Company has a controlling interest in a
joint venture and the requirement to consolidate the accounts of
that entity, management considers factors such as ownership
interest, authority to make decisions and contractual and
substantive participating rights of the partners/members as well
as whether the entity is a variable interest entity for which
the Company is the primary beneficiary.
Certain reclassifications have been made to the prior
years’ Consolidated Statement of Cash Flows to separately
present other additions to real estate and related assets from
the Company’s acquired real estate and related assets in
order to conform to the current year presentation.
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.
F-8
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Investment
in and Valuation of Real Estate and Related Assets
Real estate assets are stated at cost, less accumulated
depreciation and amortization. Amounts capitalized to real
estate assets consist of the cost of acquisition, excluding
acquisition related expenses effective January 1, 2009,
construction and any tenant improvements, major improvements and
betterments that extend the useful life of the related asset and
leasing costs. All repairs and maintenance are expensed as
incurred.
Assets, other than land, are depreciated or amortized on a
straight-line basis. The estimated 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
|
The Company continually monitors events and changes in
circumstances that could indicate that the carrying amounts of
its real estate and related intangible 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 value of the assets
will be recovered through the undiscounted future operating 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 value, the Company will
adjust the real estate and related intangible assets to their
fair value and recognize an impairment loss.
The Company continues to monitor certain properties for which it
has identified impairment indicators. As of December 31,
2010, the Company had eight properties with an aggregate book
value of $60.8 million for which it assessed the
recoverability of the carrying values. For each of these
properties the undiscounted future operating cash flows expected
from the use of these properties and their related intangible
assets and their eventual disposition continued to exceed the
carrying value of these assets as of December 31, 2010.
Should the conditions of any of these properties change, the
undiscounted future operating cash flows expected may change and
adversely affect the recoverability of the carrying values
related to these properties. During the year ended
December 31, 2010, the Company identified one property with
impairment indicators for which the undiscounted future
operating 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 reassessed and reduced the carrying values of both the
real estate assets and the related intangible assets to their
estimated fair value and recorded an impairment loss of
$4.5 million during the year ended December 31, 2010.
In addition, the Company identified one property during each of
the years ended December 31, 2009 and 2008 with impairment
indicators for which the undiscounted future operating cash
flows expected from the use of the respective property and
related intangible assets and their eventual dispositions were
less than the carrying value of the respective assets. As a
result, the Company reassessed and reduced the carrying values
of both the real estate and related intangible assets to their
estimated fair values and recorded an impairment loss of
$13.5 million and $3.6 million during the years ended
December 31, 2009 and 2008, respectively.
Projections of expected future cash flows require the Company to
use estimates such as current market rental rates on vacant
properties, future market rental income amounts subsequent to
the expiration of current lease agreements, property operating
expenses, terminal capitalization and discount rates, the number
of months it takes to re-lease the property, required tenant
improvements and the number of years the property is held for
investment. The use of alternative assumptions in the future
cash flow analysis could result in a different assessment of the
property’s future cash flow and a different conclusion
regarding the existence of an impairment, the extent of such
loss, if any, as well as the carrying value of the real estate
and related intangible assets.
F-9
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
When a real estate asset is identified as held for sale, the
Company will cease depreciation of the asset and estimate the
sales price, net of selling costs. If, in the Company’s
opinion, the estimated 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, net of selling costs. There were no properties
identified as held for sale as of December 31, 2010 or 2009.
Allocation
of Purchase Price of Real Estate and Related
Assets
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 fair values. Effective January 1,
2009, 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 by management 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 lease
intangibles. 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 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
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 values are capitalized as
intangible lease assets or liabilities. Above market lease
values are amortized as an adjustment of rental income over the
lesser of the useful life or the remaining terms of the
respective leases. Below market leases are amortized as an
adjustment of rental income over the remaining terms of the
respective leases, including any bargain renewal periods. If a
lease is terminated prior to its stated expiration, all
unamortized amounts of above market and below market in-place
lease values relating to that lease would be recorded as an
adjustment to rental income.
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 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 value of
the 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 costs are
capitalized as intangible lease assets and are amortized to
expense over the lesser of the useful life or the remaining term
of the respective leases. If a lease is terminated prior to its
stated expiration, all unamortized amounts of in-place lease
assets relating to that lease would be expensed.
The Company estimates the fair value of assumed mortgage notes
payable based upon indications of current market pricing for
similar types of debt with similar maturities. Assumed mortgage
notes payable are initially recorded at their estimated fair
value as of the assumption date, and the difference between such
estimated fair value and the respective note’s outstanding
principal balance is amortized to interest expense over the term
of the mortgage note payable.
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 and capitalization
F-10
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
rates, interest 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.
Investment
in Direct Financing Leases
The Company evaluates the leases associated with its real estate
properties in accordance with ASC 840, Leases. 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, the Company records 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 the leased
property. Actual residual values realized could differ from
these estimates. The Company evaluates the collectability of
future minimum lease payments on each direct financing lease to
determine collectability primarily through the evaluation of
payment history. There were no amounts past due as of
December 31, 2010, 2009 and 2008. The Company does not
provide for an allowance based on the grouping of direct
financing leases as the Company believes the characteristics of
each direct financing lease are not sufficiently similar to
allow an evaluation as a group for a possible allowance. As
such, all of the Company’s direct financing leases are
evaluated individually for this purpose. Any write-downs of
estimated residual value are recognized as impairments in the
current period. There were no impairment losses or allowances
recorded related to direct financing leases during the years
ended December 31, 2010, 2009, and 2008.
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 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 collectability of both interest and principal on
each mortgage note receivable to determine whether it is
collectible, primarily through the evaluation of credit quality
indicators such as underlying collateral and payment history.
There were no amounts past due as of December 31, 2010,
2009, and 2008. The Company does not provide for an allowance
for loan losses based on the grouping of loans as the Company
believes the characteristics of the loans are not sufficiently
similar to allow for an evaluation of these loans as a group for
a possible loan loss allowance. As such, all of the
Company’s loans are evaluated individually for this
purpose. 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. If 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 collateral dependent. 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 or allowances
were recorded related to mortgage notes receivable for the years
ended December 31, 2010, 2009 and 2008.
F-11
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Cash
and Cash Equivalents
The Company considers all highly liquid instruments with
maturities when purchased of three months or less to be cash
equivalents. The Company considers investments in highly liquid
money market accounts to be cash equivalents.
Restricted
Cash
Restricted cash included $8.3 million as of
December 31, 2010 and 2009 for tenant and capital
improvements, leasing commissions, repairs and maintenance and
other lender reserves for certain properties, in accordance with
the respective lender’s loan agreement. Restricted cash
also included $1.2 million as of December 31, 2009,
for the contractual obligations related to the earnout
agreements discussed in Note 5 below. No amounts were
included in restricted cash related to the earnout agreements as
of December 31, 2010.
Investment
in Marketable Securities
Investments in marketable securities consist of investments in
CMBS. ASC 470, Debt, requires the Company to
classify its investments in real estate securities as
“trading,”
“available-for-sale”
or
“held-to-maturity.”
The Company classifies its investments as
available-for-sale
as the Company intends to hold its investments until maturity,
however the Company may sell them prior to their maturity. These
investments are carried at estimated fair value, with unrealized
gains and losses reported in accumulated other comprehensive
income (loss). Estimated fair values are based on estimated
quoted market prices from third party trading desks, where
available. Upon the sale of a security, the realized net gain or
loss is computed on a specific identification basis.
The Company monitors its
available-for-sale
securities for impairments. A loss is recognized when the
Company determines that a decline in the estimated fair value of
a security below its amortized cost is
other-than-temporary.
The Company considers many factors in determining whether the
impairment of a security is deemed to be
other-than-temporary,
including, but not limited to, the length of time the security
has had a decline in estimated fair value below its amortized
cost, the amount of the unrealized loss, the intent and ability
of the Company to hold the security for a period of time
sufficient for a recovery in value, recent events specific to
the issuer or industry, external credit ratings and recent
changes in such ratings. The analysis of determining whether the
impairment of a security is deemed to be
other-than-temporary
requires significant judgments and assumptions. The use of
different judgments and assumptions could result in a different
conclusion.
Unamortized premiums and discounts on securities
available-for-sale
are recognized in interest income on marketable securities over
the contractual life, adjusted for actual prepayments, of the
securities using the effective interest method.
Investment
in Unconsolidated Joint Ventures
Investment in unconsolidated joint ventures as of
December 31, 2010 consisted of the Company’s
non-controlling majority interest in a joint venture that owns a
multi-tenant property in Independence, Missouri and a majority
interest in a joint venture that owns a ten-property storage
facility portfolio. Consolidation of these investments is not
required as the entities do not qualify as a variable interest
entity (“VIE”) and do not meet the control
requirements for consolidation, as defined in ASC 810,
Consolidation. Each of us and the respective joint
venture partner must approve decisions about the respective
entity’s activities that have a significant effect on the
success of the entity. As of December 31, 2010, the
aggregate carrying value of assets held within the
unconsolidated joint ventures was $148.6 million and the
face value of the non-recourse mortgage notes payable was
$111.6 million. As of December 31, 2009, the aggregate
carrying value of assets
F-12
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
held within the unconsolidated joint ventures was
$152.3 million and the face value of the non-recourse
mortgage notes payable was $113.5 million.
The Company accounts for the unconsolidated joint ventures using
the equity method of accounting per guidance established under
ASC 323, Investments — Equity Method and Joint
Ventures (“ASC 323”). The equity method of
accounting requires the investments to be initially recorded at
cost and subsequently adjusted for the Company’s share of
equity in the joint ventures’ earnings and distributions.
The Company evaluates the carrying amount of each investment for
impairment in accordance with ASC 323. The unconsolidated
joint ventures are reviewed for potential impairment if the
carrying amount of the investment exceeds its fair value. To
determine whether impairment is
other-than-temporary,
the Company considers whether it has the ability and intent to
hold the investment until the carrying value is fully recovered.
The evaluation of an investment in a joint venture for potential
impairment can require the Company’s management to exercise
significant judgments and assumptions. The use of different
judgments and assumptions could result in different conclusions.
No impairment losses were recorded related to the unconsolidated
joint ventures for the years ended December 31, 2010, 2009
and 2008.
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 due from tenants. See “Revenue Recognition”
below. The Company makes estimates of the uncollectability of
its accounts receivable 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 primarily 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.
Derivative
Instruments and Hedging Activities
ASC 815, Derivatives and Hedging (“ASC 815”),
establishes accounting and reporting standards for derivative
instruments, including certain derivative instruments embedded
in other contracts, and for hedging activities. All derivatives
are carried at fair value. Accounting for changes in the fair
value of a derivative instrument depends on the intended use of
the derivative instrument and the designation of the derivative
instrument. The change in fair value of the effective portion of
the derivative instrument that is designated as a hedge is
recorded as other comprehensive income (loss). The changes in
fair value for derivative instruments that are not designated as
a hedge or that do not meet the hedge accounting criteria of
ASC 815 are recorded as a gain or loss to operations.
Deferred
Financing Costs
Deferred financing costs are capitalized and amortized on a
straight-line basis over the term of the related financing
arrangement, which approximates the effective interest method.
Amortization of deferred financing costs for the years ended
December 31, 2010, 2009 and 2008, was $6.6 million,
$6.0 million and $5.8 million, respectively, and was
recorded in interest expense in the consolidated statements of
operations.
F-13
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Revenue
Recognition
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 qualified and elected to be taxed as a REIT for
federal income tax purposes under Sections 856 through 860
of the Internal Revenue Code of 1986, as amended. The Company
generally is not subject to federal corporate income tax to the
extent it distributes its taxable income to its stockholders,
and so long as it distributes at least 90% of its taxable income
(excluding capital gains). REITs are subject to a number of
other organizational and operational requirements. Even if the
Company maintains its qualification 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, 2010, the Company had cash on deposit,
including restricted cash, in five financial institutions, four
of which had deposits in excess of federally insured levels
totaling $47.9 million; however, the Company has not
experienced any losses in such accounts. The Company limits cash
investments to financial institutions with high credit standing;
therefore, the Company believes it is not exposed to any
significant credit risk on cash.
No single tenant accounted for greater than 10% of the
Company’s gross annualized rental revenues for the year
ended December 31, 2010. Tenants in the specialty retail,
drugstore and restaurant industries comprised 18%, 16% and 13%,
respectively, of the Company’s 2010 gross annualized
rental revenues for the year ended December 31, 2010.
Additionally, we have certain geographic concentrations in our
property holdings. In particular, as of December 31, 2010,
165 of the Company’s properties were located in Texas and
22 were located in Florida, accounting for 16% and 10% of the
Company’s 2010 gross annualized 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. No amounts were
incurred by Cole Advisors II for organization and offering
costs during the year ended December 31, 2010 on behalf of
the Company. During the year ended December 31, 2009 and
2008, Cole Advisors II incurred organization and offering
costs of $525,000 and $7.4 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.
Due to
Affiliates
As of December 31, 2010, $1.5 million was due to Cole
Advisors II and its affiliates primarily related to the
reimbursement of general and administrative, acquisition,
property and asset management expenses incurred. As of
December 31, 2009, the amount due to affiliates consisted
of $509,000 due to Cole Advisors II
F-14
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
and its affiliates primarily related to the reimbursement of
general and administrative and property management expenses
incurred.
Stockholders’
Equity
As of each of the years ended December 31, 2010 and 2009,
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 amend the charter to
authorize the issuance of additional shares of capital stock
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.
Redeemable
Common Stock
The Company’s board of directors suspended the share
redemption program on November 10, 2009 and reinstated the
share redemption program, effective August 1, 2010, and
adopted several amendments to the program. Pursuant to the
amended share redemption program, during any calendar year, the
Company will not redeem in excess of 3% of the weighted average
number of shares outstanding during the prior calendar year
(including shares requested for redemption upon the death of a
stockholder), and the cash available for redemptions (including
those upon death or qualifying disability) is limited to the net
cumulative proceeds from the sale of shares pursuant to the
DRIP. In addition, the Company will redeem shares on a quarterly
basis, at the rate of one-fourth of 3% of the weighted average
number of shares outstanding during the prior calendar year
(including shares requested for redemption upon the death of a
stockholder). Funding for redemptions for each quarter
(including those upon death or qualifying disability of a
stockholder) will also be limited to the net proceeds the
Company receives from the sale of shares during such quarter
under the DRIP. Prior to the amendment, the Company’s share
redemption program provided that all redemptions during any
calendar year, including those upon death or qualifying
disability, were limited to those that could be funded with net
cumulative proceeds from the DRIP. The introduction of the
quarterly limits to the amended share redemption program
resulted in a decrease in redeemable common stock from
$87.8 million as of December 31, 2009 to
$12.2 million as of December 31, 2010.
Pursuant to the amended program, the redemption price per share
is dependent on the length of time the shares are held and the
estimated share value. For purposes of establishing the
redemption price per share, estimated share value means the most
recently disclosed estimated value of the Company’s shares
of common stock, as determined by the Company’s board of
directors, including a majority of the Company’s
independent directors (the “Estimated Share Value”).
As of December 31, 2010, the Estimated Share Value was
$8.05 per share, as determined by the Company’s board of
directors on June 22, 2010.
Earnings
Per Share
Earnings per share are calculated based on the weighted average
number of common shares outstanding during each period
presented. Diluted income per share considers the effect of all
potentially dilutive share equivalents, including outstanding
employee stock options. See Note 16 below.
Stock
Options
ASC 718, Compensation — Stock Compensation
(“ASC 718”), 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 16), based on estimated fair
values. As of December 31, 2010 and 2009, there were 45,000
stock options outstanding under the IDSOP at a weighted average
exercise price of $9.12 per share.
F-15
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Reportable
Segments
ASC 280, Segment Reporting, establishes standards for
reporting financial and descriptive information about an
enterprise’s reportable segments. The Company’s
operating segments consist of commercial properties, which
include activities related to investing in real estate including
retail, office and distribution properties and other real estate
related assets. The commercial properties are geographically
diversified throughout the United States, and the Company’s
chief operating decision maker evaluates operating performance
on an overall portfolio level. These commercial properties have
similar economic characteristics, therefore the Company’s
properties have been aggregated into one reportable segment.
Interest
Interest is charged to interest expense as it accrues. No
interest costs were capitalized during the years ended
December 31, 2010, 2009 and 2008.
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 taxable income excluding capital gains. To the
extent funds are available, the Company intends to pay regular
distributions to stockholders. Distributions are paid to
stockholders of record as of the applicable record dates.
On June 22, 2010, the Company’s board of directors
approved the Third Amended and Restated Distribution
Reinvestment Plan, which was effective July 15, 2010.
Pursuant to the amended DRIP, beginning with reinvestments made
on or after July 15, 2010, distributions are reinvested in
shares of the Company’s common stock at a price equal to
the most recent Estimated Share Value. The Company’s board
of directors determined that the Estimated Share Value, as of
June 22, 2010, was $8.05 per share, which is the per share
value used for the purchase of shares pursuant to the DRIP,
beginning July 15, 2010, until such time as the board of
directors provides a new share value estimate.
On September 20, 2010, the Company’s board of
directors declared a daily distribution of $0.001712523 per
share for stockholders of record as of the close of business on
each day of the period commencing on October 1, 2010 and
ending on December 31, 2010. As of December 31, 2010,
the Company had distributions payable of $11.1 million. The
distributions were paid in January 2011, of which
$5.1 million was reinvested in shares through the DRIP.
Repurchase
Agreement
In certain circumstances the Company may obtain financing
through a repurchase agreement. The Company evaluates the
initial transfer of a financial instrument and the related
repurchase agreement for sale accounting treatment. In instances
where the Company maintains effective control over the
transferred securities, the Company accounts for the transaction
as a secured borrowing, and accordingly, both the securities and
related repurchase agreement payable are recorded separately in
the consolidated balance sheet. In instances where the Company
does not maintain effective control over the transferred
securities, the Company accounts for the transaction as a sale
of securities for proceeds consisting of cash and a forward
purchase contract.
Recent
Accounting Pronouncements
In January 2010, the FASB issued Accounting Standard Update
(“ASU”)
2010-06,
Fair Value Measurements and Disclosures (Topic 820),
(“ASU
2010-06”),
which amends ASC 820, Fair Value Measurements and
Disclosures (“ASC 820”) to add new requirements
for disclosures about transfers into and out of Levels 1
and 2 and separate disclosures about purchases, sales,
issuances, and settlements relating to
F-16
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Level 3 measurements. ASU
2010-06 also
clarifies existing fair value disclosures about the level of
disaggregation and about inputs and valuation techniques used to
measure fair value. ASU
2010-06 is
effective for the first reporting period (including interim
periods) beginning after December 15, 2009, except for the
requirement to provide the Level 3 activity of purchases,
sales, issuances, and settlements on a gross basis, which will
be effective for fiscal years beginning after December 15,
2010, and for interim periods within those fiscal years. The
adoption of ASU
2010-06 has
not had a material impact on the Company’s consolidated
financial statement disclosures.
In July 2010, FASB issued ASU
2010-20,
Disclosures about the Credit Quality of Financing Receivables
and the Allowance for Credit Losses, (“ASU
2010-20”),
which enhances the qualitative and quantitative disclosures with
respect to the credit quality and related allowance for credit
losses of financing receivables. Finance receivables includes
mortgage notes receivable, lease receivables and other
arrangements with a contractual right to receive money on demand
or on fixed or determinable dates that is recognized as an asset
on an entity’s statement of financial position. Required
disclosures under ASU
2010-20 as
of the end of a reporting period are effective for the
Company’s December 31, 2010 reporting period and
disclosures regarding activities during a reporting period are
effective for the Company’s March 31, 2011 interim
reporting period. The Company has incorporated the required
disclosures within this Annual Report on
Form 10-K,
where applicable. The adoption of ASU
2010-20 has
not had a material impact on the Company’s consolidated
financial statements.
NOTE 3 —
FAIR VALUE MEASUREMENTS
ASC 820 defines fair value, establishes a framework for
measuring fair value in GAAP and expands disclosures about fair
value measurements. ASC 820 emphasizes that fair value is
intended to be a market-based measurement, as opposed to a
transaction-specific measurement.
Fair value is defined by ASC 820 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 1 — Inputs are quoted prices
(unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the
measurement date. An active market is defined as a market in
which transactions for the assets or liabilities occur with
sufficient frequency and volume to provide pricing information
on an ongoing basis.
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).
Level 3 — Unobservable inputs, only used
to the extent that observable inputs are not available, reflect
the Company’s assumptions about the pricing of an asset or
liability.
A summary of the Company’s real estate assets measured at
fair value on a non-recurring basis during the year ended
December 31, 2010 is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement of
|
|
|
|
|
|
|
|
Re-measured
|
|
|
Reporting Data Using
|
|
|
Total
|
|
|
Description:
|
|
Balance
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Losses
|
|
|
|
|
Investment in real estate assets
|
|
$
|
3,523
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
3,523
|
|
|
$
|
4,500
|
|
During the year ended December 31, 2010, real estate assets
with a carrying amount of $8.0 million related to one
property were deemed to be impaired and their carrying values
were reduced to their estimated
F-17
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
fair value of $3.5 million, resulting in an impairment
charge of $4.5 million, which is included in impairment on
real estate assets on the consolidated statement of operations
for the year ended December 31, 2010.
A summary of the Company’s real estate assets measured at
fair value on a non-recurring basis during the year ended
December 31, 2009 is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurement of
|
|
|
|
|
|
|
|
Re-measured
|
|
|
Reporting Data Using
|
|
|
Total
|
|
|
Description:
|
|
Balance
|
|
|
Level 1
|
|
|
Level 2
|
|
|
Level 3
|
|
|
Losses
|
|
|
|
|
Investment in real estate assets
|
|
$
|
9,560
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
9,560
|
|
|
$
|
13,500
|
|
During the year ended December 31, 2009, real estate assets
with a carrying amount of $23.1 million related to one
property were deemed to be impaired and their carrying values
were reduced to their estimated fair value of $9.6 million,
resulting in an impairment charge of $13.5 million, which
is included in impairment on real estate assets on the
consolidated statement of operations for the year ended
December 31, 2009.
The Company used a discounted cash flow analysis and recent
comparable sales transactions to estimate the fair value of real
estate assets. The discounted cash flow analysis utilized
internally prepared probability-weighted cash flow estimates,
including estimated discount ranges and terminal capitalization
rates, which were within historical average ranges and gathered
for specific geographic areas based on available information
obtained from third-party service providers and reports.
The following describes the methods the Company uses to estimate
the fair value of the Company’s financial assets and
liabilities:
Cash and cash equivalents, restricted cash, rents and tenant
receivables and accounts payable and accrued expenses
— The Company considers the carrying values of
these financial instruments to approximate fair value because of
the short period of time between origination of the instruments
and their expected realization.
Mortgage notes receivable — The fair value is
estimated by discounting the expected cash flows on the notes at
rates at which management believes similar loans would be made
as of December 31, 2010 and 2009. The estimated fair value
of these notes was $83.9 million and $86.6 million as
of December 31, 2010 and December 31, 2009,
respectively, as compared to the carrying values of
$79.8 million and $82.5 million as of
December 31, 2010 and December 31, 2009, respectively.
Notes payable, line of credit and repurchase
agreement — The fair value is estimated using a
discounted cash flow technique based on estimated borrowing
rates available to the Company as of December 31, 2010 and
December 31, 2009. The estimated fair value of the notes
payable, line of credit and repurchase agreement was
$1.7 billion and $1.5 billion as of December 31,
2010 and December 31, 2009, respectively, as compared to
the carrying value of $1.7 billion and $1.6 billion as
of December 31, 2010 and December 31, 2009,
respectively.
Marketable securities — The Company’s
marketable securities, including those pledged as collateral,
are carried at fair value and are valued using Level 3
inputs. The Company primarily uses estimated non-binding quoted
market prices from the trading desks of financial institutions
that are dealers in such bonds, where available, for similar
CMBS tranches that actively participate in the CMBS market,
adjusted for industry benchmarks, such as the CMBX Index, where
applicable. Market conditions, such as interest rates,
liquidity, trading activity and credit spreads may cause
significant variability to the received quotes. If the Company
is unable to obtain quotes from third parties or if the Company
believes quotes received are inaccurate, the Company would
estimate fair value using internal models that primarily
consider the CMBX Index, expected cash flows, known and expected
defaults and rating agency reports. Changes in market
conditions, as well as changes in the assumptions or methodology
used to estimate fair value, could result in a significant
increase or decrease in the recorded amount of the securities.
As of December 31, 2010 and December 31, 2009, no
marketable securities were valued using internal models.
Significant judgment is involved in valuations and
F-18
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
different judgments and assumptions used in management’s
valuation could result in different valuations. If there
continues to be significant disruptions to the financial
markets, the Company’s estimates of fair value may have
significant volatility.
Derivative Instruments — The Company’s
derivative instruments represent interest rate swaps and
interest rate caps. All derivative instruments are carried at
fair value and are valued using Level 2 inputs. The fair
value of these instruments is determined using interest rate
market pricing models. The Company includes the impact of credit
valuation adjustments on derivative instruments measured at fair
value.
Considerable judgment is necessary to develop estimated fair
values of financial instruments. 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 instruments.
In accordance with the fair value hierarchy described above, the
following table shows the fair value of the Company’s
financial assets and liabilities that are required to be
measured at fair value on a recurring basis as of
December 31, 2010 (in thousands):
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
Balance as of
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
December 31, 2010
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
81,995
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
81,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
3,656
|
|
|
$
|
—
|
|
|
$
|
3,656
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
In accordance with the fair value hierarchy described above, the
following table shows the fair value of the Company’s
financial assets and liabilities that are required to be
measured at fair value on a recurring basis as of
December 31, 2009 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quoted Prices in
|
|
|
|
|
|
Significant
|
|
|
|
|
|
|
|
Active Markets for
|
|
|
Significant Other
|
|
|
Unobservable
|
|
|
|
|
Balance as of
|
|
|
Identical Assets
|
|
|
Observable Inputs
|
|
|
Inputs
|
|
|
|
|
December 31, 2009
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
|
|
|
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities
|
|
$
|
56,366
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
$
|
56,366
|
|
|
Interest rate cap agreements(1)
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Interest rate swaps
|
|
|
141
|
|
|
|
—
|
|
|
|
141
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets
|
|
$
|
56,507
|
|
|
$
|
—
|
|
|
$
|
141
|
|
|
$
|
56,366
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps
|
|
$
|
2,944
|
|
|
$
|
—
|
|
|
$
|
2,944
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The fair value of the interest rate cap agreements was less than
$1,000 at December 31, 2009. |
The following table shows a reconciliation of the change in fair
value of the Company’s financial assets and liabilities
with significant unobservable inputs (Level 3) (in
thousands) for the years ended December 31, 2010 and 2009:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized/
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
Balance as of
|
|
Unrealized Gains
|
|
Net
|
|
Issuances,
|
|
Transfers in
|
|
Balance as of
|
|
|
|
December 31,
|
|
(Losses) Included
|
|
Unrealized
|
|
Settlements and
|
|
and Out of
|
|
December 31,
|
|
|
|
2009
|
|
in Earnings
|
|
Gain
|
|
Amortization
|
|
Level 3
|
|
2010
|
|
|
|
Marketable securities
|
|
$
|
56,366
|
|
|
$
|
—
|
|
|
$
|
23,051
|
|
|
$
|
2,578
|
|
|
$
|
—
|
|
|
$
|
81,995
|
|
F-19
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net Realized/
|
|
|
|
Purchases,
|
|
|
|
|
|
|
|
Balance as of
|
|
Unrealized Gains
|
|
Net
|
|
Issuances,
|
|
Transfers in
|
|
Balance as of
|
|
|
|
December 31,
|
|
(Losses) Included
|
|
Unrealized
|
|
Settlements and
|
|
and Out of
|
|
December 31,
|
|
|
|
2008
|
|
in Earnings
|
|
Gain
|
|
Amortization
|
|
Level 3
|
|
2009
|
|
|
|
Marketable securities
|
|
$
|
24,583
|
|
|
$
|
—
|
|
|
$
|
19,072
|
|
|
$
|
12,711
|
|
|
$
|
—
|
|
|
$
|
56,366
|
|
NOTE 4 —
INVESTMENT IN DIRECT FINANCING LEASES
The components of investment in direct financing leases as of
December 31, 2010 and 2009 were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Minimum lease payments receivable
|
|
$
|
24,376
|
|
|
$
|
26,676
|
|
|
Estimated residual value of leased assets
|
|
|
27,854
|
|
|
|
27,854
|
|
|
Unearned income
|
|
|
(15,284
|
)
|
|
|
(16,794
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
36,946
|
|
|
$
|
37,736
|
|
|
|
|
|
|
|
|
|
|
|
A summary of minimum future lease payments, exclusive of any
renewals, under the non-cancelable direct financing leases as of
December 31, 2010 is as follows (in thousands):
| |
|
|
|
|
|
Year Ended December 31,
|
|
Amount
|
|
|
|
|
2011
|
|
$
|
2,889
|
|
|
2012
|
|
|
2,921
|
|
|
2013
|
|
|
2,932
|
|
|
2014
|
|
|
2,782
|
|
|
2015
|
|
|
2,403
|
|
|
Thereafter
|
|
|
10,449
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
24,376
|
|
|
|
|
|
|
|
NOTE 5 —
REAL ESTATE ACQUISITIONS
2010
Property Acquisitions
During the year ended December 31, 2010, the Company
acquired a 100% interest in 31 commercial properties for an
aggregate purchase price of $107.5 million (the “2010
Acquisitions”). The Company purchased the 2010 Acquisitions
with a combination of proceeds from the DRIP Offering, cash
flows from operations and net proceeds from borrowings. The
Company allocated the purchase price of these properties to the
fair value of the assets acquired and liabilities assumed. The
following table summarizes the purchase price allocation (in
thousands):
| |
|
|
|
|
|
|
|
December 31, 2010
|
|
|
|
|
Land
|
|
$
|
27,109
|
|
|
Building and improvements
|
|
|
69,047
|
|
|
Acquired in-place leases
|
|
|
13,894
|
|
|
Acquired above-market leases
|
|
|
1,498
|
|
|
Acquired below-market leases
|
|
|
(4,056
|
)
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
107,492
|
|
|
|
|
|
|
|
In addition, during the year ended December 31, 2010, the
Company substituted one property for two new properties under a
master lease agreement with one of the Company’s tenants.
The contractual lease
F-20
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
payments due under the master lease agreement did not change as
a result of this substitution. The allocation of the non-cash
consideration resulted in an increase to the Company’s
depreciable assets and a decrease in the related land assets of
$136,000. No gain or loss was recorded related to this
transaction.
The Company recorded revenue for the year ended
December 31, 2010 of $2.5 million, and a net loss for
the year ended December 31, 2010 of $2.3 million
related to the 2010 Acquisitions. In addition, the Company
expensed $3.4 million of acquisition costs related to the
2010 Acquisitions.
The following information summarizes selected financial
information from the combined results of operations of the
Company, as if all of the 2010 Acquisitions were completed on
January 1, 2009 for each period presented below. The table below
presents the Company’s estimated revenue and net income, on
a pro forma basis, for the years ended December 31, 2010
and 2009, respectively (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Pro Forma Basis (unaudited):
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
277,167
|
|
|
$
|
285,971
|
|
|
Net income
|
|
$
|
38,850
|
|
|
$
|
25,240
|
|
The unaudited 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 each year, nor does it
purport to represent the results of future operations.
2009
Property Acquisitions
During the year ended December 31, 2009, the Company
acquired a 100% interest in 20 commercial properties for an
aggregate purchase price of $113.8 million (the “2009
Acquisitions”). In addition to available cash, the Company
purchased the 2009 Acquisitions with the assumption of mortgage
loans, with a face value totaling $100.8 million and a fair
value totaling $87.8 million. The mortgage loans generally
are secured by the individual property on which the loan was
made. The Company allocated the purchase price of these
properties to the fair value of the assets acquired and
liabilities assumed. The following table summarizes the purchase
price allocation (in thousands):
| |
|
|
|
|
|
|
|
December 31, 2009
|
|
|
|
|
Land
|
|
$
|
38,128
|
|
|
Building and improvements
|
|
|
58,484
|
|
|
Acquired in-place leases
|
|
|
14,581
|
|
|
Acquired above-market leases
|
|
|
63
|
|
|
Acquired below-market leases
|
|
|
(10,417
|
)
|
|
Fair value adjustment of assumed notes payable
|
|
|
12,969
|
|
|
|
|
|
|
|
|
Total purchase price
|
|
$
|
113,808
|
|
|
|
|
|
|
|
The Company recorded revenues for the year ended
December 31, 2009 of $6.7 million, and net losses for
the year ended December 31, 2009 of $4.8 million,
related to the 2009 Acquisitions. In addition, the Company
expensed $3.2 million of acquisition costs related to the
2009 Acquisitions.
Earnout
Agreements
During the year ended December 31, 2010, the Company owned
two properties subject to earnout provisions obligating the
Company to pay additional consideration to the respective seller
contingent on the leasing and occupancy of vacant space at the
properties. These earnout payments are based on a predetermined
formula, and each earnout agreement has a set time period
regarding the obligation to make these payments. If, at the end
of the time period, certain space has not been leased and
occupied, the Company will have no further obligation. During
F-21
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
the year ended December 31, 2010, the Company paid
$1.6 million subject to the earnout agreement provisions
described above, and reduced the estimated obligation by
$983,000 due to current market conditions and the expiration of
the set time period provided in the earnout agreements. As of
December 31, 2010, the Company had an earnout liability of
$150,000, which was recorded in accounts payable and accrued
expenses in the accompanying consolidated balance sheet. Amounts
paid and accrued under the earnout agreements are capitalized as
additional purchase price of the applicable property. Reductions
in the earnout liability due to changes in market conditions or
expiration of the earnout period are recorded as a reduction in
the purchase price of the applicable property. As of
December 31, 2009, the estimated earnout obligation was
$2.7 million.
Investment
in Unconsolidated Joint Ventures
The Company did not enter into any new joint venture agreements
during the year ended December 31, 2010. During the year
ended December 31, 2009, the Company invested
$101.0 million to acquire a majority interest in a joint
venture that owns a ten-property storage facility portfolio.
NOTE 6 —
ACQUIRED INTANGIBLE LEASE ASSETS
Acquired intangible lease assets consisted of the following (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
|
|
Acquired in place leases, net of accumulated amortization of
$84,507 and $58,563 respectively (with a weighted average life
of 147 and 155 months, respectively)
|
|
$
|
291,048
|
|
|
$
|
304,405
|
|
|
Acquired above market leases, net of accumulated amortization of
$12,880 and $8,690 respectively (with a weighted average life of
151 and 159 months, respectively)
|
|
|
49,558
|
|
|
|
52,603
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
340,606
|
|
|
$
|
357,008
|
|
|
|
|
|
|
|
|
|
|
|
Amortization expense recorded on the intangible lease assets,
for the years ended December 31, 2010, 2009 and 2008, was
$33.2 million, $40.0 million and $24.4 million,
respectively.
Estimated amortization expense to be recorded on the intangible
lease assets as of December 31, 2010 for the five
succeeding years is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
Amount
|
|
|
Year
|
|
Leases In-Place
|
|
|
Above Market Leases
|
|
|
|
|
2011
|
|
$
|
27,040
|
|
|
$
|
4,374
|
|
|
2012
|
|
$
|
26,752
|
|
|
$
|
4,341
|
|
|
2013
|
|
$
|
25,817
|
|
|
$
|
4,252
|
|
|
2014
|
|
$
|
25,212
|
|
|
$
|
4,214
|
|
|
2015
|
|
$
|
23,938
|
|
|
$
|
4,147
|
|
NOTE 7 —
INVESTMENT IN MORTGAGE NOTES RECEIVABLE
As of December 31, 2010, the Company owned 69 mortgage
notes receivable, which were secured by 43 restaurant properties
and 26 single-tenant retail properties (collectively, the
“Mortgage Notes”). As of December 31, 2010, the
Mortgage Notes balance was $79.8 million, which included
$6.9 million premium and $2.0 million of acquisition
costs, and was net of accumulated amortization of
$2.1 million. As of December 31, 2009, the Mortgage
Notes balance was $82.5 million, which included
$6.9 million premium and $2.0 million of acquisition
costs, and was net of accumulated amortization of
$1.4 million. The premium and acquisition costs are
amortized into interest income over the term of each of the
Mortgage Notes using the
F-22
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
effective interest rate method. The Mortgage Notes mature on
various dates from August 1, 2020 to January 1, 2021.
Interest and principal are due each month at interest rates
ranging from 8.60% to 10.47% per annum and a weighted average
interest rate of 9.88%. There were no amounts past due as of
December 31, 2010, 2009 and 2008.
NOTE 8 —
MARKETABLE SECURITIES
As of December 31, 2010 and 2009, the Company owned six
CMBS bonds, with an estimated aggregate fair value of
$82.0 million and $56.4 million, respectively. During
the year ended December 31, 2010, the Company pledged the
securities as collateral to a bank under a repurchase agreement,
who provided secured borrowings in the amount of
$54.3 million (the “Repurchase Agreement”), with
a weighted average initial interest rate of 1.68% (see
Note 10 below). As a result, the Company reclassified the
CMBS bonds from marketable securities to marketable securities
pledged as collateral in the consolidated balance sheet as of
December 31, 2010. The following provides the activity for
the CMBS bonds during the year ended December 31, 2010 (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortized Cost
|
|
|
Unrealized (Loss)
|
|
|
|
|
|
|
|
Basis
|
|
|
Gain
|
|
|
Total
|
|
|
|
|
Marketable securities as of December 31, 2009
|
|
$
|
63,050
|
|
|
$
|
(6,684
|
)
|
|
$
|
56,366
|
|
|
Increase in fair value of marketable securities
|
|
|
—
|
|
|
|
23,051
|
|
|
|
23,051
|
|
|
Accretion of discounts on marketable securities
|
|
|
2,578
|
|
|
|
—
|
|
|
|
2,578
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities as of December 31, 2010
|
|
$
|
65,628
|
|
|
$
|
16,367
|
|
|
$
|
81,995
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
During the year ended December 31, 2010, the Company
recognized an unrealized gain of $23.1 million related to
these investments, which is included in accumulated other
comprehensive income on the accompanying statements of
stockholders’ equity as of December 31, 2010, and the
consolidated balance sheet for the year ended December 31,
2010. The Company recognized an unrealized gain of
$19.1 million related to these investments for the year
ended December 31, 2009, which is included in accumulated
other comprehensive loss on the accompanying statements of
stockholders’ equity as of December 31, 2009, and the
consolidated balance sheet for the year ended December 31,
2009.
The cumulative unrealized loss as of December 31, 2009, was
deemed to be a temporary impairment based upon (i) the
Company having no intent to sell these securities, (ii) it
is more likely than not that the Company will not be required to
sell the securities before recovery and (iii) the
Company’s expectation to recover the entire amortized cost
basis of these securities. The Company determined that the
cumulative unrealized loss resulted from volatility in interest
rates and credit spreads and other qualitative factors relating
to macro-credit conditions in the mortgage market. Additionally,
as of December 31, 2009, the Company had determined that
the subordinate CMBS tranches below the Company’s CMBS
investment adequately protected the Company’s ability to
recover its investment and that the Company’s estimates of
anticipated future cash flows from the CMBS investment had not
been adversely impacted by any deterioration in the
creditworthiness of the specific CMBS issuers.
F-23
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
All of the six CMBS bonds were in an unrealized gain position as
of December 31, 2010. The scheduled maturities of the
marketable securities as of December 31, 2010 are as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
Available-for-Sale
|
|
|
|
|
Amortized Cost
|
|
|
Estimated Fair Value
|
|
|
|
|
Due within one year
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Due after one year through five years
|
|
|
28,476
|
|
|
|
39,297
|
|
|
Due after five years through ten years
|
|
|
37,152
|
|
|
|
42,698
|
|
|
Due after ten years
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
65,628
|
|
|
$
|
81,995
|
|
|
|
|
|
|
|
|
|
|
|
Actual maturities of marketable securities can differ from
contractual maturities because borrowers may have the right to
prepay obligations. In addition, factors such as prepayments and
interest rates may affect the yields on the marketable
securities.
NOTE 9 —
DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES
In the normal course of business, the Company uses certain types
of derivative instruments for the purpose of managing or hedging
its interest rate risks. The table below summarizes the notional
amount and fair value of the Company’s derivative
instruments (in thousands). Additional disclosures related to
the fair value of the Company’s derivative instruments are
included in Note 3 above. The notional amount under the
agreements is an indication of the extent of the Company’s
involvement in each instrument, but does not represent exposure
to credit, interest rate or market risks.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Asset
|
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
Interest
|
|
Effective
|
|
Maturity
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
Location
|
|
Amount
|
|
|
Rate
|
|
Date
|
|
Date
|
|
2010(1)
|
|
|
2009(2)
|
|
|
|
|
Derivatives not designated as hedging instruments
|
|
Interest Rate Cap
|
|
Prepaid expenses and other assets
|
|
$
|
36,000
|
|
|
|
7.0%
|
|
|
|
8/5/2008
|
|
|
|
8/5/2010
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Interest Rate Cap
|
|
Prepaid expenses and other assets
|
|
|
34,000
|
|
|
|
7.0%
|
|
|
|
10/1/2008
|
|
|
|
9/1/2010
|
|
|
|
—
|
|
|
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
70,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
The interest rate caps matured during the year ended
December 31, 2010. |
| |
|
(2) |
|
The fair value of the rate caps was less than $1,000. |
F-24
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Asset (Liability)
|
|
|
|
|
Balance Sheet
|
|
Notional
|
|
|
Interest
|
|
Effective
|
|
Maturity
|
|
December 31,
|
|
|
December 31,
|
|
|
|
|
Location
|
|
Amount
|
|
|
Rate
|
|
Date
|
|
Date
|
|
2010
|
|
|
2009
|
|
|
|
|
Derivatives designated as hedging instruments
|
|
Interest Rate Swap
|
|
Deferred rent, derivative and other liabilities
|
|
$
|
32,000
|
|
|
|
6.2%
|
|
|
|
11/4/2008
|
|
|
|
10/31/2012
|
|
|
$
|
(1,767
|
)
|
|
$
|
(1,663
|
)
|
|
Interest Rate Swap
|
|
Deferred rent, derivative and other liabilities
|
|
|
38,250
|
|
|
|
5.6%
|
|
|
|
12/10/2008
|
|
|
|
9/26/2011
|
|
|
|
(571
|
)
|
|
|
(778
|
)
|
|
Interest Rate Swap
|
|
Deferred rent, derivative and other liabilities
|
|
|
15,043
|
|
|
|
6.2%
|
|
|
|
6/12/2009
|
|
|
|
6/11/2012
|
|
|
|
(531
|
)
|
|
|
(503
|
)
|
|
Interest Rate Swap(1)
|
|
Deferred rent, derivative and other liabilities
|
|
|
7,200
|
|
|
|
5.8%
|
|
|
|
2/20/2009
|
|
|
|
3/1/2016
|
|
|
|
(210
|
)
|
|
|
100
|
|
|
Interest Rate Swap(1)
|
|
Deferred rent, derivative and other liabilities
|
|
|
30,000
|
|
|
|
6.0%
|
|
|
|
11/24/2009
|
|
|
|
10/16/2012
|
|
|
|
(577
|
)
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
122,493
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
(3,656
|
)
|
|
$
|
(2,803
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2009, the fair value of the interest
rate swap agreement was in a financial asset position and was
included in the accompanying December 31, 2009 consolidated
balance sheet in prepaid expenses and other assets. |
Accounting for changes in the fair value of a derivative
instrument depends on the intended use and the designation of
the derivative instrument. The change in fair value of the
effective portion of the derivative instrument that is
designated as a hedge is recorded as other comprehensive income
or loss. The Company designated the interest rate swaps as cash
flow hedges, to hedge the variability of the anticipated cash
flows on its variable rate notes payable. The changes in fair
value for derivative instruments that are not designated as a
hedge or that do not meet the hedge accounting criteria of
ASC 815, are recorded as a gain or loss in earnings. The
interest rate cap agreements were not designated as hedges.
The following tables summarize the gains and losses on the
Company’s derivative instruments and hedging activities (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount of Gain Recognized in Income on Derivative
|
|
Derivatives Not Designated
|
|
Location of Gain Recognized
|
|
|
Year Ended
|
|
|
Year Ended
|
|
|
as Hedging Instruments
|
|
in Income on Derivative
|
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Interest Rate Caps(1)
|
|
|
Interest expense
|
|
|
$
|
—
|
|
|
$
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
Amount of (Loss) Recognized in Other
|
|
|
|
|
Comprehensive Income on Derivative
|
|
Derivatives in Cash Flow
|
|
Year Ended
|
|
|
Year Ended
|
|
|
Hedging Relationships
|
|
December 31, 2010
|
|
|
December 31, 2009
|
|
|
|
|
Interest Rate Swaps(2)
|
|
$
|
(853
|
)
|
|
$
|
(9
|
)
|
|
|
|
|
(1) |
|
The gain recognized on the rate cap was less than $1,000. |
| |
|
(2) |
|
There were no portions of the change in the fair value of the
interest rate swap agreements that were considered ineffective
during the years ended December 31, 2010 and 2009. No
previously effective portion of gains or losses that were
recorded in accumulated other comprehensive income during the
term of the hedging relationship was reclassified into earnings
during the years ended December 31, 2010 and 2009. |
F-25
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Company has agreements with each of its derivative
counterparties that contain a provision whereby if the Company
defaults on certain of its unsecured indebtedness, then the
Company could also be declared in default on its derivative
obligations resulting in an acceleration of payment. In
addition, the Company is exposed to credit risk in the event of
non-performance by its derivative counterparties. The Company
believes it mitigates its credit risk by entering into
agreements with credit-worthy counterparties. The Company
records counterparty credit risk valuation adjustments on its
interest rate swap derivative asset in order to properly reflect
the credit quality of the counterparty. In addition, the
Company’s fair value of interest rate swap derivative
liabilities is adjusted to reflect the impact of the
Company’s credit quality. As of December 31, 2010 and
2009, there have been no termination events or events of default
related to the interest rate swaps.
NOTE 10 —
NOTES PAYABLE AND LINE OF CREDIT
As of December 31, 2010, the Company had $1.7 billion
of debt outstanding, consisting of (i) $1.5 billion in
fixed rate mortgage loans (the “Fixed Rate Debt”),
(ii) $38.3 million in variable rate mortgage loans
(the “Variable Rate Debt”),
(iii) $100.0 million outstanding under the line of
credit and (iv) $54.3 million outstanding under the
Repurchase Agreement. The aggregate balance of gross real estate
assets, net of gross intangible lease liabilities, securing the
Fixed Rate Debt, Variable Rate Debt and Repurchase Agreement was
$2.7 billion as of December 31, 2010. The combined
weighted average interest rate was 5.66% and the weighted
average years to maturity was 5.0 years.
Notes
Payable
The Fixed Rate Debt has annual interest rates ranging from 4.46%
to 7.22%, with a weighted average annual interest rate of 5.88%,
and various maturity dates ranging from January, 2011 through
August, 2031. The Variable Rate Debt has annual interest rates
ranging from LIBOR plus 200 to 325 basis points, and
various maturity dates in September, 2011. The notes payable are
secured by properties in the portfolio and their related tenant
leases, as well as other real estate related assets on which the
debt was placed.
During the year ended December 31, 2010, the Company issued
$102.0 million of notes payable, which bear fixed annual
interest rates ranging from 5.04% to 5.66%, and mature on
various dates from August, 2017 to May, 2020. With respect to
$41.0 million of such notes, the lender can reset the
interest rate on May 1, 2015, at which time the Company can
accept the interest rate through the maturity date of
May 1, 2020, or the Company may decide to reject the rate
and prepay the loan on May 1, 2015. In addition, during the
year ended December 31, 2010, the Company repaid
$84.7 million of variable rate debt and $20.4 million
of fixed rate debt, including monthly principal payments on
amortizing loans.
Generally, the Fixed Rate Debt may not be prepaid, in whole or
in part, except under the following circumstances: (i)
prepayment may be made subject to payment of a
yield-maintenance
premium or through defeasance, (ii) full prepayment may be
made on any of the three monthly payment dates occurring
immediately prior to the maturity date, and (iii) 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, certain mortgage notes include
hyper-amortization
provisions. The interest rate during the
hyper-amortization
period shall be the fixed interest rate as stated on the
respective mortgage note agreement plus 2.0%. The individual
mortgage note maturity date, under the
hyper-amortization
provisions, will be extended by 20 years. During such
period, the lender will apply 100% of the rents collected to
(i) all payments for escrow or reserve accounts,
(ii) payment of interest at the
F-26
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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.
In general, the notes payable are non-recourse to the Company
and Cole OP II, but both are liable for customary non-recourse
carveouts. Certain notes payable contain customary affirmative,
negative and financial covenants, including requirements for
minimum net worth and debt service coverage ratios, in addition
to limits on leverage ratios and variable rate debt. The Company
was in compliance with the financial covenants as of
December 31, 2010.
Line
of Credit
On December 17, 2010, the Company entered into a senior
unsecured credit facility (the “Credit Facility”)
providing for up to $315.0 million of borrowings pursuant
to an amended and restated credit agreement (the “Credit
Agreement”) with a syndication of banks. Concurrently, the
obligations under the Company’s $135.0 million credit
agreement dated as of May 23, 2008, (the “Previous
Credit Agreement”), were terminated, and all amounts
outstanding under the Previous Credit Agreement were paid in
full with proceeds from the Credit Facility.
The Credit Facility allows the Company to borrow up to
$215.0 million in revolving loans and a $100.0 million
term loan (the “Term Loan”). Up to 15.0% of the total
amount available may be used for issuing letters of credit and
up to $20.0 million may be used for “swingline”
loans, which generally are loans of a minimum of $100,000 for
which the Borrower receives funding on the same day as its loan
request, and which are repaid within five business days. Subject
to meeting certain conditions described in the Credit Agreement
and the payment of certain fees, the amount of the Credit
Facility may be increased up to a maximum of
$450.0 million, with each increase being no less than
$25.0 million. Subsequent to December 31, 2010, the
Credit Facility was amended to increase the total amount of
available borrowings from $315.0 million to
$350.0 million and to increase the Term Loan to
$111.1 million. The Credit Facility matures on
December 17, 2013.
Loans under the Credit Facility bear interest at variable rates
depending on the type of loan used. Eurodollar rate loans have
variable rates which are generally equal to the one-month,
two-month, three-month, or six-month LIBOR plus 275 to
400 basis points, determined by the leverage ratio of the
Company in accordance with the agreement. Base rate committed
loans have variable rates equal to the greater of (a) the
Federal Funds Rate plus 0.5%; (b) Bank of America’s
prime rate; or (c) the Eurodollar Rate plus 1.0%; plus 175
to 300 basis points, determined by the leverage ratio of
the Company in accordance with the agreement (the “Base
Rate”).
The Company borrowed the initial $100.0 million Term Loan
under the Credit Facility on December 17, 2010, which bears
interest at the Base Rate. As of December 31, 2010, the
interest rate in effect for the Credit Facility was Bank of
America’s prime rate plus 250 basis points. On
February 24, 2011, the Company executed an interest rate
swap agreement which fixed LIBOR for amounts outstanding under
the Term Loan to 1.44%. The all-in rate includes a spread of 275
to 400 basis points, as determined by the leverage ratio of
the Company, which was equal to 350 basis points at the
time the transaction was executed. The Company will be required
to make quarterly interest payments on the Term Loan, and the
outstanding principal and any accrued and unpaid interest is due
on December 17, 2013. The Company has established a letter
of credit in the amount of $476,000 from the Credit Facility
lenders to support an escrow agreement between a certain
property and that property’s lender. This letter of credit
reduces the amount of borrowings available under the Credit
Facility. As of December 31, 2010, the Company had an
outstanding balance of $100.0 million and
$214.5 million was available under the Credit Facility. In
addition, during the year ended December 31, 2010, the
Company borrowed $189.0 million and repaid
$222.0 million under the Previous Credit Agreement.
F-27
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
The Credit Facility contains customary affirmative, negative and
financial covenants, including requirements for minimum net
worth and debt service coverage ratios, in addition to limits on
the Company’s overall leverage ratios and variable rate
debt. The Company was in compliance with the financial covenants
as of December 31, 2010.
Repurchase
Agreement
During the year ended December 31, 2010, the Company
received financing under the Repurchase Agreement, which bears
interest at a weighted average interest rate of 1.68% at
December 31, 2010 and matures in January of 2011. In
January 2011, the Company renewed the Repurchase Agreement, of
which $44.7 million was outstanding as of March 30,
2011 with a weighted average interest rate of 1.46%. Upon
maturity, the Company may elect to renew the terms under the
Repurchase Agreement for periods ranging from seven days to
90 days until the CMBS bonds mature. The CMBS bonds have a
weighted average remaining term of 5.41 years. The
Repurchase Agreement is being accounted for as a secured
borrowing because the Company maintains effective control of the
financed assets.
Under the Repurchase Agreement, the lender retains the right to
mark the underlying collateral to fair value. A reduction in the
value of pledged assets would require the Company to provide
additional collateral to fund margin calls. As of
December 31, 2010, the amount outstanding under the
Repurchase Agreement was $54.3 million and the marketable
securities held as collateral had a fair value of
$82.0 million and an amortized cost basis of
$65.6 million. There was no cash collateral held by the
counterparty as of December 31, 2010. The Repurchase
Agreement is non-recourse to the Company and Cole OP II.
Maturities
The following table summarizes the scheduled aggregate principal
repayments, including principal repayments on amortizing debt,
for the Fixed Rate Debt, Variable Rate Debt, Credit Facility and
Repurchase Agreement for the five years and thereafter
subsequent to December 31, 20010 (in thousands):
| |
|
|
|
|
|
|
|
Principal
|
|
|
For the Year Ending December 31,
|
|
Repayments(1)
|
|
|
|
|
2011
|
|
$
|
197,403
|
|
|
2012
|
|
|
134,832
|
|
|
2013
|
|
|
105,516
|
|
|
2014
|
|
|
7,288
|
|
|
2015
|
|
|
254,854
|
|
|
Thereafter
|
|
|
1,039,804
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,739,697
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
Principal payment amounts reflect actual payments based on face
amount of notes payable. As of December 31, 2010, the fair
value adjustment, net of amortization of mortgage notes assumed
was $12.1 million. |
NOTE 11 —
ACQUIRED BELOW MARKET LEASE INTANGIBLES
Acquired below market lease intangibles consisted of the
following (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
|
|
Acquired below-market leases, net of accumulated amortization of
$32,095 and $21,470, respectively (with a weighted average life
of 153 and 161 months, respectively)
|
|
$
|
140,797
|
|
|
$
|
149,832
|
|
F-28
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
Amortization income recorded on the intangible lease liability
for the years ended December 31, 2010, 2009 and 2008 was
$12.5 million, $17.4 million and $8.8 million,
respectively.
Estimated amortization income of the intangible lease liability
as of December 31, 2010 for each of the five succeeding
fiscal years is as follows (in thousands):
| |
|
|
|
|
|
|
|
Amortization of Below
|
|
|
Year
|
|
Market Leases
|
|
|
|
|
2011
|
|
$
|
11,027
|
|
|
2012
|
|
$
|
10,968
|
|
|
2013
|
|
$
|
10,796
|
|
|
2014
|
|
$
|
10,681
|
|
|
2015
|
|
$
|
10,476
|
|
NOTE 12 —
SUPPLEMENTAL CASH FLOW DISCLOSURES
Supplemental cash flow disclosures for the years ended
December 31, 2010, 2009 and 2008 are as follows (in
thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2010
|
|
2009
|
|
2008
|
|
|
|
Supplemental Disclosures of Non-Cash Investing and Financing
Activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and unpaid
|
|
$
|
11,097
|
|
|
$
|
10,851
|
|
|
$
|
11,877
|
|
|
Fair value of mortgage notes assumed in real estate acquisitions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at date of assumption
|
|
$
|
—
|
|
|
$
|
87,821
|
|
|
$
|
171,340
|
|
|
Common stock issued through the DRIP
|
|
$
|
61,377
|
|
|
$
|
71,017
|
|
|
$
|
53,476
|
|
|
Net unrealized gain (loss) on marketable securities
|
|
$
|
23,051
|
|
|
$
|
19,072
|
|
|
$
|
(25,756
|
)
|
|
Net unrealized loss on interest rate swaps
|
|
$
|
(853
|
)
|
|
$
|
(9
|
)
|
|
$
|
(2,794
|
)
|
|
(Decrease) Increase in earnout liability
|
|
$
|
(983
|
)
|
|
$
|
(1,482
|
)
|
|
$
|
3,944
|
|
|
Accrued capital expenditures
|
|
$
|
791
|
|
|
$
|
905
|
|
|
$
|
—
|
|
|
Accrued deferred financing costs
|
|
$
|
107
|
|
|
$
|
—
|
|
|
$
|
—
|
|
|
Supplemental Cash Flow Disclosures:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
94,515
|
|
|
$
|
90,628
|
|
|
$
|
68,919
|
|
During the year ended December 31, 2010, the Company
substituted one property for two new properties under a master
lease agreement with one of the Company’s tenants. The
allocation of the non-cash consideration resulted in an increase
to the Company’s depreciable assets and a decrease in the
related land assets of $136,000. No gain or loss was recorded
related to this transaction.
NOTE 13 —
COMMITMENTS AND CONTINGENCIES
Litigation
In the ordinary course of business, the Company may become
subject to litigation or claims. The Company is not aware of any
material pending legal proceedings of which the outcome is
reasonably likely to have a material adverse effect on its
results of operations or financial condition.
Environmental
Matters
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 owns certain
properties that are subject to
F-29
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
environmental remediation. In each case, the seller of the
property, the tenant of the property
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. In addition, the Company carries environmental liability
insurance on our properties that provides coverage for
remediation liability and pollution liability for third-party
bodily injury and property damage claims. The Company does not
believe that the environmental matters identified at such
properties will have a material adverse effect on its
consolidated financial statements, nor is it aware of any
environmental matters at other properties which it believes will
have a material adverse effect on its consolidated financial
statements.
NOTE 14 —
RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS
The Company has incurred commissions, fees and expenses payable
to Cole Advisors II and certain affiliates in connection
with the Offerings, and has incurred and will continue to incur
commissions, fees and expenses in connection with the
acquisition, management and sale of the assets of the Company.
Offering
During the years ended December 31, 2010 and 2009, the
Company did not pay any amounts to Cole Advisors II for
selling commissions or dealer manager fees. During the year
ended December 31, 2008, the Company paid
$92.8 million to Cole Advisors II for selling
commissions and dealer manager fees, of which $77.5 million
was reallowed to participating broker-dealers. In addition,
during the year ended December 31, 2010, the Company did
not pay any amounts to Cole Advisors II for organization
and offering expenses. During the years ended December 31,
2009 and 2008, the Company reimbursed Cole Advisors II
$525,000 and $7.4 million, respectively, for services
provided by Cole Advisors II and its affiliates related to
the Company’s Offerings.
Acquisitions
and Operations
Cole Advisors II or its affiliates also receive acquisition
and advisory fees of up to 2.0% of the contract purchase price
of each asset for the acquisition, development or construction
of properties and will be reimbursed for acquisition expenses
incurred in the process of acquiring properties, so long as the
total acquisition fees and expenses relating to the transaction
do not exceed 4.0% of the contract purchase price.
The Company paid, and expects to continue to pay, Cole
Advisors II an annualized asset management fee of 0.25% of
the aggregate asset value of the Company’s aggregate
invested assets (the “Asset Management Fee”). On
June 22, 2010, the Company entered into the Second
Amendment to the Amended and Restated Advisory Agreement with
Cole Advisors II, which revised the manner in which the Asset
Management Fee is calculated. As amended, the Asset Management
Fee will be based upon the aggregate value of the Company’s
invested assets, as reasonably estimated by the Company’s
board of directors. Prior to the amendment, the Asset Management
Fee was based upon the greater of the aggregate book value of
the Company’s invested assets or the aggregate value of the
Company’s invested assets as reasonably estimated by the
Company’s board of directors. The Company also reimburses
certain costs and expenses incurred by Cole Advisors II in
providing asset management services.
The Company paid, and expects to continue to pay, Cole Realty
Advisors, Inc. (“Cole Realty Advisors”), its
affiliated property manager, up to (i) 2.0% of gross
revenues received from the Company’s single tenant
properties and (ii) 4.0% of gross revenues received from
the Company’s 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
certain of its duties for a fee that may be less than the fee
F-30
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
provided for in the property management agreement. The Company
will also reimburse Cole Realty Advisors’ costs of managing
and leasing the properties.
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 Cole Advisors II for any amount
by which its 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,
unless the Company’s independent directors find that a
higher level of expense is justified for that year based on
unusual and non-recurring factors. The Company will not
reimburse Cole Advisors II for personnel costs in
connection with services for which Cole Advisors II
receives acquisition fees and real estate commissions.
If Cole Advisors II provides services 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 are paid to
Cole Advisors II or its affiliates as the Company acquires
and/or
assumes such permanent financing. However, no financing
coordination fees are paid on loan proceeds from any line of
credit until such time as all net offering proceeds have been
invested by the Company.
The Company recorded fees and expense reimbursements as shown in
the table below for services provided by Cole Advisors II
and its affiliates related to the services described above
during the years indicated (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Acquisitions and Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisition fees and expenses
|
|
$
|
2,239
|
|
|
$
|
3,887
|
|
|
$
|
27,667
|
|
|
Asset management fees and expenses
|
|
$
|
8,485
|
|
|
$
|
8,404
|
|
|
$
|
5,955
|
|
|
Property management and leasing fees and expenses
|
|
$
|
7,738
|
|
|
$
|
5,664
|
|
|
$
|
2,813
|
|
|
Operating expenses
|
|
$
|
1,494
|
|
|
$
|
906
|
|
|
$
|
—
|
|
|
Financing coordination fees
|
|
$
|
2,020
|
|
|
$
|
2,095
|
|
|
$
|
6,549
|
|
Liquidation/Listing
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 entitled to
receive 10% of the remaining net sale proceeds.
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
F-31
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 to the extent that the Company has
already paid or become obligated to pay Cole Advisors II a
subordinated participation in net sale proceeds or the
Subordinated Incentive Listing Fee.
During the years ended December 31, 2010, 2009, and 2008,
no commissions or fees were incurred for services provided by
Cole Advisors II and its affiliates related to the services
described above.
Other
As of December 31, 2010, and 2009, $1.5 million and
$509,000, respectively, had been incurred, primarily for the
general and administrative, acquisition, construction
management, property and asset management expenses, by Cole
Advisors II and its affiliates, but had not yet been
reimbursed by the Company and were included in due to affiliates
on the consolidated financial statements.
Transactions
On September 30, 2008, Cole OP II acquired a portfolio of
12 properties or investments therein from Cole Credit Property
Fund, LP, an affiliate of the Company and the Company’s
advisor, for $54.8 million, and a portfolio of ten
properties from Cole Credit Property Fund II, LP, an
affiliate of the Company and the Company’s advisor, for
$66.5 million. These acquisitions were funded by net
proceeds from the Follow-on Offering and the assumption of 22
loans, secured by the properties, with a face amount totaling
$68.6 million and a fair value totaling $68.2 million.
The Company’s board of directors, including all of the
independent directors, not otherwise interested in the
transaction approved these purchases as being fair and
reasonable to the Company, at a price in excess of the cost to
Cole Credit Property Fund, LP and Cole Credit Property
Fund II, LP. The majority of our directors, including a
majority of our independent directors, not otherwise interested
in the transaction determined that substantial justification
existed for such excess as such excess was reasonable and the
costs of the interests did not exceed its then current fair
market value as determined by an independent appraiser approved
by the Company’s independent directors.
On March 25, 2008, Cole OP II borrowed $16.0 million
from Series B, LLC and $16.0 million from
Series C, LLC, 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. The
loan proceeds were used to acquire properties with a purchase
price of $63.6 million, exclusive of closing costs. The
loans bore interest at variable rates equal to the one-month
LIBOR rate plus 200 basis points with monthly interest-only
payments. The Company repaid all of the aforementioned loans in
May 2008. The Company’s board of directors, including all
of the independent directors, approved the loans as fair,
competitive and commercially reasonable, and determined that
their terms were no less favorable to the Company than loans
between unaffiliated third parties under the same circumstances.
During the year ended December 31, 2008, Cole OP II
incurred $278,000 in interest expense to affiliates under the
aforementioned loans.
NOTE 15 —
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
F-32
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
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 are unable to provide the Company with these
services, the Company would be required to find alternative
providers of these services.
NOTE 16 —
INDEPENDENT DIRECTORS’ STOCK OPTION PLAN
The Company has a stock option plan, the Independent
Director’s Stock Option Plan (the “IDSOP”), which
authorizes the grant of non-qualified stock options to the
Company’s independent directors, subject to the discretion
of the board of directors and the applicable limitations of the
plan. The term of the IDSOP is ten years, at which time any
outstanding options will be forfeited. 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, 2008 and 2009. The
Company does not intend to continue to grant options under the
IDSOP; however, the exercise price for any 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. As of December 31, 2010 and 2009, the
Company had granted options to purchase 50,000 shares, and
as of December 31, 2010, options to purchase
45,000 shares at a weighted average exercise price of $9.12
per share remained outstanding with a weighted average
contractual remaining life of 6.30 years. As of
December 31, 2010, options to purchase 5,000 shares
had been exercised at a price of $9.10 per share. A total of
1,000,000 shares have been authorized and reserved for
issuance under the IDSOP.
During the years ended December 31, 2010, 2009, and 2008,
the Company recorded stock-based compensation charges of $7,000,
$13,000 and $8,000, respectively. Stock-based compensation
expense is based on awards ultimately expected to vest and
reduced for estimated forfeitures. Forfeitures are estimated at
the time of grant and revised, if necessary, in subsequent
periods if actual forfeitures differ from those estimates. The
Company’s calculations assume no forfeitures. As of
December 31, 2010, all stock-based compensation charges
related to unvested share-based compensation awards granted
under the IDSOP had been recognized.
A summary of the Company’s stock option activity under its
IDSOP during the years ended December 31, 2010 and 2009 is
as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted Average
|
|
|
|
|
|
|
|
Number
|
|
|
Exercise Price
|
|
|
Exercisable
|
|
|
|
|
Outstanding as of January 1, 2009
|
|
|
40,000
|
|
|
$
|
9.13
|
|
|
|
30,000
|
|
|
Granted in 2009
|
|
|
10,000
|
|
|
$
|
9.10
|
|
|
|
|
|
|
Exercised in 2009
|
|
|
(5,000
|
)
|
|
$
|
9.10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of January 1, 2010
|
|
|
45,000
|
|
|
$
|
9.12
|
|
|
|
35,000
|
|
|
Granted in 2010
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
Exercised in 2010
|
|
|
—
|
|
|
$
|
—
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2010
|
|
|
45,000
|
|
|
$
|
9.12
|
|
|
|
45,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, all of the outstanding options
were fully vested and had a weighted average contractual
remaining life of 6.30 years; however the weighted average
exercise price was greater than the Company’s Estimated
Share Value, resulting in the options having no intrinsic value.
As of December 31, 2009, options to purchase
10,000 shares were unvested with a weighted average
contractual remaining life of 7.33 years.
F-33
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
In accordance with ASC 718 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 3.47% to 5.07%, a
projected future dividend yield from 6.25% to 7.00%, expected
volatility from 0.00% to 36.21%, and an expected life of an
option of 10 years. The Company used the calculated value
method to determine volatility as calculated using the Composite
REIT Index. Based on these assumptions, the aggregate fair value
of the options granted was $18,000 or $1.81 per share, for the
year ended December 31, 2009. During the year ended
December 31, 2010 the Company did not grant any stock
options under the IDSOP. As of December 31, 2010, all
compensation cost related to the IDSOP had been recognized.
NOTE 17 —
STOCKHOLDERS’ EQUITY
Distribution
Reinvestment Plan
Pursuant to the DRIP, the Company allows stockholders to elect
to have their distributions reinvested in additional shares of
the Company’s common stock. On June 22, 2010, the
Company’s board of directors approved an amendment to the
DRIP, which was effective July 15, 2010. Pursuant to the
amended DRIP, beginning with reinvestments made on or after
July 15, 2010, distributions are reinvested in shares of
the Company’s common stock at a price equal to the
Estimated Share Value. No sales commissions or dealer manager
fees are paid on shares sold under the Amended DRIP. The Company
may terminate or further amend the DRIP at the Company’s
discretion at any time upon ten days prior written notice to the
stockholders. During the years ended December 31, 2010 and
2009, 7.0 million and 7.5 million shares were
purchased under the DRIP, for $61.4 million and
$71.0 million, respectively.
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.
The share redemption program provides that the Company will
redeem shares of its common stock from requesting stockholders,
subject to the terms and conditions of the share redemption
program. On November 10, 2009, the Board of Directors voted
to temporarily suspend the share redemption program other than
for requests made upon the death of a stockholder. On
June 22, 2010, the board of directors reinstated the share
redemption program, effective August 1, 2010, and adopted
several amendments to the program. In particular, during any
calendar year, the Company will not redeem in excess of 3% of
the weighted average number of shares outstanding during the
prior calendar year and the cash available for redemption is
limited to the proceeds from the sale of shares pursuant to the
DRIP during such calendar year. In addition, the Company will
redeem shares on a quarterly basis, at the rate of one-fourth of
3% of the weighted average number of shares outstanding during
the prior calendar year (including shares requested for
redemption upon the death of a stockholder). Funding for
redemptions for each quarter will be limited to the net proceeds
received from the sale of shares, during such quarter, under the
DRIP.
The redemption price per share depends on the length of time the
stockholder has held such shares as follows: after one year from
the purchase date — 92.5% of the Estimated Share
Value; after two years from the purchase date — 95.0%
of the Estimated Share Value; after three years from the
purchase date — 97.5% of the Estimated Share Value;
and after four years from the purchase date — 100.0%
of the Estimated Share Value.
Upon receipt of a request for redemption, the Company may
conduct a Uniform Commercial Code search to ensure that no liens
are held against the shares. If the Company cannot purchase all
shares presented for redemption in any quarter, based upon the
limit on the number of shares
and/or
insufficient cash available, an attempt will be made to honor
redemption requests on a pro rata basis; provided, however, that
priority may be given to the redemption of a deceased
stockholder’s shares. Following such redemption period, the
F-34
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
unsatisfied portion of the prior redemption request must be
resubmitted, prior to the last day of the new quarter.
Unfulfilled requests for redemption will not be carried over
automatically to subsequent redemption periods.
The Company redeems shares on the last business day of the month
following the end of each fiscal quarter. Requests for
redemption must be received on or prior to the end of the
quarter in order for the Company to repurchase the shares as of
the end of the month following the end of the fiscal quarter in
which a redemption request is made. 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 following table shows information regarding the
Company’s share redemptions during the years ended
December 31, 2010 and 2009. The information presented is
based on the quarter in which the redemption request was
received.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valid Redemption
|
|
Valid Redemption
|
|
Valid Redemption
|
|
|
|
Requests Received
|
|
Requests Fulfilled(1)
|
|
Requests Unfulfilled
|
|
|
|
Shares
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
|
|
Quarter Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2010
|
|
|
4,156,841
|
(2)
|
|
|
1,516,884
|
|
|
$
|
11,923,981
|
|
|
|
2,639,957
|
|
|
September 30, 2010
|
|
|
5,148,368
|
(2)(3)
|
|
|
1,238,461
|
|
|
$
|
10,236,493
|
|
|
|
3,909,907
|
|
|
June 30, 2010
|
|
|
554,892
|
(3)
|
|
|
554,892
|
|
|
$
|
5,529,126
|
|
|
|
—
|
|
|
March 31, 2010
|
|
|
301,043
|
(3)
|
|
|
301,043
|
|
|
$
|
3,002,599
|
|
|
|
—
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Valid Redemption
|
|
Valid Redemption
|
|
Valid Redemption
|
|
|
|
Requests Received
|
|
Requests Fulfilled(1)
|
|
Requests Unfulfilled
|
|
|
|
Shares
|
|
Shares
|
|
Dollars
|
|
Shares
|
|
|
|
Quarter Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2009
|
|
|
377,613
|
(3)
|
|
|
287,932
|
|
|
$
|
2,869,610
|
|
|
|
89,681
|
|
|
September 30, 2009
|
|
|
649,414
|
(4)
|
|
|
266,815
|
|
|
$
|
2,662,806
|
|
|
|
382,599
|
|
|
June 30, 2009
|
|
|
1,014,958
|
(4)
|
|
|
238,233
|
|
|
$
|
2,373,381
|
|
|
|
776,725
|
|
|
March 31, 2009
|
|
|
3,557,146
|
(2)
|
|
|
3,557,146
|
|
|
$
|
33,420,625
|
|
|
|
—
|
|
|
|
|
|
(1) |
|
The Company generally redeems shares on the last business day of
the month following the end of each fiscal quarter in which
requests were received. |
| |
|
(2) |
|
A valid redemption request is one that complies with the
applicable requirements and guidelines of our share redemption
program in effect at such time. |
| |
|
(3) |
|
The share redemption program was suspended on November 10,
2009. Subsequent to this date, and prior to the reinstatement of
the program in August, 2010, valid redemption requests were only
related to death of a stockholder. |
| |
|
(4) |
|
Due to the limitation on the number of shares the Company may
redeem in any calendar year, the Company was not be able to
redeem any additional shares other than shares subject to
redemption requested upon the death of a stockholder. |
F-35
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
NOTE 18 —
INCOME TAXES
For federal income tax purposes, distributions to stockholders
are characterized as ordinary dividends, capital gain dividends,
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, 2010, 2009 and
2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Character of Distributions:
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Dividend income
|
|
|
35
|
%
|
|
|
39
|
%
|
|
|
45
|
%
|
|
Return of capital
|
|
|
65
|
%
|
|
|
61
|
%
|
|
|
55
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010, 2009 and 2008, the tax basis
carrying value of the Company’s land and depreciable real
estate assets was $3.1 billion, $3.1 billion and
$3.0 billion, respectively. During the years ended
December 31, 2010, 2009 and 2008, the Company had state and
local income and franchise taxes of $1.2 million,
$1.1 million and $1.3 million, respectively, which
were recorded in general and administrative expenses in the
consolidated statements of operations.
NOTE 19 —
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 future minimum rental income from the Company’s
investment in real estate assets under non-cancelable operating
leases, as of December 31, 2010, is as follows (in
thousands):
| |
|
|
|
|
|
Year Ending December 31,
|
|
Amount
|
|
|
|
|
2011
|
|
$
|
238,655
|
|
|
2012
|
|
|
236,640
|
|
|
2013
|
|
|
230,500
|
|
|
2014
|
|
|
225,398
|
|
|
2015
|
|
|
217,455
|
|
|
Thereafter
|
|
|
1,527,679
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
2,676,327
|
|
|
|
|
|
|
|
NOTE 20 —
QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly
financial information for the years ended December 31, 2010
and 2009 (in thousands, except for per share amounts). In the
opinion of management, the statements for the interim periods
presented include all adjustments, which are of a normal and
recurring nature, necessary to present a fair presentation of
the results for each such periods.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
Revenues
|
|
$
|
66,654
|
|
|
$
|
67,636
|
|
|
$
|
66,984
|
|
|
$
|
67,876
|
|
|
Operating income
|
|
|
34,155
|
|
|
|
29,376
|
(2)
|
|
|
34,085
|
|
|
|
34,701
|
|
|
Net income
|
|
|
9,027
|
|
|
|
3,740
|
(2)
|
|
|
8,387
|
|
|
|
9,276
|
|
|
Basic and diluted net income per share(1)
|
|
|
0.04
|
|
|
|
0.02
|
|
|
|
0.04
|
|
|
|
0.05
|
|
|
Dividends per share
|
|
|
0.15
|
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
0.15
|
|
|
|
|
|
(1) |
|
Based on the weighted average number of shares outstanding as of
December 31, 2010. |
| |
|
(2) |
|
Operating and net income for the second quarter 2010 includes an
impairment loss of $4.5 million related to one property. |
F-36
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
|
|
First Quarter
|
|
|
Second Quarter
|
|
|
Third Quarter
|
|
|
Fourth Quarter
|
|
|
|
|
Revenues
|
|
$
|
68,408
|
|
|
$
|
66,987
|
|
|
$
|
72,187
|
|
|
$
|
67,873
|
|
|
Operating income
|
|
|
32,106
|
|
|
|
20,865
|
(2)
|
|
|
32,328
|
|
|
|
34,920
|
|
|
Net income (loss)
|
|
|
9,631
|
|
|
|
(3,698
|
)(2)
|
|
|
6,909
|
|
|
|
9,564
|
|
|
Basic and diluted net income (loss) per share(1)
|
|
|
0.05
|
|
|
|
(0.02
|
)
|
|
|
0.03
|
|
|
|
0.05
|
|
|
Dividends per share
|
|
|
0.17
|
|
|
|
0.17
|
|
|
|
0.16
|
|
|
|
0.16
|
|
|
|
|
|
(1) |
|
Based on the weighted average number of shares outstanding as of
December 31, 2009. |
| |
|
(2) |
|
Operating and net income for the second quarter 2009 includes an
impairment loss of $13.5 million related to one property. |
NOTE 21 —
SUBSEQUENT EVENTS
Issuance
of shares of common stock through DRIP
As of March 30, 2011, the Company had raised
$2.2 billion of gross proceeds through the issuance of
approximately 219.9 million shares of its common stock in
the Offerings (including shares sold pursuant to the DRIP).
Shares issued subsequent to December 31, 2010 were issued
pursuant to the DRIP Offering.
Redemption
of Shares of Common Stock
Subsequent to December 31, 2010, the Company redeemed
approximately 1.5 million shares for
$11.9 million, as discussed in Note 17.
Real
Estate Acquisitions
Subsequent to December 31, 2010, the Company acquired a
100% interest in two commercial real estate properties for an
aggregate purchase price of $8.7 million. The acquisitions
were funded with available cash and net proceeds from the
Offerings. Acquisition related expenses totaling $332,000 were
expensed as incurred.
Amendment
of Credit Facility and Interest Rate Swap
Agreement
Subsequent to December 31, 2010, an amendment was made to
the Credit Facility which increased the total amount of
available borrowings from $315.0 million to
$350.0 million, and increased the Term Loan by
$11.1 million, as discussed in Note 10. Additionally,
subsequent to December 31, 2010, the Company executed an
interest rate swap agreement to fix the interest rate for
amounts due under the Term Loan, as discussed in Note 10.
As of March 30, 2011, $117.1 million was outstanding
under the Credit Facility and $232.4 million was available
for borrowings.
Notes
Payable
Subsequent to December 31, 2010, the Company repaid $23.5
million of fixed rate debt with proceeds from the DRIP Offering
and borrowings from the Credit Facility.
Declaration
of Distributions
Subsequent to December 31, 2010, the board of directors of
the Company authorized a daily distribution, based on
365 days in the calendar year, of $0.001712523 per share
(which would equate to 6.25% on an annualized basis calculated
at the current rate, assuming a $10.00 per share purchase price)
for stockholders of
F-37
COLE
CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL
STATEMENTS — (Continued)
record as of the close of business on each day of the period
commencing on April 1, 2011 and ending on June 30,
2011.
Sale
of Marketable Securities
Subsequent to December 31, 2010, the Company sold two of
its marketable securities for an aggregate net gain of
$8.7 million. In connection with the sales, the Company
repaid $14.2 million outstanding under the Repurchase
Agreement. As of March 30, 2011, $44.7 million was
outstanding under the Repurchase Agreement, which was renewed
through April 2011.
F-38
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
|
Charged
|
|
|
Adjustments
|
|
|
|
|
|
Balance
|
|
|
|
|
Beginning
|
|
|
to
|
|
|
to Valuation
|
|
|
|
|
|
at end
|
|
|
|
|
of Period
|
|
|
Expenses
|
|
|
Accounts
|
|
|
Deductions
|
|
|
of Period
|
|
|
|
|
Year Ended December 31, 2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
522
|
|
|
$
|
1,933
|
|
|
$
|
—
|
|
|
$
|
1,533
|
|
|
$
|
922
|
|
|
Year Ended December 31, 2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
922
|
|
|
$
|
1,993
|
|
|
$
|
—
|
|
|
$
|
1,267
|
|
|
$
|
1,648
|
|
|
Year Ended December 31, 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,648
|
|
|
$
|
(257
|
)
|
|
$
|
—
|
|
|
$
|
745
|
|
|
$
|
646
|
|
S-1
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Real Estate Held for Investment the Company has Invested in
Under Operating Leases:
|
|
24 Hour Fitness:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olathe, KS
|
|
|
4,817
|
|
|
|
1,090
|
|
|
|
5,353
|
|
|
|
—
|
|
|
|
6,443
|
|
|
|
463
|
|
|
|
8/24/07
|
|
|
|
2007
|
|
|
7500 Cottonwood Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jenison, MI
|
|
|
—
|
|
|
|
1,079
|
|
|
|
4,023
|
|
|
|
24
|
|
|
|
5,126
|
|
|
|
421
|
|
|
|
3/30/07
|
|
|
|
1993
|
|
|
Aaron Rents:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alamogordo, NM
|
|
|
(9
|
)
|
|
|
273
|
|
|
|
619
|
|
|
|
—
|
|
|
|
892
|
|
|
|
38
|
|
|
|
9/15/08
|
|
|
|
2006
|
|
|
Anderson, SC
|
|
|
(9
|
)
|
|
|
156
|
|
|
|
978
|
|
|
|
—
|
|
|
|
1,134
|
|
|
|
57
|
|
|
|
9/15/08
|
|
|
|
1992
|
|
|
Baton Rouge, LA
|
|
|
(9
|
)
|
|
|
226
|
|
|
|
603
|
|
|
|
—
|
|
|
|
829
|
|
|
|
36
|
|
|
|
9/15/08
|
|
|
|
1999
|
|
|
Beeville, TX
|
|
|
(9
|
)
|
|
|
80
|
|
|
|
808
|
|
|
|
—
|
|
|
|
888
|
|
|
|
48
|
|
|
|
9/15/08
|
|
|
|
2004
|
|
|
Calmut City, IL
|
|
|
(9
|
)
|
|
|
277
|
|
|
|
992
|
|
|
|
—
|
|
|
|
1,269
|
|
|
|
61
|
|
|
|
9/15/08
|
|
|
|
1977
|
|
|
Charlotte, NC
|
|
|
(9
|
)
|
|
|
272
|
|
|
|
424
|
|
|
|
—
|
|
|
|
696
|
|
|
|
26
|
|
|
|
9/15/08
|
|
|
|
1957
|
|
|
Chiefland, FL
|
|
|
(9
|
)
|
|
|
380
|
|
|
|
651
|
|
|
|
—
|
|
|
|
1,031
|
|
|
|
42
|
|
|
|
9/15/08
|
|
|
|
2007
|
|
|
Clanton, AL
|
|
|
(9
|
)
|
|
|
231
|
|
|
|
817
|
|
|
|
—
|
|
|
|
1,048
|
|
|
|
48
|
|
|
|
9/15/08
|
|
|
|
2007
|
|
|
Essex, MD
|
|
|
(9
|
)
|
|
|
632
|
|
|
|
966
|
|
|
|
—
|
|
|
|
1,598
|
|
|
|
57
|
|
|
|
9/15/08
|
|
|
|
1988
|
|
|
Forrest City, AR
|
|
|
(9
|
)
|
|
|
246
|
|
|
|
623
|
|
|
|
—
|
|
|
|
869
|
|
|
|
37
|
|
|
|
9/15/08
|
|
|
|
2002
|
|
|
Griffin, GA
|
|
|
(9
|
)
|
|
|
483
|
|
|
|
599
|
|
|
|
—
|
|
|
|
1,082
|
|
|
|
37
|
|
|
|
9/15/08
|
|
|
|
2007
|
|
|
Grovetown, GA
|
|
|
(9
|
)
|
|
|
220
|
|
|
|
799
|
|
|
|
—
|
|
|
|
1,019
|
|
|
|
48
|
|
|
|
9/15/08
|
|
|
|
2007
|
|
|
Harrisonville, MO
|
|
|
(9
|
)
|
|
|
509
|
|
|
|
252
|
|
|
|
—
|
|
|
|
761
|
|
|
|
16
|
|
|
|
9/15/08
|
|
|
|
1996
|
|
|
Hartsville, SC
|
|
|
(9
|
)
|
|
|
304
|
|
|
|
875
|
|
|
|
—
|
|
|
|
1,179
|
|
|
|
51
|
|
|
|
9/15/08
|
|
|
|
2007
|
|
|
Largo, FL
|
|
|
(9
|
)
|
|
|
393
|
|
|
|
884
|
|
|
|
—
|
|
|
|
1,277
|
|
|
|
55
|
|
|
|
9/15/08
|
|
|
|
1999
|
|
|
Mansfield, TX
|
|
|
(9
|
)
|
|
|
244
|
|
|
|
906
|
|
|
|
—
|
|
|
|
1,150
|
|
|
|
56
|
|
|
|
9/15/08
|
|
|
|
2007
|
|
|
Navasota, TX
|
|
|
(9
|
)
|
|
|
121
|
|
|
|
866
|
|
|
|
—
|
|
|
|
987
|
|
|
|
53
|
|
|
|
9/15/08
|
|
|
|
2007
|
|
|
Okeechobee, FL
|
|
|
(9
|
)
|
|
|
305
|
|
|
|
792
|
|
|
|
—
|
|
|
|
1,097
|
|
|
|
50
|
|
|
|
9/15/08
|
|
|
|
2006
|
|
|
Rensselaer, NY
|
|
|
(9
|
)
|
|
|
699
|
|
|
|
1,337
|
|
|
|
—
|
|
|
|
2,036
|
|
|
|
84
|
|
|
|
9/15/08
|
|
|
|
1971
|
|
|
Rome, TX
|
|
|
(9
|
)
|
|
|
387
|
|
|
|
1,050
|
|
|
|
—
|
|
|
|
1,437
|
|
|
|
66
|
|
|
|
9/15/08
|
|
|
|
1996
|
|
|
Sandersville, GA
|
|
|
(9
|
)
|
|
|
153
|
|
|
|
856
|
|
|
|
—
|
|
|
|
1,009
|
|
|
|
51
|
|
|
|
9/15/08
|
|
|
|
2006
|
|
|
Shreveport, LA
|
|
|
(9
|
)
|
|
|
267
|
|
|
|
569
|
|
|
|
—
|
|
|
|
836
|
|
|
|
36
|
|
|
|
9/15/08
|
|
|
|
2001
|
|
|
Wichita, KS
|
|
|
(9
|
)
|
|
|
247
|
|
|
|
627
|
|
|
|
—
|
|
|
|
874
|
|
|
|
37
|
|
|
|
9/15/08
|
|
|
|
2005
|
|
|
Wilton, NY
|
|
|
(9
|
)
|
|
|
2,693
|
|
|
|
3,577
|
|
|
|
—
|
|
|
|
6,270
|
|
|
|
227
|
|
|
|
9/15/08
|
|
|
|
1987
|
|
|
Mineral Wells, TX
|
|
|
(9
|
)
|
|
|
263
|
|
|
|
587
|
|
|
|
—
|
|
|
|
850
|
|
|
|
11
|
|
|
|
4/16/10
|
|
|
|
2008
|
|
|
Sweetwater, TX
|
|
|
(9
|
)
|
|
|
253
|
|
|
|
660
|
|
|
|
—
|
|
|
|
913
|
|
|
|
12
|
|
|
|
4/16/10
|
|
|
|
2006
|
|
|
ABX Air:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coventry, RI
|
|
|
2,454
|
|
|
|
548
|
|
|
|
3,293
|
|
|
|
16
|
|
|
|
3,857
|
|
|
|
360
|
|
|
|
2/16/07
|
|
|
|
1998
|
|
|
Academy Sports:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macon, GA
|
|
|
3,478
|
|
|
|
1,232
|
|
|
|
3,901
|
|
|
|
—
|
|
|
|
5,133
|
|
|
|
554
|
|
|
|
1/6/06
|
|
|
|
2005
|
|
|
Katy, TX
|
|
|
68,250
|
|
|
|
8,853
|
|
|
|
88,008
|
|
|
|
—
|
|
|
|
96,861
|
|
|
|
9,749
|
|
|
|
1/18/07
|
|
|
|
1976
|
|
|
Lufkin, TX
|
|
|
(9
|
)
|
|
|
1,512
|
|
|
|
3,260
|
|
|
|
—
|
|
|
|
4,772
|
|
|
|
244
|
|
|
|
2/7/08
|
|
|
|
2003
|
|
|
Advanced Auto:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenfield, IN
|
|
|
(9
|
)
|
|
|
670
|
|
|
|
609
|
|
|
|
—
|
|
|
|
1,279
|
|
|
|
93
|
|
|
|
6/29/06
|
|
|
|
2003
|
|
|
Trenton, OH
|
|
|
(9
|
)
|
|
|
333
|
|
|
|
651
|
|
|
|
—
|
|
|
|
984
|
|
|
|
100
|
|
|
|
6/29/06
|
|
|
|
2003
|
|
|
Columbia Heights, MN
|
|
|
1,038
|
|
|
|
549
|
|
|
|
1,071
|
|
|
|
—
|
|
|
|
1,620
|
|
|
|
144
|
|
|
|
7/6/06
|
|
|
|
2005
|
|
|
Fergus Falls, MN
|
|
|
722
|
|
|
|
187
|
|
|
|
911
|
|
|
|
(1
|
)
|
|
|
1,097
|
|
|
|
126
|
|
|
|
7/6/06
|
|
|
|
2005
|
|
|
Holland Township, MI
|
|
|
1,231
|
|
|
|
647
|
|
|
|
1,134
|
|
|
|
—
|
|
|
|
1,781
|
|
|
|
159
|
|
|
|
7/12/06
|
|
|
|
2006
|
|
|
Holland, MI
|
|
|
1,193
|
|
|
|
614
|
|
|
|
1,118
|
|
|
|
—
|
|
|
|
1,732
|
|
|
|
156
|
|
|
|
7/12/06
|
|
|
|
2006
|
|
S-2
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Advanced Auto (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Zeeland, MI
|
|
|
1,057
|
|
|
|
430
|
|
|
|
1,109
|
|
|
|
—
|
|
|
|
1,539
|
|
|
|
155
|
|
|
|
7/12/06
|
|
|
|
2006
|
|
|
Grand Forks, ND
|
|
|
840
|
|
|
|
346
|
|
|
|
889
|
|
|
|
—
|
|
|
|
1,235
|
|
|
|
123
|
|
|
|
8/15/06
|
|
|
|
2005
|
|
|
Duluth, MN
|
|
|
860
|
|
|
|
284
|
|
|
|
1,050
|
|
|
|
—
|
|
|
|
1,334
|
|
|
|
137
|
|
|
|
9/8/06
|
|
|
|
2006
|
|
|
Grand Bay, AL
|
|
|
(9
|
)
|
|
|
256
|
|
|
|
770
|
|
|
|
—
|
|
|
|
1,026
|
|
|
|
107
|
|
|
|
9/29/06
|
|
|
|
2005
|
|
|
Hurley, MS
|
|
|
(9
|
)
|
|
|
171
|
|
|
|
811
|
|
|
|
—
|
|
|
|
982
|
|
|
|
112
|
|
|
|
9/29/06
|
|
|
|
2005
|
|
|
Rainsville, AL
|
|
|
(9
|
)
|
|
|
383
|
|
|
|
823
|
|
|
|
—
|
|
|
|
1,206
|
|
|
|
113
|
|
|
|
9/29/06
|
|
|
|
2005
|
|
|
Ashland, KY
|
|
|
(9
|
)
|
|
|
641
|
|
|
|
827
|
|
|
|
—
|
|
|
|
1,468
|
|
|
|
115
|
|
|
|
11/17/06
|
|
|
|
2006
|
|
|
Jackson, OH
|
|
|
(9
|
)
|
|
|
449
|
|
|
|
755
|
|
|
|
—
|
|
|
|
1,204
|
|
|
|
106
|
|
|
|
11/17/06
|
|
|
|
2005
|
|
|
New Boston, OH
|
|
|
(9
|
)
|
|
|
477
|
|
|
|
846
|
|
|
|
—
|
|
|
|
1,323
|
|
|
|
119
|
|
|
|
11/17/06
|
|
|
|
2005
|
|
|
Scottsburg, IN
|
|
|
(9
|
)
|
|
|
264
|
|
|
|
844
|
|
|
|
—
|
|
|
|
1,108
|
|
|
|
118
|
|
|
|
11/17/06
|
|
|
|
2006
|
|
|
Maryland Heights, MO
|
|
|
(9
|
)
|
|
|
736
|
|
|
|
896
|
|
|
|
—
|
|
|
|
1,632
|
|
|
|
120
|
|
|
|
1/12/07
|
|
|
|
2005
|
|
|
Charlotte, NC
|
|
|
—
|
|
|
|
435
|
|
|
|
905
|
|
|
|
—
|
|
|
|
1,340
|
|
|
|
1
|
|
|
|
12/22/10
|
|
|
|
2008
|
|
|
Irvington, NJ
|
|
|
—
|
|
|
|
1,078
|
|
|
|
924
|
|
|
|
—
|
|
|
|
2,002
|
|
|
|
1
|
|
|
|
12/22/10
|
|
|
|
2006
|
|
|
Midwest City, OK
|
|
|
—
|
|
|
|
248
|
|
|
|
1,222
|
|
|
|
—
|
|
|
|
1,470
|
|
|
|
1
|
|
|
|
12/22/10
|
|
|
|
2007
|
|
|
Penns Grove, NJ
|
|
|
—
|
|
|
|
402
|
|
|
|
907
|
|
|
|
—
|
|
|
|
1,309
|
|
|
|
1
|
|
|
|
12/22/10
|
|
|
|
2006
|
|
|
St. Francis, WI
|
|
|
—
|
|
|
|
394
|
|
|
|
1,065
|
|
|
|
—
|
|
|
|
1,459
|
|
|
|
1
|
|
|
|
12/22/10
|
|
|
|
2006
|
|
|
Willingboro, NJ
|
|
|
—
|
|
|
|
973
|
|
|
|
676
|
|
|
|
—
|
|
|
|
1,649
|
|
|
|
1
|
|
|
|
12/22/10
|
|
|
|
2007
|
|
|
Dunellen, NJ
|
|
|
—
|
|
|
|
1,054
|
|
|
|
1,241
|
|
|
|
—
|
|
|
|
2,295
|
|
|
|
1
|
|
|
|
12/22/10
|
|
|
|
2008
|
|
|
Allstate Insurance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross Plains, WI
|
|
|
(9
|
)
|
|
|
864
|
|
|
|
4,488
|
|
|
|
8
|
|
|
|
5,360
|
|
|
|
398
|
|
|
|
12/7/07
|
|
|
|
2007
|
|
|
Yuma, AZ
|
|
|
(9
|
)
|
|
|
1,426
|
|
|
|
5,885
|
|
|
|
—
|
|
|
|
7,311
|
|
|
|
444
|
|
|
|
5/22/08
|
|
|
|
2008
|
|
|
American TV & Appliance:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoria, IL
|
|
|
6,530
|
|
|
|
2,028
|
|
|
|
8,172
|
|
|
|
—
|
|
|
|
10,200
|
|
|
|
953
|
|
|
|
10/23/06
|
|
|
|
2003
|
|
|
Applebee’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albany, OR
|
|
|
1,923
|
|
|
|
808
|
|
|
|
1,836
|
|
|
|
—
|
|
|
|
2,644
|
|
|
|
183
|
|
|
|
4/26/07
|
|
|
|
2005
|
|
|
Augusta, GA
|
|
|
2,252
|
|
|
|
621
|
|
|
|
2,474
|
|
|
|
—
|
|
|
|
3,095
|
|
|
|
236
|
|
|
|
4/26/07
|
|
|
|
2005
|
|
|
Aurora (lliff), CO
|
|
|
1,878
|
|
|
|
1,324
|
|
|
|
1,258
|
|
|
|
—
|
|
|
|
2,582
|
|
|
|
119
|
|
|
|
4/26/07
|
|
|
|
1992
|
|
|
Aurora, CO
|
|
|
1,727
|
|
|
|
1,001
|
|
|
|
1,373
|
|
|
|
—
|
|
|
|
2,374
|
|
|
|
129
|
|
|
|
4/26/07
|
|
|
|
1998
|
|
|
Clovis, NM
|
|
|
1,918
|
|
|
|
512
|
|
|
|
2,125
|
|
|
|
—
|
|
|
|
2,637
|
|
|
|
200
|
|
|
|
4/26/07
|
|
|
|
2005
|
|
|
Colorado Springs, CO
|
|
|
1,285
|
|
|
|
781
|
|
|
|
985
|
|
|
|
—
|
|
|
|
1,766
|
|
|
|
93
|
|
|
|
4/26/07
|
|
|
|
1998
|
|
|
Columbus (Airport), GA
|
|
|
2,176
|
|
|
|
726
|
|
|
|
2,265
|
|
|
|
—
|
|
|
|
2,991
|
|
|
|
217
|
|
|
|
4/26/07
|
|
|
|
2006
|
|
|
Columbus (Gentian), GA
|
|
|
2,449
|
|
|
|
1,098
|
|
|
|
2,263
|
|
|
|
6
|
|
|
|
3,367
|
|
|
|
217
|
|
|
|
4/26/07
|
|
|
|
2005
|
|
|
Fountain, CO
|
|
|
1,871
|
|
|
|
747
|
|
|
|
1,825
|
|
|
|
—
|
|
|
|
2,572
|
|
|
|
173
|
|
|
|
4/26/07
|
|
|
|
2005
|
|
|
Gallup , NM
|
|
|
2,165
|
|
|
|
499
|
|
|
|
2,477
|
|
|
|
—
|
|
|
|
2,976
|
|
|
|
233
|
|
|
|
4/26/07
|
|
|
|
2004
|
|
|
Garden City, GA
|
|
|
1,812
|
|
|
|
803
|
|
|
|
1,688
|
|
|
|
—
|
|
|
|
2,491
|
|
|
|
161
|
|
|
|
4/26/07
|
|
|
|
1998
|
|
|
Grand Junction, CO
|
|
|
2,136
|
|
|
|
915
|
|
|
|
2,021
|
|
|
|
—
|
|
|
|
2,936
|
|
|
|
191
|
|
|
|
4/26/07
|
|
|
|
1995
|
|
|
Littleton, CO
|
|
|
1,561
|
|
|
|
1,491
|
|
|
|
656
|
|
|
|
—
|
|
|
|
2,147
|
|
|
|
63
|
|
|
|
4/26/07
|
|
|
|
1990
|
|
|
Longview, WA
|
|
|
2,475
|
|
|
|
969
|
|
|
|
2,429
|
|
|
|
4
|
|
|
|
3,402
|
|
|
|
237
|
|
|
|
4/26/07
|
|
|
|
2004
|
|
|
Loveland, CO
|
|
|
1,441
|
|
|
|
437
|
|
|
|
1,543
|
|
|
|
—
|
|
|
|
1,980
|
|
|
|
146
|
|
|
|
4/26/07
|
|
|
|
1997
|
|
|
Macon (Eisenhower), GA
|
|
|
1,706
|
|
|
|
785
|
|
|
|
1,561
|
|
|
|
—
|
|
|
|
2,346
|
|
|
|
149
|
|
|
|
4/26/07
|
|
|
|
1998
|
|
|
Macon (Riverside), GA
|
|
|
1,726
|
|
|
|
794
|
|
|
|
1,579
|
|
|
|
—
|
|
|
|
2,373
|
|
|
|
151
|
|
|
|
4/26/07
|
|
|
|
1998
|
|
|
Santa Fe, NM
|
|
|
2,783
|
|
|
|
1,637
|
|
|
|
2,184
|
|
|
|
5
|
|
|
|
3,826
|
|
|
|
206
|
|
|
|
4/26/07
|
|
|
|
1997
|
|
|
Savannah, GA
|
|
|
1,842
|
|
|
|
1,079
|
|
|
|
1,454
|
|
|
|
(156
|
)
|
|
|
2,377
|
|
|
|
140
|
|
|
|
4/26/07
|
|
|
|
1993
|
|
S-3
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Applebee’s (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Union Gap, WA
|
|
|
1,756
|
|
|
|
196
|
|
|
|
2,218
|
|
|
|
—
|
|
|
|
2,414
|
|
|
|
216
|
|
|
|
4/26/07
|
|
|
|
2004
|
|
|
Walla Walla, WA
|
|
|
1,642
|
|
|
|
770
|
|
|
|
1,487
|
|
|
|
—
|
|
|
|
2,257
|
|
|
|
150
|
|
|
|
4/26/07
|
|
|
|
2005
|
|
|
Warner Robins, GA
|
|
|
1,726
|
|
|
|
677
|
|
|
|
1,696
|
|
|
|
—
|
|
|
|
2,373
|
|
|
|
163
|
|
|
|
4/26/07
|
|
|
|
1994
|
|
|
Apria Healthcare:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. John, MO
|
|
|
4,420
|
|
|
|
1,669
|
|
|
|
4,390
|
|
|
|
133
|
|
|
|
6,192
|
|
|
|
655
|
|
|
|
3/28/07
|
|
|
|
1996
|
|
|
Arby’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Castle, PA
|
|
|
(9
|
)
|
|
|
555
|
|
|
|
810
|
|
|
|
—
|
|
|
|
1,365
|
|
|
|
62
|
|
|
|
1/31/08
|
|
|
|
1999
|
|
|
Ashley Furniture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amarillo, TX
|
|
|
4,026
|
|
|
|
1,367
|
|
|
|
4,747
|
|
|
|
—
|
|
|
|
6,114
|
|
|
|
486
|
|
|
|
4/6/07
|
|
|
|
1980
|
|
|
Anderson, SC
|
|
|
(9
|
)
|
|
|
677
|
|
|
|
3,240
|
|
|
|
(4
|
)
|
|
|
3,913
|
|
|
|
269
|
|
|
|
9/28/07
|
|
|
|
2006
|
|
|
AT&T:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beaumont, TX
|
|
|
8,592
|
|
|
|
611
|
|
|
|
10,717
|
|
|
|
—
|
|
|
|
11,328
|
|
|
|
1,383
|
|
|
|
3/19/07
|
|
|
|
1971
|
|
|
Santa Clara, CA
|
|
|
6,032
|
|
|
|
2,455
|
|
|
|
10,876
|
|
|
|
—
|
|
|
|
13,331
|
|
|
|
632
|
|
|
|
9/30/08
|
|
|
|
2002
|
|
|
Bank of America:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delray Beach, FL
|
|
|
(9
|
)
|
|
|
11,890
|
|
|
|
2,984
|
|
|
|
—
|
|
|
|
14,874
|
|
|
|
229
|
|
|
|
1/31/08
|
|
|
|
1975
|
|
|
BE Aerospace:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winston-Salem, NC
|
|
|
(9
|
)
|
|
|
346
|
|
|
|
4,387
|
|
|
|
—
|
|
|
|
4,733
|
|
|
|
252
|
|
|
|
10/31/08
|
|
|
|
1987
|
|
|
Best Buy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fayettville, NC
|
|
|
(9
|
)
|
|
|
2,020
|
|
|
|
4,285
|
|
|
|
301
|
|
|
|
6,606
|
|
|
|
374
|
|
|
|
10/4/07
|
|
|
|
1999
|
|
|
Wichita, KS
|
|
|
5,625
|
|
|
|
2,192
|
|
|
|
8,319
|
|
|
|
—
|
|
|
|
10,511
|
|
|
|
752
|
|
|
|
2/7/08
|
|
|
|
1984
|
|
|
Las Cruces, NM
|
|
|
3,809
|
|
|
|
1,584
|
|
|
|
4,043
|
|
|
|
—
|
|
|
|
5,627
|
|
|
|
248
|
|
|
|
9/30/08
|
|
|
|
2002
|
|
|
Big 5 Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aurora, CO
|
|
|
2,804
|
|
|
|
1,265
|
|
|
|
2,827
|
|
|
|
—
|
|
|
|
4,092
|
|
|
|
282
|
|
|
|
4/11/07
|
|
|
|
2006
|
|
|
BJ’s Wholesale:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ft. Lauderdale, FL
|
|
|
11,125
|
|
|
|
10,920
|
|
|
|
14,762
|
|
|
|
—
|
|
|
|
25,682
|
|
|
|
878
|
|
|
|
9/23/08
|
|
|
|
2007
|
|
|
Haverhill, MA
|
|
|
9,100
|
|
|
|
5,497
|
|
|
|
13,904
|
|
|
|
49
|
|
|
|
19,450
|
|
|
|
984
|
|
|
|
4/14/08
|
|
|
|
2006
|
|
|
Woodstock, GA
|
|
|
9,787
|
|
|
|
3,071
|
|
|
|
11,542
|
|
|
|
—
|
|
|
|
14,613
|
|
|
|
586
|
|
|
|
1/29/09
|
|
|
|
2002
|
|
|
Borders:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rapid City, SD
|
|
|
4,393
|
|
|
|
1,589
|
|
|
|
1,951
|
|
|
|
—
|
|
|
|
3,540
|
|
|
|
191
|
|
|
|
6/1/07
|
|
|
|
1999
|
|
|
Reading, PA
|
|
|
4,257
|
|
|
|
2,128
|
|
|
|
3,186
|
|
|
|
—
|
|
|
|
5,314
|
|
|
|
297
|
|
|
|
6/1/07
|
|
|
|
1997
|
|
|
Boscov’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voorhees, NJ
|
|
|
(9
|
)
|
|
|
1,889
|
|
|
|
5,012
|
|
|
|
—
|
|
|
|
6,901
|
|
|
|
401
|
|
|
|
2/7/08
|
|
|
|
1970
|
|
|
Bridgestone Tire:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta, GA
|
|
|
(9
|
)
|
|
|
1,623
|
|
|
|
977
|
|
|
|
—
|
|
|
|
2,600
|
|
|
|
75
|
|
|
|
2/7/08
|
|
|
|
1998
|
|
|
Broadview Village Square:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadview , IL
|
|
|
31,500
|
|
|
|
8,489
|
|
|
|
46,933
|
|
|
|
(3
|
)
|
|
|
55,419
|
|
|
|
4,357
|
|
|
|
9/14/07
|
|
|
|
1994
|
|
|
Carmax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenville, SC
|
|
|
14,948
|
|
|
|
8,061
|
|
|
|
11,830
|
|
|
|
—
|
|
|
|
19,891
|
|
|
|
900
|
|
|
|
1/25/08
|
|
|
|
1998
|
|
|
Pineville, NC
|
|
|
(9
|
)
|
|
|
6,980
|
|
|
|
4,014
|
|
|
|
—
|
|
|
|
10,994
|
|
|
|
327
|
|
|
|
1/31/08
|
|
|
|
2002
|
|
|
Raleigh, NC
|
|
|
(9
|
)
|
|
|
4,000
|
|
|
|
7,669
|
|
|
|
—
|
|
|
|
11,669
|
|
|
|
579
|
|
|
|
1/31/08
|
|
|
|
1994
|
|
|
Chambers Corner:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayland, MI
|
|
|
—
|
|
|
|
1,608
|
|
|
|
7,277
|
|
|
|
37
|
|
|
|
8,922
|
|
|
|
699
|
|
|
|
9/19/07
|
|
|
|
2000
|
|
|
Chili’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-4
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Chili’s (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paris, TX
|
|
|
1,790
|
|
|
|
600
|
|
|
|
1,851
|
|
|
|
—
|
|
|
|
2,451
|
|
|
|
204
|
|
|
|
12/28/06
|
|
|
|
1999
|
|
|
Fredericksburg, TX
|
|
|
1,504
|
|
|
|
820
|
|
|
|
1,290
|
|
|
|
—
|
|
|
|
2,110
|
|
|
|
132
|
|
|
|
6/5/07
|
|
|
|
1985
|
|
|
Tilton, NH
|
|
|
1,260
|
|
|
|
1,085
|
|
|
|
—
|
|
|
|
—
|
|
|
|
1,085
|
|
|
|
—
|
|
|
|
3/27/09
|
|
|
|
(8
|
)
|
|
Childtime Childcare:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cuyahoga Falls, OH
|
|
|
—
|
|
|
|
114
|
|
|
|
564
|
|
|
|
—
|
|
|
|
678
|
|
|
|
1
|
|
|
|
12/15/10
|
|
|
|
1974
|
|
|
Arlington, TX
|
|
|
—
|
|
|
|
268
|
|
|
|
867
|
|
|
|
—
|
|
|
|
1,135
|
|
|
|
1
|
|
|
|
12/15/10
|
|
|
|
|
|
|
Oklahoma City (May), OK
|
|
|
—
|
|
|
|
74
|
|
|
|
479
|
|
|
|
—
|
|
|
|
553
|
|
|
|
1
|
|
|
|
12/15/10
|
|
|
|
1985
|
|
|
Oklahoma City (Penn), OK
|
|
|
—
|
|
|
|
60
|
|
|
|
616
|
|
|
|
—
|
|
|
|
676
|
|
|
|
1
|
|
|
|
12/15/10
|
|
|
|
1986
|
|
|
Rochester, NY
|
|
|
—
|
|
|
|
107
|
|
|
|
484
|
|
|
|
—
|
|
|
|
591
|
|
|
|
1
|
|
|
|
12/15/10
|
|
|
|
1981
|
|
|
Modesto (Honey Creek), CA
|
|
|
—
|
|
|
|
191
|
|
|
|
605
|
|
|
|
—
|
|
|
|
796
|
|
|
|
1
|
|
|
|
12/15/10
|
|
|
|
1986
|
|
|
Church’s Chicken:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191 Locations
|
|
|
67,582
|
|
|
|
47,249
|
|
|
|
57,362
|
|
|
|
—
|
|
|
|
104,611
|
|
|
|
3,754
|
|
|
|
10/31/08
|
|
|
|
1965 - 2007
|
|
|
Circle K:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Akron (1178 Arlington), OH
|
|
|
698
|
|
|
|
434
|
|
|
|
834
|
|
|
|
—
|
|
|
|
1,268
|
|
|
|
69
|
|
|
|
12/20/07
|
|
|
|
1994
|
|
|
Akron (1559 Market), OH
|
|
|
698
|
|
|
|
539
|
|
|
|
832
|
|
|
|
8
|
|
|
|
1,379
|
|
|
|
68
|
|
|
|
12/20/07
|
|
|
|
1995
|
|
|
Akron (1693 West Market), OH
|
|
|
824
|
|
|
|
664
|
|
|
|
2,064
|
|
|
|
8
|
|
|
|
2,736
|
|
|
|
162
|
|
|
|
12/20/07
|
|
|
|
2000
|
|
|
Akron (940 Arlington), OH
|
|
|
562
|
|
|
|
362
|
|
|
|
1,062
|
|
|
|
—
|
|
|
|
1,424
|
|
|
|
87
|
|
|
|
12/20/07
|
|
|
|
1991
|
|
|
Akron (Albrecht), OH
|
|
|
553
|
|
|
|
400
|
|
|
|
908
|
|
|
|
—
|
|
|
|
1,308
|
|
|
|
73
|
|
|
|
12/20/07
|
|
|
|
1997
|
|
|
Akron (Brittain), OH
|
|
|
620
|
|
|
|
345
|
|
|
|
1,005
|
|
|
|
8
|
|
|
|
1,358
|
|
|
|
84
|
|
|
|
12/20/07
|
|
|
|
1995
|
|
|
Akron (Brown), OH
|
|
|
620
|
|
|
|
329
|
|
|
|
707
|
|
|
|
—
|
|
|
|
1,036
|
|
|
|
62
|
|
|
|
12/20/07
|
|
|
|
1950
|
|
|
Akron (Cuyahoga), OH
|
|
|
834
|
|
|
|
518
|
|
|
|
794
|
|
|
|
—
|
|
|
|
1,312
|
|
|
|
67
|
|
|
|
12/20/07
|
|
|
|
1998
|
|
|
Akron (Darrow), OH
|
|
|
620
|
|
|
|
544
|
|
|
|
849
|
|
|
|
8
|
|
|
|
1,401
|
|
|
|
69
|
|
|
|
12/20/07
|
|
|
|
1994
|
|
|
Akron (Exchange), OH
|
|
|
727
|
|
|
|
559
|
|
|
|
900
|
|
|
|
—
|
|
|
|
1,459
|
|
|
|
73
|
|
|
|
12/20/07
|
|
|
|
1996
|
|
|
Akron (Main), OH
|
|
|
582
|
|
|
|
330
|
|
|
|
1,288
|
|
|
|
7
|
|
|
|
1,625
|
|
|
|
106
|
|
|
|
12/20/07
|
|
|
|
2000
|
|
|
Akron (Manchester), OH
|
|
|
814
|
|
|
|
304
|
|
|
|
945
|
|
|
|
—
|
|
|
|
1,249
|
|
|
|
78
|
|
|
|
12/20/07
|
|
|
|
1994
|
|
|
Akron (Ridgewood), OH
|
|
|
620
|
|
|
|
435
|
|
|
|
386
|
|
|
|
—
|
|
|
|
821
|
|
|
|
34
|
|
|
|
12/20/07
|
|
|
|
1969
|
|
|
Akron (Waterloo), OH
|
|
|
611
|
|
|
|
385
|
|
|
|
1,019
|
|
|
|
—
|
|
|
|
1,404
|
|
|
|
83
|
|
|
|
12/20/07
|
|
|
|
2001
|
|
|
Albuquerque, NM
|
|
|
630
|
|
|
|
748
|
|
|
|
626
|
|
|
|
—
|
|
|
|
1,374
|
|
|
|
50
|
|
|
|
12/20/07
|
|
|
|
1994
|
|
|
Auburn, AL
|
|
|
795
|
|
|
|
693
|
|
|
|
1,045
|
|
|
|
—
|
|
|
|
1,738
|
|
|
|
85
|
|
|
|
12/20/07
|
|
|
|
1990
|
|
|
Augusta, GA
|
|
|
514
|
|
|
|
783
|
|
|
|
953
|
|
|
|
—
|
|
|
|
1,736
|
|
|
|
78
|
|
|
|
12/20/07
|
|
|
|
1985
|
|
|
Barberton (31st St), OH
|
|
|
465
|
|
|
|
389
|
|
|
|
1,519
|
|
|
|
—
|
|
|
|
1,908
|
|
|
|
124
|
|
|
|
12/20/07
|
|
|
|
1991
|
|
|
Barberton (5th St.), OH
|
|
|
611
|
|
|
|
283
|
|
|
|
1,067
|
|
|
|
—
|
|
|
|
1,350
|
|
|
|
85
|
|
|
|
12/20/07
|
|
|
|
1996
|
|
|
Barberton (Wooster), OH
|
|
|
1,105
|
|
|
|
520
|
|
|
|
1,168
|
|
|
|
—
|
|
|
|
1,688
|
|
|
|
95
|
|
|
|
12/20/07
|
|
|
|
2000
|
|
|
Baton Rouge (Burbank), LA
|
|
|
456
|
|
|
|
538
|
|
|
|
708
|
|
|
|
—
|
|
|
|
1,246
|
|
|
|
58
|
|
|
|
12/20/07
|
|
|
|
1976
|
|
|
Baton Rouge (Floynell), LA
|
|
|
650
|
|
|
|
551
|
|
|
|
686
|
|
|
|
—
|
|
|
|
1,237
|
|
|
|
55
|
|
|
|
12/20/07
|
|
|
|
1977
|
|
|
Baton Rouge (Jefferson), LA
|
|
|
494
|
|
|
|
770
|
|
|
|
600
|
|
|
|
—
|
|
|
|
1,370
|
|
|
|
49
|
|
|
|
12/20/07
|
|
|
|
1970
|
|
|
Beaufort, SC
|
|
|
805
|
|
|
|
745
|
|
|
|
663
|
|
|
|
—
|
|
|
|
1,408
|
|
|
|
53
|
|
|
|
12/20/07
|
|
|
|
1997
|
|
|
Bedford, OH
|
|
|
640
|
|
|
|
416
|
|
|
|
708
|
|
|
|
—
|
|
|
|
1,124
|
|
|
|
57
|
|
|
|
12/20/07
|
|
|
|
2000
|
|
|
Bluffton , SC
|
|
|
1,192
|
|
|
|
1,075
|
|
|
|
777
|
|
|
|
—
|
|
|
|
1,852
|
|
|
|
64
|
|
|
|
12/20/07
|
|
|
|
1997
|
|
|
Bossier City, LA
|
|
|
756
|
|
|
|
755
|
|
|
|
771
|
|
|
|
—
|
|
|
|
1,526
|
|
|
|
61
|
|
|
|
12/20/07
|
|
|
|
1987
|
|
|
Brookpark, OH
|
|
|
669
|
|
|
|
472
|
|
|
|
819
|
|
|
|
—
|
|
|
|
1,291
|
|
|
|
65
|
|
|
|
12/20/07
|
|
|
|
1998
|
|
|
Canton (12th St.) , OH
|
|
|
538
|
|
|
|
459
|
|
|
|
878
|
|
|
|
—
|
|
|
|
1,337
|
|
|
|
74
|
|
|
|
12/20/07
|
|
|
|
1992
|
|
S-5
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Circle K (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Canton (Tuscarwas), OH
|
|
|
1,095
|
|
|
|
730
|
|
|
|
1,339
|
|
|
|
—
|
|
|
|
2,069
|
|
|
|
109
|
|
|
|
12/20/07
|
|
|
|
2000
|
|
|
Charleston, SC
|
|
|
1,289
|
|
|
|
1,182
|
|
|
|
758
|
|
|
|
—
|
|
|
|
1,940
|
|
|
|
60
|
|
|
|
12/20/07
|
|
|
|
1987
|
|
|
Charlotte (Independence), NC
|
|
|
936
|
|
|
|
589
|
|
|
|
581
|
|
|
|
—
|
|
|
|
1,170
|
|
|
|
48
|
|
|
|
12/20/07
|
|
|
|
1996
|
|
|
Charlotte (Sharon), NC
|
|
|
969
|
|
|
|
663
|
|
|
|
734
|
|
|
|
—
|
|
|
|
1,397
|
|
|
|
59
|
|
|
|
12/20/07
|
|
|
|
1997
|
|
|
Charlotte (Sugar Creek), SC
|
|
|
999
|
|
|
|
623
|
|
|
|
603
|
|
|
|
—
|
|
|
|
1,226
|
|
|
|
48
|
|
|
|
12/20/07
|
|
|
|
1991
|
|
|
Cleveland , OH
|
|
|
785
|
|
|
|
573
|
|
|
|
1,352
|
|
|
|
—
|
|
|
|
1,925
|
|
|
|
110
|
|
|
|
12/20/07
|
|
|
|
2002
|
|
|
Columbia (Garners), SC
|
|
|
1,047
|
|
|
|
645
|
|
|
|
739
|
|
|
|
—
|
|
|
|
1,384
|
|
|
|
59
|
|
|
|
12/20/07
|
|
|
|
1993
|
|
|
Columbia (Hardscrabble), SC
|
|
|
873
|
|
|
|
587
|
|
|
|
777
|
|
|
|
—
|
|
|
|
1,364
|
|
|
|
61
|
|
|
|
12/20/07
|
|
|
|
1997
|
|
|
Columbia (Lumpkin), GA
|
|
|
776
|
|
|
|
526
|
|
|
|
756
|
|
|
|
—
|
|
|
|
1,282
|
|
|
|
63
|
|
|
|
12/20/07
|
|
|
|
1978
|
|
|
Columbus (Airport), GA
|
|
|
708
|
|
|
|
569
|
|
|
|
455
|
|
|
|
—
|
|
|
|
1,024
|
|
|
|
38
|
|
|
|
12/20/07
|
|
|
|
1984
|
|
|
Columbus (Buena Vista), GA
|
|
|
746
|
|
|
|
576
|
|
|
|
623
|
|
|
|
—
|
|
|
|
1,199
|
|
|
|
53
|
|
|
|
12/20/07
|
|
|
|
1990
|
|
|
Columbus (Warm Springs), GA
|
|
|
911
|
|
|
|
2,085
|
|
|
|
2,949
|
|
|
|
—
|
|
|
|
5,034
|
|
|
|
232
|
|
|
|
12/20/07
|
|
|
|
1978
|
|
|
Columbus (Whiteville), GA
|
|
|
1,551
|
|
|
|
1,394
|
|
|
|
1,039
|
|
|
|
—
|
|
|
|
2,433
|
|
|
|
82
|
|
|
|
12/20/07
|
|
|
|
1995
|
|
|
Copley, OH
|
|
|
572
|
|
|
|
336
|
|
|
|
692
|
|
|
|
8
|
|
|
|
1,036
|
|
|
|
60
|
|
|
|
12/20/07
|
|
|
|
1993
|
|
|
Cuyahoga Falls (Bath), OH
|
|
|
1,008
|
|
|
|
472
|
|
|
|
1,287
|
|
|
|
—
|
|
|
|
1,759
|
|
|
|
103
|
|
|
|
12/20/07
|
|
|
|
2002
|
|
|
Cuyahoga Falls (Port), OH
|
|
|
688
|
|
|
|
413
|
|
|
|
988
|
|
|
|
—
|
|
|
|
1,401
|
|
|
|
81
|
|
|
|
12/20/07
|
|
|
|
1995
|
|
|
Cuyahoga Falls (State), OH
|
|
|
475
|
|
|
|
327
|
|
|
|
613
|
|
|
|
8
|
|
|
|
948
|
|
|
|
51
|
|
|
|
12/20/07
|
|
|
|
1972
|
|
|
El Paso (Americas), TX
|
|
|
1,134
|
|
|
|
696
|
|
|
|
1,272
|
|
|
|
—
|
|
|
|
1,968
|
|
|
|
104
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
|
El Paso (Mesa), TX
|
|
|
591
|
|
|
|
684
|
|
|
|
821
|
|
|
|
—
|
|
|
|
1,505
|
|
|
|
67
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
|
El Paso (Zaragosa), TX
|
|
|
1,057
|
|
|
|
967
|
|
|
|
764
|
|
|
|
—
|
|
|
|
1,731
|
|
|
|
61
|
|
|
|
12/20/07
|
|
|
|
1998
|
|
|
Fairlawn, OH
|
|
|
776
|
|
|
|
480
|
|
|
|
818
|
|
|
|
—
|
|
|
|
1,298
|
|
|
|
67
|
|
|
|
12/20/07
|
|
|
|
1993
|
|
|
Fort Mill, SC
|
|
|
1,202
|
|
|
|
1,207
|
|
|
|
2,007
|
|
|
|
—
|
|
|
|
3,214
|
|
|
|
158
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
|
Goose Creek, SC
|
|
|
650
|
|
|
|
671
|
|
|
|
578
|
|
|
|
—
|
|
|
|
1,249
|
|
|
|
47
|
|
|
|
12/20/07
|
|
|
|
1983
|
|
|
Huntersville, NC
|
|
|
999
|
|
|
|
680
|
|
|
|
716
|
|
|
|
—
|
|
|
|
1,396
|
|
|
|
57
|
|
|
|
12/20/07
|
|
|
|
1996
|
|
|
Kent, OH
|
|
|
485
|
|
|
|
223
|
|
|
|
678
|
|
|
|
—
|
|
|
|
901
|
|
|
|
55
|
|
|
|
12/20/07
|
|
|
|
1994
|
|
|
Lanett, AL
|
|
|
441
|
|
|
|
1,645
|
|
|
|
4,693
|
|
|
|
—
|
|
|
|
6,338
|
|
|
|
395
|
|
|
|
12/20/07
|
|
|
|
1974
|
|
|
Macon (Arkwright), GA
|
|
|
543
|
|
|
|
422
|
|
|
|
675
|
|
|
|
(5
|
)
|
|
|
1,092
|
|
|
|
55
|
|
|
|
12/20/07
|
|
|
|
1993
|
|
|
Macon (Riverside), GA
|
|
|
582
|
|
|
|
588
|
|
|
|
625
|
|
|
|
—
|
|
|
|
1,213
|
|
|
|
54
|
|
|
|
12/20/07
|
|
|
|
1974
|
|
|
Maple Heights, OH
|
|
|
737
|
|
|
|
524
|
|
|
|
1,052
|
|
|
|
—
|
|
|
|
1,576
|
|
|
|
87
|
|
|
|
12/20/07
|
|
|
|
1998
|
|
|
Martinez, GA
|
|
|
611
|
|
|
|
506
|
|
|
|
702
|
|
|
|
—
|
|
|
|
1,208
|
|
|
|
58
|
|
|
|
12/20/07
|
|
|
|
1986
|
|
|
Midland (Beaver Run), GA
|
|
|
1,202
|
|
|
|
1,066
|
|
|
|
1,099
|
|
|
|
—
|
|
|
|
2,165
|
|
|
|
91
|
|
|
|
12/20/07
|
|
|
|
1995
|
|
|
Mobile (Airport), AL
|
|
|
834
|
|
|
|
516
|
|
|
|
651
|
|
|
|
—
|
|
|
|
1,167
|
|
|
|
56
|
|
|
|
12/20/07
|
|
|
|
1987
|
|
|
Mobile (Moffett), AL
|
|
|
635
|
|
|
|
475
|
|
|
|
374
|
|
|
|
—
|
|
|
|
849
|
|
|
|
33
|
|
|
|
12/20/07
|
|
|
|
1988
|
|
|
Mount Pleasant, SC
|
|
|
727
|
|
|
|
616
|
|
|
|
631
|
|
|
|
—
|
|
|
|
1,247
|
|
|
|
52
|
|
|
|
12/20/07
|
|
|
|
1978
|
|
|
North Augusta, SC
|
|
|
572
|
|
|
|
380
|
|
|
|
678
|
|
|
|
—
|
|
|
|
1,058
|
|
|
|
54
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
|
North Monroe, LA
|
|
|
756
|
|
|
|
816
|
|
|
|
1,375
|
|
|
|
—
|
|
|
|
2,191
|
|
|
|
109
|
|
|
|
12/20/07
|
|
|
|
1986
|
|
|
Northfield, OH
|
|
|
960
|
|
|
|
829
|
|
|
|
1,564
|
|
|
|
—
|
|
|
|
2,393
|
|
|
|
124
|
|
|
|
12/20/07
|
|
|
|
1983
|
|
|
Norton, OH
|
|
|
708
|
|
|
|
374
|
|
|
|
1,430
|
|
|
|
—
|
|
|
|
1,804
|
|
|
|
116
|
|
|
|
12/20/07
|
|
|
|
2001
|
|
|
Opelika (2nd Avenue), AL
|
|
|
611
|
|
|
|
778
|
|
|
|
1,590
|
|
|
|
—
|
|
|
|
2,368
|
|
|
|
130
|
|
|
|
12/20/07
|
|
|
|
1989
|
|
|
Opelika (Columbus), AL
|
|
|
1,125
|
|
|
|
829
|
|
|
|
968
|
|
|
|
—
|
|
|
|
1,797
|
|
|
|
85
|
|
|
|
12/20/07
|
|
|
|
1988
|
|
|
Parma, OH
|
|
|
650
|
|
|
|
451
|
|
|
|
1,052
|
|
|
|
—
|
|
|
|
1,503
|
|
|
|
85
|
|
|
|
12/20/07
|
|
|
|
2002
|
|
|
Phenix City, AL
|
|
|
795
|
|
|
|
674
|
|
|
|
1,148
|
|
|
|
—
|
|
|
|
1,822
|
|
|
|
92
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
S-6
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Circle K (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pine Mountain, GA
|
|
|
582
|
|
|
|
744
|
|
|
|
3,016
|
|
|
|
—
|
|
|
|
3,760
|
|
|
|
240
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
|
Port Wentworth, GA
|
|
|
1,115
|
|
|
|
945
|
|
|
|
861
|
|
|
|
—
|
|
|
|
1,806
|
|
|
|
76
|
|
|
|
12/20/07
|
|
|
|
1991
|
|
|
Savannah (Johnny Mercer), GA
|
|
|
717
|
|
|
|
551
|
|
|
|
480
|
|
|
|
—
|
|
|
|
1,031
|
|
|
|
40
|
|
|
|
12/20/07
|
|
|
|
1990
|
|
|
Savannah (King George), GA
|
|
|
776
|
|
|
|
816
|
|
|
|
712
|
|
|
|
—
|
|
|
|
1,528
|
|
|
|
57
|
|
|
|
12/20/07
|
|
|
|
1997
|
|
|
Seville, OH
|
|
|
1,260
|
|
|
|
642
|
|
|
|
1,989
|
|
|
|
8
|
|
|
|
2,639
|
|
|
|
158
|
|
|
|
12/20/07
|
|
|
|
2003
|
|
|
Shreveport , LA
|
|
|
601
|
|
|
|
517
|
|
|
|
1,074
|
|
|
|
—
|
|
|
|
1,591
|
|
|
|
86
|
|
|
|
12/20/07
|
|
|
|
1988
|
|
|
Springdale, SC
|
|
|
834
|
|
|
|
368
|
|
|
|
609
|
|
|
|
—
|
|
|
|
977
|
|
|
|
49
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
|
Twinsburg, OH
|
|
|
669
|
|
|
|
409
|
|
|
|
1,146
|
|
|
|
—
|
|
|
|
1,555
|
|
|
|
95
|
|
|
|
12/20/07
|
|
|
|
1984
|
|
|
Valley, AL
|
|
|
776
|
|
|
|
512
|
|
|
|
733
|
|
|
|
—
|
|
|
|
1,245
|
|
|
|
60
|
|
|
|
12/20/07
|
|
|
|
1974
|
|
|
West Monroe (1602), LA
|
|
|
824
|
|
|
|
538
|
|
|
|
1,127
|
|
|
|
—
|
|
|
|
1,665
|
|
|
|
89
|
|
|
|
12/20/07
|
|
|
|
1999
|
|
|
West Monroe (503), LA
|
|
|
727
|
|
|
|
918
|
|
|
|
660
|
|
|
|
—
|
|
|
|
1,578
|
|
|
|
54
|
|
|
|
12/20/07
|
|
|
|
1983
|
|
|
Willoughby, OH
|
|
|
591
|
|
|
|
390
|
|
|
|
1,001
|
|
|
|
—
|
|
|
|
1,391
|
|
|
|
80
|
|
|
|
12/20/07
|
|
|
|
1986
|
|
|
Circuit City (former):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mesquite, TX
|
|
|
4,305
|
|
|
|
1,094
|
|
|
|
6,687
|
|
|
|
24
|
|
|
|
7,805
|
|
|
|
605
|
|
|
|
6/29/07
|
|
|
|
1996
|
|
|
Taunton, MA
|
|
|
4,323
|
|
|
|
2,219
|
|
|
|
6,314
|
|
|
|
(5,011
|
)
|
|
|
3,522
|
|
|
|
41
|
|
|
|
7/13/07
|
|
|
|
2001
|
|
|
Groveland, FL
|
|
|
20,250
|
|
|
|
4,990
|
|
|
|
24,740
|
|
|
|
—
|
|
|
|
29,730
|
|
|
|
2,180
|
|
|
|
7/17/07
|
|
|
|
1991
|
|
|
Aurora, CO
|
|
|
4,777
|
|
|
|
1,763
|
|
|
|
4,295
|
|
|
|
3
|
|
|
|
6,061
|
|
|
|
381
|
|
|
|
8/22/07
|
|
|
|
1995
|
|
|
Kennesaw, GA
|
|
|
(9
|
)
|
|
|
2,242
|
|
|
|
18,075
|
|
|
|
4,587
|
|
|
|
24,904
|
|
|
|
1,729
|
|
|
|
1/31/08
|
|
|
|
1998
|
|
|
Columbus Fish Market :
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Grandview, OH
|
|
|
(9
|
)
|
|
|
1,417
|
|
|
|
1,478
|
|
|
|
—
|
|
|
|
2,895
|
|
|
|
11
|
|
|
|
9/27/10
|
|
|
|
1998
|
|
|
Conns:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Antonio, TX
|
|
|
2,461
|
|
|
|
1,026
|
|
|
|
3,055
|
|
|
|
—
|
|
|
|
4,081
|
|
|
|
376
|
|
|
|
5/26/06
|
|
|
|
2002
|
|
|
Convergys:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Cruces, NM
|
|
|
5,015
|
|
|
|
1,740
|
|
|
|
5,785
|
|
|
|
—
|
|
|
|
7,525
|
|
|
|
448
|
|
|
|
6/2/08
|
|
|
|
1983
|
|
|
Coral Walk:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cape Coral, FL
|
|
|
(9
|
)
|
|
|
7,737
|
|
|
|
20,708
|
|
|
|
(267
|
)
|
|
|
28,178
|
|
|
|
1,730
|
|
|
|
6/12/08
|
|
|
|
2007
|
|
|
Cost-U-Less:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. Croix, USVI
|
|
|
4,035
|
|
|
|
706
|
|
|
|
4,472
|
|
|
|
—
|
|
|
|
5,178
|
|
|
|
449
|
|
|
|
3/26/07
|
|
|
|
2005
|
|
|
Cumming Town Center:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumming, GA
|
|
|
33,700
|
|
|
|
13,555
|
|
|
|
48,146
|
|
|
|
(1,816
|
)
|
|
|
59,885
|
|
|
|
3,114
|
|
|
|
7/11/08
|
|
|
|
2007
|
|
|
CVS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpharetta, GA
|
|
|
(9
|
)
|
|
|
1,214
|
|
|
|
1,693
|
|
|
|
—
|
|
|
|
2,907
|
|
|
|
244
|
|
|
|
12/1/05
|
|
|
|
1998
|
|
|
Richland Hills, TX
|
|
|
(9
|
)
|
|
|
1,141
|
|
|
|
2,302
|
|
|
|
—
|
|
|
|
3,443
|
|
|
|
309
|
|
|
|
12/8/05
|
|
|
|
1997
|
|
|
Portsmouth (Scioto Trail), OH
|
|
|
1,424
|
|
|
|
561
|
|
|
|
1,639
|
|
|
|
169
|
|
|
|
2,369
|
|
|
|
238
|
|
|
|
3/8/06
|
|
|
|
1997
|
|
|
Lakewood, OH
|
|
|
1,348
|
|
|
|
552
|
|
|
|
1,225
|
|
|
|
80
|
|
|
|
1,857
|
|
|
|
204
|
|
|
|
4/19/06
|
|
|
|
1996
|
|
|
Madison, MS
|
|
|
2,809
|
|
|
|
1,068
|
|
|
|
2,835
|
|
|
|
—
|
|
|
|
3,903
|
|
|
|
365
|
|
|
|
5/26/06
|
|
|
|
2004
|
|
|
Portsmouth, OH
|
|
|
(9
|
)
|
|
|
328
|
|
|
|
1,862
|
|
|
|
193
|
|
|
|
2,383
|
|
|
|
268
|
|
|
|
6/28/06
|
|
|
|
1997
|
|
|
Okeechobee, FL
|
|
|
4,076
|
|
|
|
1,623
|
|
|
|
3,563
|
|
|
|
—
|
|
|
|
5,186
|
|
|
|
431
|
|
|
|
7/7/06
|
|
|
|
2001
|
|
|
Orlando, FL
|
|
|
3,016
|
|
|
|
2,125
|
|
|
|
2,213
|
|
|
|
—
|
|
|
|
4,338
|
|
|
|
276
|
|
|
|
7/12/06
|
|
|
|
2005
|
|
|
Gulfport, MS
|
|
|
2,611
|
|
|
|
1,231
|
|
|
|
2,483
|
|
|
|
—
|
|
|
|
3,714
|
|
|
|
295
|
|
|
|
8/10/06
|
|
|
|
2000
|
|
|
Clinton, NY
|
|
|
1,983
|
|
|
|
684
|
|
|
|
2,014
|
|
|
|
—
|
|
|
|
2,698
|
|
|
|
231
|
|
|
|
8/24/06
|
|
|
|
2006
|
|
S-7
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
CVS (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glenville Scotia, NY
|
|
|
3,413
|
|
|
|
1,601
|
|
|
|
2,928
|
|
|
|
—
|
|
|
|
4,529
|
|
|
|
318
|
|
|
|
11/16/06
|
|
|
|
2006
|
|
|
Florence, SC
|
|
|
1,706
|
|
|
|
771
|
|
|
|
1,803
|
|
|
|
—
|
|
|
|
2,574
|
|
|
|
178
|
|
|
|
5/17/07
|
|
|
|
1998
|
|
|
Indianapolis, IN
|
|
|
1,860
|
|
|
|
1,077
|
|
|
|
2,238
|
|
|
|
—
|
|
|
|
3,315
|
|
|
|
165
|
|
|
|
2/7/08
|
|
|
|
1998
|
|
|
Onley, VA
|
|
|
3,339
|
|
|
|
1,584
|
|
|
|
3,156
|
|
|
|
—
|
|
|
|
4,740
|
|
|
|
218
|
|
|
|
5/8/08
|
|
|
|
2007
|
|
|
Columbia(I), TN
|
|
|
1,715
|
|
|
|
1,090
|
|
|
|
1,752
|
|
|
|
—
|
|
|
|
2,842
|
|
|
|
116
|
|
|
|
9/30/08
|
|
|
|
1998
|
|
|
Columbia (II), TN
|
|
|
1,735
|
|
|
|
1,205
|
|
|
|
1,579
|
|
|
|
—
|
|
|
|
2,784
|
|
|
|
106
|
|
|
|
9/30/08
|
|
|
|
1998
|
|
|
Hamilton, OH
|
|
|
1,678
|
|
|
|
917
|
|
|
|
1,682
|
|
|
|
—
|
|
|
|
2,599
|
|
|
|
106
|
|
|
|
9/30/08
|
|
|
|
1999
|
|
|
Mechanicsville, NY
|
|
|
1,464
|
|
|
|
415
|
|
|
|
2,104
|
|
|
|
—
|
|
|
|
2,519
|
|
|
|
124
|
|
|
|
9/30/08
|
|
|
|
1997
|
|
|
Atlanta, GA
|
|
|
1,791
|
|
|
|
910
|
|
|
|
2,450
|
|
|
|
—
|
|
|
|
3,360
|
|
|
|
143
|
|
|
|
10/7/08
|
|
|
|
2006
|
|
|
Carrollton, TX
|
|
|
(9
|
)
|
|
|
542
|
|
|
|
1,428
|
|
|
|
—
|
|
|
|
1,970
|
|
|
|
80
|
|
|
|
12/23/08
|
|
|
|
1995
|
|
|
Kissimmee, FL
|
|
|
(9
|
)
|
|
|
810
|
|
|
|
1,607
|
|
|
|
—
|
|
|
|
2,417
|
|
|
|
89
|
|
|
|
12/23/08
|
|
|
|
1995
|
|
|
Lake Worth, TX
|
|
|
(9
|
)
|
|
|
474
|
|
|
|
1,323
|
|
|
|
—
|
|
|
|
1,797
|
|
|
|
74
|
|
|
|
12/23/08
|
|
|
|
1996
|
|
|
Richardson, TX
|
|
|
1,212
|
|
|
|
476
|
|
|
|
1,769
|
|
|
|
—
|
|
|
|
2,245
|
|
|
|
99
|
|
|
|
12/23/08
|
|
|
|
1996
|
|
|
River Oaks, TX
|
|
|
1,343
|
|
|
|
819
|
|
|
|
1,711
|
|
|
|
—
|
|
|
|
2,530
|
|
|
|
96
|
|
|
|
12/23/08
|
|
|
|
1996
|
|
|
The Colony, TX
|
|
|
(9
|
)
|
|
|
460
|
|
|
|
1,422
|
|
|
|
(5
|
)
|
|
|
1,877
|
|
|
|
80
|
|
|
|
12/23/08
|
|
|
|
1996
|
|
|
Wichita Falls (SW), TX
|
|
|
(9
|
)
|
|
|
451
|
|
|
|
1,655
|
|
|
|
—
|
|
|
|
2,106
|
|
|
|
93
|
|
|
|
12/23/08
|
|
|
|
1996
|
|
|
Wichita Falls, TX
|
|
|
(9
|
)
|
|
|
471
|
|
|
|
1,276
|
|
|
|
—
|
|
|
|
1,747
|
|
|
|
71
|
|
|
|
12/23/08
|
|
|
|
1995
|
|
|
Myrtle Beach, SC
|
|
|
4,788
|
|
|
|
1,565
|
|
|
|
2,564
|
|
|
|
—
|
|
|
|
4,129
|
|
|
|
121
|
|
|
|
3/27/09
|
|
|
|
2004
|
|
|
Maynard, MA
|
|
|
5,596
|
|
|
|
2,157
|
|
|
|
2,049
|
|
|
|
—
|
|
|
|
4,206
|
|
|
|
94
|
|
|
|
3/31/09
|
|
|
|
2005
|
|
|
Waynesville, NC
|
|
|
3,966
|
|
|
|
420
|
|
|
|
3,005
|
|
|
|
—
|
|
|
|
3,425
|
|
|
|
141
|
|
|
|
3/31/09
|
|
|
|
2005
|
|
|
Indianapolis (21st Street), IN
|
|
|
(9
|
)
|
|
|
806
|
|
|
|
2,074
|
|
|
|
—
|
|
|
|
2,880
|
|
|
|
24
|
|
|
|
7/21/10
|
|
|
|
1997
|
|
|
Lincoln, IN
|
|
|
(9
|
)
|
|
|
375
|
|
|
|
2,473
|
|
|
|
—
|
|
|
|
2,848
|
|
|
|
18
|
|
|
|
9/17/10
|
|
|
|
2007
|
|
|
Azle, TX
|
|
|
—
|
|
|
|
934
|
|
|
|
2,956
|
|
|
|
—
|
|
|
|
3,890
|
|
|
|
3
|
|
|
|
12/16/10
|
|
|
|
2008
|
|
|
Dave and Buster’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addison, IL
|
|
|
5,600
|
|
|
|
5,837
|
|
|
|
6,810
|
|
|
|
—
|
|
|
|
12,647
|
|
|
|
644
|
|
|
|
7/19/07
|
|
|
|
2006
|
|
|
David’s Bridal:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lenexa, KS
|
|
|
1,799
|
|
|
|
766
|
|
|
|
2,197
|
|
|
|
—
|
|
|
|
2,963
|
|
|
|
370
|
|
|
|
1/11/06
|
|
|
|
2005
|
|
|
Topeka, KS
|
|
|
2,000
|
|
|
|
569
|
|
|
|
2,193
|
|
|
|
—
|
|
|
|
2,762
|
|
|
|
315
|
|
|
|
10/13/06
|
|
|
|
2006
|
|
|
Dickinson Theater:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yukon, OK
|
|
|
(9
|
)
|
|
|
980
|
|
|
|
3,403
|
|
|
|
7
|
|
|
|
4,390
|
|
|
|
301
|
|
|
|
7/17/07
|
|
|
|
2007
|
|
|
Dick’s Sporting Goods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amherst, NY
|
|
|
6,321
|
|
|
|
3,147
|
|
|
|
6,084
|
|
|
|
864
|
|
|
|
10,095
|
|
|
|
790
|
|
|
|
12/20/06
|
|
|
|
1986
|
|
|
Dollar General:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossville, TN
|
|
|
1,950
|
|
|
|
647
|
|
|
|
2,088
|
|
|
|
—
|
|
|
|
2,735
|
|
|
|
279
|
|
|
|
6/2/06
|
|
|
|
2006
|
|
|
Ardmore, TN
|
|
|
1,804
|
|
|
|
735
|
|
|
|
1,839
|
|
|
|
—
|
|
|
|
2,574
|
|
|
|
243
|
|
|
|
6/9/06
|
|
|
|
2005
|
|
|
Livingston, TN
|
|
|
1,856
|
|
|
|
899
|
|
|
|
1,687
|
|
|
|
—
|
|
|
|
2,586
|
|
|
|
228
|
|
|
|
6/12/06
|
|
|
|
2006
|
|
|
Drexel Heritage:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hickory, NC
|
|
|
2,763
|
|
|
|
394
|
|
|
|
3,622
|
|
|
|
—
|
|
|
|
4,016
|
|
|
|
964
|
|
|
|
2/24/06
|
|
|
|
1963
|
|
|
Eckerd:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lincolnton, NC
|
|
|
1,538
|
|
|
|
557
|
|
|
|
2,131
|
|
|
|
—
|
|
|
|
2,688
|
|
|
|
206
|
|
|
|
4/3/07
|
|
|
|
1998
|
|
|
Easton, PA
|
|
|
4,060
|
|
|
|
2,308
|
|
|
|
3,411
|
|
|
|
—
|
|
|
|
5,719
|
|
|
|
322
|
|
|
|
4/25/07
|
|
|
|
2005
|
|
|
Spartanburg, SC
|
|
|
2,259
|
|
|
|
1,368
|
|
|
|
1,791
|
|
|
|
—
|
|
|
|
3,159
|
|
|
|
177
|
|
|
|
5/17/07
|
|
|
|
1998
|
|
|
EDS Information Systems:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-8
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
CVS (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salt Lake City, UT
|
|
|
18,000
|
|
|
|
2,283
|
|
|
|
19,796
|
|
|
|
—
|
|
|
|
22,079
|
|
|
|
1,746
|
|
|
|
7/17/07
|
|
|
|
1999
|
|
|
Federal Express:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockford, IL
|
|
|
(9
|
)
|
|
|
1,469
|
|
|
|
3,669
|
|
|
|
16
|
|
|
|
5,154
|
|
|
|
534
|
|
|
|
12/9/05
|
|
|
|
1994
|
|
|
Council Bluffs, IA
|
|
|
2,185
|
|
|
|
530
|
|
|
|
1,845
|
|
|
|
—
|
|
|
|
2,375
|
|
|
|
208
|
|
|
|
11/15/06
|
|
|
|
1999
|
|
|
Edwardsville, KS
|
|
|
12,880
|
|
|
|
1,693
|
|
|
|
15,439
|
|
|
|
—
|
|
|
|
17,132
|
|
|
|
1,711
|
|
|
|
11/15/06
|
|
|
|
1999
|
|
|
Peoria, IL
|
|
|
2,080
|
|
|
|
337
|
|
|
|
2,629
|
|
|
|
—
|
|
|
|
2,966
|
|
|
|
232
|
|
|
|
7/20/07
|
|
|
|
1997
|
|
|
Walker, MI
|
|
|
4,669
|
|
|
|
1,387
|
|
|
|
4,424
|
|
|
|
27
|
|
|
|
5,838
|
|
|
|
385
|
|
|
|
8/8/07
|
|
|
|
2001
|
|
|
Mishawaka, IN
|
|
|
(9
|
)
|
|
|
303
|
|
|
|
3,356
|
|
|
|
—
|
|
|
|
3,659
|
|
|
|
253
|
|
|
|
2/7/08
|
|
|
|
1993
|
|
|
Huntsville, Al
|
|
|
5,268
|
|
|
|
1,576
|
|
|
|
8,252
|
|
|
|
—
|
|
|
|
9,828
|
|
|
|
480
|
|
|
|
9/30/08
|
|
|
|
2008
|
|
|
Baton Rouge, LA
|
|
|
4,510
|
|
|
|
1,822
|
|
|
|
6,332
|
|
|
|
1,561
|
|
|
|
9,715
|
|
|
|
398
|
|
|
|
10/3/08
|
|
|
|
2008
|
|
|
Ferguson Enterprises:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auburn, AL
|
|
|
1,371
|
|
|
|
663
|
|
|
|
1,401
|
|
|
|
—
|
|
|
|
2,064
|
|
|
|
88
|
|
|
|
8/21/08
|
|
|
|
2007
|
|
|
Charlotte, NC
|
|
|
4,050
|
|
|
|
2,347
|
|
|
|
7,782
|
|
|
|
—
|
|
|
|
10,129
|
|
|
|
512
|
|
|
|
8/21/08
|
|
|
|
2007
|
|
|
Cohasset, MN
|
|
|
(9
|
)
|
|
|
65
|
|
|
|
1,221
|
|
|
|
—
|
|
|
|
1,286
|
|
|
|
75
|
|
|
|
8/21/08
|
|
|
|
2007
|
|
|
Front Royal, VA
|
|
|
26,549
|
|
|
|
3,475
|
|
|
|
38,699
|
|
|
|
—
|
|
|
|
42,174
|
|
|
|
2,420
|
|
|
|
8/21/08
|
|
|
|
2007
|
|
|
Ocala, FL
|
|
|
4,080
|
|
|
|
650
|
|
|
|
6,207
|
|
|
|
—
|
|
|
|
6,857
|
|
|
|
398
|
|
|
|
8/21/08
|
|
|
|
2006
|
|
|
Powhatan, VA
|
|
|
(9
|
)
|
|
|
522
|
|
|
|
4,712
|
|
|
|
—
|
|
|
|
5,234
|
|
|
|
290
|
|
|
|
8/21/08
|
|
|
|
2007
|
|
|
Salisbury, MD
|
|
|
(9
|
)
|
|
|
773
|
|
|
|
8,016
|
|
|
|
—
|
|
|
|
8,789
|
|
|
|
495
|
|
|
|
8/21/08
|
|
|
|
2007
|
|
|
Shallotte, NC
|
|
|
(9
|
)
|
|
|
594
|
|
|
|
1,717
|
|
|
|
—
|
|
|
|
2,311
|
|
|
|
107
|
|
|
|
8/21/08
|
|
|
|
2006
|
|
|
Gallina Centro:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collierville, TN
|
|
|
14,200
|
|
|
|
5,669
|
|
|
|
10,347
|
|
|
|
—
|
|
|
|
16,016
|
|
|
|
1,104
|
|
|
|
3/26/07
|
|
|
|
2000
|
|
|
Gold’s Gym:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O’Fallon, IL
|
|
|
3,650
|
|
|
|
1,407
|
|
|
|
5,253
|
|
|
|
—
|
|
|
|
6,660
|
|
|
|
677
|
|
|
|
9/29/06
|
|
|
|
2005
|
|
|
St. Peters, MO
|
|
|
5,044
|
|
|
|
2,338
|
|
|
|
4,428
|
|
|
|
—
|
|
|
|
6,766
|
|
|
|
409
|
|
|
|
7/31/07
|
|
|
|
2007
|
|
|
O’Fallon, MS
|
|
|
5,425
|
|
|
|
3,120
|
|
|
|
3,992
|
|
|
|
—
|
|
|
|
7,112
|
|
|
|
383
|
|
|
|
8/29/07
|
|
|
|
2007
|
|
|
Gordman’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoria, IL
|
|
|
4,950
|
|
|
|
1,558
|
|
|
|
6,674
|
|
|
|
—
|
|
|
|
8,232
|
|
|
|
696
|
|
|
|
1/18/07
|
|
|
|
2006
|
|
|
Gregg Appliances:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greensboro, NC
|
|
|
(9
|
)
|
|
|
2,412
|
|
|
|
3,931
|
|
|
|
(366
|
)
|
|
|
5,977
|
|
|
|
297
|
|
|
|
1/11/08
|
|
|
|
2007
|
|
|
Grove City, OH
|
|
|
(9
|
)
|
|
|
987
|
|
|
|
4,477
|
|
|
|
—
|
|
|
|
5,464
|
|
|
|
312
|
|
|
|
9/17/08
|
|
|
|
2008
|
|
|
Mt Juliet, TN
|
|
|
2,425
|
|
|
|
2,088
|
|
|
|
3,638
|
|
|
|
—
|
|
|
|
5,726
|
|
|
|
240
|
|
|
|
9/23/08
|
|
|
|
2008
|
|
|
Hilltop Plaza:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeton, MO
|
|
|
(9
|
)
|
|
|
8,012
|
|
|
|
13,342
|
|
|
|
—
|
|
|
|
21,354
|
|
|
|
1,033
|
|
|
|
2/6/08
|
|
|
|
1991
|
|
|
HOM Furniture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fargo, ND
|
|
|
4,800
|
|
|
|
1,155
|
|
|
|
9,779
|
|
|
|
—
|
|
|
|
10,934
|
|
|
|
1,058
|
|
|
|
1/4/07
|
|
|
|
2004
|
|
|
Home Depot:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bedford Park, IL
|
|
|
(9
|
)
|
|
|
9,024
|
|
|
|
20,877
|
|
|
|
—
|
|
|
|
29,901
|
|
|
|
1,827
|
|
|
|
8/21/07
|
|
|
|
1992
|
|
|
Lakewood, CO
|
|
|
7,617
|
|
|
|
9,367
|
|
|
|
—
|
|
|
|
—
|
|
|
|
9,367
|
|
|
|
—
|
|
|
|
8/27/08
|
|
|
|
2006
|
|
|
Colma, CA
|
|
|
19,300
|
|
|
|
17,636
|
|
|
|
20,114
|
|
|
|
—
|
|
|
|
37,750
|
|
|
|
1,161
|
|
|
|
9/30/08
|
|
|
|
1995
|
|
|
Infiniti:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Davie, FL
|
|
|
5,188
|
|
|
|
3,076
|
|
|
|
5,410
|
|
|
|
—
|
|
|
|
8,486
|
|
|
|
630
|
|
|
|
11/30/06
|
|
|
|
2006
|
|
|
Ivex Packaging:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Castle, PA
|
|
|
—
|
|
|
|
162
|
|
|
|
3,877
|
|
|
|
—
|
|
|
|
4,039
|
|
|
|
4
|
|
|
|
12/20/10
|
|
|
|
1999
|
|
S-9
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Ferguson Enterprises: (Continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
J. Jill:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tilton, NH
|
|
|
(9
|
)
|
|
|
6,214
|
|
|
|
17,378
|
|
|
|
—
|
|
|
|
23,592
|
|
|
|
143
|
|
|
|
9/30/10
|
|
|
|
1998
|
|
|
Jo-Ann Fabrics:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpharetta, GA
|
|
|
(9
|
)
|
|
|
2,578
|
|
|
|
3,682
|
|
|
|
—
|
|
|
|
6,260
|
|
|
|
292
|
|
|
|
8/5/08
|
|
|
|
2000
|
|
|
Independence, MO
|
|
|
—
|
|
|
|
1,304
|
|
|
|
2,790
|
|
|
|
—
|
|
|
|
4,094
|
|
|
|
4
|
|
|
|
12/23/10
|
|
|
|
1999
|
|
|
Kohl’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wichita, KS
|
|
|
5,200
|
|
|
|
1,798
|
|
|
|
6,200
|
|
|
|
818
|
|
|
|
8,816
|
|
|
|
780
|
|
|
|
9/27/06
|
|
|
|
1996
|
|
|
Lake Zurich, IL
|
|
|
9,075
|
|
|
|
1,854
|
|
|
|
10,086
|
|
|
|
—
|
|
|
|
11,940
|
|
|
|
920
|
|
|
|
7/17/07
|
|
|
|
2000
|
|
|
Grand Forks, ND
|
|
|
5,064
|
|
|
|
1,855
|
|
|
|
5,680
|
|
|
|
—
|
|
|
|
7,535
|
|
|
|
383
|
|
|
|
6/11/08
|
|
|
|
2006
|
|
|
Tilton, NH
|
|
|
3,780
|
|
|
|
5,640
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,640
|
|
|
|
—
|
|
|
|
3/27/09
|
|
|
|
(8
|
)
|
|
Kroger:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LaGrange, GA
|
|
|
4,750
|
|
|
|
1,101
|
|
|
|
6,032
|
|
|
|
176
|
|
|
|
7,309
|
|
|
|
559
|
|
|
|
6/28/07
|
|
|
|
1998
|
|
|
LA Fitness:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn Park, MN
|
|
|
6,030
|
|
|
|
1,963
|
|
|
|
7,460
|
|
|
|
—
|
|
|
|
9,423
|
|
|
|
495
|
|
|
|
6/17/08
|
|
|
|
2008
|
|
|
Matteson, IL
|
|
|
6,122
|
|
|
|
2,628
|
|
|
|
6,474
|
|
|
|
—
|
|
|
|
9,102
|
|
|
|
478
|
|
|
|
7/16/08
|
|
|
|
2007
|
|
|
Greenwood, IN
|
|
|
(9
|
)
|
|
|
2,233
|
|
|
|
7,670
|
|
|
|
—
|
|
|
|
9,903
|
|
|
|
516
|
|
|
|
8/5/08
|
|
|
|
2007
|
|
|
League City, TX
|
|
|
(9
|
)
|
|
|
1,597
|
|
|
|
4,832
|
|
|
|
—
|
|
|
|
6,429
|
|
|
|
78
|
|
|
|
5/21/10
|
|
|
|
2008
|
|
|
Naperville, IL
|
|
|
(9
|
)
|
|
|
2,415
|
|
|
|
5,759
|
|
|
|
—
|
|
|
|
8,174
|
|
|
|
83
|
|
|
|
6/30/10
|
|
|
|
2007
|
|
|
La-Z-Boy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glendale, AZ
|
|
|
(9
|
)
|
|
|
2,515
|
|
|
|
2,968
|
|
|
|
—
|
|
|
|
5,483
|
|
|
|
434
|
|
|
|
10/25/05
|
|
|
|
2001
|
|
|
Newington, CT
|
|
|
4,140
|
|
|
|
1,466
|
|
|
|
4,979
|
|
|
|
—
|
|
|
|
6,445
|
|
|
|
502
|
|
|
|
1/5/07
|
|
|
|
2006
|
|
|
Kentwood, MI
|
|
|
3,602
|
|
|
|
1,442
|
|
|
|
3,702
|
|
|
|
—
|
|
|
|
5,144
|
|
|
|
377
|
|
|
|
6/28/07
|
|
|
|
1986
|
|
|
Lincoln Place:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairview Heights, IL
|
|
|
35,432
|
|
|
|
6,010
|
|
|
|
36,738
|
|
|
|
593
|
|
|
|
43,341
|
|
|
|
3,636
|
|
|
|
4/5/07
|
|
|
|
1998
|
|
|
Logan’s Roadhouse:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairfax, VA
|
|
|
1,117
|
|
|
|
1,527
|
|
|
|
1,414
|
|
|
|
—
|
|
|
|
2,941
|
|
|
|
141
|
|
|
|
3/28/07
|
|
|
|
1998
|
|
|
Johnson City, TN
|
|
|
1,933
|
|
|
|
1,280
|
|
|
|
1,794
|
|
|
|
—
|
|
|
|
3,074
|
|
|
|
178
|
|
|
|
3/28/07
|
|
|
|
1996
|
|
|
Wichita Falls, TX
|
|
|
—
|
|
|
|
435
|
|
|
|
1,670
|
|
|
|
—
|
|
|
|
2,105
|
|
|
|
2
|
|
|
|
12/17/10
|
|
|
|
2006
|
|
|
Trussville, AL
|
|
|
—
|
|
|
|
723
|
|
|
|
1,147
|
|
|
|
—
|
|
|
|
1,870
|
|
|
|
1
|
|
|
|
12/17/10
|
|
|
|
2007
|
|
|
Long John Silvers:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
|
(9
|
)
|
|
|
965
|
|
|
|
—
|
|
|
|
121
|
|
|
|
1,086
|
|
|
|
10
|
|
|
|
7/19/07
|
|
|
|
2004
|
|
|
Lowe’s:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise, AL
|
|
|
(9
|
)
|
|
|
1,012
|
|
|
|
5,803
|
|
|
|
—
|
|
|
|
6,815
|
|
|
|
833
|
|
|
|
12/1/05
|
|
|
|
1995
|
|
|
Lubbock, TX
|
|
|
7,475
|
|
|
|
4,581
|
|
|
|
6,563
|
|
|
|
57
|
|
|
|
11,201
|
|
|
|
808
|
|
|
|
9/27/06
|
|
|
|
1996
|
|
|
Midland, TX
|
|
|
7,150
|
|
|
|
3,525
|
|
|
|
7,332
|
|
|
|
—
|
|
|
|
10,857
|
|
|
|
891
|
|
|
|
9/27/06
|
|
|
|
1996
|
|
|
Cincinnati, OH
|
|
|
13,800
|
|
|
|
5,592
|
|
|
|
11,319
|
|
|
|
—
|
|
|
|
16,911
|
|
|
|
1,071
|
|
|
|
7/17/07
|
|
|
|
1998
|
|
|
Chester, NY
|
|
|
3,962
|
|
|
|
5,704
|
|
|
|
—
|
|
|
|
—
|
|
|
|
5,704
|
|
|
|
—
|
|
|
|
9/19/08
|
|
|
|
2008
|
|
|
Tilton, NH
|
|
|
12,960
|
|
|
|
10,800
|
|
|
|
—
|
|
|
|
—
|
|
|
|
10,800
|
|
|
|
—
|
|
|
|
3/27/09
|
|
|
|
(8
|
)
|
|
Market Pointe:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Papillion, NE
|
|
|
11,825
|
|
|
|
11,626
|
|
|
|
12,882
|
|
|
|
174
|
|
|
|
24,682
|
|
|
|
938
|
|
|
|
6/20/08
|
|
|
|
2007
|
|
|
Marsh Supermarket:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indianapolis, IN
|
|
|
5,950
|
|
|
|
1,842
|
|
|
|
10,764
|
|
|
|
—
|
|
|
|
12,606
|
|
|
|
802
|
|
|
|
2/7/08
|
|
|
|
1999
|
|
|
Massard Farms
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-10
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
LA Fitness: (Continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fort Smith, AR
|
|
|
9,917
|
|
|
|
4,295
|
|
|
|
10,755
|
|
|
|
236
|
|
|
|
15,286
|
|
|
|
960
|
|
|
|
10/11/07
|
|
|
|
2001
|
|
|
Mealey’s Furniture:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maple Shade, NJ
|
|
|
(9
|
)
|
|
|
1,716
|
|
|
|
3,907
|
|
|
|
821
|
|
|
|
6,444
|
|
|
|
388
|
|
|
|
12/12/07
|
|
|
|
2007
|
|
|
Mercedes Benz:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta, GA
|
|
|
(9
|
)
|
|
|
2,623
|
|
|
|
7,208
|
|
|
|
—
|
|
|
|
9,831
|
|
|
|
743
|
|
|
|
12/15/06
|
|
|
|
2000
|
|
|
Milford Commons:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milford, CT
|
|
|
5,449
|
|
|
|
7,525
|
|
|
|
4,257
|
|
|
|
—
|
|
|
|
11,782
|
|
|
|
348
|
|
|
|
1/17/08
|
|
|
|
2005
|
|
|
Mountainside Fitness:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chandler, AZ
|
|
|
(9
|
)
|
|
|
1,177
|
|
|
|
4,480
|
|
|
|
—
|
|
|
|
5,657
|
|
|
|
721
|
|
|
|
2/9/06
|
|
|
|
2001
|
|
|
Mustang Engineering:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
|
(9
|
)
|
|
|
1,859
|
|
|
|
16,198
|
|
|
|
—
|
|
|
|
18,057
|
|
|
|
1,503
|
|
|
|
1/31/08
|
|
|
|
1983
|
|
|
Northern Tool & Equipment:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blaine, MN
|
|
|
3,185
|
|
|
|
2,233
|
|
|
|
2,432
|
|
|
|
—
|
|
|
|
4,665
|
|
|
|
275
|
|
|
|
2/28/07
|
|
|
|
2006
|
|
|
O’Reilly Auto Parts:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX
|
|
|
3,290
|
|
|
|
1,896
|
|
|
|
2,904
|
|
|
|
—
|
|
|
|
4,800
|
|
|
|
291
|
|
|
|
2/6/07
|
|
|
|
1970
|
|
|
Office Depot:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dayton, OH
|
|
|
2,130
|
|
|
|
807
|
|
|
|
2,183
|
|
|
|
—
|
|
|
|
2,990
|
|
|
|
253
|
|
|
|
7/7/06
|
|
|
|
2005
|
|
|
Greenville, MS
|
|
|
2,192
|
|
|
|
666
|
|
|
|
2,469
|
|
|
|
—
|
|
|
|
3,135
|
|
|
|
291
|
|
|
|
7/12/06
|
|
|
|
2000
|
|
|
Warrensburg, MO
|
|
|
1,810
|
|
|
|
1,024
|
|
|
|
1,540
|
|
|
|
—
|
|
|
|
2,564
|
|
|
|
253
|
|
|
|
7/19/06
|
|
|
|
2001
|
|
|
Benton, AR
|
|
|
2,130
|
|
|
|
560
|
|
|
|
2,506
|
|
|
|
—
|
|
|
|
3,066
|
|
|
|
270
|
|
|
|
11/21/06
|
|
|
|
2001
|
|
|
Oxford, MS
|
|
|
2,295
|
|
|
|
916
|
|
|
|
2,141
|
|
|
|
—
|
|
|
|
3,057
|
|
|
|
226
|
|
|
|
12/1/06
|
|
|
|
2006
|
|
|
Enterprise, AL
|
|
|
1,850
|
|
|
|
771
|
|
|
|
1,635
|
|
|
|
—
|
|
|
|
2,406
|
|
|
|
167
|
|
|
|
2/27/07
|
|
|
|
2006
|
|
|
Alcoa, TN
|
|
|
(9
|
)
|
|
|
1,164
|
|
|
|
2,537
|
|
|
|
—
|
|
|
|
3,701
|
|
|
|
192
|
|
|
|
1/31/08
|
|
|
|
1999
|
|
|
Laurel, MS
|
|
|
(9
|
)
|
|
|
351
|
|
|
|
2,214
|
|
|
|
—
|
|
|
|
2,565
|
|
|
|
132
|
|
|
|
9/30/08
|
|
|
|
2002
|
|
|
London, KY
|
|
|
(9
|
)
|
|
|
724
|
|
|
|
2,687
|
|
|
|
—
|
|
|
|
3,411
|
|
|
|
200
|
|
|
|
9/30/08
|
|
|
|
2001
|
|
|
OfficeMax:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orangeburg, SC
|
|
|
1,875
|
|
|
|
590
|
|
|
|
2,363
|
|
|
|
—
|
|
|
|
2,953
|
|
|
|
281
|
|
|
|
2/28/07
|
|
|
|
1999
|
|
|
Old Time Pottery:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairview Heights, IL
|
|
|
2,140
|
|
|
|
1,044
|
|
|
|
2,943
|
|
|
|
50
|
|
|
|
4,037
|
|
|
|
585
|
|
|
|
11/21/06
|
|
|
|
1979
|
|
|
One Pacific Place:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omaha, NE
|
|
|
23,400
|
|
|
|
6,254
|
|
|
|
27,877
|
|
|
|
1,329
|
|
|
|
35,460
|
|
|
|
3,858
|
|
|
|
2/6/07
|
|
|
|
1988
|
|
|
Oxford Theater:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford, MS
|
|
|
—
|
|
|
|
281
|
|
|
|
4,051
|
|
|
|
—
|
|
|
|
4,332
|
|
|
|
453
|
|
|
|
8/31/06
|
|
|
|
2006
|
|
|
Payless Shoes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia, SC
|
|
|
(9
|
)
|
|
|
568
|
|
|
|
742
|
|
|
|
—
|
|
|
|
1,310
|
|
|
|
50
|
|
|
|
9/30/08
|
|
|
|
1998
|
|
|
PepBoys:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albuquerque, NM
|
|
|
2,197
|
|
|
|
1,495
|
|
|
|
1,980
|
|
|
|
—
|
|
|
|
3,475
|
|
|
|
149
|
|
|
|
3/25/08
|
|
|
|
1990
|
|
|
Arlington Heights, IL
|
|
|
3,575
|
|
|
|
1,379
|
|
|
|
4,376
|
|
|
|
—
|
|
|
|
5,755
|
|
|
|
327
|
|
|
|
3/25/08
|
|
|
|
1995
|
|
|
Clarksville, IN
|
|
|
(9
|
)
|
|
|
1,017
|
|
|
|
1,492
|
|
|
|
—
|
|
|
|
2,509
|
|
|
|
117
|
|
|
|
3/25/08
|
|
|
|
1993
|
|
|
Colorado Springs, CO
|
|
|
1,552
|
|
|
|
1,223
|
|
|
|
1,820
|
|
|
|
—
|
|
|
|
3,043
|
|
|
|
141
|
|
|
|
3/25/08
|
|
|
|
1994
|
|
|
El Centro, CA
|
|
|
(9
|
)
|
|
|
1,000
|
|
|
|
1,202
|
|
|
|
—
|
|
|
|
2,202
|
|
|
|
91
|
|
|
|
3/25/08
|
|
|
|
2006
|
|
|
Fort Myers, FL
|
|
|
1,775
|
|
|
|
2,121
|
|
|
|
2,546
|
|
|
|
—
|
|
|
|
4,667
|
|
|
|
188
|
|
|
|
3/25/08
|
|
|
|
1994
|
|
|
Frederick, MD
|
|
|
(9
|
)
|
|
|
1,786
|
|
|
|
2,812
|
|
|
|
—
|
|
|
|
4,598
|
|
|
|
201
|
|
|
|
3/25/08
|
|
|
|
1987
|
|
S-11
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
PepBoys (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton, VA
|
|
|
(9
|
)
|
|
|
2,024
|
|
|
|
1,757
|
|
|
|
—
|
|
|
|
3,781
|
|
|
|
134
|
|
|
|
3/25/08
|
|
|
|
1993
|
|
|
Lakeland, FL
|
|
|
(9
|
)
|
|
|
3,313
|
|
|
|
1,991
|
|
|
|
—
|
|
|
|
5,304
|
|
|
|
160
|
|
|
|
3/25/08
|
|
|
|
1991
|
|
|
Nashua, NH
|
|
|
2,547
|
|
|
|
2,415
|
|
|
|
2,006
|
|
|
|
—
|
|
|
|
4,421
|
|
|
|
151
|
|
|
|
3/25/08
|
|
|
|
1996
|
|
|
New Hartford, NY
|
|
|
1,379
|
|
|
|
1,280
|
|
|
|
1,178
|
|
|
|
—
|
|
|
|
2,458
|
|
|
|
110
|
|
|
|
3/25/08
|
|
|
|
1992
|
|
|
Orem, UT
|
|
|
(9
|
)
|
|
|
1,392
|
|
|
|
1,224
|
|
|
|
—
|
|
|
|
2,616
|
|
|
|
94
|
|
|
|
3/25/08
|
|
|
|
1990
|
|
|
Pasadena, TX
|
|
|
(9
|
)
|
|
|
1,703
|
|
|
|
2,656
|
|
|
|
—
|
|
|
|
4,359
|
|
|
|
200
|
|
|
|
3/25/08
|
|
|
|
1995
|
|
|
Redlands, CA
|
|
|
2,690
|
|
|
|
1,460
|
|
|
|
2,918
|
|
|
|
—
|
|
|
|
4,378
|
|
|
|
214
|
|
|
|
3/25/08
|
|
|
|
1994
|
|
|
San Antonio, TX
|
|
|
1,432
|
|
|
|
905
|
|
|
|
2,091
|
|
|
|
—
|
|
|
|
2,996
|
|
|
|
162
|
|
|
|
3/25/08
|
|
|
|
1988
|
|
|
Tamarac, FL
|
|
|
(9
|
)
|
|
|
1,690
|
|
|
|
2,106
|
|
|
|
—
|
|
|
|
3,796
|
|
|
|
157
|
|
|
|
3/25/08
|
|
|
|
1997
|
|
|
Tampa, FL
|
|
|
1,121
|
|
|
|
3,902
|
|
|
|
2,035
|
|
|
|
—
|
|
|
|
5,937
|
|
|
|
178
|
|
|
|
3/25/08
|
|
|
|
1991
|
|
|
West Warwick, RI
|
|
|
(9
|
)
|
|
|
2,429
|
|
|
|
1,198
|
|
|
|
—
|
|
|
|
3,627
|
|
|
|
94
|
|
|
|
3/25/08
|
|
|
|
1993
|
|
|
Petsmart:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McCarran, NV
|
|
|
22,000
|
|
|
|
5,151
|
|
|
|
43,546
|
|
|
|
—
|
|
|
|
48,697
|
|
|
|
2,801
|
|
|
|
7/2/08
|
|
|
|
2008
|
|
|
Chattanooga, TN
|
|
|
2,318
|
|
|
|
1,136
|
|
|
|
3,418
|
|
|
|
—
|
|
|
|
4,554
|
|
|
|
207
|
|
|
|
8/5/08
|
|
|
|
1996
|
|
|
Daytona Beach, FL
|
|
|
2,449
|
|
|
|
1,735
|
|
|
|
3,270
|
|
|
|
—
|
|
|
|
5,005
|
|
|
|
198
|
|
|
|
8/5/08
|
|
|
|
1996
|
|
|
Fredericksburg, VA
|
|
|
2,423
|
|
|
|
3,247
|
|
|
|
2,083
|
|
|
|
—
|
|
|
|
5,330
|
|
|
|
128
|
|
|
|
8/5/08
|
|
|
|
1997
|
|
|
Plastech:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auburn Hills, MI
|
|
|
(9
|
)
|
|
|
3,283
|
|
|
|
18,153
|
|
|
|
(2,882
|
)
|
|
|
18,554
|
|
|
|
2,020
|
|
|
|
12/15/05
|
|
|
|
1995
|
|
|
Pocatello Square:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pocatello, ID
|
|
|
17,250
|
|
|
|
3,262
|
|
|
|
18,418
|
|
|
|
(241
|
)
|
|
|
21,439
|
|
|
|
1,780
|
|
|
|
4/6/07
|
|
|
|
2006
|
|
|
Rayford Square:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spring, TX
|
|
|
5,940
|
|
|
|
2,339
|
|
|
|
6,696
|
|
|
|
178
|
|
|
|
9,213
|
|
|
|
832
|
|
|
|
3/2/06
|
|
|
|
1973
|
|
|
Rite Aid:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance, OH
|
|
|
—
|
|
|
|
432
|
|
|
|
1,446
|
|
|
|
1
|
|
|
|
1,879
|
|
|
|
225
|
|
|
|
10/20/05
|
|
|
|
1996
|
|
|
Enterprise, AL
|
|
|
2,043
|
|
|
|
920
|
|
|
|
2,391
|
|
|
|
—
|
|
|
|
3,311
|
|
|
|
330
|
|
|
|
1/26/06
|
|
|
|
2005
|
|
|
Wauseon, OH
|
|
|
2,142
|
|
|
|
1,047
|
|
|
|
2,333
|
|
|
|
1
|
|
|
|
3,381
|
|
|
|
326
|
|
|
|
1/26/06
|
|
|
|
2005
|
|
|
Saco, ME
|
|
|
1,375
|
|
|
|
391
|
|
|
|
1,989
|
|
|
|
—
|
|
|
|
2,380
|
|
|
|
277
|
|
|
|
1/27/06
|
|
|
|
1997
|
|
|
Cleveland, OH
|
|
|
1,413
|
|
|
|
566
|
|
|
|
1,753
|
|
|
|
1
|
|
|
|
2,320
|
|
|
|
250
|
|
|
|
4/27/06
|
|
|
|
1997
|
|
|
Fremont, OH
|
|
|
1,388
|
|
|
|
863
|
|
|
|
1,435
|
|
|
|
1
|
|
|
|
2,299
|
|
|
|
200
|
|
|
|
4/27/06
|
|
|
|
1997
|
|
|
Defiance, OH
|
|
|
2,321
|
|
|
|
1,174
|
|
|
|
2,373
|
|
|
|
1
|
|
|
|
3,548
|
|
|
|
308
|
|
|
|
5/26/06
|
|
|
|
2005
|
|
|
Lansing, MI
|
|
|
1,041
|
|
|
|
254
|
|
|
|
1,276
|
|
|
|
—
|
|
|
|
1,530
|
|
|
|
185
|
|
|
|
6/29/06
|
|
|
|
1950
|
|
|
Glassport, PA
|
|
|
2,325
|
|
|
|
674
|
|
|
|
3,112
|
|
|
|
1
|
|
|
|
3,787
|
|
|
|
334
|
|
|
|
10/4/06
|
|
|
|
2006
|
|
|
Hanover, PA
|
|
|
4,115
|
|
|
|
1,924
|
|
|
|
3,804
|
|
|
|
—
|
|
|
|
5,728
|
|
|
|
405
|
|
|
|
10/17/06
|
|
|
|
2006
|
|
|
Plains, PA
|
|
|
3,380
|
|
|
|
1,147
|
|
|
|
3,780
|
|
|
|
—
|
|
|
|
4,927
|
|
|
|
364
|
|
|
|
4/16/07
|
|
|
|
2006
|
|
|
Fredericksburg, VA
|
|
|
2,979
|
|
|
|
1,522
|
|
|
|
3,378
|
|
|
|
—
|
|
|
|
4,900
|
|
|
|
312
|
|
|
|
5/2/07
|
|
|
|
2007
|
|
|
Lima, OH
|
|
|
3,103
|
|
|
|
1,814
|
|
|
|
2,402
|
|
|
|
—
|
|
|
|
4,216
|
|
|
|
231
|
|
|
|
5/14/07
|
|
|
|
2005
|
|
|
Allentown, PA
|
|
|
3,615
|
|
|
|
1,635
|
|
|
|
3,654
|
|
|
|
—
|
|
|
|
5,289
|
|
|
|
344
|
|
|
|
5/15/07
|
|
|
|
2006
|
|
|
Ruth Chris:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Metairie, LA
|
|
|
(9
|
)
|
|
|
1,701
|
|
|
|
1,262
|
|
|
|
—
|
|
|
|
2,963
|
|
|
|
9
|
|
|
|
9/27/10
|
|
|
|
1972
|
|
|
Sarasota, FL
|
|
|
(9
|
)
|
|
|
1,480
|
|
|
|
1,266
|
|
|
|
—
|
|
|
|
2,746
|
|
|
|
9
|
|
|
|
9/27/10
|
|
|
|
2000
|
|
|
Sportsman’s Warehouse (former):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wichita, KS
|
|
|
—
|
|
|
|
1,586
|
|
|
|
5,954
|
|
|
|
—
|
|
|
|
7,540
|
|
|
|
694
|
|
|
|
6/27/06
|
|
|
|
2006
|
|
|
DePere, WI
|
|
|
3,906
|
|
|
|
1,131
|
|
|
|
4,295
|
|
|
|
—
|
|
|
|
5,426
|
|
|
|
435
|
|
|
|
4/20/07
|
|
|
|
2004
|
|
S-12
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Staples:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossville, TN
|
|
|
1,885
|
|
|
|
549
|
|
|
|
2,134
|
|
|
|
—
|
|
|
|
2,683
|
|
|
|
372
|
|
|
|
1/26/06
|
|
|
|
2001
|
|
|
Peru, IL
|
|
|
1,930
|
|
|
|
1,285
|
|
|
|
1,959
|
|
|
|
—
|
|
|
|
3,244
|
|
|
|
259
|
|
|
|
11/10/06
|
|
|
|
1998
|
|
|
Clarksville, IN
|
|
|
2,900
|
|
|
|
939
|
|
|
|
3,080
|
|
|
|
—
|
|
|
|
4,019
|
|
|
|
376
|
|
|
|
12/29/06
|
|
|
|
2006
|
|
|
Greenville, SC
|
|
|
2,955
|
|
|
|
1,718
|
|
|
|
2,496
|
|
|
|
—
|
|
|
|
4,214
|
|
|
|
243
|
|
|
|
4/11/07
|
|
|
|
2007
|
|
|
Warsaw, IN
|
|
|
1,850
|
|
|
|
1,084
|
|
|
|
1,984
|
|
|
|
—
|
|
|
|
3,068
|
|
|
|
197
|
|
|
|
5/17/07
|
|
|
|
1998
|
|
|
Guntersville, AL
|
|
|
2,161
|
|
|
|
969
|
|
|
|
2,330
|
|
|
|
—
|
|
|
|
3,299
|
|
|
|
214
|
|
|
|
7/6/07
|
|
|
|
2001
|
|
|
Moraine, OH
|
|
|
(9
|
)
|
|
|
1,168
|
|
|
|
2,182
|
|
|
|
(11
|
)
|
|
|
3,339
|
|
|
|
191
|
|
|
|
10/12/07
|
|
|
|
2006
|
|
|
Angola, IN
|
|
|
1,999
|
|
|
|
457
|
|
|
|
2,366
|
|
|
|
—
|
|
|
|
2,823
|
|
|
|
148
|
|
|
|
9/30/08
|
|
|
|
1999
|
|
|
Starbucks:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covington, TN
|
|
|
—
|
|
|
|
563
|
|
|
|
856
|
|
|
|
—
|
|
|
|
1,419
|
|
|
|
88
|
|
|
|
6/22/07
|
|
|
|
2007
|
|
|
Sedalia, MO
|
|
|
(9
|
)
|
|
|
249
|
|
|
|
837
|
|
|
|
—
|
|
|
|
1,086
|
|
|
|
79
|
|
|
|
6/22/07
|
|
|
|
2006
|
|
|
Bowling Green, KY
|
|
|
(9
|
)
|
|
|
557
|
|
|
|
1,005
|
|
|
|
3
|
|
|
|
1,565
|
|
|
|
91
|
|
|
|
10/23/07
|
|
|
|
2007
|
|
|
Shawnee, OK
|
|
|
(9
|
)
|
|
|
362
|
|
|
|
644
|
|
|
|
5
|
|
|
|
1,011
|
|
|
|
61
|
|
|
|
10/31/07
|
|
|
|
2006
|
|
|
Oklahoma City, OK
|
|
|
—
|
|
|
|
386
|
|
|
|
725
|
|
|
|
5
|
|
|
|
1,116
|
|
|
|
68
|
|
|
|
11/20/07
|
|
|
|
2007
|
|
|
Chattanooga, TN
|
|
|
—
|
|
|
|
533
|
|
|
|
788
|
|
|
|
5
|
|
|
|
1,326
|
|
|
|
72
|
|
|
|
11/26/07
|
|
|
|
2007
|
|
|
Maryville, TN
|
|
|
(9
|
)
|
|
|
663
|
|
|
|
733
|
|
|
|
4
|
|
|
|
1,400
|
|
|
|
68
|
|
|
|
11/26/07
|
|
|
|
2007
|
|
|
Powell, TN
|
|
|
(9
|
)
|
|
|
517
|
|
|
|
728
|
|
|
|
4
|
|
|
|
1,249
|
|
|
|
67
|
|
|
|
11/26/07
|
|
|
|
2007
|
|
|
Seymour, TN
|
|
|
—
|
|
|
|
509
|
|
|
|
752
|
|
|
|
4
|
|
|
|
1,265
|
|
|
|
69
|
|
|
|
11/26/07
|
|
|
|
2007
|
|
|
Altus, OK
|
|
|
—
|
|
|
|
191
|
|
|
|
885
|
|
|
|
—
|
|
|
|
1,076
|
|
|
|
78
|
|
|
|
1/16/08
|
|
|
|
2007
|
|
|
Stillwater, OK
|
|
|
(9
|
)
|
|
|
164
|
|
|
|
990
|
|
|
|
—
|
|
|
|
1,154
|
|
|
|
82
|
|
|
|
2/28/08
|
|
|
|
2007
|
|
|
Memphis, TN
|
|
|
—
|
|
|
|
201
|
|
|
|
1,077
|
|
|
|
—
|
|
|
|
1,278
|
|
|
|
85
|
|
|
|
3/4/08
|
|
|
|
2007
|
|
|
Ponca City, OK
|
|
|
—
|
|
|
|
218
|
|
|
|
778
|
|
|
|
—
|
|
|
|
996
|
|
|
|
62
|
|
|
|
3/11/08
|
|
|
|
2007
|
|
|
Kingsport, TN
|
|
|
(9
|
)
|
|
|
544
|
|
|
|
733
|
|
|
|
—
|
|
|
|
1,277
|
|
|
|
60
|
|
|
|
3/25/08
|
|
|
|
2008
|
|
|
Stations Casino:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Vegas, NV
|
|
|
42,250
|
|
|
|
4,976
|
|
|
|
50,024
|
|
|
|
—
|
|
|
|
55,000
|
|
|
|
4,003
|
|
|
|
11/1/07
|
|
|
|
2007
|
|
|
Taco Bell:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson, IN
|
|
|
(9
|
)
|
|
|
344
|
|
|
|
640
|
|
|
|
(13
|
)
|
|
|
971
|
|
|
|
82
|
|
|
|
7/19/07
|
|
|
|
1995
|
|
|
Brazil, IN
|
|
|
(9
|
)
|
|
|
539
|
|
|
|
569
|
|
|
|
(12
|
)
|
|
|
1,096
|
|
|
|
71
|
|
|
|
7/19/07
|
|
|
|
1996
|
|
|
Henderson, KY
|
|
|
(9
|
)
|
|
|
380
|
|
|
|
946
|
|
|
|
(14
|
)
|
|
|
1,312
|
|
|
|
106
|
|
|
|
7/19/07
|
|
|
|
1992
|
|
|
Martinsville, IN
|
|
|
(9
|
)
|
|
|
421
|
|
|
|
633
|
|
|
|
(12
|
)
|
|
|
1,042
|
|
|
|
80
|
|
|
|
7/19/07
|
|
|
|
1986
|
|
|
Princeton, IN
|
|
|
(9
|
)
|
|
|
287
|
|
|
|
628
|
|
|
|
(14
|
)
|
|
|
901
|
|
|
|
86
|
|
|
|
7/19/07
|
|
|
|
1992
|
|
|
Robinson, IN
|
|
|
(9
|
)
|
|
|
300
|
|
|
|
527
|
|
|
|
(11
|
)
|
|
|
816
|
|
|
|
70
|
|
|
|
7/19/07
|
|
|
|
1994
|
|
|
Spencer, IN
|
|
|
(9
|
)
|
|
|
216
|
|
|
|
583
|
|
|
|
(14
|
)
|
|
|
785
|
|
|
|
74
|
|
|
|
7/19/07
|
|
|
|
1999
|
|
|
Vinceness, IN
|
|
|
(9
|
)
|
|
|
623
|
|
|
|
648
|
|
|
|
(16
|
)
|
|
|
1,255
|
|
|
|
83
|
|
|
|
7/19/07
|
|
|
|
2000
|
|
|
Washington, IN
|
|
|
(9
|
)
|
|
|
334
|
|
|
|
583
|
|
|
|
(12
|
)
|
|
|
905
|
|
|
|
76
|
|
|
|
7/19/07
|
|
|
|
1995
|
|
|
TelerX Marketing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kings Mountain, NC
|
|
|
6,083
|
|
|
|
367
|
|
|
|
7,795
|
|
|
|
—
|
|
|
|
8,162
|
|
|
|
749
|
|
|
|
7/17/07
|
|
|
|
2007
|
|
|
Three Forks Restaurant:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX
|
|
|
6,675
|
|
|
|
3,641
|
|
|
|
5,678
|
|
|
|
—
|
|
|
|
9,319
|
|
|
|
380
|
|
|
|
6/5/08
|
|
|
|
1998
|
|
|
TJ Maxx:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staunton, VA
|
|
|
3,116
|
|
|
|
933
|
|
|
|
3,082
|
|
|
|
17
|
|
|
|
4,032
|
|
|
|
193
|
|
|
|
9/30/08
|
|
|
|
1988
|
|
S-13
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Tractor Supply:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parkersburg, WV
|
|
|
1,793
|
|
|
|
934
|
|
|
|
2,050
|
|
|
|
—
|
|
|
|
2,984
|
|
|
|
314
|
|
|
|
9/26/05
|
|
|
|
2005
|
|
|
La Grange, TX
|
|
|
1,405
|
|
|
|
256
|
|
|
|
2,091
|
|
|
|
—
|
|
|
|
2,347
|
|
|
|
255
|
|
|
|
11/6/06
|
|
|
|
2006
|
|
|
Livingston, TN
|
|
|
1,725
|
|
|
|
430
|
|
|
|
2,360
|
|
|
|
—
|
|
|
|
2,790
|
|
|
|
285
|
|
|
|
11/22/06
|
|
|
|
2006
|
|
|
New Braunfels, TX
|
|
|
1,750
|
|
|
|
511
|
|
|
|
2,350
|
|
|
|
—
|
|
|
|
2,861
|
|
|
|
286
|
|
|
|
11/22/06
|
|
|
|
2006
|
|
|
Crockett, TX
|
|
|
1,325
|
|
|
|
291
|
|
|
|
1,957
|
|
|
|
—
|
|
|
|
2,248
|
|
|
|
233
|
|
|
|
12/1/06
|
|
|
|
2006
|
|
|
Ankeny, IA
|
|
|
1,950
|
|
|
|
717
|
|
|
|
1,984
|
|
|
|
—
|
|
|
|
2,701
|
|
|
|
231
|
|
|
|
2/9/07
|
|
|
|
2006
|
|
|
Greenfield, MN
|
|
|
2,228
|
|
|
|
1,311
|
|
|
|
2,367
|
|
|
|
—
|
|
|
|
3,678
|
|
|
|
227
|
|
|
|
4/2/07
|
|
|
|
2006
|
|
|
Marinette, WI
|
|
|
1,918
|
|
|
|
448
|
|
|
|
2,123
|
|
|
|
—
|
|
|
|
2,571
|
|
|
|
234
|
|
|
|
4/10/07
|
|
|
|
2006
|
|
|
Paw Paw, MI
|
|
|
2,048
|
|
|
|
537
|
|
|
|
2,349
|
|
|
|
—
|
|
|
|
2,886
|
|
|
|
226
|
|
|
|
4/10/07
|
|
|
|
2006
|
|
|
Navasota, TX
|
|
|
2,050
|
|
|
|
348
|
|
|
|
2,368
|
|
|
|
—
|
|
|
|
2,716
|
|
|
|
255
|
|
|
|
4/18/07
|
|
|
|
2006
|
|
|
Fredericksburg, TX
|
|
|
2,031
|
|
|
|
593
|
|
|
|
2,235
|
|
|
|
—
|
|
|
|
2,828
|
|
|
|
209
|
|
|
|
5/8/07
|
|
|
|
2007
|
|
|
Fairview, TN
|
|
|
1,931
|
|
|
|
449
|
|
|
|
2,234
|
|
|
|
—
|
|
|
|
2,683
|
|
|
|
208
|
|
|
|
5/25/07
|
|
|
|
2007
|
|
|
Baytown, TX
|
|
|
2,251
|
|
|
|
808
|
|
|
|
2,212
|
|
|
|
—
|
|
|
|
3,020
|
|
|
|
203
|
|
|
|
6/11/07
|
|
|
|
2007
|
|
|
Prior Lake, MN
|
|
|
3,283
|
|
|
|
1,756
|
|
|
|
2,948
|
|
|
|
98
|
|
|
|
4,802
|
|
|
|
278
|
|
|
|
6/29/07
|
|
|
|
1991
|
|
|
Rome, NY
|
|
|
1,774
|
|
|
|
1,231
|
|
|
|
1,747
|
|
|
|
—
|
|
|
|
2,978
|
|
|
|
135
|
|
|
|
1/4/08
|
|
|
|
2003
|
|
|
Clovis, NM
|
|
|
(9
|
)
|
|
|
695
|
|
|
|
2,129
|
|
|
|
—
|
|
|
|
2,824
|
|
|
|
153
|
|
|
|
4/7/08
|
|
|
|
2007
|
|
|
Carroll, OH
|
|
|
1,119
|
|
|
|
798
|
|
|
|
1,030
|
|
|
|
—
|
|
|
|
1,828
|
|
|
|
148
|
|
|
|
5/8/08
|
|
|
|
1976
|
|
|
Baldwinsville, NY
|
|
|
1,868
|
|
|
|
1,110
|
|
|
|
1,938
|
|
|
|
—
|
|
|
|
3,048
|
|
|
|
118
|
|
|
|
10/15/08
|
|
|
|
2005
|
|
|
LaGrange, KY
|
|
|
(9
|
)
|
|
|
584
|
|
|
|
2,322
|
|
|
|
—
|
|
|
|
2,906
|
|
|
|
155
|
|
|
|
11/19/08
|
|
|
|
2008
|
|
|
Lowville, NY
|
|
|
(9
|
)
|
|
|
126
|
|
|
|
1,848
|
|
|
|
—
|
|
|
|
1,974
|
|
|
|
27
|
|
|
|
6/3/10
|
|
|
|
2010
|
|
|
Malone, NY
|
|
|
(9
|
)
|
|
|
168
|
|
|
|
1,852
|
|
|
|
—
|
|
|
|
2,020
|
|
|
|
27
|
|
|
|
6/3/10
|
|
|
|
2010
|
|
|
Elletsville, IN
|
|
|
(9
|
)
|
|
|
248
|
|
|
|
1,992
|
|
|
|
—
|
|
|
|
2,240
|
|
|
|
15
|
|
|
|
9/13/10
|
|
|
|
2010
|
|
|
TutorTime:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pittsburgh, PA
|
|
|
—
|
|
|
|
508
|
|
|
|
391
|
|
|
|
—
|
|
|
|
899
|
|
|
|
1
|
|
|
|
12/15/10
|
|
|
|
1985
|
|
|
Victoria Crossing:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victoria, TX
|
|
|
8,288
|
|
|
|
2,207
|
|
|
|
9,531
|
|
|
|
15
|
|
|
|
11,753
|
|
|
|
988
|
|
|
|
1/12/07
|
|
|
|
2006
|
|
|
Wadsworth Boulevard:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denver, CO
|
|
|
12,025
|
|
|
|
4,723
|
|
|
|
12,728
|
|
|
|
237
|
|
|
|
17,688
|
|
|
|
1,630
|
|
|
|
2/6/06
|
|
|
|
1991
|
|
|
Walgreens:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brainerd, MN
|
|
|
2,814
|
|
|
|
981
|
|
|
|
2,882
|
|
|
|
—
|
|
|
|
3,863
|
|
|
|
429
|
|
|
|
10/5/05
|
|
|
|
2000
|
|
|
Florissant, MO
|
|
|
3,372
|
|
|
|
1,482
|
|
|
|
3,205
|
|
|
|
—
|
|
|
|
4,687
|
|
|
|
424
|
|
|
|
11/2/05
|
|
|
|
2001
|
|
|
St Louis (Gravois), MO
|
|
|
3,999
|
|
|
|
2,220
|
|
|
|
3,305
|
|
|
|
—
|
|
|
|
5,525
|
|
|
|
438
|
|
|
|
11/2/05
|
|
|
|
2001
|
|
|
St Louis (Telegraph), MO
|
|
|
3,289
|
|
|
|
1,745
|
|
|
|
2,875
|
|
|
|
—
|
|
|
|
4,620
|
|
|
|
381
|
|
|
|
11/2/05
|
|
|
|
2001
|
|
|
Columbia, MO
|
|
|
3,805
|
|
|
|
2,353
|
|
|
|
3,351
|
|
|
|
—
|
|
|
|
5,704
|
|
|
|
473
|
|
|
|
11/22/05
|
|
|
|
2002
|
|
|
Olivette, MO
|
|
|
4,747
|
|
|
|
3,077
|
|
|
|
3,798
|
|
|
|
—
|
|
|
|
6,875
|
|
|
|
521
|
|
|
|
11/22/05
|
|
|
|
2001
|
|
|
Knoxville, TN
|
|
|
3,088
|
|
|
|
1,826
|
|
|
|
2,465
|
|
|
|
—
|
|
|
|
4,291
|
|
|
|
331
|
|
|
|
5/8/06
|
|
|
|
2000
|
|
|
Picayune, MS
|
|
|
2,766
|
|
|
|
1,212
|
|
|
|
2,548
|
|
|
|
—
|
|
|
|
3,760
|
|
|
|
292
|
|
|
|
9/15/06
|
|
|
|
2006
|
|
|
Cincinnati, OH
|
|
|
3,341
|
|
|
|
1,335
|
|
|
|
3,272
|
|
|
|
—
|
|
|
|
4,607
|
|
|
|
322
|
|
|
|
3/6/07
|
|
|
|
2000
|
|
|
Madeira, OH
|
|
|
2,876
|
|
|
|
1,060
|
|
|
|
2,911
|
|
|
|
—
|
|
|
|
3,971
|
|
|
|
288
|
|
|
|
3/6/07
|
|
|
|
1998
|
|
|
Sharonville, OH
|
|
|
2,655
|
|
|
|
1,203
|
|
|
|
2,836
|
|
|
|
352
|
|
|
|
4,391
|
|
|
|
309
|
|
|
|
3/6/07
|
|
|
|
1998
|
|
|
Shreveport, LA
|
|
|
2,815
|
|
|
|
477
|
|
|
|
2,648
|
|
|
|
—
|
|
|
|
3,125
|
|
|
|
260
|
|
|
|
3/23/07
|
|
|
|
1998
|
|
|
Bridgetown, OH
|
|
|
3,043
|
|
|
|
1,537
|
|
|
|
2,356
|
|
|
|
—
|
|
|
|
3,893
|
|
|
|
231
|
|
|
|
4/30/07
|
|
|
|
1998
|
|
|
Dallas, TX
|
|
|
2,175
|
|
|
|
992
|
|
|
|
2,749
|
|
|
|
619
|
|
|
|
4,360
|
|
|
|
314
|
|
|
|
5/9/07
|
|
|
|
1996
|
|
S-14
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Walgreens (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryan, TX
|
|
|
4,111
|
|
|
|
783
|
|
|
|
4,792
|
|
|
|
(4
|
)
|
|
|
5,571
|
|
|
|
441
|
|
|
|
5/18/07
|
|
|
|
2001
|
|
|
Harris County, TX
|
|
|
3,673
|
|
|
|
1,651
|
|
|
|
3,007
|
|
|
|
—
|
|
|
|
4,658
|
|
|
|
289
|
|
|
|
5/18/07
|
|
|
|
2000
|
|
|
Gainesville, FL
|
|
|
2,465
|
|
|
|
1,079
|
|
|
|
2,398
|
|
|
|
18
|
|
|
|
3,495
|
|
|
|
220
|
|
|
|
6/1/07
|
|
|
|
1997
|
|
|
Kansas City (63rd St), MO
|
|
|
3,035
|
|
|
|
1,255
|
|
|
|
2,944
|
|
|
|
363
|
|
|
|
4,562
|
|
|
|
290
|
|
|
|
7/11/07
|
|
|
|
2000
|
|
|
Kansas City (Independence), MO
|
|
|
2,990
|
|
|
|
1,233
|
|
|
|
3,066
|
|
|
|
—
|
|
|
|
4,299
|
|
|
|
272
|
|
|
|
7/11/07
|
|
|
|
1997
|
|
|
Kansas City (Linwood), MO
|
|
|
2,438
|
|
|
|
1,066
|
|
|
|
2,634
|
|
|
|
201
|
|
|
|
3,901
|
|
|
|
249
|
|
|
|
7/11/07
|
|
|
|
2000
|
|
|
Kansas City (Troost), MO
|
|
|
2,464
|
|
|
|
1,149
|
|
|
|
3,288
|
|
|
|
—
|
|
|
|
4,437
|
|
|
|
291
|
|
|
|
7/11/07
|
|
|
|
2000
|
|
|
Topeka, KS
|
|
|
1,870
|
|
|
|
860
|
|
|
|
2,142
|
|
|
|
—
|
|
|
|
3,002
|
|
|
|
190
|
|
|
|
7/11/07
|
|
|
|
1999
|
|
|
Fort Worth, TX
|
|
|
3,675
|
|
|
|
276
|
|
|
|
2,982
|
|
|
|
—
|
|
|
|
3,258
|
|
|
|
260
|
|
|
|
7/17/07
|
|
|
|
1992
|
|
|
Richmond, VA
|
|
|
(9
|
)
|
|
|
745
|
|
|
|
2,902
|
|
|
|
—
|
|
|
|
3,647
|
|
|
|
262
|
|
|
|
8/17/07
|
|
|
|
1997
|
|
|
Dallas, TX
|
|
|
(9
|
)
|
|
|
367
|
|
|
|
2,214
|
|
|
|
(1
|
)
|
|
|
2,580
|
|
|
|
189
|
|
|
|
8/27/07
|
|
|
|
1997
|
|
|
Brentwood, TN
|
|
|
2,700
|
|
|
|
2,904
|
|
|
|
2,179
|
|
|
|
(74
|
)
|
|
|
5,009
|
|
|
|
181
|
|
|
|
10/17/07
|
|
|
|
2006
|
|
|
Harriman, TN
|
|
|
2,500
|
|
|
|
1,133
|
|
|
|
3,526
|
|
|
|
—
|
|
|
|
4,659
|
|
|
|
289
|
|
|
|
10/24/07
|
|
|
|
2007
|
|
|
Beverly Hills, TX
|
|
|
2,185
|
|
|
|
1,286
|
|
|
|
2,562
|
|
|
|
691
|
|
|
|
4,539
|
|
|
|
250
|
|
|
|
12/5/07
|
|
|
|
2007
|
|
|
Waco, TX
|
|
|
2,185
|
|
|
|
1,138
|
|
|
|
2,683
|
|
|
|
700
|
|
|
|
4,521
|
|
|
|
260
|
|
|
|
12/5/07
|
|
|
|
2007
|
|
|
Cincinnati (Seymour), OH
|
|
|
(9
|
)
|
|
|
756
|
|
|
|
2,587
|
|
|
|
—
|
|
|
|
3,343
|
|
|
|
212
|
|
|
|
12/21/07
|
|
|
|
2000
|
|
|
Oneida, TN
|
|
|
2,500
|
|
|
|
555
|
|
|
|
3,938
|
|
|
|
—
|
|
|
|
4,493
|
|
|
|
295
|
|
|
|
2/29/08
|
|
|
|
2007
|
|
|
Batesville, MS
|
|
|
2,566
|
|
|
|
1,558
|
|
|
|
3,265
|
|
|
|
—
|
|
|
|
4,823
|
|
|
|
242
|
|
|
|
3/31/08
|
|
|
|
2007
|
|
|
Elmira, NY
|
|
|
2,900
|
|
|
|
1,996
|
|
|
|
3,831
|
|
|
|
—
|
|
|
|
5,827
|
|
|
|
263
|
|
|
|
5/1/08
|
|
|
|
2007
|
|
|
Hibbing, MN
|
|
|
2,557
|
|
|
|
1,048
|
|
|
|
2,763
|
|
|
|
—
|
|
|
|
3,811
|
|
|
|
185
|
|
|
|
5/14/08
|
|
|
|
2007
|
|
|
Essex, MD
|
|
|
3,920
|
|
|
|
1,208
|
|
|
|
4,725
|
|
|
|
—
|
|
|
|
5,933
|
|
|
|
311
|
|
|
|
5/30/08
|
|
|
|
2007
|
|
|
Bath, NY
|
|
|
2,581
|
|
|
|
1,114
|
|
|
|
2,924
|
|
|
|
—
|
|
|
|
4,038
|
|
|
|
195
|
|
|
|
6/2/08
|
|
|
|
2008
|
|
|
Chino Valley, AZ
|
|
|
3,272
|
|
|
|
1,779
|
|
|
|
3,014
|
|
|
|
—
|
|
|
|
4,793
|
|
|
|
195
|
|
|
|
6/2/08
|
|
|
|
2007
|
|
|
Albany, GA
|
|
|
2,791
|
|
|
|
929
|
|
|
|
3,177
|
|
|
|
—
|
|
|
|
4,106
|
|
|
|
213
|
|
|
|
6/11/08
|
|
|
|
2008
|
|
|
Rome, NY
|
|
|
2,758
|
|
|
|
1,170
|
|
|
|
3,121
|
|
|
|
—
|
|
|
|
4,291
|
|
|
|
201
|
|
|
|
7/15/08
|
|
|
|
2007
|
|
|
Columbus, MS
|
|
|
2,730
|
|
|
|
1,193
|
|
|
|
2,831
|
|
|
|
—
|
|
|
|
4,024
|
|
|
|
191
|
|
|
|
7/24/08
|
|
|
|
2004
|
|
|
Mobile, AL
|
|
|
2,805
|
|
|
|
1,654
|
|
|
|
3,286
|
|
|
|
—
|
|
|
|
4,940
|
|
|
|
209
|
|
|
|
8/28/08
|
|
|
|
2007
|
|
|
Akron, OH
|
|
|
(9
|
)
|
|
|
565
|
|
|
|
1,961
|
|
|
|
16
|
|
|
|
2,542
|
|
|
|
125
|
|
|
|
9/30/08
|
|
|
|
1994
|
|
|
Broken Arrow, OK
|
|
|
935
|
|
|
|
770
|
|
|
|
1,274
|
|
|
|
—
|
|
|
|
2,044
|
|
|
|
86
|
|
|
|
9/30/08
|
|
|
|
1993
|
|
|
Crossville, TN
|
|
|
2,753
|
|
|
|
878
|
|
|
|
3,154
|
|
|
|
—
|
|
|
|
4,032
|
|
|
|
210
|
|
|
|
9/30/08
|
|
|
|
2001
|
|
|
Jacksonville, FL
|
|
|
2,695
|
|
|
|
1,044
|
|
|
|
4,178
|
|
|
|
—
|
|
|
|
5,222
|
|
|
|
253
|
|
|
|
9/30/08
|
|
|
|
2000
|
|
|
LaMarque, TX
|
|
|
2,213
|
|
|
|
450
|
|
|
|
3,461
|
|
|
|
—
|
|
|
|
3,911
|
|
|
|
207
|
|
|
|
9/30/08
|
|
|
|
2000
|
|
|
Newton, IA
|
|
|
(9
|
)
|
|
|
505
|
|
|
|
3,456
|
|
|
|
—
|
|
|
|
3,961
|
|
|
|
209
|
|
|
|
9/30/08
|
|
|
|
2000
|
|
|
Saginaw, MI
|
|
|
2,213
|
|
|
|
801
|
|
|
|
2,977
|
|
|
|
—
|
|
|
|
3,778
|
|
|
|
182
|
|
|
|
9/30/08
|
|
|
|
2001
|
|
|
Seattle, WA
|
|
|
3,355
|
|
|
|
2,944
|
|
|
|
3,206
|
|
|
|
—
|
|
|
|
6,150
|
|
|
|
194
|
|
|
|
9/30/08
|
|
|
|
2002
|
|
|
Tulsa, OK
|
|
|
1,926
|
|
|
|
651
|
|
|
|
2,168
|
|
|
|
—
|
|
|
|
2,819
|
|
|
|
137
|
|
|
|
9/30/08
|
|
|
|
1994
|
|
|
Tulsa, OK
|
|
|
985
|
|
|
|
192
|
|
|
|
1,935
|
|
|
|
—
|
|
|
|
2,127
|
|
|
|
123
|
|
|
|
9/30/08
|
|
|
|
1993
|
|
|
Evansville, IN
|
|
|
2,423
|
|
|
|
1,131
|
|
|
|
2,898
|
|
|
|
—
|
|
|
|
4,029
|
|
|
|
155
|
|
|
|
11/25/08
|
|
|
|
2007
|
|
|
Austin, MN
|
|
|
3,531
|
|
|
|
1,049
|
|
|
|
1,940
|
|
|
|
—
|
|
|
|
2,989
|
|
|
|
89
|
|
|
|
3/27/09
|
|
|
|
2002
|
|
|
Canton, IL
|
|
|
4,429
|
|
|
|
842
|
|
|
|
3,046
|
|
|
|
—
|
|
|
|
3,888
|
|
|
|
142
|
|
|
|
3/27/09
|
|
|
|
2006
|
|
|
Galloway, OH
|
|
|
4,250
|
|
|
|
1,055
|
|
|
|
2,834
|
|
|
|
—
|
|
|
|
3,889
|
|
|
|
134
|
|
|
|
3/27/09
|
|
|
|
2003
|
|
|
Humble, TX
|
|
|
4,395
|
|
|
|
1,092
|
|
|
|
3,027
|
|
|
|
—
|
|
|
|
4,119
|
|
|
|
139
|
|
|
|
3/27/09
|
|
|
|
2003
|
|
S-15
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Walgreens (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Memphis, TN
|
|
|
5,058
|
|
|
|
693
|
|
|
|
3,827
|
|
|
|
—
|
|
|
|
4,520
|
|
|
|
179
|
|
|
|
3/27/09
|
|
|
|
2002
|
|
|
Parkville, MO
|
|
|
4,274
|
|
|
|
1,461
|
|
|
|
2,243
|
|
|
|
—
|
|
|
|
3,704
|
|
|
|
107
|
|
|
|
3/27/09
|
|
|
|
2006
|
|
|
San Antonio, TX
|
|
|
4,060
|
|
|
|
991
|
|
|
|
3,005
|
|
|
|
—
|
|
|
|
3,996
|
|
|
|
138
|
|
|
|
3/27/09
|
|
|
|
2004
|
|
|
Toledo, OH
|
|
|
5,400
|
|
|
|
1,208
|
|
|
|
3,469
|
|
|
|
—
|
|
|
|
4,677
|
|
|
|
160
|
|
|
|
3/27/09
|
|
|
|
2005
|
|
|
Antioch, TN
|
|
|
4,425
|
|
|
|
479
|
|
|
|
3,411
|
|
|
|
—
|
|
|
|
3,890
|
|
|
|
158
|
|
|
|
3/31/09
|
|
|
|
2002
|
|
|
Decatur, IL
|
|
|
4,003
|
|
|
|
680
|
|
|
|
2,989
|
|
|
|
—
|
|
|
|
3,669
|
|
|
|
141
|
|
|
|
3/31/09
|
|
|
|
2005
|
|
|
Long Beach, MS
|
|
|
3,662
|
|
|
|
791
|
|
|
|
2,600
|
|
|
|
—
|
|
|
|
3,391
|
|
|
|
121
|
|
|
|
3/31/09
|
|
|
|
2005
|
|
|
Roselle, NJ
|
|
|
5,742
|
|
|
|
1,632
|
|
|
|
3,746
|
|
|
|
—
|
|
|
|
5,378
|
|
|
|
170
|
|
|
|
3/31/09
|
|
|
|
2002
|
|
|
Saraland, AL
|
|
|
5,079
|
|
|
|
1,415
|
|
|
|
3,187
|
|
|
|
—
|
|
|
|
4,602
|
|
|
|
146
|
|
|
|
3/31/09
|
|
|
|
2003
|
|
|
Mt. Pleasant, TX
|
|
|
—
|
|
|
|
1,098
|
|
|
|
3,447
|
|
|
|
—
|
|
|
|
4,545
|
|
|
|
4
|
|
|
|
12/21/10
|
|
|
|
2009
|
|
|
Wal-Mart:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson, SC
|
|
|
8,160
|
|
|
|
3,265
|
|
|
|
8,442
|
|
|
|
1,271
|
|
|
|
12,978
|
|
|
|
911
|
|
|
|
5/8/07
|
|
|
|
1993
|
|
|
New London, WI
|
|
|
1,778
|
|
|
|
658
|
|
|
|
1,938
|
|
|
|
135
|
|
|
|
2,731
|
|
|
|
200
|
|
|
|
5/9/07
|
|
|
|
1991
|
|
|
Spencer, IN
|
|
|
1,377
|
|
|
|
612
|
|
|
|
1,427
|
|
|
|
176
|
|
|
|
2,215
|
|
|
|
156
|
|
|
|
5/23/07
|
|
|
|
1987
|
|
|
Bay City, TX
|
|
|
(9
|
)
|
|
|
637
|
|
|
|
2,558
|
|
|
|
(6
|
)
|
|
|
3,189
|
|
|
|
229
|
|
|
|
8/14/07
|
|
|
|
1990
|
|
|
Washington, IL
|
|
|
(9
|
)
|
|
|
1,043
|
|
|
|
2,386
|
|
|
|
118
|
|
|
|
3,547
|
|
|
|
224
|
|
|
|
9/10/07
|
|
|
|
1989
|
|
|
Borger, TX
|
|
|
(9
|
)
|
|
|
932
|
|
|
|
1,828
|
|
|
|
(10
|
)
|
|
|
2,750
|
|
|
|
161
|
|
|
|
9/12/07
|
|
|
|
1991
|
|
|
Whiteville, NC
|
|
|
(9
|
)
|
|
|
854
|
|
|
|
1,357
|
|
|
|
(9
|
)
|
|
|
2,202
|
|
|
|
139
|
|
|
|
10/11/07
|
|
|
|
1988
|
|
|
WaWa:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hockessin, DE
|
|
|
2,709
|
|
|
|
1,850
|
|
|
|
2,000
|
|
|
|
—
|
|
|
|
3,850
|
|
|
|
277
|
|
|
|
3/29/06
|
|
|
|
2000
|
|
|
Manahawkin, NJ
|
|
|
2,617
|
|
|
|
1,359
|
|
|
|
2,360
|
|
|
|
—
|
|
|
|
3,719
|
|
|
|
268
|
|
|
|
3/29/06
|
|
|
|
2000
|
|
|
Narberth, PA
|
|
|
2,422
|
|
|
|
1,659
|
|
|
|
1,782
|
|
|
|
—
|
|
|
|
3,441
|
|
|
|
248
|
|
|
|
3/29/06
|
|
|
|
2000
|
|
|
Wehrenberg Theatre:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold, MO
|
|
|
(9
|
)
|
|
|
2,798
|
|
|
|
4,604
|
|
|
|
126
|
|
|
|
7,528
|
|
|
|
561
|
|
|
|
6/14/06
|
|
|
|
1998
|
|
|
Weston Shops:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weston, FL
|
|
|
(9
|
)
|
|
|
6,034
|
|
|
|
9,573
|
|
|
|
—
|
|
|
|
15,607
|
|
|
|
645
|
|
|
|
7/30/08
|
|
|
|
2007
|
|
|
Wickes Furniture (former):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago, IL
|
|
|
15,925
|
|
|
|
9,896
|
|
|
|
11,282
|
|
|
|
(11,377
|
)
|
|
|
9,801
|
|
|
|
476
|
|
|
|
10/17/07
|
|
|
|
2007
|
|
|
WinCo Foods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eureka, CA
|
|
|
11,247
|
|
|
|
4,277
|
|
|
|
10,919
|
|
|
|
380
|
|
|
|
15,576
|
|
|
|
1,033
|
|
|
|
6/27/07
|
|
|
|
1960
|
|
|
Winter Garden Village:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winter Garden, FL
|
|
|
105,700
|
|
|
|
22,862
|
|
|
|
151,385
|
|
|
|
854
|
|
|
|
175,101
|
|
|
|
9,050
|
|
|
|
9/26/08
|
|
|
|
2007
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
1,498,777
|
|
|
|
812,555
|
|
|
|
2,117,884
|
|
|
|
(3,214
|
)
|
|
|
2,927,225
|
|
|
|
178,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Real Estate Held for Investment the Company has Invested in
Under Direct Financing Leases(7):
|
|
Academy Sports:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX
|
|
|
3,825
|
|
|
|
3,953
|
|
|
|
1,952
|
|
|
|
1
|
|
|
|
5,906
|
|
|
|
—
|
|
|
|
6/27/07
|
|
|
|
1995
|
|
|
Baton Rouge, LA
|
|
|
4,687
|
|
|
|
2,719
|
|
|
|
6,014
|
|
|
|
1,937
|
|
|
|
10,670
|
|
|
|
—
|
|
|
|
7/19/07
|
|
|
|
1996
|
|
|
Houston (Breton), TX
|
|
|
3,045
|
|
|
|
1,194
|
|
|
|
4,675
|
|
|
|
—
|
|
|
|
5,869
|
|
|
|
—
|
|
|
|
7/19/07
|
|
|
|
1995
|
|
|
Houston (Southwest), TX
|
|
|
4,625
|
|
|
|
3,377
|
|
|
|
5,066
|
|
|
|
3,127
|
|
|
|
11,570
|
|
|
|
22
|
|
|
|
7/19/07
|
|
|
|
1996
|
|
|
North Richland Hills, TX
|
|
|
4,217
|
|
|
|
2,097
|
|
|
|
5,693
|
|
|
|
—
|
|
|
|
7,790
|
|
|
|
—
|
|
|
|
7/19/07
|
|
|
|
1996
|
|
|
Best Buy:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evanston, IL
|
|
|
5,900
|
|
|
|
3,661
|
|
|
|
6,984
|
|
|
|
2
|
|
|
|
10,647
|
|
|
|
—
|
|
|
|
6/27/07
|
|
|
|
1996
|
|
S-16
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross Amount
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
at Which
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried
|
|
|
|
|
|
|
|
|
|
|
|
Initial Costs to Company
|
|
Total
|
|
At December 31,
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
Buildings &
|
|
Adjustment
|
|
2010
|
|
Depreciation
|
|
Date
|
|
Date
|
|
Description(1)
|
|
Encumbrances
|
|
Land
|
|
Improvements
|
|
to Basis
|
|
(2)(3)(5)
|
|
(4)(6)
|
|
Acquired
|
|
Constructed
|
|
|
|
Wal-Mart (continued):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Warwick , RI
|
|
|
5,350
|
|
|
|
3,948
|
|
|
|
9,544
|
|
|
|
—
|
|
|
|
13,492
|
|
|
|
—
|
|
|
|
6/27/07
|
|
|
|
1992
|
|
|
CVS:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amarillo, TX
|
|
|
1,741
|
|
|
|
832
|
|
|
|
2,563
|
|
|
|
—
|
|
|
|
3,395
|
|
|
|
—
|
|
|
|
7/19/07
|
|
|
|
1994
|
|
|
Del City, OK
|
|
|
2,631
|
|
|
|
1,085
|
|
|
|
4,496
|
|
|
|
—
|
|
|
|
5,581
|
|
|
|
—
|
|
|
|
7/19/07
|
|
|
|
1998
|
|
|
Eckerd:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mantua, NJ
|
|
|
1,470
|
|
|
|
943
|
|
|
|
1,495
|
|
|
|
2
|
|
|
|
2,440
|
|
|
|
—
|
|
|
|
6/27/07
|
|
|
|
1993
|
|
|
Vineland, NJ
|
|
|
3,500
|
|
|
|
2,353
|
|
|
|
4,743
|
|
|
|
—
|
|
|
|
7,096
|
|
|
|
—
|
|
|
|
6/27/07
|
|
|
|
1997
|
|
|
Chattanooga, TN
|
|
|
1,920
|
|
|
|
1,023
|
|
|
|
2,976
|
|
|
|
—
|
|
|
|
3,999
|
|
|
|
—
|
|
|
|
7/19/07
|
|
|
|
1997
|
|
|
Mableton, GA
|
|
|
1,197
|
|
|
|
716
|
|
|
|
1,699
|
|
|
|
—
|
|
|
|
2,415
|
|
|
|
—
|
|
|
|
7/19/07
|
|
|
|
1994
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
44,108
|
|
|
|
27,901
|
|
|
|
57,900
|
|
|
|
5,069
|
|
|
|
90,870
|
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2010, we owned 412 single-tenant,
freestanding retail properties, 292 single-tenant, freestanding
commercial properties and 21 multi-tenant retail properties. |
| |
|
(2) |
|
The aggregate cost for federal income tax purposes is
approximately $3.3 billion. |
| |
|
(3) |
|
The following is a reconciliation of total real estate carrying
value for the years ended December 31: |
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Balance, beginning of period
|
|
$
|
2,921,274
|
|
|
$
|
2,834,730
|
|
|
$
|
1,606,722
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions
|
|
|
96,156
|
|
|
|
97,167
|
|
|
|
1,218,764
|
|
|
Improvements
|
|
|
6,668
|
|
|
|
3,558
|
|
|
|
—
|
|
|
Adjustment to basis
|
|
|
—
|
|
|
|
—
|
|
|
|
13,024
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions
|
|
|
102,824
|
|
|
|
100,725
|
|
|
|
1,231,788
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sold
|
|
|
5
|
|
|
|
162
|
|
|
|
440
|
|
|
Adjustment to basis
|
|
|
1,190
|
|
|
|
2,401
|
|
|
|
—
|
|
|
Other (including provision for impairment of real estate assets)
|
|
|
4,808
|
|
|
|
11,618
|
|
|
|
3,340
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deductions
|
|
|
6,003
|
|
|
|
14,181
|
|
|
|
3,780
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
3,018,095
|
|
|
$
|
2,921,274
|
|
|
$
|
2,834,730
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4) |
|
The following is a reconciliation of accumulated depreciation
for the years ended December 31: |
S-17
COLE
CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED
DEPRECIATION — (Continued)
December 31, 2010
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2010
|
|
|
2009
|
|
|
2008
|
|
|
|
|
Balance, beginning of period
|
|
$
|
122,887
|
|
|
$
|
67,326
|
|
|
$
|
24,882
|
|
|
Additions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions — Depreciation Expense for Building,
Acquisition Costs & Tenant Improvements Acquired
|
|
|
56,280
|
|
|
|
56,049
|
|
|
|
42,645
|
|
|
Improvements — Depreciation Expense for Tenant
Improvements and Building Equipment
|
|
|
335
|
|
|
|
59
|
|
|
|
3
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total additions
|
|
|
56,615
|
|
|
|
56,108
|
|
|
|
42,648
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sold
|
|
|
—
|
|
|
|
—
|
|
|
|
—
|
|
|
Other (including provision for impairment of real estate assets)
|
|
|
596
|
|
|
|
547
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total deductions
|
|
|
596
|
|
|
|
547
|
|
|
|
204
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, end of period
|
|
$
|
178,906
|
|
|
$
|
122,887
|
|
|
$
|
67,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5) |
|
In 2010, 2009 and 2008, provisions for impairment were recorded
on one property. |
| |
|
(6) |
|
The Company’s assets are depreciated or amortized using the
straight-lined method over the useful lives of the assets by
class. Generally, tenant improvements and lease intangibles are
amortized over the respective lease term and buildings are
depreciated over 40 years. |
| |
|
(7) |
|
For financial reporting purposes, the lease has been recorded as
a direct financing lease; therefore, depreciation is generally
not applicable. |
| |
|
(8) |
|
Subject to a ground lease and therefore date constructed is not
applicable. |
| |
|
(9) |
|
Part of the Credit Facility’s unencumbered borrowing base.
As of December 31, 2010, the Company had
$100.0 million outstanding under the Credit Facility. |
S-18
(In thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carrying
|
|
|
|
|
|
|
|
|
|
|
Final
|
|
Periodic
|
|
|
|
|
Face Amount
|
|
|
Amount
|
|
Mortgage Loans
|
|
|
|
|
|
Interest
|
|
Maturity
|
|
Payment
|
|
Prior
|
|
|
of Mortgages
|
|
|
of Mortgages(3)
|
|
|
Receivable(1)
|
|
Description
|
|
Location
|
|
Rate
|
|
Date
|
|
Terms(2)
|
|
Liens
|
|
|
(In thousands)
|
|
|
(In thousands)
|
|
|
|
|
Cracker Barrel Notes
|
|
Retail
|
|
(4)
|
|
9.84%
|
|
8/1/2020
|
|
P & I
|
|
|
None
|
|
|
$
|
44,046
|
|
|
$
|
44,970
|
|
|
KFC Notes
|
|
Retail
|
|
(5)
|
|
10.47%
|
|
10/1/2020
|
|
P & I
|
|
|
None
|
|
|
|
20,206
|
|
|
|
21,600
|
|
|
O’Reilly Notes
|
|
Retail
|
|
(6)
|
|
8.60-9.35%
|
|
1/1/2021
|
|
P & I
|
|
|
None
|
|
|
|
12,555
|
|
|
|
13,208
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
76,807
|
|
|
$
|
79,778
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
No individual mortgage loan exceeds 3 percent of the total
of the carrying amount for all mortgage loans. |
| |
|
(2) |
|
P & I = Principal and interest payments. |
| |
|
(3) |
|
The aggregate cost for federal income tax purposes is
$83.9 million. |
| |
|
(4) |
|
The Cracker Barrel Notes are secured by 23 restaurant properties
located in 16 states. |
| |
|
(5) |
|
The KFC Notes are secured by 20 restaurant properties located in
nine states. |
| |
|
(6) |
|
The O’Reilly Notes are secured by 26 commercial retail
properties located in two states. |
The following shows changes in the carrying amounts of mortgage
loans receivable during the period (in thousands):
| |
|
|
|
|
|
Balance at December 31, 2009
|
|
$
|
82,500
|
|
|
Additions:
|
|
|
|
|
|
New mortgage loans
|
|
|
—
|
|
|
Premium on new mortgage loans and capitalized loan costs
|
|
|
—
|
|
|
Acquisition costs related to investment in mortgage notes
receivable
|
|
|
—
|
|
|
Deductions:
|
|
|
|
|
|
Collections of principal
|
|
|
(2,035
|
)
|
|
Amortization of premium and capitalized loan costs
|
|
|
(687
|
)
|
|
|
|
|
|
|
|
Balance at December 31, 2010
|
|
$
|
79,778
|
|
|
|
|
|
|
|
S-19
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized, this 30th day of March, 2011.
Cole Credit Property Trust II, Inc.
|
|
|
| |
By:
|
/s/ CHRISTOPHER
H. COLE
|
Christopher H. Cole
Chief Executive Officer and President
(Principal Executive Officer)
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following persons
on behalf of the Registrant and in the capacities and on the
date indicated.
| |
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
Date
|
|
|
|
|
|
|
|
|
|
/s/ CHRISTOPHER
H. COLE
Christopher
H. Cole
|
|
Chairman, Chief Executive Officer and President (Principal
Executive Officer)
|
|
March 30, 2011
|
|
|
|
|
|
|
|
/s/ D.
KIRK MCALLASTER, JR.
D.
Kirk McAllaster, Jr.
|
|
Executive Vice President and Chief Financial Officer (Principal
Financial Officer)
|
|
March 30, 2011
|
|
|
|
|
|
|
|
/s/ SIMON
J. MISSELBROOK
Simon
J. Misselbrook
|
|
Vice President of Accounting (Principal Accounting Officer)
|
|
March 30, 2011
|
|
|
|
|
|
|
|
/s/ MARCUS
E. BROMLEY
Marcus
E. Bromley
|
|
Director
|
|
March 30, 2011
|
|
|
|
|
|
|
|
/s/ GEORGE
N. FUGELSANG
George
N. Fugelsang
|
|
Director
|
|
March 30, 2011
|
EXHIBIT INDEX
The following exhibits are included, or incorporated by
reference, in this Annual Report on
Form 10-K
for the year ended December 31, 2010 (and are numbered in
accordance with Item 601 of
Regulation S-K).
| |
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
3
|
.1
|
|
Fifth Articles of Amendment and Restatement, as corrected.
(Incorporated by reference to Exhibit 3.1 of the
Company’s
Form 10-K
(File
No. 333-121094),
filed on March 23, 2006).
|
|
|
3
|
.2
|
|
Amended and Restated Bylaws. (Incorporated by reference to
Exhibit 99.1 to the Company’s
Form 8-K
(File
No. 333-121094),
filed on September 6, 2005).
|
|
|
3
|
.3
|
|
Articles of Amendment to Fifth Articles of Amendment and
Restatement. (Incorporated by reference to Exhibit 3.3 of
the Company’s
Form S-11
(File
No. 333-138444),
filed on November 6, 2006).
|
|
|
4
|
.1
|
|
Form of Subscription Agreement and Subscription Agreement
Signature Page. (Incorporated by reference to Exhibit 4.1
to the Company’s post-effective amendment to
Form S-11
(File
No. 333-138444),
filed on February 1, 2008).
|
|
|
4
|
.2
|
|
Form of Additional Investment Subscription Agreement.
(Incorporated by reference to Exhibit 4.2 to the
Company’s post-effective amendment to
Form S-11
(File
No. 333-138444),
filed on February 1, 2008).
|
|
|
10
|
.1
|
|
2004 Independent Directors’ Stock Option Plan.
(Incorporated by reference to Exhibit 10.5 to the
Company’s
Form S-11
(File
No. 333-121094),
filed on December 9, 2004).
|
|
|
10
|
.2
|
|
Form of Stock Option Agreement under 2004 Independent
Directors’ Stock Option Plan. (Incorporated by reference to
Exhibit 10.6 to the Company’s pre-effective amendment
to
Form S-11
(File
No. 333-121094),
filed on April 11, 2005).
|
|
|
10
|
.3
|
|
Amended and Restated Property Management and Leasing Agreement,
dated September 16, 2005, by and among Cole Credit Property
Trust II, Inc., Cole Operating Partnership II, LP and
Fund Realty Advisors, Inc. (Incorporated by reference to
Exhibit 10.1 to the Company’s
Form 8-K
(File
No. 333-121094),
filed on September 23, 2005).
|
|
|
10
|
.4
|
|
Amended and Restated Advisory Agreement, dated
September 16, 2005, by and between Cole Credit Property
Trust II, Inc. and Cole REIT Advisors II, LLC.
(Incorporated by reference to Exhibit 10.2 to the
Company’s
Form 8-K
(File
No. 333-121094),
filed on September 23, 2005).
|
|
|
10
|
.5
|
|
Amended and Restated Agreement of Limited Partnership of Cole
Operating Partnership II, LP, dated September 16, 2005, by
and between Cole Credit Property Trust II, Inc. and the
limited partners thereto. (Incorporated by reference to
Exhibit 10.3 to the Company’s
Form 8-K
(File
No. 333-121094),
filed on September 23, 2005).
|
|
|
10
|
.6*
|
|
Third Amended and Restated Distribution Reinvestment Plan.
|
|
|
10
|
.7
|
|
First Amendment to Amended and Restated Advisory Agreement,
dated April 17, 2006, between Cole Credit Property
Trust II, Inc. and Cole REIT Advisors II, LLC.
(Incorporated by reference to Exhibit 10.1 to the
Company’s
Form 10-Q
(File
No. 000-51963),
filed on May 12, 2006).
|
|
|
10
|
.8
|
|
Form of Dealer Manager Agreement. (Incorporated by reference to
Exhibit 1.1 to the Company’s pre-effective amendment
to
Form S-11
(File
No. 333-138444),
filed on April 12, 2007).
|
|
|
10
|
.9
|
|
First Amendment to Amended and Restated Property Management and
Leasing Agreement, dated May 9, 2007, by and among Cole
Credit Property Trust II, Inc., Cole Operating Partnership
II, LP and Cole Realty Advisors, Inc. (Incorporated by reference
to Exhibit 10.10 to the Company’s pre-effective
amendment to
Form S-11
(File
No. 333-138444),
filed on May 10, 2007).
|
|
|
10
|
.10
|
|
First Amendment to Amended and Restated Agreement of Limited
Partnership of Cole Operating Partnership II, LP, dated
May 9, 2007, by and between Cole Credit Property
Trust II, Inc. and the limited partners thereto.
(Incorporated by reference to Exhibit 10.11 to the
Company’s pre-effective amendment to
Form S-11
(File
No. 333-138444),
filed on May 10, 2007).
|
|
|
10
|
.11
|
|
Second Amendment to Amended and Restated Property Management and
Leasing Agreement, dated June 1, 2008, by and among Cole
Credit Property Trust II, Inc., Cole Operating Partnership
II, LP and Cole Realty Advisors, Inc. (Incorporated by reference
to Exhibit 10.12 to the Company’s post-effective
amendment to
Form S-11
(File
No. 333-138444),
filed on July 29, 2008).
|
|
|
10
|
.12
|
|
Second Amended and Restated Distribution Reinvestment Plan
(Incorporated by reference to Exhibit 4.1 to the
Company’s
Form S-3
(File
No. 333-153578),
filed on September 18, 2008).
|
| |
|
|
|
|
|
Exhibit No.
|
|
Description
|
|
|
|
|
10
|
.13
|
|
Second Amendment to the Amended and Restated Advisory Agreement
by and between the Company and Cole Advisors II
(Incorporated by reference to Exhibit 10.1 to the
Company’s
Form 10-Q
(File
No. 000-51963),
filed on August 12, 2010).
|
|
|
10
|
.14*
|
|
Amended and Restated Credit Agreement dated as of
December 17, 2010 among Cole Operating Partnership II, LP,
as Borrower and Bank of America N.A. as Administrative Agent,
Swing Line Lender and L/C Issuer, JP Morgan Chase Bank, N.A. as
Syndication Agent, U.S. Bank National Association and RBS
Citizens, N.A., d/b/a Charter One, as Co-Documentation Agents,
and Merrill Lynch, Pierce, Fenner & Smith Incorporated
and J.P. Morgan Securities LLC, as Joint Lead Arrangers and
Joint Book Managers.
|
|
|
14
|
.1
|
|
Cole Credit Property Trust II, Inc. Code of Business
Conduct and Ethics. (Incorporated by reference to
Exhibit 14.1 to the Company’s
Form 10-K
(file
No. 000-51963),
filed on March 23, 2006).
|
|
|
21
|
.1
|
|
List of Subsidiaries. (Incorporated by reference to
Exhibit 21.1 to the Company’s POS AM (File
No. 333-121094),
filed on December 20, 2006).
|
|
|
23
|
.1*
|
|
Consent of Deloitte & Touche LLP, Independent
Registered Public Accounting Firm.
|
|
|
31
|
.1*
|
|
Certification of the Chief Executive Officer of the Company
pursuant to Securities Exchange Act
Rule 13a-14(a)
or 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
31
|
.2*
|
|
Certification of the Chief Financial Officer of the Company
pursuant to Securities Exchange Act
Rule 13a-14(a)
or 15d-14(a), as adopted pursuant to Section 302 of the
Sarbanes-Oxley Act of 2002.
|
|
|
32
|
.1**
|
|
Certification of the Chief Executive Officer and Chief Financial
Officer of the Company pursuant to 18 U.S.C.
Section 1350, as adopted pursuant to Section 906 of
the Sarbanes-Oxley Act of 2002.
|
|
|
|
|
* |
|
Filed herewith. |
| |
|
** |
|
In accordance with Item 601(b) (32) of
Regulation S-K,
this Exhibit is not deemed “filed” for purposes of
Section 18 of the Exchange Act or otherwise subject to the
liabilities of that section. Such certifications will not be
deemed incorporated by reference into any filing under the
Securities Act of 1933, as amended, or the Exchange Act, except
to the extent that the registrant specifically incorporates it
by reference. |