Exhibit 99.1
June 28, 2011
Re: Cole Credit Property Trust II, Inc.
Dear Financial Advisor:
We would like to share with you some highlights and recent developments in Cole Credit Property
Trust II, Inc. (CCPT II) from the first half of 2011. Overall, we are very pleased with how CCPT
II weathered the financial crisis and its continued strong performance. We are also seeing
positive indications that the commercial real estate markets are continuing to recover as we
actively explore options to successfully exit the portfolio within the next 12 months. In
particular, there appears to be a growing demand in the market for the type of assets that comprise
the CCPT II portfolio: high-quality properties net-leased on a long-term basis to industry-leading
tenants.
Five of our major tenants, which account for more than 19% of the portfolios revenues, have
received an upgrade in their credit rating or outlook. A credit upgrade to a tenant not only
underscores the quality of Coles investment process and underwriting capabilities, but also adds
value to the portfolio by lowering its overall credit risk. Historical trends suggest that an
increase in the credit rating of a propertys tenant usually equates to a higher market value of
the property. The five tenants that have been upgraded by either S&P or Moodys are:
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Churchs Chicken - In February 2011, Churchs Chicken received an investment-grade
credit rating of its bonds, of BBB, by S&P. Previously, Churchs Chicken had not been
rated. Churchs Chicken is a brand under the parent company of Cajun Global LLC. Churchs
Chicken is the second-largest tenant in CCPT II as of March 31, 2011, accounting for 5.5%
of the portfolios rental income. |
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Alimentation Couche-Tard (Circle K) - In April 2011, S&P upgraded its rating of
Alimentation Couche-Tard (Circle K) to an investment-grade credit rating of BBB- from
BB+. According to S&P, the upgraded rating reflects Alimentation Couche-Tards strong
earnings and debt reduction over the last year. Circle K is the fourth-largest tenant in
CCPT II, accounting for 4.8% of the portfolios rental income as of March 31, 2011. |
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CVS/Caremark - In May 2011, S&P affirmed CVS/Caremarks BBB+ rating and changed its
outlook to stable from negative. According to S&P, the change reflects expectations that
CVS/Caremarks overall operating results will remain stable due to strong retail
operations. CVS is the fifth-largest tenant in CCPT II, accounting for 3.8% of the
portfolios rental income as of March 31, 2011. |
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Home Depot - In May 2011, Moodys affirmed Home Depots Baa1 credit rating and
upgraded its outlook to positive from stable. According to Moodys, the upgrade reflects
Home Depots solid growth in earnings, as measured by EBIT, and commitment to maintaining
their leverage ratios. Home Depot is the sixth-largest tenant in CCPT II, accounting for
2.9% of the portfolios rental income as of March 31, 2011. |
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Pep Boys - In December 2010, Moodys upgraded The Pep Boys Manny, Moe & Jack Inc. to
B1 from B2, reporting that the auto service company enjoys more business from Americans
eager to make their cars run longer, and noting that the rating outlook remained stable.
Pep Boys is the 12th largest tenant in CCPT II, accounting for 2.3% of the
portfolios rental income as of March 31, 2011. |
Cole Real Estate Investments 2575 East Camelback Road, Suite 500 Phoenix, Arizona 85016
P: 602.778.8700 F: 602.778.8780 www.ColeCapital.com
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In addition to these tenant upgrades, in March 2011, CCPT II sold two Commercial Mortgage-Backed
Securities (CMBS) bonds for proceeds of $20.2 million, resulting in a $7.9 million gain. The bonds
were initially purchased in January of 2009. The CMBS investment, including interest payments and
bond sales proceeds, resulted in a total return on the original investment of 119%. Not only did
this transaction generate a strong cash return, which adds to the overall health of the portfolio,
but also illustrates the quality of Coles disciplined investment strategy.
Lastly, CCPT II was also able to make some additional high-quality acquisitions at attractive
prices in the first half of 2011. Specifically, these acquisitions include the purchase of a
freestanding Walgreens drugstore in Richmond Hills, Georgia, for approximately $5.6 million, and
the purchase of a freestanding CVS drugstore in New Cumberland, Pennsylvania, for approximately
$3.1 million.
As the commercial real estate markets continue to rebound, we believe the market cycle we are in
favors portfolios like CCPT II, which consist of high-quality, brand name tenants under long-term
leases. Additionally, the retail sector in particular is beginning to benefit from the labor
market recovery and the associated incremental improvement in consumer confidence. A low interest
rate environment continues to support real estate, and the orderly unwinding of the Federal
Reserves bond purchase program (Quantitative Easing 2/QE2) creates a favorable financing
environment for high-quality commercial real estate properties. Given all of these factors, we
believe we are moving into a healthy environment for a portfolio exit, and we are evaluating
options to take CCPT II full cycle within the next 12 months. Potential exit strategies we are
looking at include, but are not limited to, a sale of the portfolio or a listing of the portfolio
on a public stock exchange. Maximizing shareholder value is our highest priority, and we are
committed to selecting the option, or combination of options, that is in your clients best
interests.
Thank you for your clients investment in CCPT II and your partnership with Cole.
If you have any questions about CCPT II, please call your Cole sales representative at
866-341-2653.
Sincerely,
Marc T. Nemer
Chief Executive Officer
Certain statements in this letter may be considered forward-looking statements that reflect the
current views of CCPT IIs management with respect to future events. Forward-looking statements
about CCPT IIs plans, strategies, and prospects are based on current information, estimates, and
projections; they are subject to risks and uncertainties, as well as known and unknown risks, which
could cause actual results to differ materially from those projected or anticipated.
Forward-looking statements are not intended to be a guarantee of any event, action, result, outcome
or performance in future periods. CCPT II does not intend or assume any obligation to update any
forward-looking statements, and the reader is cautioned not to place undue reliance on them.
Cole Real Estate Investments 2575 East Camelback Road, Suite 500 Phoenix, Arizona 85016
P: 602.778.8700 F: 602.778.8780 www.ColeCapital.com