10-Q

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

For the quarterly period ended March 31, 2007

Or

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

For the transition period from _________ to _________

Commission file number 000-51963

COLE CREDIT PROPERTY TRUST II, INC.

(Exact name of registrant as specified in its charter)

Maryland	20-1676382
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)
2555 East Camelback Road, Suite400	(602)778-8700
Phoenix, Arizona 85016	(Registrant’s telephone number,
(Address of principal executive offices)	including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 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 x No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition

of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o Accelerated filer o Non-accelerated filer x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o No x

As of May 11, 2007, there were 51,600,767 shares of common stock, par value $0.01, of Cole Credit Property Trust II, Inc. outstanding.

COLE CREDIT PROPERTY TRUST II, INC.

INDEX

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006(Unaudited)	4
Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 (Unaudited)	5
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2007 (Unaudited)	6
Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2007 and 2006 (Unaudited)	7
Notes to Condensed Consolidated Financial Statements (Unaudited)	8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3. Quantitative and Qualitative Disclosures About Market Risk	24
Item 4. Controls and Procedures	24
PART II — OTHER INFORMATION
Item 1. Legal Proceedings	25
Item 1A. Risk Factors	25
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 3. Defaults Upon Senior Securities	25
Item 4. Submission of Matters to a Vote of Security Holders	25
Item 5. Other Information	25
Item 6. Exhibits	25
Signatures	26

2

PART I

FINANCIAL INFORMATION

The accompanying unaudited condensed consolidated interim financial statements as of and for the three months ended March 31, 2007 have been prepared by the Company pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the audited financial statements and related notes thereto, included in the Company’s annual report on Form 10-K for the year ended December 31, 2006. The financial statements herein should also be read in conjunction with the notes to the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this report. The results of operations for the three months ended March 31, 2007 are not necessarily indicative of the operating results expected for the full year. The information furnished in our accompanying condensed consolidated balance sheets and condensed consolidated statements of operations, stockholders’ equity, and cash flows reflects all adjustments that are, in our opinion, necessary for a fair presentation of the aforementioned financial statements.

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COLE CREDIT PROPERTY TRUST II, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

	March 31, 2007			December 31, 2006
ASSETS:
Real estate assets, at cost:
Land	$	166,930,667		$	109,506,269
Buildings and improvements, less accumulated depreciation of $7,519,166 and $4,547,932, at March 31, 2007 and December 31, 2006, respectively		479,536,419			282,468,749
Acquired intangible lease assets, less accumulated amortization of $3,622,906 and $2,251,172 at March 31, 2007 and December 31, 2006, respectively		82,117,662			54,569,023
Total real estate assets		728,584,748			446,544,041
Cash and cash equivalents		37,735,612			37,566,490
Restricted cash		14,722,513			5,839,733
Rents and tenant receivables, less allowance for doubtful accounts of $184,149 and $75,000 at March 31, 2007 and December 31, 2006, respectively		3,588,151			2,432,536
Prepaid expenses, mortgage loan deposits and other assets		7,852,788			4,248,973
Deferred financing costs, less accumulated amortization of $737,990 and $565,946 at March 31, 2007 and December 31, 2006, respectively		5,985,610			3,789,019
Total assets	$	798,469,422		$	500,420,792
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Mortgage notes payable	$	389,679,900		$	218,265,916
Accounts payable and accrued expenses		3,186,044			2,016,343
Escrowed investor proceeds		14,678,510			5,710,730
Acquired below market lease intangibles, less accumulated amortization of $194,383 and $96,484 at March 31, 2007 and December 31, 2006, respectively		5,287,698			2,649,374
Distributions payable		2,255,891			1,612,094
Deferred rent and other liabilities		1,745,486			408,582
Total liabilities		416,833,529			230,663,039
Redeemable Common Stock		6,285,696			3,521,256
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding at March 31, 2007 and December 31, 2006		—			—
Common stock, $.01 par value; 240,000,000 shares authorized, 43,405,817 and 30,691,204 shares issued and outstanding at March 31, 2007 and December 31, 2006, respectively		434,058			306,912
Capital in excess of par value		386,580,943			273,385,603
Accumulated distributions in excess of earnings		(11,664,804	)		(7,456,018	)
Total stockholders’ equity		375,350,197			266,236,497
Total liabilities and stockholders’ equity	$	798,469,422		$	500,420,792

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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COLE CREDIT PROPERTY TRUST II, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

	Three months ended March 31,
		2007			2006
Revenues:
Rental income	$	11,776,758		$	2,448,252
Tenant reimbursement income		820,593			123,534
Total revenue		12,597,351			2,571,786
Expenses:
General and administrative		314,069			210,573
Property operating expenses		1,029,571			140,165
Property and asset management fees		539,676			125,854
Depreciation		2,971,234			578,996
Amortization		1,300,031			253,499
Total operating expenses		6,154,581			1,309,087
Real estate operating income		6,442,770			1,262,699
Other income (expense):
Interest income		351,272			45,555
Interest expense		(5,109,315	)		(1,490,842	)
Total other expense		(4,758,043	)		(1,445,287	)
Net income (loss)	$	1,684,727		$	(182,588	)
Weighted average number of common shares outstanding:
Basic		36,777,369			4,367,120
Diluted		36,777,559			4,367,120
Net income (loss) per common share:
Basic and diluted	$	0.05		$	(0.04	)

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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COLE CREDIT PROPERTY TRUST II, INC.

CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

(Unaudited)

	Common Stock					Capital in Excess of Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
	Number of Shares		Par Value
Balance, December 31, 2006	30,691,204		$	306,912		$	273,385,603		$	(7,456,018	)	$	266,236,497
Issuance of common stock	12,726,300			127,263			127,017,665			—			127,144,928
Distributions	—			—			—			(5,893,513	)		(5,893,513	)
Commissions on stock sales and related dealer manager fees	—			—			(10,346,261	)		—			(10,346,261	)
Other offering costs	—			—			(614,496	)		—			(614,496	)
Common stock repurchased	(11,687	)		(117	)		(110,993	)		—			(111,110	)
Stock compensation expense	—			—			13,865			—			13,865
Redeemable common stock	—			—			(2,764,440	)		—			(2,764,440	)
Net income	—			—			—			1,684,727			1,684,727
Balance, March 31, 2007	43,405,817		$	434,058		$	386,580,943		$	(11,664,804	)	$	375,350,197

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited).

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COLE CREDIT PROPERTY TRUST II, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

	Three months ended March 31,
		2007			2006
Cash flows from operating activities:
Net income (loss)	$	1,684,727		$	(182,588	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation		2,971,234			578,996
Amortization		1,566,265			333,519
Stock compensation expense		13,865			15,110
Changes in assets and liabilities:
Rents and tenant receivables		(1,155,615	)		(305,074	)
Prepaid expenses and other assets		(79,135	)		(137,238	)
Accounts payable and accrued expenses		1,169,701			179,548
Deferred rent and other liabilities		1,336,904			219,243
Net cash provided by operating activities		7,507,946			701,516
Cash flows from investing activities:
Investment in real estate and related assets		(257,463,302	)		(60,462,032	)
Acquired intangible lease assets		(28,920,373	)		(10,559,125	)
Acquired below market lease intangibles		2,736,223			676,994
Restricted cash		(8,882,780	)		(2,182,182	)
Net cash used in investing activities		(292,530,232	)		(72,526,345	)
Cash flows from financing activities:
Proceeds from issuance of common stock		124,380,488			34,423,959
Redemptions of common stock		(111,110	)		—
Proceeds from mortgage and affiliate notes payable		201,612,050			47,385,400
Repayment of mortgage and affiliate notes payable		(30,198,066	)		(7,344,413	)
Refund of loan deposits		2,382,520			—
Payment of loan deposits		(5,907,200	)		—
Escrowed investor proceeds liability		8,967,780			2,182,182
Offering costs on issuance of common stock		(10,960,757	)		(3,409,085	)
Distributions to investors		(2,485,276	)		(195,209	)
Deferred financing costs paid		(2,489,021	)		(698,766	)
Net cash provided by financing activities		285,191,408			72,344,068
Net increase in cash and cash equivalents		169,122			519,239
Cash and cash equivalents, beginning of period		37,566,490			4,575,144
Cash and cash equivalents, end of period	$	37,735,612		$	5,094,383
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Dividends declared and unpaid	$	2,255,891		$	621,070
Mortgage notes assumed in real estate acquisitions	$	—		$	7,234,787
Common stock issued through distribution reinvestment plan	$	2,764,440		$	—
Escrow deposits due to affiliate	$	—		$	50,000
Other offering costs due to affiliate	$	—		$	17,170
Supplemental Cash Flow Disclosures:
Interest paid	$	4,271,791		$	1,500,595

The accompanying notes are an integral part of these condensed consolidated financial statements (unaudited)

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COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

Note 1 — Organization

Cole Credit Property Trust II, Inc. (the “Company”) was formed on September 29, 2004 and is a Maryland corporation that is organized and operating as a real estate investment trust (“REIT”) for federal income tax purposes. Substantially all of the Company’s business is conducted through Cole Operating Partnership II, LP (“Cole OP II”), a Delaware limited partnership. The Company is the sole general partner of and owns an approximately 99.99% partnership interest in Cole OP II. Cole REIT Advisors II, LLC (“Cole Advisors II”), the affiliate advisor to the Company, is the sole limited partner and owner of an approximately 0.01% (minority interest) of the partnership interests of Cole OP II.

At March 31, 2007, the Company owned 115 properties comprising approximately 5.5 million square feet of single and multi-tenant commercial space located in 32 states and the U.S. Virgin Islands. At March 31, 2007, approximately 100% of the rentable square feet of these properties were leased.

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 (the “SEC”) under the Securities Act of 1933, as amended (the “Initial Offering”). The Registration Statement also covered up to 5,000,000 shares available pursuant to a distribution reinvestment plan (the “DRIP”) under which our stockholders may elect to have their distributions reinvested in additional shares of the Company’s common stock at the greater of $9.50 per share or 95% of the estimated value of a share of common stock. On November 13, 2006, the Company increased the aggregate amount of the public offering to 49,390,000 shares for the primary offering and 5,952,000 shares pursuant to the distribution reinvestment plan, in a related registration statement on Form S-11. Subsequently, the Company reallocated the shares of common stock such that a maximum of 54,140,000 shares of common stock was available under the primary offering, for an aggregate offering price of $541,400,000, and a maximum of 1,202,000 shares was available under the distribution reinvestment plan, for an aggregate offering price of $11,419,000.

The Company filed a registration statement with the SEC with respect to a proposed secondary public offering of up to 150,000,000 shares of common stock (the “Follow-on Offering”). The Follow-on Offering includes up to 125,000,000 shares to be offered for sale at $10.00 per share in the primary offering and up to 25,000,000 shares to be offered for sale pursuant to the Company’s DRIP. The registration was declared effective by the SEC as of May 11, 2007. To date, no shares have been sold in the Follow-on Offering.

The Company commenced its principal operations on September 23, 2005, when it issued the initial 486,000 shares of our common stock in the Initial Offering. Prior to such date, the Company was considered a development stage company. As of March 31, 2007, the Company had accepted subscriptions for 43,405,817 shares of its common stock, including 20,000 shares owned by Cole Holdings Corporation (“Cole Holdings”), for aggregate gross proceeds of approximately $433.7 million before offering costs and selling commissions of approximately $40.3 million. As of March 31, 2007, the Company was authorized to issue 10,000,000 shares of preferred stock, but had none issued or outstanding. As of May 11, 2007, the Company had raised approximately $515.3 million in offering proceeds through the issuance of 51,600,767 shares of its common stock. As of May 11, 2007, approximately $37.4 million in shares (3,741,233 shares) remained available for sale to the public under the Initial Offering, exclusive of shares available under the DRIP.

The Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its stock for trading on a national securities exchange only if a majority of its independent directors believe listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its common stock until its shares are listed for trading. In the event it does not obtain listing prior to the tenth anniversary of the completion or termination of the Initial Offering, its charter requires that it either: (1) seek stockholder approval of an extension or amendment of this listing deadline; or (2) seek stockholder approval to adopt a plan of liquidation of the corporation.

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COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

The condensed consolidated financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including the instructions to Form 10-Q and Article 10 of Regulation S-X, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements. In the opinion of management, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2006, and related notes thereto.

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.

Restricted Cash and Escrowed Investor Proceeds

The Company is currently engaged in a public offering of its common stock. Included in restricted cash and escrowed investor proceeds is approximately $14.7 million of offering proceeds for which shares of common stock had not been issued as of March 31, 2007.

Redeemable Common Stock

The Company’s share redemption program provides that all redemptions during any calendar year, including those upon death or qualifying disability, are limited to those that can be funded with proceeds from the Company’s DRIP. In accordance with Accounting Series Release No. 268, “Presentation in Financial Statements of Redeemable Preferred Stock,” the Company accounts for proceeds received from its DRIP as redeemable common stock, outside of permanent equity. As of March 31, 2007 and December 31, 2006, the Company had issued approximately 662,000 and 371,000 shares of common stock under the DRIP, respectively, for proceeds of approximately $6.3 million and $3.5 million under its DRIP, respectively, which have been recorded as redeemable common stock in the respective condensed consolidated balance sheets. As of March 31, 2007 the Company had redeemed approximately 12,000 shares of common stock for a cost of approximately $111,000. As of December 31, 2006, no shares of common stock had been redeemed by the Company.

Reportable Segments

The Financial Accounting Standards Board (“FASB”) issued SFAS No. 131, “Disclosures about Segments of an Enterprise and Related Information,” which establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company determined that it has one reportable segment, with activities related to investing in real estate. The Company’s investments in real estate generate rental revenue and other income through the leasing of properties, which comprised 100% of our total consolidated revenues for the three-month period ended March 31, 2007 and 2006. Although the Company’s investments in real estate are geographically diversified throughout the United States, management evaluates operating performance on an individual property level. The Company’s properties have been aggregated into one reportable segment.

Investment in Real Estate Assets

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. When indicators of potential impairment are present that indicate that the carrying amounts of real estate and related intangible assets may not be recoverable, 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 the fair value and recognize an impairment loss. As of March 31, 2007 the undiscounted future

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COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

operating cash flows of any property with potential impairment indicators exceeded its carrying value and no impairment losses had been recorded.

Note 3 — Real Estate Acquisitions

During the three months ended March 31, 2007, the Company acquired the following properties:

Property	Acquisition Date	Location	Square Feet	Purchase Price
HOM furniture retail	January 4, 2007	Fargo, ND	122,108	$ 12,000,000
La-Z-Boy furnishings store	January 5, 2007	Newington, CT	20,701	6,900,000
Advance Auto specialty retail	January 12, 2007	Maryland Heights, MO	7,000	1,893,000
Victoria Crossing shopping center	January 12, 2007	Victoria, TX	87,473	12,335,753
Academy Sports headquarters	January 18, 2007	Katy, TX	1,500,596	102,000,000
Gordmans department store	January 18, 2007	Peoria, IL	60,947	9,000,000
One Pacific Place shopping center	February 6, 2007	Omaha, NE	91,564	36,000,000
Sack n' Save grocery O'Reilly Auto specialty retail	February 6, 2007	Dallas, TX	65,295	5,060,000
Tractor Supply specialty retail	February 9, 2007	Ankeny, IA	19,097	3,000,000
ABX Air distribution	February 16, 2007	Coventry, RI	33,000	4,090,000
Office Depot office supply	February 27, 2007	Enterprise, AL	20,000	2,776,357
Northern Tool specialty retail	February 28, 2007	Blaine, MN	25,488	4,900,000
Office Max office supply	February 28, 2007	Orangeburg, SC	23,500	3,125,000
Walgreens drugstore	March 6, 2007	Cincinnati, OH	15,120	5,140,000
Walgreens drugstore	March 6, 2007	Madeira, OH	13,905	4,425,000
Walgreens drugstore	March 6, 2007	Sharonville, OH	13,905	4,085,000
AT&T telecommunications	March 19, 2007	Beaumont, TX	141,525	12,275,000
Walgreens drugstore	March 23, 2007	Shreveport, LA	13,905	4,140,000
Cost-u-Less warehouse retail	March 26, 2007	St. Croix, USVI	38,365	6,210,000
Gallina Centro shopping center	March 26, 2007	Collierville, TN	142,727	17,750,000
Apria Healthcare healthcare	March 28, 2006	St. John, MO	52,200	6,500,000
Logan's Roadhouse restaurant	March 28, 2007	Fairvax, VA	7,839	3,209,000
Logan's Roadhouse restaurant	March 28, 2007	Johnson City, TN	7,839	3,866,000
Center at 7500 Cottonwood shopping center	March 30, 2007	Jenison, MI	84,933	5,290,000
Total			2,609,032	$ 275,970,110

The Company allocated the purchase price of these properties, including aggregate acquisition costs of approximately $7,677,000 to the fair value of the assets acquired and liabilities assumed. The Company allocated approximately $57,424,000 to land, approximately $200,039,000 to building and improvements, approximately $28,920,000 to acquired in-place leases, and approximately ($2,736,000) to acquired below-market leases during the three months ended March 31, 2007.

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COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

Note 4 — Notes Payable

As of March 31, 2007, the Company had total mortgage notes payable of approximately $389.7 million. During the three months ended March 31, 2007, the Company incurred, or assumed, the following mortgage notes payable in connection with the real estate acquisitions described in Note 3 above:

Property	Location	Fixed Rate Loan Amount		Fixed Interest Rate	Maturity Date	Variable Rate Loan Amount (1)			Maturity Date	Total Loan
HOM furniture retail	Fargo, ND	$	4,800,000	5.56%	February 1, 2017	$	—		N/A	$	4,800,000
La-Z-Boy furnishings store	Newington, CT		4,140,000	5.66%	February 1, 2012		—		N/A		4,140,000
Victoria Crossing shopping center	Victoria, TX		8,288,000	5.71%	February 11, 2017		1,912,000	(1)	April 12, 2007		10,200,000
Academy Sports Headquarters	Katy, TX		68,250,000	5.61%	February 1, 2017		—		N/A		68,250,00
Gordmans department store	Peoria, IL		4,950,000	5.71%	February 1, 2017		—		N/A		4,950,000
One Pacific Place shopping center	Omaha, NE		23,400,000	5.53%	March 1, 2017		—		N/A		23,400,000
Sack n’ Save grocery O’Reilly Auto auto parts	Dallas, TX		3,290,000	5.54%	March 1, 2017		—		N/A		3,290,000
ABX Air distribution	Coventry, RI		2,454,000	5.70%	April 1, 2012		—		N/A		2,454,000
Office Depot office supply	Enterprise, AL		1,850,000	6.29%	March 1, 2017		—		N/A		1,850,000
Northern Tool specialty retail	Blaine, MN		3,185,000	6.00%	September 1, 2016		—		N/A		3,185,000
Office Max office supply	Orangeburg, SC		1,875,00	5.61%	April 1, 2012		—		N/A		1,875,000
Walgreens drugstore	Cincinnati, OH		3,341,000	6.00%	September 1, 2016		—		N/A		3,341,000
Walgreens drugstore	Madeira, OH		2,876,000	5.70%	April 1, 2012		—		N/A		2,876,000
Walgreens drugstore	Sharonville, OH		2,655,000	5.62%	April 1, 2012		—		N/A		2,655,000
AT&T telecommunications	Beaumont, TX		8,592,000	5.87%	April 1, 2017		—		N/A		8,592,000
Walgreens drugstore	Shreveport, LA		2,815,000	5.56%	April 11, 2017		497,000	(1)	June 23, 2007		3,312,000
Cost-U-Less warehouse retail	St. Croix, USVI		4,035,000	5.76%	April 1, 2017		—		N/A		4,035,000
Gallina Centro shopping center	Collierville, TN		14,200,000	5.72%	February 11, 2017		—		N/A		14,200,000
Logan’s Roadhouse restaurant	Fairfax, VA		1,605,000	6.00%	April 11, 2017		962,000	(1)	June 27, 2007		2,567,000
Logan’s Roadhouse restaurant	Johnson City, TN		1,933,000	6.00%	April 11, 2017		1,160,000	(1)	June 27, 2007		3,093,000
Total indebtedness		$	168,534,000			$	4,531,000			$	173,065,000

(1) The variable rate mortgage notes bear interest at the one-month LIBOR rate plus 200 basis points with interest only paid monthly.

During the three months ended March 31, 2007, the Company borrowed and subsequently repaid an aggregate of approximately $22.2 million on two revolving mortgage notes payable to partially fund certain of the real estate acquisitions described in Note 3. The revolving notes payable bear interest at a variable rate equal to the one-month LIBOR plus 2%.

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COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

On March 2, 2007, the Company repaid a fixed rate mortgage loan of approximately $5.2 million that was due on October 1, 2016. As a result, approximately $113,000 of unamortized deferred financing costs was expensed and included in interest expense in the condensed consolidated financial statements for the three months ended March 31, 2007.

Note 5 – Extended Rate Lock Agreement

During the period from January 1, 2007 through March 31, 2007, the Company entered into Rate Lock Agreements with Bear Stearns Commercial Mortgage (“Bear Stearns”) to lock interest rates ranging from 5.49% to 5.80% for up to approximately $265.3 million in borrowings. Under the terms of Rate Lock Agreements, the Company made rate lock deposits totaling approximately $5.9 million to Bear Stearns. As of March 31, 2007, the Company had available total borrowings of approximately $343.8 million under the Rate Locks and approximately $7.5 million in rate lock deposits outstanding.

The deposits are refundable to the Company in amounts generally equal to 2% of any loans funded under the agreements. The Rate Locks expire 60 days from execution and may be extended by 30 days for a rate lock fee of 0.25% of the loan amount or, at the borrower’s election, by converting the fee into interest rate spread.

Note 6 — Commitments and Contingencies

Litigation

In the ordinary course of business, the Company may become subject to litigation or claims. There are no material legal proceedings pending or known to be contemplated against us.

Environmental Matters

In connection with the ownership and operation of real estate, the Company may potentially be liable for costs and damages related to environmental matters. The Company has not been notified by any governmental authority of any non-compliance, liability or other claim, and the Company is not aware of any other environmental condition that it believes will have a material adverse effect on the consolidated results of operations.

Note 7 — Related-Party Transactions and Arrangements

Certain affiliates of the Company receive, and will continue to receive fees and compensation in connection with the sale of the Company’s common stock, and the acquisition, management and sale of the assets of the Company. Cole Capital Corporation (“Cole Capital”), the affiliated dealer manager, receives, and will continue to receive a selling commission of up to 7% of gross offering proceeds before reallowance of commissions earned by participating broker-dealers. Cole Capital reallows, and intends to continue to reallow 100% of commissions earned to participating broker-dealers. In addition, Cole Capital will receive up to 1.5% of the gross proceeds from the Initial Offering and up to 2.0% of gross offering proceeds from the Follow-on Offering, before reallowance to participating broker-dealers, as a dealer-manager fee. Cole Capital, in its sole discretion, may reallow all or a portion of its dealer-manager fee to such participating broker-dealers as a marketing and due diligence expense reimbursement, based on such factors as the volume of shares sold by such participating broker-dealers and marketing support incurred as compared to those of other participating broker-dealers. No selling commissions or dealer-manager fees are paid to Cole Capital in respect of shares sold under the DRIP. During the three months ended March 31, 2007 and 2006, the Company paid approximately $10.3 million and $2.9 million, respectively, to Cole Capital for commissions and dealer manager fees, of which approximately $9.2 million and $2.4 million, respectively, was reallowed to participating broker-dealers.

All organization and offering expenses associated with the sale of the Company’s common stock (excluding selling commissions and the dealer-manager fee) are paid for by Cole Advisors II or its affiliates and are reimbursed by the Company up to 1.5% of gross offering proceeds. Cole Advisors II or its affiliates also receive acquisition and advisory fees of up to 2% of the contract purchase price of each asset for the acquisition, development or construction of real property and will be reimbursed for acquisition costs incurred in the process of acquiring properties, but not to exceed 2.0% of the contract purchase price. The Company expects the acquisition expenses to be approximately 0.5% of the purchase price of each property. During the three months ended March 31, 2007 and 2006, the Company reimbursed Cole Advisors II approximately $500,000 and approximately $516,000, respectively, for organizational and offering expenses. At March 31, 2007,

14

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

approximately $2,000 of such costs had been incurred by Cole Advisors II but had not been reimbursed by the Company. During the three months ended March 31, 2007 and 2006, the Company paid an affiliate of Cole Advisors II approximately $5.5 million and approximately $1.2 million for acquisition fees, respectively.

If Cole Advisors II provides substantial services, as determined by the Company’s independent directors, in connection with the origination or refinancing of any debt financing obtained by the Company that is used to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay Cole Advisors II a financing coordination fee equal to 1% of the amount available under such financing; provided, however, that Cole Advisors II 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 received such a fee. Financing coordination fees payable from loan proceeds from permanent financing will be paid to Cole Advisors II as the Company acquires such permanent financing. However, no fees will be paid on loan proceeds from any line of credit until such time as all net offering proceeds have been invested by the Company. During the three months ended March 31, 2007 and 2006, the Company paid Cole Advisors II approximately $1.7 million and approximately $423,000 for finance coordination fees, respectively.

The Company pays, and expects to continue to pay, Cole Realty Advisors, Inc., (“Cole Realty”), its affiliated property manager, fees for the management and leasing of the Company’s properties. Such fees currently equal, and are expected to continue to equal 2% of gross revenues, 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 may subcontract its duties for a fee that may be less than the fee provided for in the property management agreement. During the three months ended March 31, 2007 and 2006, the Company paid Cole Realty approximately $213,000 and approximately $45,000 for property management fees, respectively.

The Company pays Cole Advisors II an annualized asset management fee of 0.25% of the aggregate asset value of the Company’s assets. The fee is payable monthly in an amount equal to 0.02083% of aggregate asset value as of the last day of the immediately preceding month. During the three months ended March 31, 2007 and 2006, the Company paid Cole Advisors II approximately $327,000 and approximately $81,000 for asset management fees, respectively.

If Cole Advisors II or its affiliates provides a substantial amount of services, as determined by the Company’s independent directors, in connection with the sale of one or more properties, the Company will pay Cole Advisors II up to one-half of the brokerage commission paid, but in no event to exceed an amount equal to 2% of the sales price of each property sold. In no event will the combined real estate commission paid to Cole Advisors II, its affiliates and unaffiliated third parties exceed 6% of the contract sales price. In addition, after investors have received a return of their net capital contributions and an 8% annual cumulative, non-compounded return, then Cole Advisors II is entitled to receive 10% of remaining net sale proceeds. During the three months ended March 31, 2007 and 2006, the Company did not pay any fees or amounts to Cole Advisors II relating to the sale of properties.

In the event the Company’s common stock is listed in the future on a national securities exchange, a subordinated incentive listing fee equal to 10% of the amount by which the market value of the Company’s outstanding stock plus all distributions paid by the Company prior to listing, exceeds the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate an 8% annual cumulative, non-compounded return to investors will be paid to Cole Advisors II.

In the event that the advisory agreement with Cole Advisors II is terminated, other than termination by the Company because of a material breach of the advisory agreement by Cole Advisors II, a subordinated performance fee of 10% of the amount, if any, by which (i) the appraised asset value of the Company at the time of such termination plus total distributions paid to stockholders through the termination date exceeds (ii) the aggregate capital contribution contributed by investors less distributions from sale proceeds plus payment to investors of an 8% annual, cumulative, non-compounded return on capital. No subordinated performance fee will be paid if the Company has already paid or become obligated to pay Cole Advisors II a subordinated incentive listing fee.

The Company may 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 does not reimburse 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

15

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

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 based on unusual and non-recurring factors a higher level of expense is justified for that year. The Company will not reimburse for personnel costs in connection with services for which Cole Advisors II receives acquisition fees or real estate commissions. During the three months ended March 31, 2007 and 2006, the Company did not reimburse the Advisor for any such costs.

At March 31, 2007 and December 31, 2006, the Company had approximately $38,000 and approximately $68,000, respectively, due to affiliates, which is included in Deferred Rent and Other Liabilities in the condensed consolidated balance sheets and is payable to Cole Advisors II. At March 31, 2007 and 2006, amounts due to affiliates consisted of amounts payable to Cole Advisors II for reimbursement of legal fees, and amounts payable to Cole Capital for commissions and dealer manager fees payable on stock issuances.

Note 8 — Economic Dependency

Under various agreements, the Company has engaged or will engage Cole Advisors II and its affiliates to provide certain services that are essential to the Company, including asset management services, supervision of the management and leasing of properties owned by the Company, asset acquisition and disposition decisions, the sale of shares of the Company’s common stock available for issue, as well as other administrative responsibilities for the Company including accounting services and investor relations.

As a result of these relationships, the Company is dependent upon Cole Advisors II and its affiliates. In the event that these companies were unable to provide the Company with the respective services, the Company would be required to find alternative providers of these services.

Note 9 — New Accounting Pronouncements

In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of SFASNo.109 (“FIN 48”). FIN 48 clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure and transition. FIN 48 became effective for the Company on January 1, 2007 and its adoption did not have a material impact on its consolidated financial statements.

Note 10 — 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 absolute discretion of the board of directors and the applicable limitations of the plan. The Company intends to grant options under the IDSOP to each qualifying director annually. The exercise price for the options granted under the IDSOP initially will be $9.15 per share. It is intended that the exercise price for future options granted under the IDSOP will be at least 100% of the fair market value of the Company’s common stock as of the date the option is granted. As of March 31, 2007 and December 31, 2006, the Company had granted options to purchase 20,000 shares at $9.15 per share, each with a one year vesting period. A total of 1,000,000 shares have been authorized and reserved for issuance under the IDSOP. On January 1, 2006, we adopted SFAS 123R which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors, including stock options related to the IDSOP, based on estimated fair values. The Company adopted FAS 123R using the modified prospective application. Accordingly, prior period amounts were not restated.

During the three months ended March 31, 2007 and 2006, the Company recorded stock-based compensation charges of approximately $14,000 and approximately $15,000, respectively. Stock-based compensation expense is based on awards ultimately expected to vest, and has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. The Company’s calculations do not assume any forfeitures.

16

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

During the three months ended March 31, 2007 and 2006, no options were granted, forfeited, became vested, or were exercised. As of March 31, 2007, options to purchase 20,000 shares at $9.15 per share remained outstanding and options to purchase 10,000 shares options were unvested with a weighted average contractual remaining life of approximately nine years. As of March 31, 2007, there was approximately $8,000 of total unrecognized compensation cost related to unvested share-based compensation awards granted under the IDSOP. That cost is expected to be recognized through the quarter ended June 30, 2007.

Note 11 — Subsequent Events

Sale of Shares of Common Stock

As of May 11, 2007, the Company had raised approximately $515.3 million of gross proceeds through the issuance of approximately 51.6 million shares of its common stock under the Initial Offering (including shares sold under the DRIP). As of May 11, 2007, approximately $37.4 million (3.7 million shares) remained available for sale to the public under the Initial Offering, exclusive of shares available under the DRIP. As of May 11, 2007, no shares had been sold in the Follow-on Offering and all 150,000,000 shares remained available for sale under the Follow-on Offering.

Real Estate Acquisitions

The Company acquired the following properties subsequent to March 31, 2007:

Property	Location	Acquisition Date	Square Feet	Purchase Price
Tractor Supply specialty retail	Greenfield, MN	April 2, 2007	22,512	$ 4,050,000
Eckerd drugstore	Lincolnton, NC	April 3, 2007	10,908	2,262,000
Lincoln Place shopping center	Fairview Heights, IL	April 5, 2007	185,416	44,000,000
Ashley Furniture home furnishings	Amarillo, TX	April 6, 2007	74,797	5,920,000
Pocatello Square shopping center	Pocatello, ID	April 6, 2007	125,554	23,000,000
Tractor Supply specialty retail	Paw Paw, MI	April 9, 2007	22,670	3,095,000
Tractor Supply specialty retail	Marinette, WI	April 9, 2007	19,097	2,950,000
Staples office supply	Greenville, SC	April 11, 2007	20,388	4,545,000
Big 5 Center retail center	Aurora, CO	April 11, 2007	13,500	4,290,000
Rite Aid drug store	Plains, PA	April 16, 2007	14,564	5,200,000
Tractor Supply specialty retail	Navasota, TX	April 18, 2007	22,670	3,015,000
Sportsman's Warehouse sporting goods	DePere, WI	April 20, 2007	48,453	6,010,000
Eckerd drugstore	Easton, PA	April 24, 2007	13,813	5,970,000
Applebee's Portfolio	Various	April 28, 2007	120,246	65,000,000
Walgreens drugstore	Bridgetown, OH	April 30, 2007	13,905	4,475,000
Rite Aid drug store	Fredericksburg, VA	May 2, 2007	14,564	5,415,000
Sam’s Club	Anderson, SC	May 8, 2007	134,664	12,000,000
Tractor Supply	Fredericksburg, TX	May 7, 2007	22,670	3,125,000
Walgreens	Dallas, TX	May 9, 2007	13,905	3,150,000
Wal-Mart	New London, WI	May 9, 2007	51,985	2,614,000
Wal-Mart	Spencer, IN	May 14, 2007	41,304	2,025,682
Rite Aid	Lima, OH	May 14, 2007	14,564	4,745,962
Rite Aid	Allentown, PA	May 15, 2007	14,564	5,561,112
Total			1,036,713	$ 222,418,756

17

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

Mortgage Notes Payable

Subsequent to March 31, 2007, the Company incurred or assumed the following mortgage notes payable in connection with the real estate acquisitions described above:

Property	Location	Fixed Rate Loan Amount			Fixed Interest Rate	Maturity Date	Variable Rate Loan Amount (1)		Maturity Date	Total Loan
Tractor Supply specialty retail	Greenfield, MN	$	2,227,500		5.57%	July 1, 2017	$	—	N/A	$	2,227,500
Eckerd drugstore	Lincolnton, NC		1,538,000		5.80%	April 11, 2017		271,000	July 3, 2007		1,809,000
Lincoln Place shopping center	Fairview Heights, IL		35,432,000		5.70%	May 1, 2017		—	N/A		35,432,000
Ashley Furniture	Amarillo, TX		4,026,000		5.59%	April 11, 2017		710,000	July 5, 2007		4,736,000
Pocatello Square	Pocatello, ID		17,250,000		5.53%	April 11, 2017		1,150,000	August 6, 2007		18,400,000
Tractor Supply specialty retail	Paw Paw, MI		2,048,000		5.65%	May 1, 2017		—	N/A		2,048,000
Tractor Supply specialty retail	Marinette, WI		1,918,000		5.65%	May 1, 2017		—	N/A		1,918,000
Tractor Supply specialty retail	Ankeny, IA		1,950,500		5.65%	May 1, 2017		—	N/A		1,950,500
Staples office supply	Greenville, SC		2,955,000		5.51%	June 1, 2017		—	N/A		2,955,000
Big 5 Center retail center	Aurora, CO		2,804,000		5.57%	May 1, 2017		—	N/A		2,804,000
Rite Aid drug store	Plains, PA		3,380,000		5.60%	June 1, 2017		—	N/A		3,380,000
Tractor Supply specialty retail	Navasota, TX		2,050,000		5.80%	May 11, 2017		362,000	July 18, 2007		2,412,000
Sportsman's Warehouse sporting goods	DePere, WI		3,906,500		5.52%	May 1, 2017		—	N/A		3,906,500
Eckerd drugstore	Easton, PA		4,060,000		5.80%	April 11, 2017		716,000	July 4, 2007		4,776,000
Walgreens drugstore	Bridgetown, OH		3,043,000		5.80%	May 11, 2017		537,000	August 27, 2007		3,580,000
Applebee's Portfolio	Various		42,250,000	(1)	5.68%	May 11, 2017		—	N/A		42,250,000
Rite Aid drug store	Fredericksburg, VA		2,979,000		5.92%	May 11, 2017		1,353,000	August 2, 2007		4,332,000
Sam’s Club warehouse club	Anderson, SC		8,160,000		5.80%	May 11, 2017		1,440,000	August 4, 2007		9,600,000
Tractor Supply specialty retail	Fredericksburg, TX		2,031,250		5.57%	June 1, 2017		—	N/A		2,031,250
Walgreens drugstore	Dallas, TX		2,175,000		5.76%	June 1, 2017		—	N/A		2,175,000
Wal-Mart discount retailer	New London, WI		1,778,000		5.80%	May 11, 2017		313,000	August 9, 2007		2,091,000
Wal-Mart discount retailer	Spencer, IN		1,377,000		5.80%	May 11, 2017		243,000	August 3, 2007		1,620,000
Rite Aid drugstore	Lima, OH		3,103,000		5.46%	June 1, 2017		—	N/A		3,103,000
Rite Aid drugstore	Allentown, PA		3,615,000		5.78%	June 1, 2017		—	N/A		3,615,000
Total indebtedness		$	156,056,750				$	7,095,000		$	163,151,750

(1) The Applebee’s Portfolio consists of 3 separate master loan agreements.

18

COLE CREDIT PROPERTY TRUST II, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

March 31, 2007

(Unaudited)

In addition, subsequent to March 31, 2007, the Company repaid an aggregate of approximately $1.9 million of variable rate short-term debt related to one loan.

Extended Rate Lock Agreement

During the period from April 1, 2007 through May 11, 2007, the Company entered into a Rate Lock Agreement with Bear Stearns to lock an interest rate of 5.69% for up to $75 million in borrowings. Under the terms of the Rate Lock Agreement, the Company made a rate lock deposit totaling $1.5 million to Bear Stearns. As of May 11, 2007, the Company had available total borrowings of approximately $353.1 million under the Rate Locks and approximately $7.7 million in rate lock deposits outstanding.

The deposit is refundable to the Company in an amount generally equal to 2% of any loans funded under the agreement. The Rate Lock expires 60 days from execution and may be extended by 30 days for a rate lock fee of 0.25% of the loan amount or, at the borrower’s election, by converting the fee into interest rate spread.

19

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our unaudited condensed consolidated financial statements, the condensed notes thereto, and the other unaudited financial data included elsewhere in this Form 10-Q. The following discussion should also be read in conjunction with our audited consolidated financial statements, and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2006. The terms “we,” “us,” “our” and the “Company” refer to Cole Credit Property Trust II, Inc.

Forward-Looking Statements

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

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. Investors are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause actual results to differ materially from any forward-looking statements made in this Quarterly Report on Form 10-Q include changes in general economic conditions, changes in real estate conditions, construction costs that may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, and the potential need to fund tenant improvements or other capital expenditures out of operating cash flows. The forward-looking statements should be read in light of the risk factors identified in the “Risk Factors” section of our Annual Report on Form 10-K for the year ended December 31, 2006 and the “Risk Factors” section of the registration statement relating to the Follow-on Offering, each as filed with the Securities and Exchange Commission.

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

Overview

We commenced our principal operations on September 23, 2005, when we issued the initial 486,000 shares of common stock in the Initial Offering. Prior to such date, we were considered a development stage company.

We derive a substantial portion of our revenue from our rental income. As a result, our operating results and cash flows are primarily influenced by rental income from our commercial properties and interest expense on our property acquisition indebtedness. Rental income accounted for approximately 93% and 95% of total revenue during the three months ended March 31, 2007 and 2006, respectively. As approximately 100% of the rentable square feet at our properties is under lease, with an average remaining lease term of approximately 11.8 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated. As of March 31, 2007, the debt leverage ratio of our portfolio, which is the ratio of mortgage notes payable to total real estate assets, was approximately 53%, with approximately 1% of the debt, or $4.5 million, subject to variable interest rates. We intend to manage our interest rate risk by repaying approximately $4.5 million, of which approximately $1.9 million has been paid as of May 11, 2007, or 100%, of our short-term variable rate debt as it matures during the three-month period ending June 30, 2007. We expect to fund the repayments with proceeds from the sale of our common stock. Additionally, as we continue to raise capital from the sale of our common stock and invest the proceeds in commercial real estate, we will be subject to changes in real estate prices and changes in interest rates on new indebtedness used to acquire the properties. We may manage our risk of changes in real estate prices on future property

20

acquisitions by entering into purchase agreements and loan commitments simultaneously such that our operating yield is determinable, by contracting with developers for future delivery of properties, or by entering into sale-leaseback transactions. We expect to manage our interest rate risk by monitoring the interest rate environment in connection with our planned property acquisitions to determine the appropriate acquisition financing, which may include fixed rate loans, variable rate loans or interest rate hedges. If we are unable to acquire suitable properties or obtain suitable financing for future acquisitions, our results of operations may be adversely affected.

Our management is not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally (such as lower capitalization rates and increasing interest rates which lead to higher interest expense), that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition and operation of real properties and mortgage loans, other than those referred to in our annual report on Form 10-K for the year ended December 31, 2006.

As of March 31, 2007, we owned 92 single-tenant, freestanding retail properties, 15 single-tenant freestanding commercial properties, and eight multi-tenant retail properties, all of which were approximately 100% leased. During the three months ended March 31, 2007, we acquired 18 single-tenant, freestanding retail properties, two single-tenant, freestanding commercial properties and four multi-tenant retail properties (see Notes 3 and 4 to the condensed consolidated financial statements accompanying this Quarterly Report on Form 10-Q). Our results of operations are not indicative of those expected in future periods as we expect that rental income, operating expenses, asset management fees, depreciation expense, interest expense, and net income will each increase in the future as we acquire additional properties and as our current properties are owned for an entire period.

Results of Operations

Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006

As of March 31, 2007, we owned 115 commercial properties compared to 28 commercial properties at March 31, 2006, all of which were approximately 100% leased. Accordingly, our results of operations for the three months ended March 31, 2007 as compared to the three months ended March 31, 2006 reflect significant increases in all categories.

Revenue. Rental income increased approximately $9.3 million to approximately $11.8 million for the three months ended March 31, 2007 compared to approximately $2.4 million for the three months ended March 31, 2006. Additionally, tenant reimbursement income increased approximately $697,000 to approximately $821,000 for the three months ended March 31, 2007 compared to approximately $124,000 for the three months ended March 31, 2006. The increases in rental income and tenant reimbursement income were primarily due to the acquisition of 87 new properties after March 31, 2006. Our revenue primarily consists of rental income from net leased commercial properties, which accounted for approximately 93% and 95% of total revenues during the three months ended March 31, 2007 and 2006, respectively.

General and Administrative Expenses. General and administrative expenses increased approximately $103,000 to approximately $314,000 for the three months ended March 31, 2007 compared to approximately $211,000 for the three months ended March 31, 2006. The increase was primarily due to increases in state franchise and income taxes due to the increase in the number of properties owned, from 28 properties in 2006 to 115 properties in 2007. The primary general and administrative expense items are legal and accounting fees, organizational costs, state franchise and income taxes, other licenses and fees, and insurance.

Property Operating Expenses. Property operating expenses increased approximately $889,000 to approximately $1.0 million for the three months ended March 31, 2007 compared to approximately $140,000 for the three months ended March 31, 2006. The increase was primarily due to the acquisition of certain properties subsequent to March 31, 2006, for which we initially paid certain operating expenses and are reimbursed by the tenant in accordance with the respective lease agreements, including six multi-tenant shopping centers. At March 31, 2007, we owned eight multi-tenant shopping centers compared to two at March 31, 2006. The increase was also due to an increase in bad debt expense of approximately $184,000. The primary property operating expense items are repairs and maintenance, property taxes, bad debt expense and insurance.

Property and Asset Management Fees. Pursuant to the advisory agreement with our advisor, we are required to pay to our advisor a monthly asset management fee equal to 1/12 of 0.25% of the aggregate asset value of our properties determined in accordance with the advisory agreement as of the last day of the preceding month. Pursuant to the property management agreement with our property manager, as of May 11, 2007, we are required to pay to our property manager a property management and leasing fee in an amount equal to 2.0% of gross revenues determined pursuant to the agreement, less all payments to third-party management subcontractors.

21

Property and asset management fees increased approximately $414,000 to approximately $540,000 for the three months ended March 31, 2007 compared to approximately $126,000 for the three months ended March 31, 2006. Property management fees increased approximately $168,000 to approximately $213,000 in 2007 from approximately $45,000 in 2006. The increase in property management fees was primarily due to an increase in rental income to approximately $11.8 million in 2007 from approximately $2.4 million in 2006. Asset management fees increased approximately $246,000 to approximately $327,000 in 2007 from approximately $81,000 in 2006. The increase in asset management fees was primarily due to an increase in the average aggregate book value of properties owned to approximately $596.5 million at March 31, 2007 from approximately $131.0 million at March 31, 2006.

Depreciation & Amortization Expenses. Depreciation and amortization expenses increased approximately $3.4 million to approximately $4.3 million for the three months ended March 31, 2007 compared to approximately $832,000 for the three months ended March 31, 2006. The increase was primarily due to an increase in the average aggregate book value of properties owned to approximately $596.5 million at March 31, 2007 from approximately $131.0 million at March 31, 2006. The increase in aggregate book value is due to the acquisition of 87 new properties subsequent to March 31, 2006.

Interest Income. Interest income increased approximately $306,000 to approximately $351,000 during the three months ended March 31, 2007 compared to approximately $46,000 for the three months ended March 31, 2006. The increase was primarily due to having higher uninvested cash throughout the year due to proceeds from the Initial Offering. Cash and cash equivalents was approximately $37.7 million at March 31, 2007 compared to approximately $5.1 million at March 31, 2006.

Interest Expense. Interest expense increased approximately $3.6 million to approximately $5.1 million for the three months ended March 31, 2007 compared to approximately $1.5 million during the three months ended March 31, 2006. The increase was primarily due to an increase in the average mortgage notes payable outstanding during 2007 to approximately $304.0 million from approximately $87.0 million during 2006. The increase in average mortgage notes payable was primarily due to the acquisition of 87 new properties subsequent to March 31, 2006.

Our property acquisitions during the three months ended March 31, 2007 were financed in part with short-term and long-term notes payable as discussed in Note 4 to our condensed consolidated financial statements. Our interest expense in future periods will vary based on our level of future borrowings, which will depend on the level of proceeds raised in the Initial Offering and Follow-on Offering, the cost of borrowings, and the opportunity to acquire real estate assets which meet our investment objectives.

Funds From Operations

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

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

22

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

	Three Months Ended
	March 31, 2007		March 31, 2006
Net Income (loss)	$	1,684,727	$	(182,588)
Add:
Depreciation of real estate assets		2,971,234		578,996
Amortization of lease related costs		1,300,031		253,499
FFO	$	5,955,992	$	649,907

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

•  In order to recognize revenues on a straight-line basis over the terms of the respective leases, we recognized additional revenue by straight-lining rental revenue of approximately $559,000 and $132,000 during the three months ended March 31, 2007 and 2006, respectively.

•  During the three months ended March 31, 2007 and 2006 amortization of deferred financing costs totaled approximately $292,000 and $73,000, respectively.

Liquidity and Capital Resources

We expect to continue to raise capital through the sale of our common stock and to utilize the net proceeds from the sale of our common stock and proceeds from secured or unsecured financings to complete future property acquisitions. As of March 31, 2007, we had received and accepted subscriptions for 43,405,817 shares of common stock in our Initial Offering for gross proceeds of approximately $433.5 million.

Short-term Liquidity and Capital Resources

We expect to meet our short-term liquidity requirements through net cash provided by property operations and proceeds from the sale of our common stock. We expect our operating cash flows to increase as additional properties are added to our portfolio. We expect that approximately 88.6% of the gross proceeds from the sale of our common stock will be invested in real estate, approximately 9.2% will be used to pay sales commissions, dealer manager fees and offering and organizational costs, with the remaining 2.2% used to pay acquisition and advisory fees and acquisition expenses. The offering and organizational costs associated with the sale of our common stock are initially paid by our advisor, and reimbursed by us up to 1.5% of the capital raised by us in connection with our offering of shares of common stock. As of March 31, 2007, Cole Advisors II had paid approximately $3.8 million of offering and organization costs since the inception of the Initial Offering and we had reimbursed our advisor for approximately $3.8 million of such costs, of which approximately $59,000 was expensed as organizational costs.

Subsequent to March 31, 2007, we completed the acquisition of 19 single-tenant properties, three multi-tenant properties, and a portfolio consisting of 22 single-tenant restaurants in separate transactions for an aggregate purchase price of approximately $222.4 million, exclusive of closing costs. The acquisitions were funded with proceeds from the Initial Offering and approximately $163.2 million in aggregate proceeds from 26 loans.

On March 28, 2007, our board of directors declared a daily distribution of $0.0017808 per share for stockholders of record as of the close of business on each day of the period commencing on April 1, 2007 and ending on June 30, 2007. The payment date for each record date in April 2007 will be in May 2007, the payment date for each record date in May 2007 will be in June 2007, and the payment date for each record date in June 2007 will be in July 2007.

Long-term Liquidity and Capital Resources

We expect to meet our long-term liquidity requirements through proceeds from the sale of our common stock , proceeds from secured or unsecured financings from banks and other lenders, the selective and strategic sale of properties and net cash

23

flows from operations. We expect that our primary uses of capital will be for property acquisitions, for the payment of tenant improvements, for the payment of offering-related costs, for the payment of operating expenses, including interest expense on any outstanding indebtedness, and for the payment of distributions to our stockholders.

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

As of March 31, 2007, we had cash and cash equivalents of approximately $37.7 million, which we expect to be used primarily to invest in additional real estate, pay operating expenses and pay stockholder distributions.

Our contractual obligations as of March 31, 2007, are as follows:

	Payments due by period
		Total		Less Than 1 Year		1-3 Years		4-5 Years		More Than 5 Years
Principal payments – fixed rate debt	$	385,148,900	$	348,519	$	26,826,362	$	53,518,574	$	304,455,445
Interest payments – fixed rate debt		188,429,220		16,645,094		65,615,682		37,235,837		68,932,607
Principal payments – variable rate debt		4,531,000		4,531,000		—		—		—
Interest payments – variable rate debt (1)		70,948		70,948		—		—		—
Total	$	578,180,068	$	21,595,561	$	92,442,044	$	90,754,411	$	373,388,052

(1)  A rate of 7.38% was used to calculate the variable debt payment obligations in future periods. This is the rate effective as of March 31, 2007.

Cash Flow Analysis

Three Months Ended March 31, 2007 Compared to the Three Months Ended March 31, 2006

Operating Activities

Net cash provided by operating activities increased approximately $6.8 million to approximately $7.5 million for the three months ended March 31, 2007 compared to approximately $702,000 for the three months ended March 31, 2006. The increase was primarily due to an increase in net income for the period of approximately $1.9 million, increases in depreciation and amortization expenses totaling approximately $3.6 million and an increase in deferred rent and other liabilities of approximately $1.1 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 approximately $220.0 million to approximately $292.5 million for the three months ended March 31, 2007 compared to approximately $72.5 million for the three months ended March 31, 2006. The increase was primarily due to the acquisition of 24 real estate properties during 2007 compared to the acquisition of 14 properties during 2006 and an approximately $6.7 million increase in restricted cash, due to an increase cash held in escrow pending the issuance of shares to investors.

Financing Activities

Net cash provided by financing activities increased approximately $212.8 million to approximately $285.2 million for the three months ended March 31, 2007 compared to approximately $72.3 million for the three months ended March 31, 2006.

24

The increase was primarily due to an increase in net proceeds from the issuance of common stock in the Initial Offering of approximately $82.4 million and an increase in proceeds from the issuance of mortgage and affiliate notes of approximately $154.2 million, offset by an increase in repayments of mortgage and affiliate notes payable of approximately $22.9 million. The increase in proceeds from issuance of mortgage and affiliate notes payable was due to the issuance of 21 new mortgages in 2007 compared to 12 new mortgages in 2006 and borrowing of approximately $22.2 million on its revolving mortgage notes payable. The increase in repayments of mortgage and affiliate notes payable was due to the repayment of short-term variable rate debt at its maturity during 2007 and the repayment of the approximately $22.2 million in borrowings on its revolving mortgage notes payable during the three months ended March 31, 2007.

Election as a REIT

We elected to be taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code commencing with our taxable year ended December 31, 2005. If we qualify for taxation as a REIT, we generally will not be subject to federal corporate income tax to the extent we distribute our REIT taxable income to our stockholders, and so long as we distribute at least 90% of our REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our income and property, and federal income and excise taxes on our undistributed income. We believe we are organized and operating in such a manner as to qualify to be taxed as a REIT for the taxable year ended December 31, 2007.

Inflation

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

Critical Accounting Policies and Estimates

Our accounting policies have been established to conform to GAAP. The preparation of financial statements in conformity with GAAP requires us 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 our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We consider our critical accounting policies to be the following:

• Investment in Real Estate Assets;

• Allocation of Purchase Price of Acquired Assets;

• Valuation of Real Estate Assets;

• Revenue Recognition, and

• Income Taxes.

A complete description of such policies and our considerations is contained in our Annual Report on Form 10-K for the year ended December 31, 2006. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2006, and related notes thereto.

Commitments and Contingencies

We are subject to certain contingencies and commitments with regard to certain transactions. Refer to Note 6 to our condensed consolidated financial statements for further explanations.

Related-Party Transactions and Agreements

We have entered into agreements with Cole Advisors II and its affiliates, whereby we pay certain fees or reimbursements to our Advisor or its affiliates for acquisition fees and expenses, organization and offering costs, sales commissions, dealer manager fees, asset and property management fees and reimbursement of operating costs. Additionally, we have entered into certain transactions with affiliates of Cole Advisors II. See Note 7 to our condensed consolidated financial statements included in this report for a discussion of the various related-party transactions, agreements and fees.

25

Subsequent Events

Certain events occurred subsequent to March 31, 2007 through the date of this Report. Refer to Note 11 to our condensed consolidated financial statements for further explanation. Such events include:

• Sale of shares of common stock;

• Acquisition of various properties;

• Mortgage notes payable incurred in connection with acquisitions;

• Repayments on certain mortgage notes payable;

• Execution of an extended rate lock agreement;

• On May 11, 2007, the registration statement relating to our Follow-on Offering was declared effective by the SEC; and

• On May 11, 2007, we amended our agreement of limited partnership; and effective May 11, 2007, we amended the fees payable pursuant to our Property Management and Leasing Agreement to (i) up to 2% of gross revenues from our single-tenant properties and (ii) up to 4% of revenues from our multi-tenant properties..

Recent Accounting Pronouncements

Refer to Note 9 to our condensed consolidated financial statements for further explanation of applicable recent accounting pronouncements.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

In connection with property acquisitions, we have obtained variable rate debt financing (see Notes 4 and 11) to fund certain property acquisitions, and therefore we are exposed to interest rate changes in the LIBOR 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. Although we have not entered into any, in the future, we may 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 will not enter into derivative or interest rate transactions for speculative purposes. We also enter into rate lock arrangements to lock interest rates on future borrowings. Refer to Note 5.

As of March 31, 2007, approximately $4.5 million of the approximately $389.7 million outstanding on mortgage notes payable was subject to variable interest rates, which bear interest at the one-month LIBOR rate plus 200 basis points. As of March 31, 2007, a 1% change in interest rates would result in a change in interest expense of approximately $45,000 per year.

We do not have any foreign operations and thus we are not exposed to foreign currency fluctuations.

Item 4. Controls and Procedures

In accordance with Rules 13a-15(e) and 15d-15(e) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), we, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of March 31, 2007, were effective for the purpose of ensuring that information required to be disclosed by us in this report is recorded, processed, summarized and reported within the time periods specified by the rules and forms promulgated under the Exchange Act, and is accumulated and communicated to management, including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosures.

We believe, however, that a controls system, no matter how well designed and operated, can only provide reasonable assurance, not absolute assurance, that the objectives of the controls system are met, and no evaluation of controls can provide absolute assurance, only reasonable assurance, that all control issues and instances of fraud and error, if any, within a company have been detected.

No change occurred in our internal controls over financial reporting (as defined in Rule 13a-15(f) of the Exchange Act) during the three months ended March 31, 2007 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

26

PART II

OTHER INFORMATION

Item 1. Legal Proceedings

We are not a party to, and none of our properties are subject to, any material pending legal proceedings.

Item 1A. Risk Factors

There have been no material changes from the risk factors set forth in our Annual Report on Form 10-K for the year ended December 31, 2006.

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

On September 23, 2005, we issued the initial approximately 486,000 shares in the Offering. As of March 31, 2007, we had issued approximately 43.4 million shares for gross offering proceeds of approximately $433.7 million, out of which we paid costs of approximately $36 million in selling commissions and dealer manager fees, approximately $5.5 million in acquisition fees, approximately $1.7 million in finance coordination fees, and approximately $500,000 in organization and offering costs to the Advisor or its affiliates. With the net offering proceeds and indebtedness, we acquired approximately $723.3 million in real estate and related assets. As of May 11, 2007, we have sold approximately 51.6 million shares in our primary offering for gross offering proceeds of $515.3 million. We did not sell any unregistered securities during the three months ended March 31, 2007.

Additionally, during the month of February 2007 we redeemed 11,209 shares at an average of $9.91 per share, for a total share redemption amount of $111,110.

Item 3. Defaults Upon Senior Securities

No events occurred during the three months ended March 31, 2007 that would require a response to this item.

Item 4. Submission of Matters to a Vote of Security Holders

No matters were submitted to a vote of our stockholders during the three months ended March 31, 2007.

Item5. Other Information

No events occurred during the three months ended March 31, 2007 that would require a response to this item.

Item6. Exhibits

The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this quarterly report.

27

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

Cole Credit Property Trust II, Inc. (Registrant)
By:	/s/ Christopher H. Cole
	Christopher H. Cole
	Chief Executive Officer and President
By:	/s/ Blair D. Koblenz
	Blair D. Koblenz
	Executive Vice President and Chief Financial Officer

Date: May 15, 2007

28

EXHIBIT INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the quarter ended March 31, 2007 (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 to the Company’s Form 10-K (File No. 333-121094), filed on March 23, 2006).
3.2	Amended and Restated Bylaws. (Incorporated by reference to Exhibit 99.1 to the Company’s Form 8-K (File No. 333-121094), filed on September 6, 2005).
3.3	Articles of Amendment to Fifth Articles of Amendment and Restatement. (Incorporated by reference to Exhibit 3.3 to the Company’s Form S-11 (File No. 333-138444), filed on November 6, 2006).
4.1	Form of Subscription Agreement and Subscription Agreement Signature Page (included as Appendix B to prospectus). (Incorporated by reference to Exhibit 4.1 to the Company’s Form S-11 (File No. 333-138444), filed on May 10, 2007).
4.2	Form of Additional Investment Subscription Agreement for current stockholders (included as Appendix C to the prospectus). (Incorporated by reference to Exhibit 4.2 to the Company’s Form S-11 (File No. 333-138444), filed on May 10, 2007).
4.3	Purchase Agreement between Cole AS Katy TX, LP and 44.385 Acres, Ltd. and Mason MSG, Ltd. pursuant to and Assignment of Agreement to Purchase and Sale Agreement dated January 17, 2007. (Incorporated by reference to Exhibit 10.9 to the Company’s Form 10-K (File No. 000-51963), filed on March 20, 2007).
4.4	Promissory Note between Cole AS Katy TX, LP and Bear Stearns Commercial Mortgage, Inc. dated January 18, 2007. (Incorporated by reference to Exhibit 10.10 to the Company’s Form 10-K (File No. 000-51963), filed on March 20, 2007).
4.5*	Purchase Agreement between Cole AP Portfolio I, LLC, Cole AP Portfolio II, LLC, Cole AP Portfolio III, LLC and RCI Realty, LLC pursuant to an Assignment of Agreement to Purchase and Sale Agreement dated April 23, 2007. Filed herewith.
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.

29

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF PRINCIPAL EXECUTIVE OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Christopher H. Cole, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cole Credit

Property Trust II, Inc.;

2. Based on my knowledge, this report does not contain any untrue

statement of a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances

under which such statements were made, not misleading with respect

to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial

information included in this report, fairly present in all material

respects the financial condition, results of operations and cash

flows of the registrant as of, and for, the periods presented in

this report;

4. The registrant's other certifying officer and I are responsible for

establishing and maintaining disclosure controls and procedures (as

defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the

registrant and have:

a) designed such disclosure controls and procedures, or caused

such disclosure controls and procedures to be designed under

our supervision, to ensure that material information relating

to the registrant, including its consolidated subsidiary, is

made known to us by others within those entities, particularly

during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure

controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls

and procedures as of the end of the period covered by this

report based on such evaluation; and

c) disclosed in this report any change in the registrant's

internal control over financial reporting that occurred during

the registrant's most recent fiscal quarter (the registrant's

fourth fiscal quarter in the case of an annual report) that

has materially affected, or is reasonably likely to materially

affect, the registrant's internal control over financial

reporting; and

5. The registrant's other certifying officer and I have disclosed,

based on our most recent evaluation of internal control over

financial reporting, to the registrant's auditors and the audit

committee of registrant's board of directors (or persons performing

the equivalent functions):

a) all significant deficiencies and material weaknesses in the

design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the

registrant's ability to record, process, summarize and report

financial information; and

b) any fraud, whether or not material, that involves management

or other employees who have a significant role in the

registrant's internal control over financial reporting.

/s/ Christopher H. Cole

-----------------------------------------------

Christopher H. Cole

Chief Executive Officer and President

Date: May 15, 2007

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF PRINCIPAL FINANCIAL OFFICER

PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002

I, Blair D. Koblenz, certify that:

1. I have reviewed this quarterly report on Form 10-Q of Cole Credit

Property Trust II, Inc.;

2. Based on my knowledge, this report does not contain any untrue

statement of a material fact or omit to state a material fact

necessary to make the statements made, in light of the circumstances

under which such statements were made, not misleading with respect

to the period covered by this report;

3. Based on my knowledge, the financial statements, and other financial

information included in this report, fairly present in all material

respects the financial condition, results of operations and cash

flows of the registrant as of, and for, the periods presented in

this report;

4. The registrant's other certifying officer and I are responsible for

establishing and maintaining disclosure controls and procedures (as

defined in Exchange Act Rules 13a-15(e) and 15d-15(e) for the

registrant and have:

a) designed such disclosure controls and procedures, or caused

such disclosure controls and procedures to be designed under

our supervision, to ensure that material information relating

to the registrant, including its consolidated subsidiaries, is

made known to us by others within those entities, particularly

during the period in which this report is being prepared;

b) evaluated the effectiveness of the registrant's disclosure

controls and procedures and presented in this report our

conclusions about the effectiveness of the disclosure controls

and procedures as of the end of the period covered by this

report based on such evaluation; and

c) disclosed in this report any change in the registrant's

internal control over financial reporting that occurred during

the registrant's most recent fiscal quarter (the registrant's

fourth fiscal quarter in the case of an annual report) that

has materially affected, or is reasonably likely to materially

affect, the registrant's internal control over financial

reporting; and

5. The registrant's other certifying officer and I have disclosed,

based on our most recent evaluation of internal control over

financial reporting, to the registrant's auditors and the audit

committee of registrant's board of directors (or persons performing

the equivalent functions):

a) all significant deficiencies and material weaknesses in the

design or operation of internal control over financial

reporting which are reasonably likely to adversely affect the

registrant's ability to record, process, summarize and report

financial information; and

b) any fraud, whether or not material, that involves management

or other employees who have a significant role in the

registrant's internal control over financial reporting.

/s/ Blair D. Koblenz

------------------------------------------

Blair D. Koblenz

Executive Vice President and

Chief Financial Officer

Date: May 15, 2007

EX-32.1

EXHIBIT 32.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER AND CHIEF FINANCIAL OFFICER

PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

(18 U.S.C 1350)

Each of the undersigned officers of Cole Credit Property Trust II, Inc.

(the "Company") hereby certifies, for purposes of Section 1350 of Chapter 63 of

Title 18 of the United States Code, as adopted pursuant to Section 906 of the

Sarbanes-Oxley Act of 2002, that, to his knowledge:

(i) the accompanying Quarterly Report on Form 10-Q of the Company

for the period ended March 31, 2007 (the "Report") fully complies with

the requirements of Section 13(a) or Section 15(d), as applicable, of the

Securities Exchange Act of 1934, as amended; and

(ii) the information contained in the Report fairly presents, in all

material respects, the financial condition and results of operations of

the Company.

/s/ Christopher H. Cole

------------------------------------------------

Christopher H. Cole

Chief Executive Officer and

President

/s/ Blair D. Koblenz

------------------------------------------------

Blair D. Koblenz

Executive Vice President and

Chief Financial Officer

Date: May 15, 2007

The foregoing certification is being furnished with the Company's 10-Q for

the period ended March 31, 2007 pursuant to 18 U.S.C. Section 1350. It is

not being filed for purposes of Section 18 of the Securities Exchange Act of

1934, as amended, and it is not to be incorporated by reference into any filing

of the Company, whether made before or after the date hereof, regardless of any

general information language in such filing.

A signed original of this written statement required by Section 906 has been

provided to the Company and will be retained by the Company and furnished to the

Securities and Exchange Commission or its staff upon request.

EX-10

MASTER PURCHASE AGREEMENT

AND ESCROW INSTRUCTIONS

Between

RCI REALTY, LLC

as Seller

and

SERIES B, LLC

as Buyer

February 20, 2007

MASTER PURCHASE AGREEMENT

AND ESCROW INSTRUCTIONS

DATED: Dated to be effective as of February 20, 2007 (the “Effective Date”).

PARTIES: This Master Purchase Agreement and Escrow Instructions is between RCI REALTY, LLC, a Georgia limited liability company, as “Seller”, and SERIES B, LLC, an Arizona limited liability company, as “Buyer”.

WHEREAS, as of the Effective Date, Seller is the fee title owner of those certain parcels of improved property listed by address on Exhibit A attached hereto, and legally described on Exhibit A-1 attached hereto (each a “Parcel” and collectively, the “Parcels”);

WHEREAS, as of the Effective Date, each Parcel is improved with a building (each, a “Building” and, collectively, the “Buildings”). Each Parcel, the Building and the improvements to such Parcel (collectively, the “Improvements”) and the personal property, if any, of Seller located on such Parcel are hereinafter collectively referred to as a “Property”. All Parcels, Buildings, Improvements and the personal property, if any, of Seller located on the Parcels are hereinafter collectively referred to as the “Properties”. (If a Property becomes a Removed Property pursuant to Section 6(b), 6(c), 6(d), 7(c), 12 or 19, such Property shall thereafter be deemed to be excluded from the term “Properties” and “Property” as used in this Agreement.);

WHEREAS, Buyer desires to purchase the Properties from Seller and Seller desires to sell the Properties to Buyer free and clear of all liens, all as more particularly set forth in this Master Purchase Agreement and Escrow Instructions (the “Agreement”); and

WHEREAS, at COE (as hereinafter defined), Seller desires to terminate its existing leases of the Properties (the “Existing Leases”) to Seller’s affiliate, Restaurant Concepts II, LLC, a Georgia limited liability company (“Tenant”), and Buyer desires to lease the Properties to Tenant in accordance with three (3) new master leases, the form of which will be negotiated by Seller, Buyer and Tenant prior to the end of the Study Period (as hereinafter defined) (each, a “Lease” and, collectively, the “Leases”).

NOW THEREFORE, in consideration of the promises set forth in this Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, Seller and Buyer (each, a “Party” and, collectively, the “Parties”) hereby agree as follows:

1.INCORPORATION OF RECITALS. All of the foregoing Recitals are hereby incorporated as agreements of the Parties.

2.BINDING AGREEMENT. This Agreement constitutes a binding agreement between Seller and Buyer for the sale and purchase of the Properties subject to the terms set forth in this Agreement. Subject to the limitations set forth in this Agreement, this Agreement shall

bind and inure to the benefit of the Parties and their respective successors and assigns. This Agreement supersedes all other written or verbal agreements between the Parties concerning any transaction embodied in this Agreement. No claim of waiver or modification concerning the provision of this Agreement shall be made against a Party unless based upon a written instrument signed by such Party.

3. INCLUSIONS IN PROPERTIES.

(a) The Properties. The term “Properties” shall also include the following:

(1)all tenements, hereditaments and appurtenances pertaining to the Parcels;

(2)all mineral, water and irrigation rights, if any, running with or otherwise pertaining to the Parcels;

(3) all interest, if any, of Seller in any road adjoining the Parcels;

(4)all interest, if any, of Seller in any award made or to be made or settlement in lieu thereof for damage to the Properties or any portion thereof by reason of condemnation, eminent domain or exercise of police power;

(5)all of Seller’s interest in the Buildings, the Improvements and any other improvements and fixtures on the Parcels;

(6)all of Seller’s interest, to the extent transferable, in all permits and licenses (collectively, the “Permits”), warranties (specifically including, without limitation, any warranty related to the roof of each Building), contractual rights and intangibles (including rights, if any, and to the extent transferable to the architectural/engineering plans) with respect to the operation, maintenance, repair or improvement of the Properties (collectively, the “Contracts”).

(b)The Transfer Documents. Except for the Permits and Contracts, which are to be transferred by that certain assignment agreement, a specimen of which is attached hereto as Exhibit B (the “Assignment Agreement”); all components of each of the Properties shall be transferred and conveyed by execution and delivery by Seller of a special warranty deed, a non-state specific specimen of which is attached hereto as Exhibit C (each, a “Deed”). The Assignment Agreement and each Deed are hereinafter collectively referred to as the “Transfer Documents”.

4.PURCHASE PRICE. The aggregate price to be paid by Buyer to Seller for the Properties is SIXTY FIVE MILLION and NO/100 Dollars ($65,000,000.00) (the “Purchase Price”), which is payable as follows:

(a)Five Hundred Thousand and No/100 Dollars ($500,000.00) earnest money (the “Earnest Money Deposit”) to be deposited in escrow with Lawyers Title Insurance Corporation, 1850 North Central Avenue, Suite 300, Phoenix, Arizona 85004, Attention: Mr. Allen Brown (“Escrow Agent”) not later than two (2) business days following the receipt by

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Escrow Agent of a fully-executed original of this Agreement (said receipt by Escrow Agent of both a fully-executed original of this Agreement and the Earnest Money Deposit, the “Opening of Escrow”), which Earnest Money Deposit is to be held by Escrow Agent until released to Seller or Buyer as provided herein or paid to Seller at close of escrow (“COE”);

(b)Five Hundred Thousand and No/100 Dollars ($500,000.00)additional earnest money to be deposited in escrow with Escrow Agent two (2) business days after the expiration of the Study Period (defined below). For purposes of this Agreement, the additional earnest money deposit shall be added to and become a part of the Earnest Money Deposit; and

(c)Such amounts, in additional cash, or other immediately available funds (as may be increased or decreased by such sums as are required to take into account any additional deposits, prorations, credits, or other adjustments required by this Agreement), set forth in one or more settlement or closing statements prepared by Escrow Agent and approved by Buyer and Seller in connection with COE of each of the Properties purchased by Buyer from Seller pursuant to this Agreement, to be deposited in escrow with Escrow Agent on or before COE as to such Properties (the “Additional Funds”) which is to be held by Escrow Agent until cancellation of this Agreement as provided herein or paid to Seller at COE.

5.DISPOSITION OF EARNEST MONEY DEPOSIT. Seller and Buyer hereby instruct Escrow Agent to place the Earnest Money Deposit in a federally insured interest-bearing passbook account on behalf of Seller and Buyer. The Earnest Money Deposit and interest thereon shall be applied as follows:

(a)if Buyer cancels this Agreement as Buyer is so entitled to do as provided in this Agreement, the Earnest Money Deposit and all interest earned to the effective date of withdrawal shall be paid immediately to Buyer;

(b)if the Earnest Money Deposit is forfeited by Buyer pursuant to this Agreement, such Earnest Money Deposit and all interest earned to the date of withdrawal shall be paid to Seller as Seller’s agreed and total liquidated damages, it being acknowledged and agreed that it would be difficult or impossible to determine Seller’s exact damages; and

(c)if escrow closes, the Earnest Money Deposit and all interest earned to COE shall be credited to Buyer, automatically applied against the Purchase Price and paid to Seller at COE.

On and after the expiration of the Study Period, unless the Buyer terminates this Agreement as herein provided, the Earnest Money Deposit shall be deemed “at-risk” and not refundable to Buyer except as expressly provided in this Agreement.

6.PRELIMINARY TITLE REPORT AND OBJECTIONS. (a) Within fifteen (15) business days after the Opening of Escrow, Escrow Agent shall deliver a current Preliminary Title Report (each, a “Report” and, collectively, the “Reports”) for an ALTA extended coverage title insurance policy (each, an “Owner’s Policy” and, collectively, the “Owner’s Policies”) on each of the Properties to Buyer and Seller. Each Report shall show the status of title to the applicable Property as of the date of such Report and shall also describe the requirements of

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Escrow Agent for the issuance of an Owner’s Policy corresponding to such Property as described herein. The cost of a standard Owner’s Policy corresponding to each of the Properties will be paid for by Seller; Buyer shall pay additional costs for extended coverage policies and any endorsements requested by Buyer. In addition to the Reports, Escrow Agent shall simultaneously deliver to Buyer complete, legible copies of all documents identified in Part Two of Schedule B of each Report.

(b)If Buyer is dissatisfied with any exception to title as shown in any Report (each such Report, an “Objectionable Report”), then Buyer may, by giving written notice thereof to Escrow Agent and Seller on or before expiration of the Study Period (as defined below) or ten (10) days from Buyer’s receipt of such Objectionable Report, whichever is later (provided, however, Buyer shall have not less than ten (10) days from its receipt of the Survey (as defined in Section 9 below) corresponding to each Property to object to any matters disclosed on or by such Survey that were not previously disclosed by seller’s existing survey corresponding to such Property), either (i) terminate this Agreement with respect to the Property corresponding to such Objectionable Report (each such Property, a “Removed Property”), or (ii) Buyer may provisionally accept the title to such Property corresponding to such Objectionable Report subject to Seller’s agreement to cause the removal of any disapproved exceptions or objections at or prior to COE, in which case Seller shall (at its sole cost) remove the exceptions or objections (or, if acceptable to Buyer, obtain title insurance endorsements over the exceptions and objections) at or prior to COE.

If Buyer gives notice to Seller of its election of option (ii) above, Seller shall notify Buyer in writing within five (5) days after receiving Buyer’s written notice of disapproval of any exceptions or objectionable matters whether Seller intends to remove (or endorse over) any such exception and/or objectionable matter. Seller’s lack of response shall be deemed to be Seller’s election not to remove the objectionable exceptions (or obtain title insurance endorsements over said exceptions and objections, if acceptable to Buyer) at or prior to COE, in which event Buyer shall be deemed to have elected to terminate this Agreement as provided in subpart b (i) above, unless Buyer waives such objections within fifteen (15) days following Buyer’s delivery of such notice.

(c)In the event any Report is amended (each such Report, an “Amended Report”) to include new exceptions that are not set forth in the prior Report corresponding to the same Property, Buyer shall have until the later of (i) the expiration of the Study Period, or (ii) the date seven (7) days after Buyer’s receipt of both such Amended Report and copies of the documents identified in the new exceptions or new requirements (provided, however, Buyer shall have not less than five (5) days from its receipt of any Survey revised to reflect any such new exceptions to object to any matters disclosed on or by such revised Survey related to such new exceptions), within which to either (Y) remove the Property corresponding to such Amended Report from this Agreement as set forth in Section 6(b) above (each, a “Removed Property”) or (Z) to provisionally accept the title to such Property corresponding to such Amended Report subject to Seller’s agreement to cause the removal of any disapproved exceptions or objections, as described in subsection (b) above.

(d)In the event Buyer provisionally accepts title to a Property corresponding to either an Objectionable Report and/or an Amended Report pursuant to Sections 6(b) and/or

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6(c) above, if Seller serves notice to Buyer that Seller does not intend to remove such exceptions and/or objections from an Objectionable Report and/or an Amended Report, as applicable, before COE or if Seller is deemed to have elected not to remove such exceptions and/or objections as provided above, Buyer shall, within ten (10) days after receipt of such notice from Seller (or fifteen (15) days following Buyer’s delivery of notice as the case may be), notify Seller and Escrow Agent in writing of Buyer’s election to either (i) remove the Property corresponding to such Objectionable Report and/or such Amended Report as set forth in Section 6(a) above (each, a “Removed Property”), or (ii) waive such objections. If written notice of either satisfaction or dissatisfaction as to any Report is not timely given by Buyer to Seller pursuant to this Section 6, then Buyer shall be deemed to have disapproved of the condition of the title of the Property corresponding to each such Report, and shall have elected to remove the Property corresponding to each such Report from this Agreement as set forth in Section 6(a) above (each, a “Removed Property”).

(e)The Purchase Price shall be reduced by the amount corresponding to the amount to be allocated to each Removed Property for title insurance purposes as set forth on Exhibit A attached hereto.

7. BUYER’S STUDY PERIOD.

(a)The Study Period. Buyer shall have until the later of 5:00 p.m. MST on the thirtieth (30th) day after the Opening of Escrow (as hereinafter defined) (the “Study Period”), at Buyer’s sole cost, within which to conduct and approve any investigations, studies or tests deemed necessary by Buyer, in Buyer’s sole discretion, to determine the feasibility of acquiring each of the Properties, including, without limitation, Buyer’s right to: (i) review and approve each Survey, each Lease, Seller’s operating statements with respect to each of the Properties, and the Contracts; (ii) meet and confer with Tenant; and, (iii) obtain, review and approve an environmental study of each of the Properties (collectively, “Buyer’s Diligence”).

(b)Right of Entry. Seller hereby grants to Buyer and Buyer’s agents, employees and contractors the right to enter upon each of the Properties, at any time or times during the Study Period, to conduct Buyer’s Diligence, subject the following limitations. Buyer understands and agrees that any on-site inspections for each of the Properties shall be conducted during normal business hours, upon reasonable prior notice to Seller and coordination with Seller and Tenant so as to minimize disruption of Tenant’s operation of its business. Seller may accompany Buyer during its on-site inspections of the Properties, and Seller agrees not to unreasonably interfere with Buyer’s inspections as carried out pursuant to this Section. The inspections under this Section may include: (i) building inspection, including, asbestos testing, (ii) a non-invasive Phase I environmental inspection of the Property, and (iii) invasive Geo-Technical evaluations and samplings which do not test for hazardous materials. If Buyer desires to do any other invasive testing, sampling or drilling at the Property, Buyer shall do so only after notifying Seller and obtaining Seller’s prior consent thereto, which consent may be granted or withheld in Seller’s reasonable discretion and may be subject to any terms and conditions imposed by Seller in its reasonable discretion. Buyer shall promptly restore any affected part of the Property which is subjected to any such invasive testing, sampling, or drilling, or otherwise affected by Buyer’s inspection, to substantially the same condition which existed prior to any such inspections, tests, sampling or drilling, at Buyer’s sole cost and expense. Buyer agrees to

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indemnify against and hold Seller harmless from any claim for liabilities, costs, expenses (including reasonable attorneys’ fees actually incurred), damages or injuries arising out of or resulting from the inspection of the Property by Buyer or its agents. Buyer shall maintain commercial general liability insurance with a reputable insurer, providing minimum limits of liability of One Million Dollars ($1,000,000) per occurrence. Buyer’s indemnity and hold harmless obligation shall survive cancellation of this Agreement or COE.

(c)Cancellation. Unless Buyer so notifies Seller or Escrow Agent, in writing, on or before the end of the Study Period, of Buyer’s acceptance as to some or all of the Properties and waiver of the contingencies as set forth in this Section 7, this Agreement shall be canceled as to all of the Properties and the Earnest Money Deposit plus all interest accrued thereon shall be returned immediately to Buyer and, except as otherwise provided in this Agreement, neither of the Parties shall have any further liability or obligation under this Agreement. In the event Buyer notifies Seller or Escrow Agent, in writing, on or before the end of the Study Period, of Buyer’s acceptance, as to some, but less than all, of the Properties and waiver of the contingencies as set forth in this Section 7, this Agreement shall terminate with respect to each of the Properties not specifically accepted by Buyer in such notice (each, a “Removed Property”) and the Purchase Price shall be reduced by the amount corresponding to such Removed Property as set forth in Exhibit A attached hereto, and this Agreement shall continue in full force and effect with respect to the other Properties.

(d)Leases.Seller, Buyer and Tenant shall endeavor in good faith to agree upon the form of the Leases during the Study Period. The Leases will be triple net leases, with a starting annual base rent in the aggregate for all Properties of $4,743,000. To the extent any Property becomes a Removed Property, the starting aggregate annual base rent for all remaining Properties shall be reduced so that it equals 7.30% of the Purchase Price for the remaining Properties). The Leases will have a 20 year primary term and 3 five-year renewal options. Annual base rent shall increase by 8% at the commencement of year 6, 9% at the commencement of year 11, and 10% at the commencement of year 16. To the extent the renewal options are exercised, annual base rent shall increase by 10% at the commencement of each renewal term. All rent increases shall be compounded. The Leases shall not be cross-defaulted with one another. If Seller, Buyer and Tenant are unable to agree upon the form of the Leases during the Study Period, upon notice delivered by either Buyer or Seller, this Agreement shall be canceled as to all of the Properties and the Earnest Money Deposit plus all interest accrued thereon shall be returned immediately to Buyer and, except as otherwise provided in this Agreement, neither of the Parties shall have any further liability or obligation under this Agreement.

8. DELIVERY OF SELLER’S DILIGENCE MATERIALS.

(a)Deliveries to Buyer. Seller agrees to deliver to Buyer contemporaneously with the Opening of Escrow all relevant and material information in Seller’s or Tenant’s possession and control relating to the leasing, operating, maintenance, construction (including the Certificate of Occupancy for each of the Properties), repair, zoning (including any zoning verification letters), platting, engineering, soil tests, water tests, environmental tests, master planning, architectural drawings and like matters regarding each of the Properties (collectively, “Seller’s Diligence Materials”), all at no cost to Buyer. The foregoing deliveries shall include, but not be limited to, copies of all: (i) profit and loss statement for each of the Properties for the

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last twenty-four (24) months; (ii) a detailed listing of all capital expenditures on each of the Properties for the last thirty-six (36) months; (iii) the maintenance history of each of the Properties for the last twenty-four (24) months; (iv) current maintenance, management, and listing contracts for each of the Properties including any amendments thereto; (v) a list of all claims or suits by or against Seller or Tenant regarding any of the Properties for the last thirty-six (36) months; (vi) any appraisals of any of the Properties or any part thereof; (vii) the site plan with respect to each of the Properties; (viii) copies of all Contracts (including, without limitation, all warranties) and Permits; (ix) copies of existing title policies, as-built surveys and Phase I environmental reports with respect to each of the Properties, to the extent all of the foregoing items specified in subpart (i) through (ix) are presently in Seller’s or Tenant’s possession and control; and (x) any other documents or other information in the possession or control of Seller, Tenant or their respective agents pertaining to the Properties that Buyer may reasonably request in writing.

(b)Delivery by Buyer. If this Agreement is canceled as to all of the Properties for any reason, except Seller’s willful default hereunder, Buyer agrees to deliver to Seller, at Seller’s option, copies of those investigations, studies and/or tests which Buyer may have elected to obtain, provided, however, that Seller shall reimburse Buyer for the actual costs incurred by Buyer in obtaining such investigations, studies and tests. In addition, Buyer shall return to Seller all of the materials delivered by Seller pursuant to Section 8(a) above. This provision shall survive any cancellation or termination of this Agreement.

9.THE SURVEYS. Buyer, at Buyer’s cost, shall, within twenty (20) business days of Opening of Escrow, cause a surveyor licensed in the State in which the applicable Property is located to complete and deliver to Escrow Agent and Buyer a current, certified ALTA survey of the Parcel, Building and Improvements comprising each of the Properties (each, a “Survey” and, collectively, the “Surveys”), whereupon the legal descriptions in the Surveys shall control over the descriptions in Exhibit A-1 attached hereto to the extent they may be inconsistent. At Seller’s election, however, Seller may deliver quitclaim deeds to Buyer including the Properties using the legal description obtained from the Surveys, and the Deeds shall in such event include legal descriptions used on Seller’s title insurance policies. Each Survey shall set forth the legal description and boundaries of the applicable Parcel and all easements, encroachments and improvements thereon.

10.IRS SECTION 1445. Seller shall furnish to Buyer in escrow by COE a sworn affidavit (the “Non-Foreign Affidavit”) stating under penalty of perjury that Seller is not a “foreign person” as such term is defined in Section 1445(f)(3) of the Internal Revenue Code of 1986, as amended (the “Code”). If Seller does not timely furnish the Non-Foreign Affidavit, Buyer may withhold (or direct Escrow Agent to withhold) from the Earnest Money Deposit and/or the Additional Funds, an amount equal to the amount required to be so withheld pursuant to Section 1445(a) of the Code, and such withheld funds shall be deposited with the Internal Revenue Service as required by such Section 1445(a) and the regulations promulgated thereunder. The amount withheld, if any, shall nevertheless be deemed to be part of the Purchase Price paid to Seller.

11.DELIVERY OF POSSESSION. Seller shall deliver possession of each of the Properties to Buyer at COE subject only to the rights of Tenant under each of the Leases as

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approved by Buyer as part of Buyer’s Diligence. At or prior to COE, Seller shall deliver to Buyer copies of executed terminations of the Existing Leases between Seller and Tenant in a form reasonably acceptable to Buyer.

12.BUYER’S CONDITIONS PRECEDENT. In addition to all other conditions precedent set forth in this Agreement, Buyer’s obligations to perform under this Agreement and to close escrow are expressly subject to the following:

(a)the delivery by Seller to Escrow Agent, for delivery to Buyer at COE, of the executed original Transfer Documents;

(b)the issuance of the Owner’s Policies (or a written commitment therefor) subject only to those matters approved or deemed approved by Buyer pursuant to this Agreement;

(c)the deposit by Seller with Buyer not later than five (5) business days prior to COE of (i) original estoppel certificates executed by Tenant with respect to each of the Leases naming Buyer (or its designee) and Buyer’s lender, and their successors and assigns, as addressees, which certificates must be reasonably acceptable to Buyer, and, (ii) original subordination, non-disturbance and attornment agreements executed by Tenant with respect to each of the Leases in form and substance reasonably acceptable to Tenant, for the benefit of Buyer’s lender, with such form of agreement to be agreed upon prior to the expiration of the Study Period;

(d)the deposit with Escrow Agent of an executed affidavit of Seller and such other documentation as may be reasonably required by Escrow Agent to allow for the deletion of the mechanics’ lien exception from each of the Owner’s Policies;

(e)delivery of the SEC Filing Information (as hereinafter defined) and the SEC Filings Letter(as hereinafter defined) by Seller to Buyer not less than five (5) days prior to COE;

(f)delivery to Buyer of copies of executed terminations of the Existing Leases between Seller and Tenant in a form reasonably acceptable to Buyer;

(g)delivery to Buyer of the original Leases with respect to the Properties executed by Tenant and in the form agreed upon prior to the end of the Study Period; and

(h)delivery to Buyer of originals of the Contracts and Permits, if any, in the possession of Seller or Seller’s agents, and any correspondence with respect thereto, together with such non-proprietary leasing and property manuals, files and records which are material in connection with the continued operation, leasing and maintenance with respect to each of the Properties.

If the foregoing conditions have not been satisfied as to any Property by the specified date or COE as the case may be, then Buyer shall have the right, at Buyer’s sole option, by giving written notice to Seller and Escrow Agent, to (i) cancel this Agreement as it relates to such Property (each such Property, a “Removed Property”), whereupon the Purchase Price shall be

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reduced by the amount corresponding to such Property as set forth on Exhibit A attached hereto and this Agreement shall continue in full force and effect as to all remaining Properties, or (ii) extend such specified date or COE, as applicable, for such Properties or all the Properties, at Buyer’s option, for such amount of time as Buyer deems reasonably necessary to allow Seller to satisfy such conditions, provided, however, that such amount of time shall not exceed thirty (30) days following the originally scheduled COE date. In the event this Agreement is canceled for all of the Properties, the Earnest Money Deposit plus interest shall be paid immediately by Escrow Agent to Buyer and, except as otherwise provided in this Agreement, neither of the Parties shall have any further liability or obligation under this Agreement.

13.SELLER’S WARRANTIES. Seller hereby represents and warrants to Buyer as of the Effective Date and again as of COE that:

(a)there are no unrecorded leases (other than the Existing Leases, which will be terminated at or prior to COE and the Leases to be entered into at COE), liens or encumbrances by or against Seller which may affect title to any of the Properties;

(b)to Seller’s knowledge, no notice of violation has been issued (and not previously cured) with regard to any applicable regulation, ordinance, requirement, covenant, condition or restriction relating to the present use or occupancy of any of the Properties by any person, authority or agency having jurisdiction;

(c)to Seller’s knowledge, there are no intended public improvements which will or could result in any charges being assessed against any of the Properties which will result in a lien upon any of the Properties;

(d)to Seller’s knowledge, other than the notice of a partial condemnation received by Seller from the Georgia Department of Transportation with respect to the Property located in Savannah, Georgia there is no impending or contemplated condemnation or taking by inverse condemnation of any of the Properties, or any portion thereof, by any governmental authorities;

(e)there are no suits or claims pending or to Seller’s knowledge, threatened with respect to or in any material manner affecting any of the Properties, nor does Seller know of any circumstances which should or could reasonably form the basis for any such suits or claims which have not been disclosed in writing to Buyer by Seller (the foregoing averment does not extend to or include tax appeals, garnishments, employment claims or other suits or claims which only indirectly relate to the Properties);

(f)Seller has not entered into and there is not existing any other agreement, written or oral, under which Seller is or could become obligated to sell any of the Properties, or any portion thereof, to a third party and Seller will not enter into nor execute any such agreement without Buyer’s prior written consent;

(g)Seller has not and will not, without the prior written consent of Buyer, take any action before any governmental authority having jurisdiction thereover, the object of which would be to change the present zoning of or other land-use limitations, upon any of the Properties, or any portion thereof, or its potential use, and, to Seller’s knowledge, after due inquiry, there are no pending proceedings, the object of which would be to change the present zoning or other land-use limitations;

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(h)this transaction will not in any way violate any other agreements to which Seller is a party;

(i)Seller has full power and authority to execute, deliver and perform under this Agreement as well as under the Transfer Documents, specimens of which are attached hereto as Exhibits;

(j)to Seller’s knowledge, no default of Seller exists under any of the Contracts and, to Seller’s knowledge, no default of any of the other parties exists under any of the Contracts;

(k)no consent of any third party is required in order for Seller to enter into this Agreement and perform Seller’s obligations hereunder;

(l)except for any item to be prorated at COE in accordance with this Agreement, all bills or other charges, costs or expenses arising out of or in connection with or resulting from Seller’s use, ownership, or operation of any of the Properties up to COE shall be paid in full by Seller;

(m)all general real estate taxes, assessments and personal property taxes that have become due with respect to any of the Properties (except for those that will be prorated at COE) have been paid or will be so paid by Seller prior to COE;

(n)between the Effective Date and COE or any earlier termination of this Agreement, Seller shall not execute or enter into any lease with respect to any of the Properties;

(o)Seller agrees that, between the Effective Date and COE or any earlier termination of this Agreement, Seller shall, at its sole cost:

(1)continue to operate each of the Properties as heretofore operated by Seller subject to Buyer’s rights under this Agreement to direct specific activities of Seller;

(2)maintain or cause Tenant to maintain each of the Properties in its current condition and perform required and routine maintenance and make replacements of each part of the Properties that is tangible property (whether real or personal) and perform repairs or make replacements to any broken, defective or disfunctioning portion of any of the Properties that is tangible property (whether real or personal) as the relevant conditions require;

(3)pay or cause Tenant to pay (as applicable) prior to COE, all sums due for work, materials or services furnished or otherwise incurred in the ownership, use or operation of the Properties up to COE;

(4)comply or cause Tenant to comply with all governmental requirements applicable to the Properties;

(5)except as required by a governmental agency, not place or permit to be placed on any portion of any of the Properties any new improvements of any kind or remove or permit any improvements to be removed from any of the Properties without the prior written consent of Buyer;

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(6)not restrict, rezone, file or modify any development plan or zoning plan or establish or participate in the establishment of any improvement district with respect to all or any portion of any of the Properties without Buyer’s prior written consent; and

(7)without Buyer’s prior written consent, Seller shall not, by voluntary or intentional act or omission to act, further cause or create any easement, encumbrance, or mechanic’s or materialmen’s liens, and/or similar liens or encumbrances to arise or to be imposed upon any of the Properties or any portion thereof that effects title thereto;

(p)Seller has no actual knowledge that there exists or has existed, and Seller itself has not caused any generation, production, location, transportation, storage, treatment, discharge, disposal, release or threatened release upon, under or about any of the Properties of any Hazardous Materials. “Hazardous Materials” shall mean any flammables, explosives, radioactive materials, hazardous wastes, hazardous and toxic substances or related materials, asbestos or any material containing asbestos (including, without limitation, vinyl asbestos tile), or any other substance or material, defined as a “hazardous substance” by any federal, state, or local environmental law, ordinance, rule or regulation including, without limitation, the Federal Comprehensive Environmental Response Compensation and Liability Act of 1980, as amended, the Federal Hazardous Materials Transportation Act, as amended, the Federal Resource Conservation and Recovery Act, as amended, and the rules and regulations adopted and promulgated pursuant to each of the foregoing;

(q)to Seller’s actual knowledge, there is not now, nor has there ever been, on or in any of the Properties or any portion thereof underground storage tanks, any asbestos-containing materials or any polychlorinated biphenyls, including those used in hydraulic oils, electric transformers, or other equipment. Seller hereby assigns to Buyer, effective as of COE, all claims, counterclaims, defenses, or actions, whether at common law, or pursuant to any other applicable federal or state or other laws which Seller may have against any third parties relating to the existence of any Hazardous Materials in, at, on, under or about any of the Properties (including Hazardous Materials released on any of the Properties prior to COE and continuing in existence on any of the Properties at COE);

(r)to Seller’s knowledge, there are no proceedings pending for the increase of the assessed valuation of any of the Properties or any portion thereof;

(s)should Seller receive notice or knowledge of any information regarding any of the matters set forth in this Section 13 after the Effective Date and prior to COE, Seller will immediately notify Buyer of the same in writing;

(t)the execution, delivery and performance of this Agreement and the Transfer Documents, specimens of which are attached hereto as Exhibits, have not and will not constitute a breach or default under any other agreement, law or court order under which Seller is a party or may be bound;

(u)at COE, all personal property located at the Properties (excluding fixtures, which will be conveyed to Buyer at COE pursuant to each Deed) shall be owned by Tenant;

(v)all representations made in this Agreement by Seller shall survive the execution and delivery of this Agreement and COE. Seller shall and does hereby indemnify against and hold Buyer harmless from any loss, damage, liability and expense, together with all

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court costs and attorneys’ fees which Buyer may incur, by reason of any material misrepresentation by Seller or any material breach of any of Seller’s warranties. Seller’s indemnity and hold harmless obligations shall survive COE. “To Seller’s knowledge” as used herein shall mean the actual knowledge of Seller’s managers and shall not be deemed to include constructive or implied knowledge; and

(w)notwithstanding any of the foregoing representations and warranties, Seller has expressly disclosed to Buyer the fact that the Properties located in 3229 Gentian Boulevard, Columbus, Georgia, 2574 Riverside Drive, Macon, Georgia, 14091 East Iliff Avenue, Aurora, Colorado, and 5250 South Wadsworth, Littleton, Colorado, are not owned by Seller, but are owned by related parties to Seller. Seller shall serve as agent for such owners and shall cause such owners to deliver the Deeds and as applicable, all other Transfer Documents at COE. In addition, Seller has disclosed to Buyer that the Property in Columbus, Georgia referenced above includes an exclusive parking lot lease, dated September 29, 1992 (the “Parking Lot Lease”), which Parking Lot Lease is necessary in order to operate an Applebee’s restaurant on the Property. At COE, Seller, as the current tenant, shall assign its rights under the Parking Lot Lease to Buyer, and Buyer shall sublease the applicable premises to Tenant pursuant to the Lease covering such Property. At or prior to COE, Seller or Tenant shall obtain from the landlord(s) under the Parking Lot Lease (i) a consent to such assignment and subletting, (ii) a clean estoppel certificate with respect to such Parking Lot Lease, and (iii) a consent to Buyer granting its lender a leasehold mortgage against such Parking Lot Lease, which consent will grant such lender customary and reasonable leasehold mortgagee rights and protections as may be required by such lender.

Seller has further disclosed to Buyer the existing leasehold mortgages by which the Tenant has conveyed its interest under the Existing Leases for each of the Properties located in Columbus, Georgia, Macon, Georgia and Aurora, Colorado referenced above as security for loans made by Peachtree Franchise Finance Corporation, as mortgagee (“Leasehold Mortgagee”). Seller and Tenant have requested that Leasehold Mortgagee agree to a substitution of collateral for such three (3) Properties. In the event Leasehold Mortgagee fails to release such interest, Buyer agrees that it may be required to consent to the continuance of leasehold mortgages with respect to such three (3) Properties, but subject to the terms and conditions of the Leases.

14.BUYER’S WARRANTIES.Buyer hereby represents to Seller as of the Effective Date and again as of COE that:

(a)Buyer has full power and authority to execute, deliver and perform under this Agreement as well as under the Transfer Documents, specimens of which are attached hereto as Exhibits;

(b)there are no actions or proceedings pending or to Buyer’s knowledge, threatened against Buyer which may in any manner whatsoever affect the validity or enforceability of this Agreement or any of the documents, specimens of which are attached hereto as Exhibits;

(c)the execution, delivery and performance of this Agreement and the Transfer Documents, specimens of which are attached hereto as Exhibits, have not and will not constitute a breach or default under any other agreement, law or court order under which Buyer is a party or may be bound;

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(d)should Buyer receive notice or knowledge of any information regarding any of the matters set forth in this Section 14 after the Effective Date and prior to COE, Buyer will promptly notify Seller of the same in writing; and

(e)all representations made in this Agreement by Buyer shall survive the execution and delivery of this Agreement and COE. Buyer shall and does hereby indemnify against and hold Seller harmless from any loss, damage, liability and expense, together with all court costs and attorneys’ fees, if awarded by a court of law, which Seller may incur, by reason of any material misrepresentation by Buyer or any material breach of any of Buyer’s warranties. Buyer’s indemnity and hold harmless obligations shall survive COE.

15.SELLER’S TERMINATION RIGHT. Notwithstanding any contrary provision contained in this Agreement, Seller shall the right to terminate this Agreement as to all of the Properties by notice given to Buyer within three (3) business days after each Trigger Date (each, a “Termination Deadline”). As used herein, the term “Trigger Date” shall mean the (i) Initial Trigger Date, and (ii) the Subsequent Trigger Dates. The term “Initial Trigger Date” shall mean the date if any, on which the number of Removed Properties pursuant to Section 6(b), 6(c), 6(d), 7(c), 12 or 19 shall reach three (3) Properties in the aggregate. The term “Subsequent Trigger Dates” shall mean each date subsequent to the Initial Trigger Date on which a Property is removed pursuant to Section 6(b), 6(c), 6(d), 7(c), 12 or 19. If this Agreement is so terminated, the Earnest Money Deposit plus all interest accrued thereon shall be returned immediately to Buyer, and, except as otherwise provided in this Agreement, neither of the Parties shall have any further liability or obligation under this Agreement. Seller’s failure to terminate this Agreement by any Termination Deadline shall be deemed to be a waiver of Seller’s right to terminate this Agreement with respect to the corresponding Trigger Date.

16.BROKER’S COMMISSION. Concerning any brokerage commission, the Parties agree as follows:

(a)the Parties warrant to one another that they have not dealt with any finder, broker or realtor in connection with this Agreement except that Buyer has dealt with R&R Capital (“Buyer’s Broker”);

(b)if any person shall assert a claim to a finder’s fee or brokerage commission on account of alleged employment as a finder or broker in connection with this Agreement (including Buyer’s Broker), the Party under whom the finder or broker is claiming shall indemnify and hold the other Party harmless from and against any such claim and all costs, expenses and liabilities incurred in connection with such claim or any action or proceeding brought on such claim, including, but not limited to, counsel and witness fees and court costs in defending against such claim. The provisions of this subsection shall survive cancellation of this Agreement or COE; and

(c)Buyer shall be responsible for payment of any fees due Buyer’s Broker pursuant to a separate agreement between Buyer and Buyer’s Broker.

17.CLOSE OF ESCROW. COE as to each of the Properties shall be on or before 5:00 p.m. MST on the thirtieth (30th) day after the expiration of the Study Period (as such Study Period may be extended pursuant to Section 6(b) hereof) or such earlier date as Buyer may choose by giving written notice thereof to Seller and Escrow Agent. If Seller is not able to satisfy the conditions set forth in Section 12 by the scheduled date of COE, Buyer shall have the

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right to extend the COE date for up to thirty (30) days as contemplated by Section 12. If Seller is able to satisfy the conditions set forth in Section 12 by the scheduled date of COE, Buyer shall nevertheless have the right to extend the COE date as to each of the Properties for up to an additional fifteen (15) days upon delivery of written notice to extend the COE date to Escrow Agent prior to the original COE date corresponding to such Properties and by depositing an additional One Hundred Thousand and no/100 Dollars ($100,000.00) of earnest money with Escrow Agent. For purposes of this Agreement, any additional earnest money deposited with Escrow Agent pursuant to this Section 17 shall be added to and become a part of the Earnest Money Deposit. However, in the event the foregoing deposit is made in order to extend the COE date, then and in such event the entire Earnest Money Deposit and all interest earned thereon shall be non-refundable to Buyer except in the event of Seller’s default under the terms of this Agreement or as otherwise expressly provided in this Agreement.

18.ASSIGNMENT. This Agreement may not be assigned by Seller without the prior written consent of Buyer which consent shall not be unreasonably withheld. Buyer may assign its rights under this Agreement in whole or in part with respect to certain Properties, to one or more affiliates of Buyer without seeking or obtaining Seller’s consent. Such assignment shall not become effective until the assignee executes an instrument whereby such assignee expressly assumes each of the obligations of Buyer under this Agreement, including specifically, without limitation, all obligations concerning the Earnest Money Deposit. Buyer may also designate someone other than Buyer, as grantee and/or assignee, under the Transfer Documents by providing written notice of such designation at least five (5) days prior to COE. No assignment shall release or otherwise relieve Buyer from any obligations hereunder.

19.RISK OF LOSS. Seller shall bear all risk of loss, damage or taking of the Properties which may occur prior to COE. In the event of any loss, damage or taking with respect to any of the Properties prior to COE, Buyer may, at Buyer’s sole option, by written notice to Seller and Escrow Agent, remove such Properties from this Agreement as set forth in Section 6(b) above (each, a “Removed Property”) and the Purchase Price shall be reduced by the amount corresponding to such Removed Property as set forth in Exhibit A attached hereto, and this Agreement shall continue in full force and effect with respect to all remaining Properties. In the alternative, Buyer may attempt to negotiate an appropriate downward adjustment of the Purchase Price. If Seller and Buyer cannot agree upon such a downward adjustment within a reasonable period (not to exceed ten (10) days from the date Buyer receives notice of the loss) Buyer may remove such Removed Property from this Agreement as provided above. If Buyer waives any such loss or damage to any such Properties and closes escrow, Seller shall at COE and as a condition precedent thereto, pay Buyer or credit Buyer against the Additional Funds the amount of any insurance or condemnation proceeds, or assign to Buyer, as of COE and in a form acceptable to Buyer, all rights or claims for relief to the same. In the event of any loss, damage or taking with respect to all of the Properties prior to COE and Buyer elects to remove all Properties from this Agreement as provided above, then this Agreement shall automatically terminate, whereupon the Earnest Money Deposit plus interest shall be paid immediately to Buyer and, except as otherwise provided in this Agreement, neither of the Parties shall have any further liability or obligation hereunder.

20. REMEDIES.

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(a)Seller’s Breach. If Seller breaches this Agreement, Buyer may, at Buyer’s sole option, either: (i) by written notice to Seller and Escrow Agent, cancel this Agreement in its entirety whereupon the Earnest Money Deposit plus interest shall be paid immediately by Escrow Agent to Buyer and, except as otherwise provided in this Agreement, neither of the Parties shall have any further liability or obligation hereunder; or, (ii) seek specific performance against Seller in which event COE shall be automatically extended as necessary. Notwithstanding the foregoing, if specific performance is unavailable as a remedy to Buyer because of Seller’s affirmative acts, Buyer shall be entitled to pursue all rights and remedies available at law or in equity. This limitation of damages does not apply to the indemnification under Section 16.

(b)Buyer’s Breach. If Buyer breaches this Agreement, as its sole remedy Seller shall be entitled to retain the Earnest Money Deposit in accordance with subsection 5(b) as Seller’s agreed and total liquidated damages. Seller hereby waives any right to seek any equitable or legal remedies against Buyer.

(c)Neither Seller nor Buyer shall be deemed to be in default hereunder until and unless such party has been given written notice of its failure to comply with the terms hereof and thereafter does not cure such failure within three (3) business days after receipt of such notice.

21.ATTORNEYS’ FEES. If there is any litigation to enforce any provisions or rights arising herein in accordance with Section 20, the unsuccessful party in such litigation, as determined by the court, agrees to pay the successful party, as determined by the court, all costs and expenses, including, but not limited to, reasonable attorneys’ fees incurred by the successful party, such fees to be determined by the court.

22. NOTICES.

(a)Addresses. Except as otherwise required by law, any notice required or permitted hereunder shall be in writing and shall be given by personal delivery, or by deposit in the U.S. Mail, certified or registered, return receipt requested, postage prepaid, addressed to the Parties at the addresses set forth below, or at such other address as a Party may designate in writing pursuant hereto, or tested telex, or telegram, or telecopies (fax), or any express or overnight delivery service (e.g., Federal Express), delivery charges prepaid:

if to Seller: RCI Realty, LLC

400 Interstate North Parkway, Suite 1210  

Atlanta, Georgia 30339

Attn: William H. Ferguson

Tel.: (770) 984-0040

Fax: (770) 984-8191

if to Buyer: Series B, LLC

2555 E. Camelback Road, Suite 400

Phoenix, AZ 85016

Attn: Legal Department

Tel.: (602) 778-8700

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Fax: (602) 778-8780

with copies to: Kutak Rock LLP

8601 N. Scottsdale Road, Suite 300

Scottsdale, AZ 85253

Attn: Mitchell Padover, Esq.

Tel.: (480) 429-4848

Fax: (480) 429-5001

if to Escrow Agent: Lawyers Title Insurance Corporation

1850 North Central Avenue, Suite 300

Phoenix, AZ 85004

Attn: Mr. Allen Brown

Tel.: (602) 287-3522

Fax: (602) 263-0433

(b)Effective Date of Notices. Notice shall be deemed to have been given on the date on which such notice is delivered, if notice is given by personal delivery, telex, telegrams or telecopies, and on the date of deposit in the mail, if mailed or deposited with the overnight carrier, if used. Notice shall be deemed to have been received on the date on which the notice is received, if notice is given by personal delivery, and on the second (2nd) day following deposit in the U.S. Mail, if notice is mailed. If escrow has opened, a copy of any notice given to a party shall also be given to Escrow Agent by regular U.S. Mail or by any other method provided for herein.

23. CLOSING COSTS.

(a)Closing Costs. Seller and Buyer agree to pay closing costs as indicated in this Agreement and in the escrow instructions attached hereto as Exhibit D, and by this reference incorporated herein (the “Escrow Instructions”). At COE, Seller shall pay (i) the costs of releasing all liens, judgments, and other encumbrances that are to be released and of recording such releases, (ii) one-half the fees and costs due Escrow Agent for its services, (iii) the transfer tax associated with the sale of the Properties, if any, (iv) the cost of a standard Owner’s Policy corresponding to each of the Properties, and (v) all other costs to be paid by Seller under this Agreement. At COE, Buyer shall pay (i) any additional costs for extended coverage title insurance policies or any endorsements requested by Buyer, (ii) one-half the fees and costs due Escrow Agent for its services, and (iii) the costs of the Surveys. Subject to Section 8(b), Buyer shall also pay the costs of those investigations, studies and/or tests which Buyer may have elected to obtain. Except as otherwise provided for in this Agreement, Seller and Buyer will each be solely responsible for and bear all of their own respective expenses, including, without limitation, expenses of legal counsel, accountants, and other advisors incurred at any time in connection with pursuing or consummating the transaction contemplated herein. There shall be no prorations or apportionments hereunder insofar as Tenant, pursuant to the Existing Leases and the Leases, shall be required to pay all items usually prorated in transactions of the type described herein, including all real property taxes applicable to any period prior to COE. Any other closing costs not specifically designated as the responsibility of either Party in the Escrow Instructions or in this Agreement shall be paid by Seller and Buyer according to the usual and

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customary allocation of the same by Escrow Agent. Seller agrees that all closing costs payable by Seller shall be deducted from Seller’s proceeds otherwise payable to Seller at COE. Buyer shall deposit with Escrow Agent sufficient cash to pay all of Buyer’s closing costs. Except as provided in this Section 23(a), Seller and Buyer shall each bear their own costs in regard to this Agreement.

(b)Post-Closing Adjustment. If after COE, the parties discover any errors in adjustments and apportionments or additional information becomes available which would render the closing prorations materially inaccurate, the same shall be corrected as soon after their discovery as possible. The provision of this Section 23(b) shall survive COE except that no adjustment shall be made later than eighteen (18) months after COE unless prior to such date the Party seeking the adjustment shall have delivered a written notice to the other Party specifying the nature and basis for such claim. In the event that such claim is valid, the Party against whom the claim is sought shall have ten (10) days in which to remit any adjustment due.

(c)Instructions. This Agreement, together with the Escrow Instructions, shall constitute escrow instructions for the transaction contemplated herein. Such escrow instructions shall be construed as applying principally to Escrow Agent’s employment.

24.ESCROW CANCELLATION CHARGES. If escrow fails to close because of Seller’s default, Seller shall be liable for any cancellation charges of Escrow Agent. If escrow fails to close because of Buyer’s default, Buyer shall be liable for any cancellation charges of Escrow Agent. If escrow fails to close for any other reason, Seller and Buyer shall each be liable for one-half of any cancellation charges of Escrow Agent. The provisions of this Section 24 shall survive cancellation of this Agreement.

25.APPROVALS. Concerning all matters in this Agreement requiring the consent or approval of any Party, the Parties agree that any such consent or approval shall not be unreasonably withheld unless otherwise provided in this Agreement.

26. Intentionally Omitted.

27.ADDITIONAL ACTS. The Parties agree to execute promptly such other documents and to perform such other acts as may be reasonably necessary to carry out the purpose and intent of this Agreement.

28.GOVERNING LAW/JURISDICTION/VENUE. This Agreement shall be governed by and construed or enforced in accordance with the laws of the State of Arizona. In regard to any litigation which may arise in regard to this Agreement, the Parties shall and do hereby submit to the jurisdiction of and the Parties hereby agree that the proper venue shall be in the United States District Court for the District of Arizona in Phoenix and in the Superior Court of Arizona in Maricopa County, Arizona.

29.CONSTRUCTION. The terms and provisions of this Agreement represent the results of negotiations among the Parties, each of which has been represented by counsel of its own choosing, and neither of which has acted under any duress or compulsion, whether legal, economic or otherwise. Consequently, the terms and provisions of this Agreement shall be interpreted and construed in accordance with their usual and customary meanings, and the Parties

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each hereby waive the application of any rule of law which would otherwise be applicable in connection with the interpretation and construction of this Agreement that ambiguous or conflicting terms or provisions contained in this Agreement shall be interpreted or construed against the Party whose attorney prepared the executed Agreement or any earlier draft of the same.

30.TIME OF ESSENCE. Time is of the essence of this Agreement. However, if this Agreement requires any act to be done or action to be taken on a date which is a Saturday, Sunday or legal holiday, such act or action shall be deemed to have been validly done or taken if done or taken on the next succeeding day which is not a Saturday, Sunday or legal holiday, and the successive periods shall be deemed extended accordingly.

31.INTERPRETATION. If there is any specific and direct conflict between, or any ambiguity resulting from, the terms and provisions of this Agreement and the terms and provisions of any document, instrument or other agreement executed in connection herewith or in furtherance hereof, including any Exhibits hereto, the same shall be consistently interpreted in such manner as to give effect to the general purposes and intention as expressed in this Agreement which shall be deemed to prevail and control.

32.HEADINGS. The headings of this Agreement are for reference only and shall not limit or define the meaning of any provision of this Agreement.

33.FAX AND COUNTERPARTS. This Agreement may be executed by facsimile and/or in any number of counterparts. Each party may rely upon any facsimile or counterpart copy as if it were one original document.

34.INCORPORATION OF EXHIBITS BY REFERENCE. All Exhibits to this Agreement are fully incorporated herein as though set forth at length herein.

35.SEVERABILITY. If any provision of this Agreement is unenforceable, the remaining provisions shall nevertheless be kept in effect.

36.ENTIRE AGREEMENT. This Agreement contains the entire agreement between the Parties and supersedes all prior agreements, oral or written, with respect to the subject matter hereof. The provisions of this Agreement shall be construed as a whole and not strictly for or against any Party.

37.SEC S-X 3-14 Audit. Seller acknowledges that Buyer may elect to assign all of its right, title and interest in and to this Agreement to a company that is subject to the reporting requirements of the Securities Exchange Act of 1934, as amended (“Registered Company”), promoted by the Buyer or to an affiliate of a Registered Company (a “Registered Company Affiliate”). In the event Buyer’s assignee under this Agreement is a Registered Company or a Registered Company Affiliate, the Registered Company will be required to make certain filings with the U.S. Securities and Exchange Commission required under SEC Rule 3-14 of Regulation S-X (the “SEC Filings”) that relate to the most recent pre-acquisition fiscal year (the “Audited Year”) for the Property. To assist the Registered Company with the preparation of the SEC Filings, Seller agrees to provide Buyer and the Registered Company with financial information regarding the Property for the Audited Year requested by Buyer, the Registered Company,

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and/or Buyer’s or the Registered Company’s auditors. Such information may include, but is not limited to, bank statements, operating statements, general ledgers, cash receipts schedules, invoices for expenses and capital improvements, insurance documentation, and accounts receivable aging related to the Property (“SEC Filing Information”). Seller shall deliver the SEC Filing Information requested by Buyer, the Registered Company and/or Buyer’s or the Registered Company’s auditors prior to the expiration of the Study Period, and Seller agrees to cooperate with Buyer, the Registered Company and Buyer’s or the Registered Company’s auditors regarding any inquiries by Buyer, the Registered Company and Buyer’s or the Registered Company’s auditors following receipt of such information, including delivery by Seller of an executed representation letter prior to COE in form and substance requested by Buyer’s or the Registered Company’s auditors (“SEC Filings Letter”). A sample SEC Filings Letter is attached to the Purchase Agreement as Exhibit E; however, Buyer’s and/or the Registered Company’s auditors may require additions and/or revisions to such letter following review of the SEC Filing Information provided by Seller. Seller consents to the disclosure of the SEC Filing Information in any SEC Filings by the Registered Company. Buyer shall reimburse Seller for Seller’s reasonable costs associated with providing the SEC Filing Information. The provisions of this Section 37 shall survive the COE for a period of one (1) year.

[REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK.]

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IN WITNESS WHEREOF, Seller and Buyer have executed this Agreement as of the Effective Date.

SELLER: RCI REALTY, LLC

By:___________________________

Its:___________________________

BUYER: SERIES B, LLC

By:____________________________  

Its:____________________________  

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ESCROW AGENT’S ACCEPTANCE

The foregoing fully executed Agreement together with the Earnest Money Deposit is accepted by the undersigned this _____ day of February, 2007, which for the purposes of this Agreement shall be deemed to be the date of Opening of Escrow. Escrow Agent hereby accepts the engagement to handle the escrow established by this Agreement in accordance with the terms set forth in this Agreement.

LAWYERS TITLE INSURANCE

CORPORATION

By: ____________________________

Title:___________________________

21

EXHIBIT A

THE PARCELS

Allocation for

Property Address Title Insurance Purposes

2521 Airport Thruway, Columbus, GA 31904 $3,316,466.00

3229 Gentian Boulevard, Columbus, GA 31907 $3,933,165.00

11120 Abercorn Street, Savannah, GA 31419 $2,946,447.00

314 Russell Parkway, Warner Robins, GA 31099 $2,809,403.00

2574 Riverside Drive, Macon, GA 31204 $2,699,768.00

3652 Eisenhower Parkway, Macon, GA 31206 $2,603,837.00

5460 Augusta Road, Garden City, GA 31408 $2,973,856.00

2125 Windsor Spring Road, Augusta, GA 30906 $3,604,259.00

5250 South Wadsworth, Littleton, CO 80123 $2,288,636.00

14091 East Iliff Avenue, Aurora, CO 80014 $2,781,995.00

16485 East 40th Circle, Aurora, CO 80011 $2,562,724.00

495 Garden of the Gods, Colorado Springs, CO 80907 $1,877,504.00

711 Horizon Drive, Grand Junction, CO 81506 $3,522,032.00

213 East 29th Street, Loveland, CO 80538 $2,494,202.00

6428 South Highway 85/87, Fountain, CO 80817 $2,932,743.00

4246 Cerrillos Road, Santa Fe, NM 87505 $4,316,888.00

1560 West Maloney Avenue, Gallup, NM 87305 $3,289,058.00

516 East Llano Estacado Boulevard, Clovis, NM 88101 $2,740,881.00

1505 East Washington Avenue, Union Gap, WA 98903 $2,603,837.00

400 NW Burnside Road, Longview, WA 98632 $3,659,077.00

1604 Plaza Way, Walla Walla, WA 99362 $2,302,340.00

1525 Geary Street SE, Albany, OR 97321 $2,740,881.00

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EXHIBIT A-1

LEGAL DESCRIPTIONS OF PARCELS

23

EXHIBIT B

ASSIGNMENT AGREEMENT

This Assignment Agreement (the “Agreement”) dated as of _____________ (the “Effective Date”), is by and between _________________________, a _____________ (“Assignor”), and ________________________, a _____________ (“Assignee”).

WHEREAS, Assignor, as Seller, and Series B, LLC, as Buyer ("Original Buyer"), have entered into that certain Master Purchase Agreement and Escrow Instructions dated as of February ____, 2007 [as modified by amendment dated ________________,] ([collectively, ](the “Purchase Agreement”), providing for, among other things, the transfer and sale by Assignor to Original Buyer of Contracts and Permits (capitalized terms used herein and otherwise not defined shall have the meaning given in the Purchase Agreement); and

WHEREAS, Original Buyer assigned its right, title and interest in and to the Purchase Agreement to Assignee pursuant to that certain Assignment of Master Purchase Agreement and Escrow Instructions dated as of _______________, 2007; and

WHEREAS, Assignor desires to assign to Assignee all of Assignor’s right, title and interest in and to the Permits and the Contracts including, without limitation, as more particularly listed in Exhibit A attached hereto (collectively, the “Assigned Contracts”);

NOW, THEREFORE, for good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, Assignor and Assignee agree as follows:

1.Assignment. Assignor does hereby convey and assign to Assignee, its successors and assigns, all of Assignor’s right, title and interest, if any, in and to the Assigned Contracts (and Assignor covenants to cooperate with Assignee to secure performance by any warrantor for any work under such Assigned Contracts) to the extent assignable; provided, however, that to the extent the assignment of any Assigned Contract shall require the consent of any other party, this Agreement shall not constitute a contract to assign the same or any rights or liabilities thereunder if an attempted assignment thereof would cause a breach of the terms of the Assigned Contract, and the assignment of such Assigned Contract shall not be effective unless and until the consent of such other party shall have been obtained.

2.Binding Agreement. The terms and conditions of this Agreement shall be binding upon and inure to the benefit of Assignor and Assignee and their respective successors and assigns.

3.Interpretation. If there is any conflict as to the terms of this Agreement and the Purchase Agreement, the terms of the Purchase Agreement shall prevail.

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4.Governing Law. This Assignment Agreement shall be governed by and construed in accordance with the laws of Arizona applicable to contracts made and performed entirely therein.

5.Headings. The headings of this Agreement are for reference only and shall not limit or define the meaning of any provision of this Agreement.

6.Counterparts. The parties agree that this Agreement may be executed by the parties in one or more counterparts and each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

IN WITNESS WHEREOF, Assignor and Assignee have executed this Agreement as of the date set forth above.

ASSIGNOR: ______________________________

By:___________________________

Its:___________________________

ASSIGNEE: ______________________________

By: ___________________________

Its: ___________________________

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EXHIBIT A

LIST OF CONTRACTS

26

EXHIBIT C

RECORDING REQUESTED BY AND

WHEN RECORDED RETURN TO:

Cole _________________________

2555 E. Camelback Road, Suite 400

Phoenix, AZ 85016

Attn: Legal Dept.

[to be conformed to state requirements]

SPECIAL WARRANTY DEED

For the consideration of Ten Dollars ($10.00), and other valuable considerations, ___________________________ (“Grantor”), hereby conveys to __________________________, a ________________ (“Grantee”), the following described real property situated in _______________ County, ____________, together with all rights and privileges appurtenant thereto:

See legal description set forth in Exhibit A attached and incorporated by this reference (the “Property”).

together with all improvements, buildings, structures and fixtures located thereon; all easements, if any, benefiting the Property; all rights, benefits, privileges and appurtenances pertaining to the Property, including any right, title and interest of Grantor in and to any property lying in or under the bed of any street, alley, road or right-of-way, open or proposed, abutting or adjacent to the Property; the strips, gaps or gores, if any, between the Property; and abutting properties; all water, water rights, oil, gas or other mineral interests in, on, under or above the Property; and all rights and interests to receive any condemnation awards from any condemnation proceeding pertaining to the Property, sewer rights, water courses, wells, ditches and flumes located on or appurtenant to the Property.

SUBJECT TO the liens of taxes and assessments not yet due and payable, easements and restrictions of public record, easements visible upon the Property.

Grantor warrants the title to the Property against all acts of the Grantor herein and no other.

Dated this day of , 200.

GRANTOR:

_______________________________

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By:____________________________

Title:___________________________

STATE OF )

) ss:

COUNTY OF )

This instrument was acknowledged and executed before me this ______ day of ______________, 200__, by __________________________.

_____________________________

Notary Public

My Commission Expires: ________________

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EXHIBIT A TO

SPECIAL WARRANTY DEED

Legal Description

29

EXHIBIT D

ESCROW INSTRUCTIONS

1.Escrow Agent is authorized to take all appropriate action necessary to comply with this Agreement.

2.All money payable shall be paid to Escrow Agent, unless otherwise specified. Disbursement of any funds may be made by check of Escrow Agent. Unless otherwise specified, all funds received by Escrow Agent shall be deposited by Escrow Agent in any State or National Bank (FDIC insured), or as otherwise directed in writing by Seller and Buyer. Escrow Agent shall be under no obligation to disburse any funds represented by check or draft and no check or draft shall be payment to Escrow Agent in compliance with any of the requirements hereof until it is advised by the bank in which it is deposited that such check or draft has been honored.

3.Buyer and Seller shall deposit with Escrow Agent all documents necessary to complete the sale as established by the terms of this Agreement.

4.When this Agreement and all title requirements have been complied with (including without limitation all conditions set forth in any closing instructions agreed to by Escrow Agent), Escrow Agent shall deliver, file or record in the appropriate public office all necessary documents, disburse all funds and instruct the title company to issue the appropriate title insurance policy(ies).

5.Escrow Agent may resign upon ten (10) days written notice to the parties; provided that Escrow Agent shall transfer the Escrow together with all documents and funds to an escrow agent acceptable to both Seller and Buyer, or if Seller and Buyer cannot agree upon an acceptable escrow agent, then Escrow Agent shall have the right to resign and interplead all funds and documents to a court of competent jurisdiction.

6.Escrow Agent may at its election, in the event of any conflicting demands made upon it concerning the Agreement, hold any money and documents deposited hereunder until it receives mutual instructions by all parties or until a civil action shall have been concluded in a court of competent jurisdiction, determining the rights of the parties. In the alternative, Escrow Agent may at anytime, at its discretion, commence a civil action to interplead any conflicting demands to a court of competent jurisdiction.

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EXHIBIT E

FORM OF SEC S-X 3-14 LETTER

We are providing this letter in connection with your audit of the historical statement of certain revenues and certain expenses of [property name], located at [property address] (the “Property”) for the purpose of expressing an opinion as to whether the historical statement presents fairly, in all material respects, certain revenues and certain expenses for the year ended December 31, ______ of the Property on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America. We confirm that we are responsible for the following:

a. The fair presentation in the historical statement of certain revenues and certain expenses on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

b. The design and implementation of programs and controls to prevent and detect fraud.

We confirm, to the best of our knowledge and belief, the following representations made to you during your audit.

i. The financial statements referred to above are fairly presented on the basis of cash receipts and disbursements, which is a comprehensive basis of accounting other than accounting principles generally accepted in the United States of America.

ii. We have made available to you all financial records and related data.

iii. We have no knowledge of any fraud or suspected fraud affecting the Property involving (1) management, (2) employees or (3) others where the fraud could have a material effect on the financial statements.

iv. We have no knowledge of any allegations of fraud or suspected fraud affecting the Property received in communications from employees, former employees, analysts, regulators, short sellers, or others.

v. There are no unasserted claims or assessments that legal counsel has advised us are probable of assertion and must be disclosed in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies.

vi. Related-party transactions have been appropriately identified, properly recorded, and disclosed in the financial statements.

vii. No events have occurred subsequent to December 31, _____ that require consideration as adjustments to or disclosures in the financial statements.

_______________________ _______________________

(CEO Signature and Title) (CFO Signature and Title)

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