Form 10-K
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended December 31, 2008
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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)
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Maryland
(State or other jurisdiction of
incorporation or organization)
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20-1676382
(I.R.S. Employer
Identification Number) |
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2555 East Camelback Road, Suite 400
Phoenix, Arizona, 85016
(Address of principal executive offices; zip code)
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(602) 778-8700
(Registrant’s telephone number, including area code) |
Securities registered pursuant to Section 12(b) of the Act:
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Name of Exchange on Which Registered |
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| None
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None |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule
405 of the Securities Act. Yes o No þ
Indicate by check mark if the registrant is not required to file reports pursuant to Section
13 or Section 15(d) of the Act. Yes o No þ
Indicate by check mark whether the registrant (1) has filed all reports required to be filed
by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or
for such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. Yes þ No o
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation
S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in
definitive proxy or information statements incorporated by reference in Part III of this annual
report on Form 10-K or any amendment to this annual report on Form 10-K. þ
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 file
in Rule 12b-2 of the Exchange Act. (Check one.)
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| Large accelerated filer o
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Accelerated filer o
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Non-accelerated filer þ
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Smaller reporting company o |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of
the Exchange Act). Yes o No þ
The aggregate market value of the voting stock held by nonaffiliates as of June 30, 2008:
approximately $1.4 billion assuming a market value of $10.00 per
share based on our offering price. No established market exists for
the Company’s common stock.
The number of shares of common stock outstanding as of March 27, 2009 was 203,266,147.
Documents Incorporated by Reference:
The Registrant incorporates by reference portions of the Cole Credit Property Trust II, Inc.
Definitive Proxy Statement for the 2009 Annual Meeting of Stockholders (into Items 10, 11, 12, 13
and 14 of Part III).
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
Certain statements contained in this Annual Report on Form 10-K of Cole Credit Property Trust
II, Inc., other than historical facts may be considered forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and
Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for
all such forward-looking statements to be covered by the safe harbor provisions for forward-looking
statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as
applicable by law. Such statements include, in particular, statements about our plans, strategies,
and prospects and are subject to certain risks and uncertainties, as well as known and unknown
risks, which could cause actual results to differ materially from those projected or anticipated.
Therefore, such statements are not intended to be a guarantee of our performance in future periods.
Such forward-looking statements can generally be identified by our use of forward-looking
terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,”
“estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place
undue reliance on these forward-looking statements, which speak only as of the date this report is
filed with the Securities and Exchange Commission (“SEC”). We make no representation or warranty
(express or implied) about the accuracy of any such forward-looking statements contained in this
annual report on Form 10-K, and we do not intend to publicly update or revise any forward-looking
statements, whether as a result of new information, future events, or otherwise.
Forward-looking statements that were true at the time made may ultimately prove to be
incorrect or false. We caution investors not to place undue reliance on forward-looking
statements, which reflect our management’s view only as of the date of this Annual Report on Form
10-K. We undertake no obligation to update or revise forward-looking statements to reflect changed
assumptions, the occurrence of unanticipated events or changes to future operating results. The
forward-looking statements should be read in light of the risk factors identified in the “Item 1A -
Risk Factors” section of this Annual Report on Form 10-K.
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PART I
ITEM 1. BUSINESS
Formation
Cole Credit Property Trust II, Inc. (the “Company,” “we,” “our,” or “us”) is a Maryland
corporation formed on September 29, 2004, that has elected to be taxed, and currently qualifies, as
a real estate investment trust (“REIT”). We were organized to acquire and operate commercial real
estate primarily consisting of freestanding, single-tenant, retail properties net leased to
investment grade and other creditworthy tenants located throughout the United States. As of
December 31, 2008, we owned 673 properties located in 45 states and the U.S. Virgin Islands,
comprising approximately 18.3 million rentable square feet. At December 31, 2008, these properties
were approximately 99% leased. In addition, through a joint venture that we entered into during
the year ended December 31, 2008, we acquired an indirect interest in an approximately 386,000
square foot multi-tenant retail building in Independence, Missouri for approximately $53.7 million,
including acquisition costs, which represents an 85.48% interest in the joint venture. As of
December 31, 2008, we also owned 69 mortgage notes receivable, aggregating approximately $85.0
million, secured by 43 restaurant properties and 26 single-tenant retail properties, each of which
is subject to a net lease. In addition, as of December 31, 2008, we owned four commercial
mortgage-backed securities (“CMBS”) bonds, with an aggregate fair value of approximately $24.6
million.
Substantially all of our business is conducted through our operating partnership, Cole
Operating Partnership II, LP, a Delaware limited partnership organized in 2004 (“Cole OP II”). We
own a 99.99% interest in Cole OP II as its general partner. The remaining 0.01% of Cole OP II is
held as a limited partner’s interest by Cole REIT Advisors II, LLC (“Cole Advisors II”), which is
our affiliated advisor.
Cole Advisors II, pursuant to a contractual arrangement, is responsible for managing our
affairs on a day-to-day basis and for identifying and making acquisitions and investments on our
behalf. The agreement with Cole Advisors II is for a one-year term and is reconsidered on an
annual basis by our board of directors.
On June 27, 2005, we commenced a public offering on a “best efforts” basis of up to 45,000,000
shares of common stock offered at a price of $10.00 per share, subject to certain volume and other
discounts, pursuant to a Registration Statement on Form S-11 filed with the SEC under the
Securities Act (the “Initial Offering”). The Registration Statement also covered up to 5,000,000
shares available pursuant to a distribution reinvestment plan (the “DRIP”) under which our
stockholders may elect to have their distributions reinvested in additional shares of our common
stock at the greater of $9.50 per share or 95% of the estimated value of a share of common stock.
On November 13, 2006, we filed a registration statement with the SEC under Rule 462(b) to add
securities to the Initial Offering. The registration statement registered an additional 4,390,000
shares of common stock for sale in the primary offering and an additional 952,000 shares of common
stock for sale pursuant to our DRIP.
We commenced our principal operations on September 23, 2005, when we issued the initial
486,000 shares of our common stock in the Initial Offering. Prior to such date, we were considered
a development stage company. We terminated the Initial Offering on May 22, 2007. As of the close
of business on May 22, 2007, we had issued a total of 54,838,315 shares in the Initial Offering,
including 53,909,877 shares sold in the primary offering and 928,438 shares sold pursuant to the
DRIP, resulting in gross offering proceeds of approximately $547.4 million. At the completion of
the Initial Offering, a total of 503,685 shares of common stock remained unsold, including 230,123
shares that remained unsold in the primary offering and 273,562 shares of common stock that
remained unsold pursuant to the DRIP. All unsold shares in the Initial Offering were deregistered.
On May 23, 2007, we commenced our follow-on public offering of up to 150,000,000 shares of
common stock (the “Follow-on Offering”). The Follow-on Offering included up to 143,050,000 shares
to be offered for sale at $10.00 per share in the primary offering and up to 6,000,000 shares to be
offered for sale pursuant to the our DRIP. As of December 31, 2008, we had accepted subscriptions
for 147,430,874 shares of our common stock, including shares sold pursuant to DRIP, in the
Follow-on Offering, resulting in gross proceeds of approximately $1.4 billion. On September 18,
2008, we registered 30,000,000 additional shares of our common stock to be offered pursuant to our
DRIP in a Registration Statement on Form S-3 (the “DRIP Offering”) (collectively with the Initial
Offering and Follow-on Offering, the “Offerings”). As of December 31, 2008, we had issued
1,278,770 shares of our common stock in the DRIP Offering, resulting in gross proceeds of
approximately $12.2 million. The combined gross proceeds from the Offerings was approximately
$2.0 billion as of December 31, 2008, before combined offering costs, selling commissions, and
dealer management fees of approximately $187.7 million. As of December 31, 2008, we were
authorized to issue 10,000,000 shares of preferred stock, but had none issued or outstanding.
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On January 2, 2009, we terminated the Follow-on Offering. As of the close of business on
January 2, 2009, we had issued a total of 147,454,259 shares in the Follow-on Offering, including
141,520,572 shares sold in the primary offering and 5,933,687 shares sold pursuant to the DRIP,
resulting in gross proceeds from the Follow-on Offering of approximately $1.5 billion. At the
completion of the Follow-on Offering, a total of 1,595,741 shares of common stock remained unsold,
including 1,529,428 shares that remained unsold in the primary offering and 66,313 shares of common
stock that remained unsold pursuant to the DRIP. All unsold shares in the Follow-on Offering were
deregistered.
Subscription proceeds may be utilized to purchase investments, pay down of outstanding debt
and pay or reimburse dealer manager fees, selling commissions, organization and offering expenses,
and operating expenses. We also have used, and may continue to use, a portion of the net proceeds
from the Follow-on Offering to fund all or part of our distributions to stockholders. Such
distributions may constitute a return of capital and reduce the amount of capital we ultimately
invest in properties. Until required for use, net offering proceeds are held in short-term, liquid
investments.
Our stock is not currently listed on a national securities exchange. We may seek to list our
stock for trading on a national securities exchange only if a majority of our independent directors
believe listing would be in the best interest of our stockholders. We do not intend to list our
shares at this time. We do not anticipate that there would be any market for our common stock
until our shares are listed for trading. In the event we do not obtain listing prior to May 22,
2017, our charter requires that we either: (1) seek stockholder approval of an extension or
amendment of this listing deadline; or (2) seek stockholder approval to adopt a plan of liquidation
of the corporation.
Investment Objectives and Policies
Our objective is to invest primarily in freestanding, single-tenant, retail properties net
leased to investment grade and other creditworthy tenants. We may also invest in mortgage loans,
CMBS or other investments related to real property or entities or joint ventures that make similar
investments. Our primary investment objectives are:
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to provide current income to our stockholders through the payment of cash distributions; and |
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to preserve and return our stockholders’ capital contributions. |
We also seek capital gains from our investments. We cannot assure investors that we will
attain these objectives or that our capital will not decrease.
Decisions relating to the purchase or sale of our investments are made by our advisor, Cole
Advisors II, subject to approval by our board of directors, including a majority of our independent
directors. Our board of directors may revise our investment policies without the concurrence of
our stockholders. Our independent directors will review our investment policies at least annually
to determine that our policies are in the best interest of our stockholders.
Acquisition and Investment Policies
Primary Investments
We invest primarily in freestanding, single-tenant, retail properties net leased to investment
grade and other creditworthy tenants. Our investments may be direct investments in such properties
or in other entities that own or invest in, directly or indirectly, interests in such properties.
Currently, our portfolio consists primarily of freestanding, single-tenant properties net leased
for use as retail establishments. A portion of our portfolio also includes multi-tenant retail
properties and single-tenant properties leased to office and industrial tenants. In addition, we
have acquired and may continue to acquire mortgage loans secured by similar types of commercial
properties in our portfolio. Although we expect our portfolio will continue to consist primarily
of freestanding, single-tenant properties, we expect to continue to invest in other property types,
including office and industrial properties, leased to one or more tenants. In addition, we expect
to further diversify our portfolio by investing in multi-tenant properties that compliment our
overall investment objectives and additional mortgage loans.
Many of our properties are leased to single-tenants of large national retail chains or
franchises, including “big box” retailers, which operate stores in the home improvement, drug,
sporting goods, specialty, convenience, and restaurant industries. Other properties are so-called
“power centers,” which are comprised of big box retailers and smaller retail establishments, and
other multi-tenant properties that compliment our overall investment objectives. Our advisor
monitors industry trends and invests in properties on our behalf that serve to provide a favorable
return balanced with risk. Our management primarily targets retail businesses with established
track records. This industry is highly property dependent, therefore our advisor believes it
offers highly competitive sale-leaseback investment opportunities.
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We believe that our general focus on the acquisition of freestanding, single-tenant, retail
properties net leased to investment grade and other creditworthy tenants presents lower investment
risks and greater stability than other sectors of today’s commercial real estate market. Unlike
funds that invest solely in multi-tenant properties, we have acquired a diversified portfolio
comprised primarily of single-tenant properties and a smaller number of multi-tenant properties
that compliment our overall investment objectives. By primarily acquiring single-tenant
properties, we believe that lower than expected results of operations from one or a few investments
will not necessarily preclude our ability to realize our investment objectives of cash flow and
preservation of capital from our overall portfolio. In addition, we believe that freestanding
retail properties, as compared to shopping centers, malls and other traditional retail complexes,
offer a distinct investment advantage since these properties generally require less management and
operating capital, have less recurring tenant turnover and generally offer superior locations that
are less dependent on the financial stability of adjoining tenants. In addition, since we acquired
properties that are geographically diverse, we believe we have minimized the potential adverse
impact of economic downturns in local markets. Our management believes that a portfolio consisting
primarily of freestanding, single-tenant, retail properties net leased to creditworthy tenants
diversified geographically and by the industry and brand of tenants enhances our liquidity
opportunities for investors by making the sale of individual properties, multiple properties or our
investment portfolio as a whole attractive to institutional investors, and by making a possible
listing of our shares attractive to the public investment community.
To the extent feasible, we have acquired a well-balanced portfolio diversified by geographic
location, age of the property and lease maturity. We pursued properties with tenants that
represent a variety of industries so as to avoid concentration in any one industry. We expect
these industries to include all types of retail establishments, such as “big box” retailers,
convenience stores, drug stores and restaurant properties. We expect that tenants of our
properties will also be diversified between national, regional and local brands. We will generally
target properties with lease terms in excess of ten years. We may acquire properties with shorter
terms if the property is in an attractive location, if the property is difficult to replace, or if
the property has other significant favorable attributes. We expect that these investments will
provide long-term value by virtue of their size, location, quality and condition and lease
characteristics. We expect all of our acquisitions will be in the United States, including United
States protectorates.
Many retail companies today are entering into sale-leaseback arrangements as a strategy for
applying more capital that would otherwise be applied to their real estate holdings to their core
operating businesses. We believe that our investment strategy will enable us to take advantage of
the increased emphasis on retailers’ core business operations in today’s competitive corporate
environment as retailers attempt to divest from real estate assets.
There is no limitation on the number, size or type of properties that we may acquire or on the
percentage of net proceeds of the Offerings that may be invested in a single property. The number
and mix of properties we will hold at any given time will depend primarily upon real estate market
conditions and other circumstances existing at that time.
We incur debt to acquire properties if our board determines that incurring such debt is in our
best interest. In addition, from time to time, we acquire properties without financing and later
incur mortgage debt secured by one or more of such properties if favorable financing terms are
available. We will use the proceeds from such loans to acquire additional properties. See “-
Borrowing Policies” under this section for a more detailed explanation of our borrowing intentions
and limitations.
Investment Grade and Other Creditworthy Tenants
In evaluating potential property and mortgage loan acquisitions consistent with our investment
objectives, we apply credit underwriting criteria to the tenants of existing properties.
Similarly, we will apply credit underwriting criteria to possible new tenants when we are
re-leasing properties in our portfolio. Tenants of our properties frequently are national or
super-regional retail chains that are investment grade or otherwise creditworthy entities having
high net worth and operating income. Generally, these tenants must be experienced multi-unit
operators with a proven track record in order to meet the credit tests applied by our advisor.
A tenant will be
considered “investment grade” when the tenant has a debt
rating by Moody’s Investors Service (“Moody’s”) of
Baa3 or better or a credit rating by Standard & Poor’s
Financial Services, LLC (“Standard & Poor’s”) of BBB- or better, or its payments are
guaranteed by a company with such rating. Changes in tenant credit ratings, coupled with future
acquisition and disposition activity, may increase or decrease our concentration of investment
grade tenants in the future.
Moody’s ratings are opinions of future relative creditworthiness based on an evaluation of
franchise value, financial statement analysis and management quality. The rating given to a debt
obligation describes the level of risk associated with receiving full and timely payment of
principal and interest on that specific debt obligation and how that risk compares with that of all
other debt obligations. The rating, therefore, measures the ability of a company to generate cash
in the future.
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A Moody’s debt rating of Baa3, which is the lowest investment grade rating given by Moody’s,
is assigned to companies with adequate financial security. However, certain protective elements
may be lacking or may be unreliable over any given period of time. A Moody’s debt rating of Aaa,
which is the highest investment grade rating given by Moody’s, is assigned to companies with
exceptional financial security. Thus, investment grade tenants will be judged by Moody’s to have
at least adequate financial security, and will in some cases have exceptional financial security.
Standard & Poor’s assigns a credit rating to both companies as a whole and to each issuance or
class of a company’s debt. A Standard & Poor’s credit rating of BBB-, which is the lowest
investment grade rating given by Standard & Poor’s, is assigned to companies that exhibit adequate
protection parameters. However, adverse economic conditions or changing circumstances are more
likely to lead to a weakened capacity of the company to meet its financial commitments. A Standard
& Poor’s credit rating of AAA+, which is the highest investment grade rating given by Standard &
Poor’s, is assigned to companies or issuances with extremely strong capacities to meet their
financial commitments. Thus, investment grade tenants will be judged by Standard & Poor’s to have
at least adequate protection parameters, and will in some cases have extremely strong financial
positions.
Other creditworthy tenants are tenants with financial profiles that our advisor believes meet
our investment objectives. In evaluating the credit worthiness of a tenant or prospective tenant,
our advisor does not use specific quantifiable standards, but does consider many factors, including
other debt rating agencies, such as Dun and Bradstreet, and/or the proposed terms of the
acquisition. The factors our advisor considers include the financial condition of the tenant
and/or guarantor, the operating history of the property with such tenant or tenants, the tenant’s
or tenants’ market share and track record within its industry segment, the general health and
outlook of the tenant’s or tenants’ industry segment, and the lease length and terms at the time of
the acquisition.
Description of Leases
We typically purchase single-tenant properties with existing “net” leases, and when spaces
become vacant or existing leases expire we anticipate entering into “net” leases. “Net” leases
means leases that typically require that tenants pay all or a majority of the operating expenses,
including real estate taxes, special assessments and sales and use taxes, utilities, insurance and
building repairs related to the property, in addition to the lease payments. There are various
forms of net leases, typically classified as triple net or double net. Triple net leases typically
require the tenant to pay all costs associated with a property in addition to the base rent and
percentage rent, if any. Double net leases typically have the landlord responsible for the roof
and structure, or other aspects of the property, while the tenant is responsible for all remaining
expenses associated with the property. With respect to our multi-tenant properties, we have a
variety of lease arrangements with the tenants of such properties. Since each lease is an
individually negotiated contract between two or more parties, each contract will have different
obligations of both the landlord and tenant. Many large national tenants have standard lease forms
that generally do not vary from property to property, and we will have limited ability to revise
the terms of leases to those tenants.
We anticipate that a majority of our acquisitions will have lease terms of ten years or more
at the time of the acquisition. We may acquire in the future, properties under which the lease
term has partially expired. We also may acquire properties with shorter lease terms if the
property is in an attractive location, if the property is difficult to replace, or if the property
has other significant favorable real estate attributes. Under most commercial leases, tenants are
obligated to pay a predetermined annual base rent. Some of the leases for our properties also may
contain provisions that increase the amount of base rent payable at points during the lease term
and/or percentage rent that can be calculated by a number of factors. Under triple net and double
net leases, the tenants are generally required to pay the real estate taxes, insurance, utilities
and common area maintenance charges associated with the properties. Generally, the leases require
each tenant to procure, at its own expense, commercial general liability insurance, as well as
property insurance covering the building for the full replacement value and naming the ownership
entity and the lender, if applicable, as the additional insured on the policy. As a precautionary
measure, our advisor has obtained and may obtain in the future, to the extent available, secondary
liability insurance, as well as loss of rents insurance that covers one year of annual rent in the
event of a rental loss. The secondary insurance coverage names the ownership entity as the named
insured on the policy.
Some leases require that we procure insurance for both commercial general liability and
property damage insurance; however, the premiums are fully reimbursable from the tenant. When we
procure such insurance, the policy lists us as the named insured on the policy and the tenant as
the additional insured. Tenants are required to provide proof of insurance by furnishing a
certificate of insurance to our advisor on an annual basis. The insurance certificates are
carefully tracked and reviewed for compliance by our advisor’s property management department. In
general, leases may not be assigned or subleased without our prior written consent. If we do
consent to an assignment or sublease, the original tenant generally will remain fully liable under
the lease unless we release the tenant from its obligations under the lease.
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Other Possible Investments
Although we expect that most of our additional property acquisitions will be of the type
described above, we may make other investments. For example, we are not limited to investments in
single-tenant, freestanding retail properties or properties leased to investment grade and other
creditworthy tenants and complimentary multi-tenant properties. We may invest in other commercial
properties such as business and industrial parks, manufacturing facilities, office buildings and
warehouse and distribution facilities, or in other entities that make such investments or own such
properties, in order to reduce overall portfolio risks or enhance overall portfolio returns if our
advisor and board of directors determine that it would be advantageous to do so. Further, to the
extent that our advisor and board of directors determine it is in our best interest, due to the
state of the real estate market, in order to diversify our investment portfolio or otherwise, we
will make or invest in CMBS and mortgage loans generally secured by the same types of commercial properties
that we intend to acquire. We may also invest in other investments related to real property or
entities or joint ventures that make similar investments.
Our criteria for
investing in CMBS and mortgage loans are substantially the same as those
involved in our investment in properties. We do not intend to make loans to other persons (other
than mortgage loans), to underwrite securities of other issuers or to engage in the purchase and
sale of any types of investments other than interests in real estate.
Investment Decisions
Cole Advisors II has substantial discretion with respect to the selection of specific
investments and the purchase and sale of our properties, subject to the approval of our board of
directors. In pursuing our investment objectives and making investment decisions for us, Cole
Advisors II evaluates the proposed terms of the purchase against all aspects of the transaction,
including the condition and financial performance of the property, the terms of existing leases and
the creditworthiness of the tenant, and property and location characteristics. Because the factors
considered, including the specific weight we place on each factor, will vary for each potential
investment, we do not, and are not able to, assign a specific weight or level of importance to any
particular factor.
In addition to procuring and reviewing an independent valuation estimate and property
condition report, our advisor also, to the extent such information is available, considers the
following:
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unit level store performance; |
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property location, visibility and access; |
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age of the property, physical condition and curb appeal; |
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neighboring property uses; |
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local market conditions including vacancy rates; |
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area demographics, including trade area population and average household income; |
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neighborhood growth patterns and economic conditions; |
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presence of nearby properties that may positively impact store sales at the subject property; and |
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lease terms, including length of lease term, scope of landlord responsibilities, presence and
frequency of contractual rental increases, renewal option provisions, exclusive and permitted
use provisions, co-tenancy requirements and termination options. |
Our advisor considers whether properties are leased by, or have leases guaranteed by,
companies that maintain an investment grade rating by either Standard and Poor’s or Moody’s
Investor Services. Our advisor also will consider non-rated and non-investment grade rated tenants
that we consider creditworthy, as described in “- Investment Grade and Other Creditworthy Tenants”
above.
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Our advisor reviews the terms of each existing lease by considering various factors,
including:
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tenant purchase options; |
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scope of the landlord’s maintenance, repair and replacement requirements; |
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projected net cash flow yield; and |
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projected internal rates of return. |
Conditions to Closing Our Acquisitions
Generally, we condition our obligation to close the purchase of any investment on the delivery
and verification of certain documents from the seller or developer, including, where appropriate:
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plans and specifications; |
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evidence of marketable title, subject to such liens and encumbrances as are acceptable to Cole Advisors II; |
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financial statements covering recent operations of properties having operating histories; |
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title and liability insurance policies; and |
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tenant estoppel certificates. |
We generally will not purchase any property unless and until we also obtain what is generally
referred to as a “Phase I” environmental site assessment and are generally satisfied with the
environmental status of the property. However, we may purchase a property without obtaining such
assessment if our advisor determines it is not warranted. A Phase I environmental site assessment
basically consists of a visual survey of the building and the property in an attempt to identify
areas of potential environmental concerns, visually observing neighboring properties to assess
surface conditions or activities that may have an adverse environmental impact on the property, and
contacting local governmental agency personnel who perform a regulatory agency file search in an
attempt to determine any known environmental concerns in the immediate vicinity of the property. A
Phase I environmental site assessment does not generally include any sampling or testing of soil,
ground water or building materials from the property and may not reveal all environmental hazards
on a property.
We may enter into purchase and sale arrangements with a seller or developer of a suitable
property under development or construction. In such cases, we will be obligated to purchase the
property at the completion of construction, provided that the
construction substantially conforms to definitive
plans, specifications, and costs approved by us in advance. In such cases, prior to our acquiring
the property, we generally would receive a certificate of an architect, engineer or other
appropriate party, stating that the property substantially complies with all plans and specifications. If
renovation or remodeling is required prior to the purchase of a property, we expect to pay a
negotiated maximum amount to the seller upon completion. We do not currently intend to construct
or develop properties or to render any services in connection with such development or
construction.
In determining whether to purchase a particular property, we may, in accordance with customary
practices, obtain an option on such property. The amount paid for an option, if any, normally is
surrendered if the property is not purchased and normally is credited against the purchase price if
the property is purchased.
In purchasing, leasing and developing properties, we will be subject to risks generally
incident to the ownership of real estate. See “Risk Factors — General Risks Related to Investments
in Real Estate.”
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Ownership Structure
Our investment in
real estate generally takes the form of holding fee title or a long-term
leasehold estate. In addition, we invest in mortgages acquired in the
secondary market and secured
by commercial properties. We acquire such assets either directly through our operating
partnership, or indirectly through limited liability companies, limited partnerships, or through
investments in joint ventures, partnerships, co-tenancies or other co-ownership arrangements with
the developers of the properties, affiliates of Cole Advisors II or other persons. See the “—
Joint Venture Investments” section below. In addition, we may purchase properties and lease them
back to the sellers of such properties. While we will use our best efforts to structure any such
sale-leaseback transaction so that the lease will be characterized as a “true lease” and so that we
will be treated as the owner of the property for federal income tax purposes, the Internal Revenue
Service could challenge this characterization. In the event that any sale-leaseback transaction is
re-characterized as a financing transaction for federal income tax purposes, deductions for
depreciation and cost recovery relating to such property would be disallowed.
Joint Venture Investments
We may enter into joint ventures, partnerships, co-tenancies and other co-ownership
arrangements with third parties as well as affiliated entities, including other real estate
programs sponsored by affiliates of our advisor for the acquisition, development or improvement of
properties with affiliates of our advisor, including other real estate programs sponsored by
affiliates of our advisor. Additionally, we may enter into such arrangements with real estate
developers, owners and other unaffiliated third parties for the purpose of developing, owning and
operating real properties. In determining whether to invest in a particular joint venture, Cole
Advisors II will evaluate the real property that such joint venture owns or is being formed to own
under the same criteria described above in “— Investment Decisions” for the selection of our real
estate property investments. We entered into one joint venture during the year ended December 31,
2008.
Our general policy is to invest in joint ventures only when we would have substantial
decision-making rights and a right of first refusal to purchase the co-venturer’s interest in the
joint venture if the co-venturer elects to sell such interest. In the event that the co-venturer
elects to sell property held in any such joint venture, however, we may not have sufficient funds
to exercise our right of first refusal to buy the other co-venturer’s interest in the property held
by the joint venture. In the event that any joint venture with an affiliated entity holds
interests in more than one property, the interest in each such property may be specially allocated
based upon the respective proportion of funds invested by each co-venturer in each such property.
Cole Advisors II may have conflicts of interest in determining which Cole-sponsored program
should enter into any particular joint venture agreement. The co-venturer may have economic or
business interests or goals that are or may become inconsistent with our business interests or
goals. In addition, if the joint venture is with an affiliate, Cole Advisors II may face a
conflict in structuring the terms of the relationship between our interests and the interest of the
affiliated co-venturer and in managing the joint venture. Since Cole Advisors II and its
affiliates will control both the affiliated co-venturer and, to a certain extent, us, agreements
and transactions between the co-venturers with respect to any such joint venture will not have the
benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers,
which may result in the co-venturer receiving benefits greater than the benefits that we receive.
In addition, we may have liabilities that exceed the percentage of our investment in the joint
venture.
We may enter into joint ventures with other Cole real estate programs only if a majority of
our directors not otherwise interested in the transaction and a majority of our independent
directors approve the transaction as being fair and reasonable to us and on substantially the same
terms and conditions as those received by other joint venturers.
Borrowing Policies
Our advisor believes that utilizing borrowing is consistent with our investment objective of
maximizing the return to investors. By operating on a leveraged basis, we will have more funds
available for investment in properties. This will allow us to make more investments than would
otherwise be possible, resulting in a more diversified portfolio. There is no limitation on the
amount we may borrow against any single improved property. However, under our charter, we are
required to limit our borrowings to 60% of the greater of cost (before deducting depreciation or
other non-cash reserves) or fair market value of our gross assets, unless excess borrowing is
approved by a majority of the independent directors and disclosed to our stockholders in the next
quarterly report along with the justification for such excess borrowing. In the event that we
issue preferred stock that is entitled to a preference over the common stock in respect of
distributions or liquidation or is treated as debt under generally accepted accounting principles
in the United States (“GAAP”), we will include it in the leverage restriction calculations, unless
the issuance of the preferred stock is approved or ratified by our stockholders.
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Our advisor uses its best efforts to obtain financing on the most favorable terms available to
us. All of our financing arrangements must be approved by a majority of our board members
including a majority of our independent directors. Lenders may have recourse to assets not
securing the repayment of the indebtedness. Our advisor may refinance properties during the term
of a loan only in limited circumstances, such as when a decline in interest rates makes it
beneficial to prepay an existing mortgage, when an existing mortgage matures or if an attractive
investment becomes available and the proceeds from the refinancing can be used to purchase such
investment. The benefits of the refinancing may include increased cash flow resulting from reduced
debt service requirements, an increase in dividend distributions from proceeds of the refinancing,
if any, and an increase in property ownership if some refinancing proceeds are reinvested in real
estate.
Our ability to increase our diversification through borrowing may be adversely impacted if
banks and other lending institutions continue to reduce the amount of funds available for loans
secured by real estate. When interest rates on mortgage loans are high or financing is otherwise
unavailable on a timely basis, we may purchase properties for cash with the intention of obtaining
a mortgage loan for a portion of the purchase price at a later time. To the extent that we do not
obtain mortgage loans on our properties, our ability to acquire additional properties will be
restricted and we may not be able to adequately diversify our portfolio.
The current mortgage lending and interest rate environment for real estate in general
continues to be dislocated and the overall economic fundamentals remain uncertain. We have
experienced, and may continue to experience, more stringent lending criteria, which may affect our
ability to finance certain property acquisitions or to place or refinance debt on properties within
our portfolio. Additionally, for properties in which we are able to obtain acquisition or
post-acquisition financing, the interest rates on such loans may be unacceptable. We expect to
manage the current mortgage lending environment by utilizing fixed rate loans if the terms are
acceptable, borrowing on our existing $135.0 million line of credit (the “Credit Facility”),
obtaining short-term variable rate loans, assuming existing mortgage loans in connection with
property acquisitions, or entering into interest rate lock, cap or swap agreements, or any
combination of the foregoing. We acquired, and may continue to
acquire, a much larger percentage of
our properties for cash without financing. If we are unable to obtain suitable financing for
future acquisitions or we acquire a larger percentage of our properties for cash without financing,
our results of operations may be adversely affected. Additionally, if we are unable to identify
suitable properties at appropriate prices in the current credit environment, we may have a larger
amount of uninvested cash, which may adversely affect our results of operations. We will continue
to evaluate alternatives in the current market, including purchasing or originating debt backed by
real estate, which could produce attractive yields in the current market environment.
We may not borrow money from any of our directors or from our advisor or its affiliates unless
such loan is approved by a majority of the directors not otherwise interested in the transaction
(including a majority of the independent directors) as fair, competitive and commercially
reasonable and no less favorable to us than a comparable loan between unaffiliated parties. During
the year ended December 31, 2008, we borrowed and subsequently repaid an aggregate of approximately
$32.0 million from our advisor’s affiliates. During the year ended December 31, 2007, we did not
borrow any funds from our advisor’s affiliates. Our board of directors, including a majority of
our independent directors, not otherwise interested in the transaction approved each of these loans
as being fair, competitive, and commercially reasonable to us and no less favorable to us than
between unaffiliated parties under the same circumstances.
Acquisition of Properties from Affiliates
We may acquire properties or interests in properties from or in co-ownership arrangements with
entities affiliated with our advisor, including properties acquired from affiliates of our advisor
engaged in construction and development of commercial real properties. We will not acquire any
property from an affiliate unless a majority of our directors not otherwise interested in the
transaction and a majority of our independent directors determine that the transaction is fair and
reasonable to us. The purchase price that we will pay for any property we acquire from affiliates
of our advisor, including property developed by an affiliate as well as property held by an
affiliate that has already been developed, will not exceed the current appraised value of the
property. In addition, the price of the property we acquire from an affiliate may not exceed the
cost of the property to the affiliate, unless a majority of our directors and a majority of our
independent directors determine that substantial justification for the excess exists and the excess
is reasonable. During the year ended December 31, 2008, we purchased 22 properties or investments
therein for approximately $121.3 million from our advisor’s affiliates. Our board of directors,
including a majority of our independent directors, not otherwise interested in the transaction
approved each of these purchases as being fair, competitive, and commercially reasonable to the
Company and no less favorable to the Company than between unaffiliated parties under the same
circumstances. During the year ended December 31, 2007, we did not purchase any properties from
our advisor’s affiliates. See “Conflicts of Interest” below.
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Conflicts of Interest
We are subject to various conflicts of interest arising out of our relationship with Cole
Advisors II, our advisor, and its affiliates, including conflicts related to the arrangements
pursuant to which Cole Advisors II and its affiliates will be compensated by us. The agreements
and compensation arrangements between us and our advisor and its affiliates were not determined by
arm’s-length negotiations. Some of the conflicts of interest in our transactions with our advisor
and its affiliates, and the limitations on our advisor adopted to address these conflicts, are
described below.
Our advisor and its affiliates try to balance our interests with their duties to other
Cole-sponsored programs. However, to the extent that our advisor or its affiliates take actions
that are more favorable to other entities than to us, these actions could have a negative impact on
our financial performance and, consequently, on distributions to our stockholders and the value of
our stock. In addition, our directors, officers and certain of our stockholders may engage for
their own account in business activities of the types conducted or to be conducted by our
subsidiaries and us.
Our independent directors have an obligation to function on our behalf in all situations in
which a conflict of interest may arise, and all of our directors have a fiduciary obligation to act
on behalf of our stockholders.
Interests in Other Real Estate Programs
Affiliates of our advisor act as an advisor to, and our executive officers and at least one of
our directors act as officers and/or directors of Cole Credit Property Trust, Inc. (“CCPT”), and
Cole Credit Property Trust III, Inc. (“CCPT III”), each a real estate investment trust that has
investment objectives and targeted assets similar to ours. CCPT is no longer offering shares for
investment, and currently is not pursuing acquisitions of additional properties. CCPT III is
offering up to a maximum off 230,000,000 shares of common stock and
up to 20,000,000 additional
shares pursuant to a distribution reinvestment plan, and is currently pursuing acquisitions of
properties. In the event that CCPT sells one or more of its assets, it may seek to acquire
additional properties, which may be similar to properties in which we invest. Affiliates of our
officers and entities owned or managed by such affiliates also may acquire or develop real estate
for their own accounts, and have done so in the past. Furthermore, affiliates of our officers and
entities owned or managed by such affiliates intend to form additional real estate investment
entities in the future, whether public or private, which can be expected to have the same
investment objectives and policies as we do. Our advisor, its affiliates and affiliates of our
officers are not obligated to present to us any particular investment opportunity that comes to
their attention, even if such opportunity is of a character that might be suitable for investment
by us. Our advisor and its affiliates likely will experience conflicts of interest as they
simultaneously perform services for us and other affiliated real estate programs.
Any affiliated entity, whether or not currently existing, could compete with us in the sale or
operation of our assets. We will seek to achieve any operating efficiencies or similar savings that
may result from affiliated management of competitive assets. However, to the extent that affiliates
own or acquire property that is adjacent, or in close proximity, to a property we own, our property
may compete with the affiliate’s property for tenants or purchasers.
Every transaction that we enter into with our advisor or its affiliates is subject to an
inherent conflict of interest. Our board of directors may encounter conflicts of interest in
enforcing our rights against any affiliate in the event of a default by or disagreement with an
affiliate or in invoking powers, rights or options pursuant to any agreement between us and our
advisor, any of its affiliates or another Cole-sponsored real estate program.
Other Activities of Cole Advisors II and its Affiliates
We rely on Cole Advisors II for the day-to-day operation of our business pursuant to an
advisory agreement. As a result of the interests of members of its management in other
Cole-sponsored programs and the fact that they have also engaged and will continue to engage in
other business activities, Cole Advisors II and its affiliates have conflicts of interest in
allocating their time between us and other Cole-sponsored programs and other activities in which
they are involved. However, Cole Advisors II believes that it and its affiliates have sufficient
personnel to discharge fully their responsibilities to all of the Cole-sponsored programs and other
ventures in which they are involved.
In addition, most of our executive officers, including Christopher H. Cole, who also serves as
the chairman of our board of directors, also serves as an officer of our advisor, our property
manager, and/or other affiliated entities. As a result, these individuals owe
fiduciary duties to these other entities which may conflict with the fiduciary duties that they owe
to us and our stockholders.
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We may purchase properties or interests in properties from affiliates of Cole Advisors II.
The prices we pay to affiliates of our advisor for these properties will not be the subject of
arm’s-length negotiations, which could mean that the acquisitions may be on terms less favorable to
us than those negotiated with unaffiliated parties. However, our charter provides that the
purchase price of any property we acquire from an affiliate may not exceed its fair market value as
determined by a competent independent appraiser. In addition, the price must be approved by a
majority of our directors who have no financial interest in the transaction, including a majority
of our independent directors. If the price to us exceeds the cost paid by our affiliate, our board
of directors must determine that there is substantial justification for the excess cost. During
the year ended December 31, 2008, we purchased 22 properties or investments therein for
approximately $121.3 million from our advisor’s affiliates. Our board of directors, including a
majority of our independent directors, not otherwise interested in the transaction approved each of
these purchases as being fair, competitive, and commercially reasonable to the Company and no less
favorable to the Company than between unaffiliated parties under the same circumstances. During
the year ended December 31, 2007, we did not purchase any properties from our advisor’s affiliates.
Competition in Acquiring, Leasing and Operating of Properties
Conflicts of interest will exist to the extent that we may acquire properties or enter into a
joint venture that owns properties in the same geographic areas where properties owned by other
Cole-sponsored programs are located. In such a case, a conflict could arise in the leasing of
properties in the event that we and another Cole-sponsored program were to compete for the same
tenants in negotiating leases, or a conflict could arise in connection with the resale of
properties in the event that we and another Cole-sponsored program were to attempt to sell similar
properties at the same time. Conflicts of interest may also exist at such time as we or our
affiliates managing property on our behalf seek to employ developers, contractors or building
managers, as well as under other circumstances. Cole Advisors II will seek to reduce conflicts
relating to the employment of developers, contractors or building managers by making prospective
employees aware of all such properties seeking to employ such persons. In addition, Cole Advisors
II will seek to reduce conflicts that may arise with respect to properties available for sale or
rent by making prospective purchasers or tenants aware of all such properties. However, these
conflicts cannot be fully avoided in that there may be established differing compensation
arrangements for employees at different properties or differing terms for resales or leasing of the
various properties.
Affiliated Dealer Manager
Since Cole Capital Corporation (“Cole Capital”), our dealer manager, is an affiliate of Cole
Advisors II, we did not have the benefit of an independent due diligence review and investigation
of the type normally performed by an unaffiliated, independent underwriter in connection with our
Initial Offering or the Follow-on Offering.
Affiliated Property Manager
Our properties are, and we anticipate that properties we acquire will be, managed and leased
by our affiliated property manager, Cole Realty Advisors, Inc. (“Cole Realty Advisors”), pursuant
to a property management and leasing agreement. Our agreement with Cole Realty Advisors has a one
year term. We expect Cole Realty Advisors to also serve as property manager for properties owned
by affiliated real estate programs, some of which may be in competition with our properties.
Management fees to be paid to our property manager are based on a percentage of the rental income
received by the managed properties.
Lack of Separate Representation
Morris, Manning & Martin, LLP acts, and may in the future act, as counsel to us, Cole Advisors
II, and certain of our respective affiliates. There is a possibility that in the future the
interests of the various parties may become adverse, and under the Code of Professional
Responsibility of the legal profession, Morris, Manning & Martin, LLP may be precluded from
representing any one or all of such parties. In the event that a dispute were to arise between us,
Cole Advisors II, or any of our respective affiliates, separate counsel for such matters will be
retained as and when appropriate.
Receipt of Fees and Other Compensation by Cole Advisors II and its Affiliates
A transaction involving the purchase and sale of properties may result in the receipt of
commissions, fees and other compensation by Cole Advisors II and its affiliates, including
acquisition and advisory fees, the dealer manager fee, property management and leasing fees, asset
management fees, real estate brokerage commissions and participation in non-liquidating net sale
proceeds. However, the fees and compensation payable to Cole Advisors II or its affiliates
relating to the net sale proceeds from the sale of properties will only be payable after the return
to the stockholders of their capital contributions plus cumulative returns on such capital.
Subject to oversight by our board of directors, Cole Advisors II will have considerable discretion
with respect to all decisions relating to the terms and timing of all transactions. Therefore,
Cole Advisors II may have conflicts of interest concerning certain actions taken on our behalf,
particularly due to the fact that such fees will generally be payable to Cole Advisors II or its
affiliates regardless of the quality of the properties acquired or the services provided to us.
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Certain Conflict Resolution Procedures
Every transaction that we enter into with Cole Advisors II or its affiliates will be subject
to an inherent conflict of interest. Our board of directors may encounter conflicts of interest in
enforcing our rights against any affiliate in the event of a default by or disagreement with an
affiliate or in invoking powers, rights or options pursuant to any agreement between us and Cole
Advisors II or any of its affiliates.
In order to reduce or to eliminate certain potential conflicts of interest, our charter
contains a number of restrictions relating to (1) transactions we enter into with Cole Advisors II
and its affiliates, (2) certain future offerings, and (3) allocation of investment opportunities
among affiliated entities. These restrictions include, among others, the following:
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We will not purchase or lease properties in which Cole Advisors II, any of our directors or any of their respective affiliates has an
interest without a determination by a majority of the directors, including a majority of the independent directors not otherwise interested
in such transaction, that such transaction is fair and reasonable to us and at a price to us no greater than the cost of the property to the
seller or lessor unless there is substantial justification for any amount that exceeds such cost and such excess amount is determined to be
reasonable. In no event will we acquire any such property at an amount in excess of its appraised value. We will not sell or lease
properties to Cole Advisors II, any of our directors or any of their respective affiliates unless a majority of the directors, including a
majority of the independent directors not otherwise interested in the transaction, determines that the transaction is fair and reasonable to
us. |
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We will not make any loans to Cole Advisors II, any of our directors or any of their respective affiliates, except that we may make or
invest in mortgage loans involving Cole Advisors II, our directors or their respective affiliates, provided that an appraisal of the
underlying property is obtained from an independent appraiser and the transaction is approved as fair and reasonable to us and on terms no
less favorable to us than those available from third parties. In addition, Cole Advisors II, any of our directors and any of their
respective affiliates will not make loans to us or to joint ventures in which we are a joint venture partner unless approved by a majority
of the directors, including a majority of the independent directors not otherwise interested in the transaction, as fair, competitive and
commercially reasonable, and no less favorable to us than comparable loans between unaffiliated parties. |
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Cole Advisors II and its affiliates will be entitled to reimbursement, at cost, for actual expenses incurred by them on behalf of us or
joint ventures in which we are a joint venture partner; provided, however, Cole Advisors II must reimburse us for the amount, if any, by
which our total operating expenses, including the advisor asset management fee, paid during the previous fiscal year exceeded the greater
of: (i) 2.0% of our average invested assets for that fiscal year, or (ii) 25.0% of our net income, before any additions to reserves for
depreciation, bad debts or other similar non-cash reserves and before any gain from the sale of our assets, for that fiscal year. |
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In the event that an investment opportunity becomes available that is suitable, under all of the factors considered by Cole Advisors II, for
both us and one or more other entities affiliated with Cole Advisors II, and for which more than one of such entities has sufficient
uninvested funds, then the entity that has had the longest period of time elapse since it was offered an investment opportunity will first
be offered such investment opportunity. It will be the duty of our board of directors, including the independent directors, to insure that
this method is applied fairly to us. In determining whether or not an investment opportunity is suitable for more than one program, Cole
Advisors II, subject to approval by our board of directors, shall examine, among others, the following factors: |
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the anticipated cash flow of the property to be acquired and the cash requirements of each program; |
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the effect of the acquisition on diversification of each program’s investments by type of property, geographic
area and tenant concentration; |
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the policy of each program relating to leverage of properties; |
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the income tax effects of the purchase to each program; |
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the size of the investment; and |
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the amount of funds available to each program and the length of time such funds have been available for investment. |
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If a subsequent development, such as a delay in the closing of a property or a delay in the construction of a property, causes any such
investment, in the opinion of Cole Advisors II, to be more appropriate for a program other than the program that committed to make the
investment, Cole Advisors II may determine that another program affiliated with Cole Advisors II or its affiliates will make the investment. |
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We will not accept goods or services from Cole Advisors II or its affiliates or enter into any other transaction with Cole Advisors II or
its affiliates unless a majority of our directors, including a majority of the independent directors, not otherwise interested in the
transaction approve such transaction as fair and reasonable to us and on terms and conditions not less favorable to us than those available
from unaffiliated third parties. |
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Employees
We have no direct employees. The employees of Cole Advisors II and other affiliates of our
advisor provide services for us related to acquisition, property management, asset management,
accounting, investor relations, and all other administrative services. The employees of Cole
Capital, our affiliated dealer manager, provide wholesale brokerage services.
We are dependent on our advisor and its affiliates for services that are essential to us,
including the sale of shares of our common stock, asset acquisition decisions, property management
and other general administrative responsibilities. In the event that these companies were unable
to provide these services to us, we would be required to obtain such services from other sources.
We reimburse Cole Advisors II and its affiliates for expenses incurred in connection with its
provision of administrative services to us, including personnel costs, subject to certain
limitations. During the year ended December 31, 2008, approximately $3.7 million was reimbursed to
Cole Advisors II or its affiliates for personnel costs and third-party costs allocated in
connection with the issuance of shares pursuant to our Follow-on Offering. During the year ended
December 31, 2007, approximately $672,000 was reimbursed to Cole Advisors II or its affiliates for
personnel costs and third-party costs allocated in connection with the issuance of shares pursuant
to our Initial Offering and the Follow-on Offering.
Insurance
See “— Description of Leases” section above.
Reportable Segments
We operate on a consolidated basis in our commercial properties segment. See Note 2 to our
consolidated financial statements in this annual report on Form 10-K.
Competition
As we purchase properties to build our portfolio, we are in competition with other potential
buyers for the same properties and may have to pay more to purchase the property than if there were
no other potential acquirers or we may have to locate another property that meets our investment
criteria. Although our properties are currently 99% leased and we intend to acquire properties
subject to existing leases, the leasing of real estate is highly competitive in the current market,
and we may experience competition for tenants from owners and managers of competing projects. As a
result, we may have to provide free rent, incur charges for tenant improvements, or offer other
inducements, or we might not be able to timely lease the space, all of which may have an adverse
impact on our results of operations. At the time we elect to dispose of our properties, we will
also be in competition with sellers of similar properties to locate suitable purchasers for its
properties.
Concentration of Credit Risk
As of December 31, 2008, we had cash on deposit in seven financial institutions, of which five
had deposits in excess of current federally insured levels totaling approximately $105.6 million;
however, we have not experienced any losses in such accounts. We limit investment of cash
investments to financial institutions with high credit standing; therefore, we believe we are not
exposed to any significant credit risk on cash.
No single tenant accounted for greater than 10% of our gross annualized base rental revenues
as of December 31, 2008 and 2007. Tenants in the specialty retail, drugstore, and restaurant
industries comprised approximately 19%, approximately 13%, and approximately 13%, respectively, of
our gross annualized base rental revenues as of December 31, 2008. Tenants in the drugstore,
specialty retail and sporting goods industries comprised approximately 15%, approximately 14% and
approximately 11%, respectively, of our gross annualized base rental revenues as of December 31,
2007. Additionally, we have certain geographic concentrations in our property holdings. In
particular, as of December 31, 2008, 156 of our properties were located in Texas and 22 of our
properties were located in Florida, accounting for approximately 15% and approximately 12% of our
2008 gross annualized base rental revenues. As of December 31, 2007, 37 of our properties were
located in Texas and 15 of our properties were located in Illinois, accounting for approximately
16% and approximately 13% of our 2007 gross annualized base rental revenues, respectively.
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Litigation
In the ordinary course of business, we may become subject to litigation or claims. There are
no material pending legal proceedings or proceedings known to be contemplated against us.
Environmental Matters
In connection with the ownership and operation of real estate, we may be potentially liable
for costs and damages related to environmental matters. During the years ended December 31, 2008
and 2007, we acquired certain properties that are subject to environmental remediation. In each
case, the seller, the tenant and/or another third party has been identified as the responsible
party for environmental remediation costs related to the property. Additionally, in connection
with the purchase of certain of the properties, the respective sellers and/or tenants have
indemnified us against future remediation costs. We do not believe that the environmental matters
identified at such properties will have a material adverse effect on our consolidated results of
operations, nor are we aware of any environmental matters at other properties which we believe will
have a material adverse effect on our consolidated results of operations.
Available Information
We electronically file our annual reports on Form 10-K, quarterly reports on Form 10-Q,
current reports on Form 8-K and all amendments to those reports with the SEC. We have also filed
registration statements, amendments to our registration statements, and supplements to our
prospectus in connection with our Offerings with the SEC. Copies of our filings with the SEC may
be obtained from the SEC’s website, at http://www.sec.gov. Access to these filings is free
of charge.
ITEM 1A. RISK FACTORS
Set forth below are investment risks that we believe are material to our investors.
Risks Related to an Investment in Cole Credit Property Trust II, Inc.
There is no public trading market for our shares and there may never be one; therefore, it will be
difficult for you to sell your shares.
There currently is no public market for our shares and there may never be one. If you are
able to find a buyer for your shares, you may not sell your shares unless the buyer meets
applicable suitability and minimum purchase standards. Our charter also prohibits the ownership of
more than 9.8% of our stock by a single investor, unless exempted by our board of directors, which
may inhibit large investors from desiring to purchase your shares. Moreover, our share redemption
program includes numerous restrictions that would limit your ability to sell your shares to us.
Our board of directors may reject any request for redemption of shares, or amend, suspend or
terminate our share redemption program upon 30 days’ notice. Therefore, it will be difficult for
you to sell your shares promptly or at all. If you are able to sell your shares, you will likely
have to sell them at a substantial discount to the price you paid for the shares. It also is
likely that your shares would not be accepted as the primary collateral for a loan. You should
purchase the shares only as a long-term investment because of the illiquid nature of the shares.
You will not have the opportunity to evaluate our future investments before we make them, which
makes an investment in us more speculative.
We will seek to use the net offering proceeds, after the payment of fees and expenses of our
Offerings and other sources of capital, to continue to acquire a portfolio of commercial real
estate comprised primarily of a large number of freestanding, single-tenant, retail properties net
leased to investment grade or other creditworthy tenants and a smaller number of multi-tenant
properties that compliment our overall investment objectives. We may also, in the discretion of
our advisor, invest in other types of real estate or in entities that invest in real estate. In
addition, our advisor may make or invest in mortgage loans or participations therein on our behalf
if our board of directors determines, due to the state of the real estate market or in order to
diversify our investment portfolio or otherwise, that such investments are advantageous to us. We
will not provide you with information to evaluate our future investments prior to our acquisition
of properties. We established policies relating to the creditworthiness of tenants of our
properties, but our board of directors has wide discretion in implementing these policies, and you
will not have the opportunity to evaluate potential tenants.
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We may suffer from delays in locating suitable additional investments, which could adversely affect
our ability to make distributions and the value of your investment.
Our ability to achieve our investment objectives and to pay distributions is dependent upon
the performance of Cole REIT Advisors II, our advisor, in the acquisition of our investments, the
selection of our tenants and the determination of any financing arrangements. You must rely
entirely on the management ability of Cole Advisors II and the oversight of our board of directors.
We could suffer from delays in locating suitable additional investments, particularly as a result
of our reliance on our advisor at times when management of our advisor is simultaneously seeking to
locate suitable investments for other affiliated programs. Delays we encounter in the selection,
acquisition and, in the event we develop properties, development of income-producing properties,
would adversely affect our ability to make distributions and the value of your overall returns. In
such event, we may pay a portion of our distributions from the proceeds of our Offerings or from
borrowings in anticipation of future cash flow, which may constitute a return of your capital.
Distributions from the proceeds of our offering or from borrowings also could reduce the amount of
capital we ultimately invest in properties. This, in turn, would reduce the value of your
investment. In particular, if we acquire properties prior to the start of construction or during
the early stages of construction, it will typically take several months to complete construction
and rent available space. Therefore, you could suffer delays in the receipt of cash distributions
attributable to those particular properties. If Cole Advisors II is unable to obtain suitable
investments, we will hold proceeds from our Offerings in an interest-bearing account or invest the
proceeds in short-term, investment-grade investments. If we cannot invest our offering proceeds
within a reasonable amount of time, or if our board of directors determines it is in the best
interests of our stockholders, we will return uninvested offering proceeds to investors.
If our advisor loses or is unable to obtain key personnel, our ability to achieve our investment
objectives could be delayed or hindered, which could adversely affect our ability to pay
distributions to you and the value of your investment.
Our success depends to a significant degree upon the contributions of certain of our executive
officers and other key personnel of our advisor, each of whom would be difficult to replace. Our
advisor does not have an employment agreement with any of these key personnel and we cannot
guarantee that all, or any particular one, will remain affiliated with us and/or advisor. If any
of our key personnel were to cease their affiliation with our advisor, our operating results could
suffer. Further, we do not intend to separately maintain key person life insurance on Mr. Cole or
any other person. We believe that our future success depends, in large part, upon our advisor’s
ability to hire and retain highly skilled managerial, operational and marketing personnel.
Competition for such personnel is intense, and we cannot assure you that our advisor will be
successful in attracting and retaining such skilled personnel. If our advisor loses or is unable
to obtain the services of key personnel, our ability to implement our investment strategies could
be delayed or hindered, and the value of your investment may decline.
If we pay distributions from sources other than our cash flow from operations, we will have fewer
funds available for the acquisition of properties, and your overall return may be reduced.
Our organizational documents permit us to make distributions from any source. If we fund
distributions from financings or the net proceeds from the Offerings, we will have fewer funds
available for acquiring properties and other investments, and your overall value of your investment
may be reduced. Further, to the extent distributions exceed cash flow from operations, a
stockholder’s basis in our stock will be reduced and, to the extent distributions exceed a
stockholder’s basis, the stockholder may recognize capital gain. Further, we may make distributions
prior to generating sufficient cash flow from operations, but we currently have no plans regarding
when distributions will commence.
If we internalize our management functions, your interest in us could be diluted, and we could
incur other significant costs associated with being self-managed.
Our strategy may involve internalizing our management functions. If we internalize our
management functions, we may elect to negotiate to acquire our advisor’s assets and personnel. At
this time, we cannot be sure of the form or amount of consideration or other terms relating to any
such acquisition. Such consideration could take many forms, including cash payments, promissory
notes and shares of our stock. The payment of such consideration could result in dilution of your
interests as a stockholder and could reduce the net income per share and funds from operations per
share attributable to your investment.
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In addition, while we would no longer bear the costs of the various fees and expenses we
expect to pay to our advisor under the advisory agreement, our direct expenses would include
general and administrative costs, including legal, accounting, and other expenses related to
corporate governance, Securities and Exchange Commission reporting and compliance. We would also
incur the compensation and benefits costs of our officers and other employees and consultants that
we now expect will be paid by our advisor or its affiliates. In addition, we may issue equity
awards to officers, employees and consultants, which awards would decrease net income and funds
from operations and may further dilute your investment. We cannot reasonably estimate the amount of
fees to our advisor we would save and the costs we would incur if we became self-managed. If the
expenses we assume as a result of an internalization are higher than the expenses we avoid paying
to our advisor, our net income per share and funds from operations per share would be lower as a
result of the internalization than it otherwise would have been, potentially decreasing the amount
of funds available to distribute to you and the value of our shares.
As currently organized, we will not directly have any employees. If we elect to internalize
our operations, we would employ personnel and would be subject to potential liabilities commonly
faced by employers, such as worker’s disability and compensation claims, potential labor disputes
and other employee-related liabilities and grievances. Upon any internalization of our advisor,
certain key personnel of our advisor may not be employed by us, but instead may remain employees of
our sponsor or its affiliates.
If we internalize our management functions, we could have difficulty integrating these
functions as a stand-alone entity. Currently, our advisor and its affiliates perform asset
management and general and administrative functions, including accounting and financial reporting,
for multiple entities. They have a great deal of know-how and can experience economies of scale. We
may fail to properly identify the appropriate mix of personnel and capital needs to operate as a
stand-alone entity. An inability to manage an internalization transaction effectively could thus
result in our incurring excess costs and/or suffering deficiencies in our disclosure controls and
procedures or our internal control over financial reporting. Such deficiencies could cause us to
incur additional costs, and our management’s attention could be diverted from most effectively
managing our properties.
Our rights and the rights of our stockholders to recover claims against our officers, directors and
our advisor are limited, which could reduce your and our recovery against them if they cause us to
incur losses.
Maryland law provides that a director has no liability in that capacity if he or she performs
his or her duties in good faith, in a manner he or she reasonably believes to be in the
corporation’s best interests and with the care that an ordinarily prudent person in a like position
would use under similar circumstances. Our charter, in the case of our directors, officers,
employees and agents, and the advisory agreement, in the case of our advisor, require us to
indemnify our directors, officers, employees and agents and our advisor and its affiliates for
actions taken by them in good faith and without negligence or misconduct. Additionally, our
charter limits the liability of our directors and officers for monetary damages to the fullest
extent permitted under Maryland law, subject to the limitations required by the Statement of Policy
Regarding Real Estate Investment Trusts published by the North American Securities Administrators
Associations, also known as the NASAA REIT Guidelines. Although our charter does not allow us to
exonerate and indemnify our directors and officers to a greater extent than permitted under
Maryland law and the NASAA REIT Guidelines, we and our stockholders may have more limited rights
against our directors, officers, employees and agents, and our advisor and its affiliates, than
might otherwise exist under common law, which could reduce your and our recovery against them. In
addition, we may be obligated to fund the defense costs incurred by our directors, officers,
employees and agents or our advisor in some cases which would decrease the cash otherwise available
for distribution to you.
Risks Related to Conflicts of Interest
We will be subject to conflicts of interest arising out of our relationships with our advisor
and its affiliates, including the material conflicts discussed below. The “Conflicts of Interest”
section of Part I, Item 1 of this annual report provides a more detailed discussion of the
conflicts of interest between us and our advisor and its affiliates, and our policies to reduce or
eliminate certain potential conflicts.
A number of Cole real estate programs use investment strategies that are similar to ours, therefore
our advisor and its and our executive officers will face conflicts of interest relating to the
purchase and leasing of properties, and such conflicts may not be resolved in our favor.
Our sponsor may have simultaneous offerings of funds that have a substantially similar mix of
fund characteristics, including targeted investment types, investment objectives and criteria, and
anticipated fund terms. As a result, we may be buying properties and other real estate-related
investments at the same time as one or more of the other Cole-sponsored programs managed by
officers and key personnel of our advisor and/or its affiliates, and these other Cole-sponsored
programs may use investment strategies and have investment objectives that are similar to ours. In
particular, Cole Credit Property Trust III, Inc. currently is offering shares of its common stock
pursuant to an effective registration statement and pursuing acquisitions of assets that may be
suitable for us to acquire. Our executive officers and the executive officers of our advisor also
are the executive officers of other Cole-sponsored REITs and their advisors, the general partners
of Cole-sponsored partnerships and/or the
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advisors
or fiduciaries of other Cole-sponsored programs. There is a risk that our advisor will choose a property that provides lower returns
to us than a property purchased by another Cole-sponsored program. In the event these conflicts
arise, our best interests may not be met when officers and key persons acting on behalf of our
advisor and on behalf of advisors and managers of other Cole-sponsored programs decide whether to
allocate any particular property to us or to another Cole-sponsored program or affiliate that has
an investment strategy similar to ours. In addition, we may acquire properties in geographic areas
where other Cole-sponsored programs own properties. If one of the other Cole-sponsored programs
attracts a tenant that we are competing for, we could suffer a loss of revenue due to delays in
locating another suitable tenant. Similar conflicts of interest may arise if we acquire properties
from or sell properties to other Cole-sponsored programs, or if our advisor recommends that we make
or purchase mortgage loans or participations in mortgage loans, since other Cole-sponsored programs
may be competing with us for these investments.
Cole Advisors II faces conflicts of interest relating to joint ventures, which could result in a
disproportionate benefit to the other venture partners at our expense.
We may enter into joint ventures with other Cole-sponsored programs for the acquisition,
development or improvement of properties. Cole Advisors II may have conflicts of interest in
determining which Cole-sponsored program should enter into any particular joint venture agreement.
The co-venturer may have economic or business interests or goals that are or may become
inconsistent with our business interests or goals. In addition, Cole Advisors II may face a
conflict in structuring the terms of the relationship between our interests and the interest of the
affiliated co-venturer and in managing the joint venture. Since Cole Advisors II and its
affiliates will control both the affiliated co-venturer and, to a certain extent, us, agreements
and transactions between the co-venturers with respect to any such joint venture will not have the
benefit of arm’s-length negotiation of the type normally conducted between unrelated co-venturers,
which may result in the co-venturer receiving benefits greater than the benefits that we receive.
In addition, we may assume liabilities related to the joint venture that exceed the percentage of
our investment in the joint venture.
We may participate in 1031 exchange programs with affiliates of our advisor that will not be the
result of arm’s-length negotiations and will result in conflicts of interest.
Cole Capital Partners, LLC (“Cole Capital Partners”), an affiliate of our advisor, has
developed programs to facilitate the acquisition of real estate properties in co-ownership
arrangements with persons who are looking to invest proceeds from a sale of real estate in order to
qualify for like-kind exchange treatment under Section 1031 of the Internal Revenue Code (a
“Section 1031 Program”). Section 1031 Programs are structured as co-ownership arrangements with
other investors in the property (“Section 1031 Participants”) who are seeking to defer taxes under
Section 1031 of the Internal Revenue Code. These programs are structured either as a
tenant-in-common program or by use of a Delaware Statutory Trust. When Cole Capital Partners
develops such a program, it generally organizes a new entity (a “Cole Exchange Entity”) to acquire
all or part of a property. We may participate in the program by either co-investing in the
property with the Cole Exchange Entity or purchasing a co-ownership interest from the Cole Exchange
Entity, generally at the Cole Exchange Entity’s cost. In that event, as a co-owner of properties,
we will be subject to the risks inherent in the co-ownership arrangements with unrelated third
parties. Our purchase of co-ownership interests will present conflicts of interest between us and
affiliates of our advisor. The business interests of Cole Capital Partners and the Cole Exchange
Entity may be adverse to, or to the detriment of, our interests. Further, any agreement that we
enter into with a Cole Exchange Entity will not be negotiated in an arm’s-length transaction and,
as a result of the affiliation between our advisor, Cole Capital Partners and the Cole Exchange
Entity, our advisor may be reluctant to enforce the agreements against such entities.
Cole Advisors II and its officers and key personnel and certain of our key personnel face competing
demands relating to their time, and this may cause our operating results to suffer.
Cole Advisors II and its officers and employees and certain of our key personnel and their
respective affiliates are key personnel, general partners and sponsors of other real estate
programs that have investment objectives, targeted assets and legal and financial obligations
similar to ours and may have other business interests as well. Because these persons have
competing demands on their time and resources, they may have conflicts of interest in allocating
their time between our business and these other activities. During times of intense activity in
other programs and ventures, they may devote less time and fewer resources to our business than is
necessary or appropriate. If this occurs, the returns on our investments may suffer.
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Our officers face conflicts of interest related to the positions they hold with affiliated
entities, which could hinder our ability to successfully implement our business strategy and to
generate returns to you.
Each of our executive officers, including Mr. Cole, who also serves as the chairman of our
board of directors, also are officers of our advisor, our property manager, and/or other
affiliated entities. As a result, these individuals owe fiduciary duties to these
other entities and their stockholders and limited partners, which fiduciary duties may conflict
with the duties that they owe to us and our stockholders. Their loyalties to these other entities
could result in actions or inactions that are detrimental to our business, which could harm the
implementation of our business strategy and our investment and leasing opportunities. Conflicts
with our business and interests are most likely to arise from involvement in activities related to
(i) allocation of new investments and management time and services between us and the other
entities, (ii) our purchase of properties from, or sale of properties, to affiliated entities,
(iii) the timing and terms of the investment in or sale of an asset, (iv) development of our
properties by affiliates, (v) investments with affiliates of our advisor, (vi) compensation to our
advisor, and (vii) our relationship with our dealer manager and property manager. If we do not
successfully implement our business strategy, we may be unable to generate cash needed to make
distributions to our stockholders and to maintain or increase the value of our assets.
Cole Advisors II faces conflicts of interest relating to the incentive fee structure under our
advisory agreement, which could result in actions that are not necessarily in the long-term best
interests of our stockholders.
Under our advisory agreement, Cole Advisors II is entitled to fees that are structured in a
manner intended to provide incentives to our advisor to perform in our best interests and in the
best interests of our stockholders. However, because our advisor does not maintain a significant
equity interest in us and is entitled to receive substantial minimum compensation regardless of
performance, our advisor’s interests are not wholly aligned with those of our stockholders. In
that regard, our advisor could be motivated to recommend riskier or more speculative investments in
order for us to generate the specified levels of performance or sales proceeds that would entitle
our advisor to fees. In addition, our advisor’s entitlement to fees upon the sale of our assets
and to participate in sale proceeds could result in our advisor recommending sales of our
investments at the earliest possible time at which sales of investments would produce the level of
return that would entitle the advisor to compensation relating to such sales, even if continued
ownership of those investments might be in our best long-term interest. Our advisory agreement
requires us to pay a performance-based termination fee to our advisor in the event that we
terminate the advisor prior to the listing of our shares for trading on an exchange or, absent such
listing, in respect of its participation in net sales proceeds. To avoid paying this fee, our
independent directors may decide against terminating the advisory agreement prior to our listing of
our shares or disposition of our investments even if, but for the termination fee, termination of
the advisory agreement would be in our best interest. In addition, the requirement to pay the fee
to the advisor at termination could cause us to make different investment or disposition decisions
than we would otherwise make, in order to satisfy our obligation to pay the fee to the terminated
advisor. Moreover, our advisor has the right to terminate the advisory agreement upon a change of
control of our company and thereby trigger the payment of the performance fee, which could have the
effect of delaying, deferring or preventing the change of control.
There is no separate counsel for us and our affiliates, which could result in conflicts of
interest.
Morris, Manning & Martin, LLP acts as legal counsel to us and also represents our advisor and
some of its affiliates. There is a possibility in the future that the interests of the various
parties may become adverse and, under the Code of Professional Responsibility of the legal
profession, Morris, Manning & Martin, LLP may be precluded from representing any one or all of such
parties. If any situation arises in which our interests appear to be in conflict with those of our
advisor or its affiliates, additional counsel may be retained by one or more of the parties to
assure that their interests are adequately protected. Moreover, should a conflict of interest not
be readily apparent, Morris, Manning & Martin, LLP may inadvertently act in derogation of the
interest of the parties which could affect our ability to meet our investment objectives.
Risks Related to Our Corporate Structure
The limit on the number of shares a person may own may discourage a takeover that could otherwise
result in a premium price to our stockholders.
Our charter, with certain exceptions, authorizes our directors to take such actions as are
necessary and desirable to preserve our qualification as a REIT. Unless exempted by our board of
directors, no person may own more than 9.8% in value of our outstanding stock and more than 9.8% in
value or number, whichever is more restrictive, of any class of our outstanding stock. This
restriction may have the effect of delaying, deferring or preventing a change in control of us,
including an extraordinary transaction (such as a merger, tender offer or sale of all or
substantially all of our assets) that might provide a premium price for holders of our common
stock.
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Our charter permits our board of directors to issue stock with terms that may subordinate the
rights of common stockholders or discourage a third party from acquiring us in a manner that might
result in a premium price to our stockholders.
Our charter permits our board of directors to issue up to 250,000,000 shares of stock. In
addition, our board of directors, without any action by our stockholders, may amend our charter
from time to time to increase or decrease the aggregate number of shares or the number of shares of
any class or series of stock that we have authority to issue. Our board of directors may classify
or reclassify any unissued common stock or preferred stock and establish the preferences,
conversion or other rights, voting powers, restrictions, limitations as to distributions,
qualifications and terms or conditions of redemption of any such stock. Thus, our board of
directors could authorize the issuance of preferred stock with terms and conditions that could have
a priority as to distributions and amounts payable upon liquidation over the rights of the holders
of our common stock. Preferred stock could also have the effect of delaying, deferring or
preventing a change in control of us, including an extraordinary transaction (such as a merger,
tender offer or sale of all or substantially all of our assets) that might provide a premium price
for our stockholders.
Maryland law prohibits certain business combinations, which may make it more difficult for us to be
acquired and may limit your ability to exit the investment.
Under Maryland law, “business combinations” between a Maryland corporation and an interested
stockholder or an affiliate of an interested stockholder are prohibited for five years after the
most recent date on which the interested stockholder becomes an interested stockholder. These
business combinations include a merger, consolidation, share exchange or, in circumstances
specified in the statute, an asset transfer or issuance or reclassification of equity securities.
An interested stockholder is defined as:
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any person who beneficially owns 10% or more of the voting power of the corporation’s shares; |
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an affiliate or associate of the corporation who, at any time within the two-year period
prior to the date in question, was the beneficial owner of 10% or more of the voting power
of the then outstanding voting stock of the corporation. |
A person is not an interested stockholder under the statute if the board of directors approved
in advance the transaction by which he or she otherwise would have become an interested
stockholder. However, in approving a transaction, the board of directors may provide that its
approval is subject to compliance, at or after the time of approval, with any terms and conditions
determined by the board.
After the five-year prohibition, any business combination between the Maryland corporation and
an interested stockholder generally must be recommended by the board of directors of the
corporation and approved by the affirmative vote of at least:
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80% of the votes entitled to be cast by holders of outstanding shares of voting stock of the corporation; and |
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two-thirds of the votes entitled to be cash by holders of voting stock of the corporation other than shares
held by the interested stockholder with whom or with whose affiliate the business combination is to be
effected or held by an affiliate or associate of the interested stockholder. |
These super-majority vote requirements do not apply if the corporation’s stockholders receive
a minimum price, as defined under Maryland law, for their shares in the form of cash or other
consideration in the same form as previously paid by the interested stockholder for its shares.
The business combination statute permits various exemptions from its provisions, including business
combinations that are exempted by the board of directors prior to the time that the interested
stockholder becomes an interested stockholder. Pursuant to the statute, our board of directors has
exempted any business combination involving Cole Advisors II or any affiliate of Cole Advisors II.
Consequently, the five-year prohibition and the super-majority vote requirements will not apply to
business combinations between us and Cole Advisors II or any affiliate of Cole Advisors II. As a
result, Cole Advisors II and any affiliate of Cole Advisors II may be able to enter into business
combinations with us that may not be in the best interest of our stockholders, without compliance
with the super-majority vote requirements and the other provisions of the statute. The business
combination statute may discourage others from trying to acquire control of us and increase the
difficulty of consummating any offer.
Maryland law also limits the ability of a third party to buy a large stake in us and exercise
voting power in electing directors.
Maryland law provides a second anti-takeover statute, its Control Share Acquisition Act, which
provides that “control shares” of a Maryland corporation acquired in a “control share acquisition”
have no voting rights except to the extent approved by the corporation’s disinterested stockholders
by a vote of two-thirds of the votes entitled to be cast on the matter. Shares of stock owned by
interested stockholders, that is, by the acquirer, by officers or by directors who are employees of
the corporation, are excluded from shares entitled to vote on the matter. “Control shares” are
voting shares of stock that would entitle the acquirer to exercise voting power in electing
directors within specified ranges of voting power. Control shares do not include shares the
acquiring person is then entitled to vote as a result of having previously obtained stockholder approval. A “control
share acquisition” means the acquisition of control shares. The control share acquisition statute
does not apply (a) to shares acquired in a merger, consolidation or share exchange if the
corporation is a party to the transaction or (b) to acquisitions approved or exempted by the
articles of incorporation or bylaws of the corporation. Our bylaws contain a provision exempting
from the Control Share Acquisition Act any and all acquisitions of our common stock by Cole
Advisors II or any affiliate of Cole Advisors II. This statute could have the effect of
discouraging offers from third parties to acquire us and increasing the difficulty of successfully
completing this type of offer by anyone other than our affiliates or any of their affiliates.
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If we are required to register as an investment company under the Investment Company Act, we could
not continue our business, which may significantly reduce the value of your investment.
We are not registered as an investment company under the Investment Company Act of 1940, as
amended (the “Investment Company Act”), pursuant to the exclusion set forth in Section 3(c)(5)(C)
of the Investment Company Act and certain no-action letters issued by the Securities and Exchange
Commission. Accordingly, (1) at least 55% of our assets must consist of real estate fee interests
or loans secured exclusively by real estate or both, (2) at least 25% of our assets must consist of
loans secured primarily by real estate (this percentage will be reduced by the amount by which the
percentage in (1) above is increased); and (2) up to 20% of our assets may consist of miscellaneous
investments. We intend to monitor compliance with these requirements on an ongoing basis. If we
were obligated to register as an investment company, we would have to comply with a variety of
substantive requirements under the Investment Company Act imposing, among other things:
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limitations on capital structure; |
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restrictions on specified investments; |
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prohibitions on transactions with affiliates; and |
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compliance with reporting, record keeping, voting, proxy disclosure
and other rules and regulations that would significantly change our
operations. |
To maintain compliance with the Investment Company Act exemption, we may be unable to sell
assets we would otherwise want to sell and may need to sell assets we would otherwise wish to
retain. In addition, we may have to acquire additional income or loss generating assets that we
might not otherwise have acquired or may have to forgo opportunities to acquire interests in
companies that we would otherwise want to acquire and would be important to our investment
strategy. If we were required to register as an investment company but failed to do so, we would
be prohibited from engaging in our business, and criminal and civil actions could be brought
against us. In addition, our contracts would be unenforceable unless a court was to require
enforcement, and a court could appoint a receiver to take control of us and liquidate our business.
If you do not agree with the decisions of our board of directors, you only have limited control
over changes in our policies and operations and may not be able to change such policies and
operations.
Our board of directors determines our major policies, including our policies regarding
investments, financing, growth, debt capitalization, REIT qualification and distributions. Our
board of directors may amend or revise these and other policies without a vote of the stockholders.
Under the Maryland General Corporation Law and our charter, our stockholders have a right to vote
only on the following:
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the election or removal of directors; |
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any amendment of our charter (including a change in our investment objectives), except
that our board of directors may amend our charter without stockholder approval, to
increase or decrease the aggregate number of our shares, to increase or decrease the
number of our shares of any class or series that we have the authority to issue, or to
classify or reclassify any unissued shares by setting or changing the preferences,
conversion or other rights, restrictions, limitations as to distributions, qualifications
or terms and conditions of redemption of such shares, provided however, that any such
amendment does not adversely affect the rights, preferences and privileges of the
stockholders; |
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our liquidation or dissolution; |
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a reorganization of our company, as provided in our charter; and |
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any merger, consolidation or sale or other disposition of substantially all of our assets. |
All other matters are subject to the discretion of our board of directors.
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Our board of directors may change certain of our investment policies without stockholder approval,
which could alter the nature of your investment.
Our charter requires that our independent directors review our investment policies at least
annually to determine that the policies we are following are in the best interest of the
stockholders. These policies may change over time. The methods of implementing our investment
policies may also vary, as new real estate development trends emerge and new investment techniques
are developed. Our investment policies, the methods for their implementation, and our other
objectives, policies and procedures may be altered by our board of directors without the approval
of our stockholders. As a result, the nature of your investment could change without your consent.
You are limited in your ability to sell your shares pursuant to our share redemption program and
may have to hold your shares for an indefinite period of time.
Our board of directors may amend the terms of our share redemption program without stockholder
approval. Our board also is free to suspend or terminate the program upon 30 days notice or to
reject any request for redemption. In addition, the share redemption program includes numerous
restrictions that would limit your ability to sell your shares. Generally, you must have held your
shares for at least one year in order to participate in our share redemption program. Subject to
funds being available, we will limit the number of shares redeemed pursuant to our share redemption
program as follows: (1) during any calendar year, we will not redeem in excess of 3% of the
weighted average number of shares outstanding during the prior calendar year; and (2) funding for
the redemption of shares will be limited to the net proceeds we receive from the sale of shares
under our distribution reinvestment plan. These limits might prevent us from accommodating all
redemption requests made in any year. These restrictions severely limit your ability to sell your
shares should you require liquidity, and limit your ability to recover the value you invested or
the fair market value of your shares.
Your interest in Cole REIT II will be diluted if we issue additional shares.
Existing stockholders and potential investors in our offering do not have preemptive rights to
any shares issued by us in the future. Our charter currently has authorized 250,000,000 shares of
stock, of which 240,000,000 shares are designated as common stock and 10,000,000 are designated as
preferred stock. Subject to any limitations set forth under Maryland law, our board of directors
may increase the number of authorized shares of stock, increase or decrease the number of shares of
any class or series of stock designated, or reclassify any unissued shares without the necessity of
obtaining stockholder approval. All of such shares may be issued in the discretion of our board of
directors. Existing stockholders and investors purchasing shares in our offering likely will
suffer dilution of their equity investment in us, in the event that we (1) sell shares in our
offering or sell additional shares in the future, including those issued pursuant to our
distribution reinvestment plan, (2) sell securities that are convertible into shares of our common
stock, (3) issue shares of our common stock in a private offering of securities to institutional
investors, (4) issue shares of our common stock upon the exercise of the options granted to our
independent directors, (5) issue shares to our advisor, its successors or assigns, in payment of an
outstanding fee obligation as set forth under our advisory agreement, or (6) issue shares of our
common stock to sellers of properties acquired by us in connection with an exchange of limited
partnership interests of Cole OP II, existing stockholders and investors purchasing shares in our
offering will likely experience dilution of their equity investment in us. In addition, the
partnership agreement for Cole OP II contains provisions that would allow, under certain
circumstances, other entities, including other Cole-sponsored programs, to merge into or cause the
exchange or conversion of their interest for interests of Cole OP II. Because the limited
partnership interests of Cole OP II may, in the discretion of our board of directors, be exchanged
for shares of our common stock, any merger, exchange or conversion between Cole OP II and another
entity ultimately could result in the issuance of a substantial number of shares of our common
stock, thereby diluting the percentage ownership interest of other stockholders. Because of these
and other reasons described in this “Risk Factors” section, you should not expect to be able to own
a significant percentage of our shares.
Payment of fees to Cole Advisors II and its affiliates reduces cash available for investment and
distribution.
Cole Advisors II and its affiliates perform services for us in connection with our offer and
sale of our shares, the selection and acquisition of our investments, and the management and
leasing of our properties, the servicing of our mortgage loans, if any, and the administration of
our other investments. They are paid substantial fees for these services, which reduces the amount
of cash available for investment in properties or distribution to stockholders.
We may be unable to pay or maintain cash distributions or increase distributions over time.
There are many factors that can affect the availability and timing of cash distributions to
stockholders. Distributions will be based principally on cash available from our operations. The
amount of cash available for distributions is affected by many factors, such as our ability to buy
properties as offering proceeds become available, rental income from such properties, and our
operating expense levels, as well as many other variables. Actual cash available for distributions
may vary substantially from estimates. We may not be able to pay or maintain our current level of distributions or increase
distributions over time. Rents from the properties may not increase,
or may decrease, we may experience increased vacancies, the securities we buy may not
increase in value or provide constant or increased distributions over time, and future acquisitions
of real properties, mortgage loans and any investments in securities may not increase our cash
available for distributions to stockholders. Our actual results may differ significantly from the
assumptions used by our board of directors in establishing the distribution rate to stockholders.
We may not have sufficient cash from operations to make a distribution required to maintain our
REIT status.
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General Risks Related to Investments in Real Estate
Our operating results will be affected by economic and regulatory changes that have an adverse
impact on the real estate market in general, and we may not be profitable and may not realize
growth in the value of our real estate properties.
Our operating results are subject to risks generally incident to the ownership of real estate,
including:
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changes in general economic or local conditions; |
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changes in supply of or demand for similar or competing properties in an area; |
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changes in interest rates and availability of permanent mortgage funds that
may render the sale of a property difficult or unattractive; |
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changes in tax, real estate, environmental and zoning laws; and |
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periods of high interest rates and tight money supply. |
These risks and other factors may prevent us from being profitable or from realizing growth or
maintaining the value of our real estate properties.
The recent market disruptions may adversely affect our operating results and financial condition.
The global financial markets are currently undergoing pervasive and fundamental disruptions.
The continuation or intensification of any such volatility may have an adverse impact on the
availability of credit to businesses generally and could lead to a further weakening of the U.S.
and global economies. To the extent that turmoil in the financial markets continues and/or
intensifies, it has the potential to materially affect the value of our properties and other
investments we may make, the availability or the terms of financing that we may anticipate
utilizing, our ability to make principal and interest payments on, or refinance, any outstanding
debt when due, and/or the ability of our tenants to enter into new leasing transactions or satisfy
rental payments under existing leases. The current market disruption could also affect our
operating results and financial condition as follows:
• Debt and Equity Markets —The real estate debt markets are currently experiencing volatility
as a result of certain factors, including the tightening of underwriting standards by lenders
and credit rating agencies, and the significant inventory of unsold commercial mortgage-backed
securities in the market. Credit spreads for major sources of capital have widened
significantly as investors have demanded a higher risk premium. This is resulting in lenders
increasing the cost for debt financing. Should the overall cost of borrowings increase, either
by increases in the index rates or by increases in lender spreads, we will need to factor such
increases into the economics of our acquisitions, developments and other real estate-related
investments. This may result in our operations generating lower overall economic returns and a
reduced level of cash flows, which could potentially impact our ability to pay distributions
to our stockholders. In addition, the recent dislocations in the debt markets have reduced the
amount of capital that is available to finance real estate, which, in turn: (i) limits the
ability of real estate investors to benefit from reduced real estate values or to realize
enhanced returns on real estate investments; (ii) has slowed real estate transaction activity;
and (iii) may result in an inability to refinance debt as it becomes due, all of which may
reasonably be expected to have a material impact, favorable or unfavorable, on revenues,
income and/or cash flows from the acquisition and operations of real estate and mortgage
loans. In addition, the state of the debt markets could have an impact on the overall amount
of capital being invested in real estate, which may result in price or value decreases of real
estate assets and impact our ability to raise equity capital.
• Valuations — The recent market volatility will likely make the valuation of properties more
difficult. There may be significant uncertainty in the valuation, or in the stability of the
value, of the properties we acquire that could result in a substantial decrease in the value
of our properties. As a result, we may not be able to recover the carrying amount of our
properties, which may require us to recognize an impairment charge in earnings.
• Government Intervention — The pervasive and fundamental disruptions that the global
financial markets are currently undergoing have led to extensive and unprecedented
governmental intervention. Although the government intervention is
intended to stimulate the flow of capital and to undergird the U.S. economy in the short term,
it is impossible to predict the actual effect of the government intervention and what effect,
if any, additional interim or permanent governmental intervention may have on the financial
markets and/or the effect of such intervention on us and our results of operations. In
addition, there is a high likelihood that regulation of the financial markets will be
significantly increased in the future, which could have a material impact on our operating
results and financial condition.
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Adverse economic and geopolitical conditions may negatively affect our returns and profitability.
Our operating results may be affected by market and economic challenges, including the current
global economic credit environment, which may result from a continued or exacerbated general
economic slow down experienced by the nation as a whole or by the local economics where our
properties may be located, or by the real estate industry, including the following:
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poor economic conditions may result in tenant defaults under leases; |
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re-leasing may require concessions or reduced rental rates under the new leases; |
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poor economic conditions may result in lower revenue to us from retailers who pay us a
percentage of their revenues under percentage rent leases; |
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constricted access to credit may result in tenant defaults or non-renewals under leases; and |
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increased insurance premiums may reduce funds available for distribution or, to the extent
such increases are passed through to tenants, may lead to tenant defaults. Increased
insurance premiums may make it difficult to increase rents to tenants on turnover, which
may adversely affect our ability to increase our returns. |
The length and severity of any economic slow down or downturn cannot be predicted. Our
operations could be negatively affected to the extent that an economic slow down or downturn is
prolonged or becomes more severe.
The United States’ armed conflict in Iraq and other parts of the world could have a further
impact on our tenants. The consequences of any armed conflict are unpredictable, and we may not be
able to foresee events that could have an adverse effect on our business or your
investment. More generally, any of these events could result in increased volatility in or damage
to the United States and worldwide financial markets and economy. They also could result in higher
energy costs and increased economic uncertainty in the United States or abroad. Our revenues will
be dependent upon payment of rent by retailers, which may be particularly vulnerable to uncertainty
in the local economy. Adverse economic conditions could affect the ability of our tenants to pay
rent, which could have a material adverse effect on our operating results and financial condition,
as well as our ability to pay distributions to you.
Many of our retail properties will depend upon a single tenant for all or a majority of their
rental income, and our financial condition and ability to make distributions may be adversely
affected by the bankruptcy or insolvency, a downturn in the business, or a lease termination of a
single tenant.
Almost all of our properties are, and we expect that many of our future properties will be,
occupied by only one tenant or will derive a majority of their rental income from one tenant and,
therefore, the success of those properties will be materially dependent on the financial stability
of such tenants. Lease payment defaults by tenants could cause us to reduce the amount of
distributions we pay. A default of a tenant on its lease payments to us would cause us to lose the
revenue from the property and force us to find an alternative source of revenue to meet any
mortgage payment and prevent a foreclosure if the property is subject to a mortgage. In the event
of a default, we may experience delays in enforcing our rights as landlord and may incur
substantial costs in protecting our investment and re-letting the property. If a lease is
terminated, there is no assurance that we will be able to lease the property for the rent
previously received or sell the property without incurring a loss. A default by a tenant, the
failure of a guarantor to fulfill its obligations or other premature termination of a lease, or a
tenant’s election not to extend a lease upon its expiration, could have an adverse effect on our
financial condition and our ability to pay distributions to you.
If a tenant declares bankruptcy, we may be unable to collect balances due under relevant leases.
Any of our tenants, or any guarantor of a tenant’s lease obligations, could be subject to a
bankruptcy proceeding pursuant to Title 11 of the bankruptcy laws of the United States. Such a
bankruptcy filing would bar all efforts by us to collect pre-bankruptcy debts from these entities
or their properties, unless we receive an enabling order from the bankruptcy court.
Post-bankruptcy debts would be paid currently. If a lease is assumed, all pre-bankruptcy balances
owing under it must be paid in full. If a lease is rejected by a tenant in bankruptcy, we would
have a general unsecured claim for damages. If a lease is rejected, it is unlikely we would
receive any payments from the tenant because our claim is capped at the rent reserved under the
lease, without acceleration, for the greater of one year or 15% of the remaining term of the lease,
but not greater than three years, plus rent already due but unpaid. This
claim could be paid only in the event funds were available, and then only in the same
percentage as that realized on other unsecured claims.
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A tenant or lease guarantor bankruptcy could delay efforts to collect past due balances under
the relevant leases, and could ultimately preclude full collection of these sums. Such an event
could cause a decrease or cessation of rental payments that would mean a reduction in our cash flow
and the amount available for distributions to our stockholders. In the event of a bankruptcy, we
cannot assure you that the tenant or its trustee will assume our lease. If a given lease, or
guaranty of a lease, is not assumed, our cash flow and the amounts available for distributions to
our stockholders may be adversely affected.
A high concentration of our properties in a particular geographic area, or that have tenants in a
similar industry, would magnify the effects of downturns in that geographic area or industry.
We expect that our properties will be diverse according to geographic area and industry of our
tenants. However, in the event that we have a concentration of properties in any particular
geographic area, any adverse situation that disproportionately effects that geographic area would
have a magnified adverse effect on our portfolio. Similarly, if our tenants are concentrated in a
certain industry or industries, any adverse effect to that industry generally would have a
disproportionately adverse effect on our portfolio.
If a sale-leaseback transaction is re-characterized in a tenant’s bankruptcy proceeding, our
financial condition could be adversely affected.
We may enter into sale-leaseback transactions, whereby we would purchase a property and then
lease the same property back to the person from whom we purchased it. In the event of the
bankruptcy of a tenant, a transaction structured as a sale-leaseback may be re-characterized as
either a financing or a joint venture, either of which outcomes could adversely affect our
business. If the sale-leaseback were re-characterized as a financing, we might not be considered
the owner of the property, and as a result would have the status of a creditor in relation to the
tenant. In that event, we would no longer have the right to sell or encumber our ownership
interest in the property. Instead, we would have a claim against the tenant for the amounts owed
under the lease, with the claim arguably secured by the property. The tenant/debtor might have the
ability to propose a plan restructuring the term, interest rate and amortization schedule of its
outstanding balance. If confirmed by the bankruptcy court, we could be bound by the new terms, and
prevented from foreclosing our lien on the property. If the sale-leaseback were re-characterized as
a joint venture, our lessee and we could be treated as co-venturers with regard to the property.
As a result, we could be held liable, under some circumstances, for debts incurred by the lessee
relating to the property. Either of these outcomes could adversely affect our cash flow and the
amount available for distributions to our stockholders.
Properties that have vacancies for a significant period of time could be difficult to sell, which
could diminish the return to our stockholders.
A property may incur vacancies either by the continued default of tenants under their leases
or the expiration of tenant leases. If vacancies continue for a long period of time, we may suffer
reduced revenues resulting in less cash to be distributed to stockholders. In addition, because
properties’ market values depend principally upon the value of the properties’ leases, the resale
value of properties with prolonged vacancies could suffer, which could further reduce your return.
We may obtain only limited warranties when we purchase a property and would have only limited
recourse in the event our due diligence did not identify any issues that lower the value of our
property.
The seller of a property often sells such property in its “as is” condition on a “where is”
basis and “with all faults,” without any warranties of merchantability or fitness for a particular
use or purpose. In addition, purchase agreements may contain only limited warranties,
representations and indemnifications that will only survive for a limited period after the closing.
The purchase of properties with limited warranties increases the risk that we may lose some or all
of our invested capital in the property as well as the loss of rental income from that property.
We may be unable to secure funds for future tenant improvements or capital needs, which could
adversely impact our ability to pay cash distributions to our stockholders.
When tenants do not renew their leases or otherwise vacate their space, it is usual that, in
order to attract replacement tenants, we will be required to expend substantial funds for tenant
improvements and tenant refurbishments to the vacated space. In addition, although we expect that
our leases with tenants will require tenants to pay routine property maintenance costs, we will
likely be responsible for any major structural repairs, such as repairs to the foundation, exterior
walls and rooftops. We will use substantially all of our gross proceeds from our Offerings to buy
real estate and pay various fees and expenses. We reserve only 0.1% of the gross proceeds from our
Offerings for future capital needs. Accordingly, if we need additional capital in the future to
improve or maintain our properties or for any other reason, we will have to obtain financing from
other sources, such as cash flow from operations,
borrowings, property sales or future equity offerings. These sources of funding may not be
available on attractive terms or at all. If we cannot procure additional funding for capital
improvements, our investments may generate lower cash flows or decline in value, or both.
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Our inability to sell a property when we desire to do so could adversely impact our ability to pay
cash distributions to our stockholders.
The real estate market is affected by many factors, such as general economic conditions,
availability of financing, interest rates and other factors, including supply and demand, that are
beyond our control. We cannot predict whether we will be able to sell any property for the price
or on the terms set by us, or whether any price or other terms offered by a prospective purchaser
would be acceptable to us. We cannot predict the length of time needed to find a willing purchaser
and to close the sale of a property.
We may be required to expend funds to correct defects or to make improvements before a
property can be sold. We cannot assure you that we will have funds available to correct such
defects or to make such improvements. Moreover, in acquiring a property, we may agree to
restrictions that prohibit the sale of that property for a period of time or impose other
restrictions, such as a limitation on the amount of debt that can be placed or repaid on that
property. These provisions would restrict our ability to sell a property.
We may not be able to sell our properties at a price equal to, or greater than, the price for which
we purchased such property, which may lead to a decrease in the value of our assets.
Many of our leases do not, and will not, contain rental increases over time. Therefore, the
value of the property to a potential purchaser may not increase over time, which may restrict our
ability to sell a property, or in the event we are able to sell such property, may lead to a sale
price less than the price that we paid to purchase the property.
Certain of our properties are subject to lock-out provisions, and in the future we may acquire or
finance additional properties with lock-out provisions, which may prohibit us from selling a
property, or may require us to maintain specified debt levels for a period of years on some
properties.
Lock-out provisions could materially restrict us from selling or otherwise disposing of or
refinancing properties. These provisions affect our ability to turn our investments into cash and
thus affect cash available for distributions to our stockholders. Lock-out provisions may prohibit
us from reducing the outstanding indebtedness with respect to any properties, refinancing such
indebtedness on a non-recourse basis at maturity, or increasing the amount of indebtedness with
respect to such properties. Lock-out provisions could impair our ability to take other actions
during the lock-out period that could be in the best interests of our stockholders and, therefore,
may have an adverse impact on the value of the shares, relative to the value that would result if
the lock-out provisions did not exist. In particular, lock-out provisions could preclude us from
participating in major transactions that could result in a disposition of our assets or a change in
control even though that disposition or change in control might be in the best interests of our
stockholders.
Increased operating expenses could reduce cash flow from operations and funds available to acquire
investments or make distributions.
Our current properties are, and any properties that we buy in the future will be, subject to
operating risks common to real estate in general, any or all of which may negatively affect us. If
any property is not fully occupied or if rents are being paid in an amount that is insufficient to
cover operating expenses, we could be required to expend funds with respect to that property for
operating expenses. The properties will be subject to increases in tax rates, utility costs,
operating expenses, insurance costs, repairs and maintenance and administrative expenses. While we
expect that many of our properties will be leased on a triple-net-lease basis or will require the
tenants to pay a portion of such expenses, renewals of leases or future leases may not be
negotiated on that basis, in which event we may have to pay those costs. If we are unable to lease
properties on a triple-net-lease basis or on a basis requiring the tenants to pay all or some of
such expenses, or if tenants fail to pay required tax, utility and other impositions, we could be
required to pay those costs which could adversely affect funds available for future acquisitions or
cash available for distributions to you.
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The failure of any bank in which we deposit our funds could reduce the amount of cash we have
available to pay distributions and make additional investments.
We intend to diversify our cash and cash equivalents among several banking institutions in an
attempt to minimize exposure to any one of these entities. However, the Federal Deposit Insurance
Corporation, or “FDIC,” currently only insures amounts up to $250,000 per depositor per insured
bank. As of December 31, 2008, we had cash and cash equivalents and restricted cash deposited in
certain financial institutions in excess of federally insured levels. If any of the banking
institutions in which we have deposited funds ultimately fails, we may lose our deposits over the
federally insured level. The loss of our deposits could reduce the amount of cash we have
available to distribute or invest and could result in a decline in the value of your investment.
If we suffer losses that are not covered by insurance or that are in excess of insurance coverage,
we could lose invested capital and anticipated profits.
Generally, each of our tenants is responsible for insuring its goods and premises and, in some
circumstances, may be required to reimburse us for a share of the cost of acquiring comprehensive
insurance for the property, including casualty, liability, fire and extended coverage customarily
obtained for similar properties in amounts that our advisor determines are sufficient to cover
reasonably foreseeable losses. Tenants of single-user properties leased on a triple-net-lease
basis typically are required to pay all insurance costs associated with those properties. Material
losses may occur in excess of insurance proceeds with respect to any property, as insurance may not
be sufficient to fund the losses. However, there are types of losses, generally of a catastrophic
nature, such as losses due to wars, acts of terrorism, earthquakes, floods, hurricanes, pollution
or environmental matters, which are either uninsurable or not economically insurable, or may be
insured subject to limitations, such as large deductibles or co-payments. Insurance risks
associated with potential terrorism acts could sharply increase the premiums we pay for coverage
against property and casualty claims. Additionally, mortgage lenders in some cases have begun to
insist that commercial property owners purchase specific coverage against terrorism as a condition
for providing mortgage loans. It is uncertain whether such insurance policies will be available,
or available at reasonable cost, which could inhibit our ability to finance or refinance our
potential properties. In these instances, we may be required to provide other financial support,
either through financial assurances or self-insurance, to cover potential losses. We may not have
adequate coverage for such losses. The Terrorism Risk Insurance Act of 2002 is designed for a
sharing of terrorism losses between insurance companies and the federal government. We cannot be
certain how this act will impact us or what additional cost to us, if any, could result. If such
an event damaged or destroyed one or more of our properties, we could lose both our invested
capital and anticipated profits from such property.
Real estate-related taxes may increase and if these increases are not passed on to tenants, our
income will be reduced.
Some local real property tax assessors may seek to reassess some of our properties as a result
of our acquisition of the property. Generally, from time to time our property taxes increase as
property values or assessment rates change or for other reasons deemed relevant by the assessors.
An increase in the assessed valuation of a property for real estate tax purposes will result in an
increase in the related real estate taxes on that property. Although some tenant leases may permit
us to pass through such tax increases to the tenants for payment, there is no assurance that
renewal leases or future leases will be negotiated on the same basis. Increases not passed through
to tenants will adversely affect our income, cash available for distributions, and the amount of
distributions to you.
Revenue from our properties depends on the amount of our tenants’ retail revenue, making us
vulnerable to general economic downturns and other conditions affecting the retail industry.
Some of our leases may also include a percentage rent clause for additional rent above the
base amount based upon a specified percentage of the sales our tenants generate. Under those
leases that contain percentage rent clauses, our revenue from tenants may decrease as the sales of
our tenants decrease. Generally, retailers face declining revenues during downturns in the
economy. As a result, the portion of our revenue that we derive from percentage rent leases could
decline upon a general economic downturn.
CC&Rs may restrict our ability to operate a property.
Some of our properties will most likely be contiguous to other parcels of real property,
comprising part of the same retail center. In connection with such properties, there will likely
exist significant covenants, conditions and restrictions, known as “CC&Rs,” restricting the
operation of such properties and any improvements on such properties, and related to granting
easements on such properties. Moreover, the operation and management of the contiguous properties
may impact such properties. Compliance with CC&Rs may adversely affect our operating costs and
reduce the amount of funds that we have available to pay distributions to you.
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Our operating results may be negatively affected by potential development and construction delays
and result in increased costs and risks.
While we do not currently intend to do so, we may acquire and develop properties upon which we
will construct improvements. We will be subject to uncertainties associated with re-zoning for
development, environmental concerns of governmental entities and/or community groups, and our
builder’s ability to build in conformity with plans, specifications, budgeted costs, and
timetables. If a builder fails to perform, we may resort to legal action to rescind the purchase
or the construction contract or to compel performance. A builder’s performance may also be
affected or delayed by conditions beyond the builder’s control. Delays in completion of
construction could also give tenants the right to terminate preconstruction leases. We may incur
additional risks when we make periodic progress payments or other advances to builders before they
complete construction. These and other such factors can result in increased costs of a project or
loss of our investment. In addition, we will be subject to normal lease-up risks relating to newly
constructed projects. We also must rely on rental income and expense projections and estimates of
the fair market value of property upon completion of construction when agreeing upon a price at the
time we acquire the property. If our projections are inaccurate, we may pay too much for a
property, and our return on our investment could suffer.
While we do not currently intend to do so, we may invest in unimproved real property. Returns
from development of unimproved properties are also subject to risks associated with re-zoning the
land for development and environmental concerns of governmental entities and/or community groups.
Although we intend to limit any investment in unimproved property to property we intend to develop,
your investment nevertheless is subject to the risks associated with investments in unimproved real
property.
If we contract with an affiliated development company for newly developed property, we cannot
guarantee that our earnest money deposit made to the development company will be fully refunded.
While we currently do not have an affiliated development company, our sponsor and/or its
affiliates may form a development company. In such an event, we may enter into one or more
contracts, either directly or indirectly through joint ventures with affiliates or others, to
acquire real property from an affiliate of Cole Advisors II that is engaged in construction and
development of commercial real properties. Properties acquired from an affiliated development
company may be either existing income-producing properties, properties to be developed or
properties under development. We anticipate that we will be obligated to pay a substantial earnest
money deposit at the time of contracting to acquire such properties. In the case of properties to
be developed by an affiliated development company, we anticipate that we will be required to close
the purchase of the property upon completion of the development of the property by our affiliate.
At the time of contracting and the payment of the earnest money deposit by us, our development
company affiliate typically will not have acquired title to any real property. Typically, our
development company affiliate will only have a contract to acquire land, a development agreement to
develop a building on the land and an agreement with one or more tenants to lease all or part of
the property upon its completion. We may enter into such a contract with our development company
affiliate even if at the time of contracting we have not yet raised sufficient proceeds to enable
us to close the purchase of such property. However, we will not be required to close a purchase
from our development company affiliate, and will be entitled to a refund of our earnest money, in
the following circumstances:
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our development company affiliate fails to develop the property; |
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all or a specified portion of the pre-leased tenants fail to take possession under their leases for any reason; or |
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we are unable to raise sufficient proceeds from our Offerings to pay the purchase price at closing. |
The obligation of our development company affiliate to refund our earnest money will be
unsecured, and no assurance can be made that we would be able to obtain a refund of such earnest
money deposit from it under these circumstances since our development company affiliate may be an
entity without substantial assets or operations. However, our development company affiliates
obligation to refund our earnest money deposit may be guaranteed by Cole Realty Advisors, our
property manager, which will enter into contracts to provide property management and leasing
services to various Cole-sponsored programs, including us, for substantial monthly fees. As of the
time Cole Realty Advisors may be required to perform under any guaranty, we cannot assure that Cole
Realty Advisors will have sufficient assets to refund all of our earnest money deposit in a lump
sum payment. If we were forced to collect our earnest money deposit by enforcing the guaranty of
Cole Realty Advisors, we will likely be required to accept installment payments over time payable
out of the revenues of Cole Realty Advisors’ operations. We cannot assure you that we would be
able to collect the entire amount of our earnest money deposit under such circumstances.
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Competition with third parties in acquiring properties and other investments may reduce our
profitability and the return on your investment.
We compete with many other entities engaged in real estate investment activities, including
individuals, corporations, bank and insurance company investment accounts, other REITs, real estate
limited partnerships, and other entities engaged in real estate investment activities, many of
which have greater resources than we do. Larger REITs may enjoy significant competitive advantages
that result from, among other things, a lower cost of capital and enhanced operating efficiencies.
In addition, the number of entities and the amount of funds competing for suitable investments may
increase. Any such increase would result in increased demand for these assets and therefore
increased prices paid for them. If we pay higher prices for properties and other investments, our
profitability will be reduced and you may experience a lower return on your investment.
Our properties face competition that may affect tenants’ ability to pay rent and the amount of rent
paid to us may affect the cash available for distributions and the amount of distributions.
Our properties typically are, and we expect will be, located in developed areas. Therefore,
there are and will be numerous other retail properties within the market area of each of our
properties that will compete with us for tenants. The number of competitive properties could have
a material effect on our ability to rent space at our properties and the amount of rents charged.
We could be adversely affected if additional competitive properties are built in locations
competitive with our properties, causing increased competition for customer traffic and
creditworthy tenants. This could result in decreased cash flow from tenants and may require us to
make capital improvements to properties that we would not have otherwise made, thus affecting cash
available for distributions, and the amount available for distributions to you and the amount of
distributions we pay.
Acquiring or attempting to acquire multiple properties in a single transaction may adversely affect
our operations.
From time to time, we may attempt to acquire multiple properties in a single transaction.
Portfolio acquisitions are more complex and expensive than single property acquisitions, and the
risk that a multiple-property acquisition does not close may be greater than in a single-property
acquisition. Portfolio acquisitions may also result in us owning investments in geographically
dispersed markets, placing additional demands on our ability to manage the properties in the
portfolio. In addition, a seller may require that a group of properties be purchased as a package
even though we may not want to purchase one or more properties in the portfolio. In these
situations, if we are unable to identify another person or entity to acquire the unwanted
properties, we may be required to operate or attempt to dispose of these properties. To acquire
multiple properties in a single transaction we may be required to accumulate a large amount of
cash. We would expect the returns that we earn on such cash to be less than the ultimate returns on
real property, therefore accumulating such cash could reduce our funds available for distributions
to you. Any of the foregoing events may have an adverse effect on our operations.
If we set aside insufficient capital reserves, we may be required to defer necessary capital
improvements.
If we do not have enough reserves for capital to supply needed funds for capital improvements
throughout the life of the investment in a property and there is insufficient cash available from
our operations, we may be required to defer necessary improvements to a property, which may cause
that property to suffer from a greater risk of obsolescence or a decline in value, or a greater
risk of decreased cash flow as a result of fewer potential tenants being attracted to the property.
If this happens, we may not be able to maintain projected rental rates for affected properties, and
our results of operations may be negatively impacted.
Costs of complying with governmental laws and regulations, including those relating to
environmental matters, may adversely affect our income and the cash available for any
distributions.
All real property and the operations conducted on real property are subject to federal, state
and local laws and regulations relating to environmental protection and human health and safety.
These laws and regulations generally govern wastewater discharges, air emissions, the operation and
removal of underground and above-ground storage tanks, the use, storage, treatment, transportation
and disposal of solid and hazardous materials, and the remediation of contamination associated with
disposals. Some of these laws and regulations may impose joint and several liability on tenants,
owners or operators for the costs to investigate or remediate contaminated properties, regardless
of fault or whether the acts causing the contamination were legal. This liability could be
substantial. In addition, the presence of hazardous substances, or the failure to properly
remediate these substances, may adversely affect our ability to sell, rent or pledge such property
as collateral for future borrowings.
Some of these laws and regulations have been amended so as to require compliance with new or
more stringent standards as of future dates. Compliance with new or more stringent laws or
regulations or stricter interpretation of existing laws may require material expenditures by us.
Future laws, ordinances or regulations may impose material environmental liability. Additionally,
our tenants’ operations, the existing condition of land when we buy it, operations in the vicinity
of our properties, such as the presence of underground storage tanks, or activities of unrelated
third parties may affect our properties. In addition, there are various local, state
and federal fire, health, life-safety and similar regulations with which we may be required to
comply, and that may subject us to liability in the form of fines or damages for noncompliance.
Any material expenditures, fines, or damages we must pay will reduce our ability to make
distributions and may reduce the value of your investment.
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We will not obtain an independent third-party environmental assessment for every property we
acquire. In addition, any such assessment that we do obtain may not reveal all environmental
liabilities or that a prior owner of a property did not create a material environmental condition
not known to us. The cost of defending against claims of liability, of compliance with
environmental regulatory requirements, of remediating any contaminated property, or of paying
personal injury claims would materially adversely affect our business, assets or results of
operations and, consequently, amounts available for distribution to our stockholders.
Discovery of previously undetected environmentally hazardous conditions may adversely affect our
operating results.
Under various federal, state and local environmental laws, ordinances and regulations, a
current or previous owner or operator of real property may be liable for the cost of removal or
remediation of hazardous or toxic substances on, under or in such property. The costs of removal or
remediation could be substantial. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or toxic substances.
Environmental laws also may impose restrictions on the manner in which property may be used or
businesses may be operated, and these restrictions may require substantial expenditures.
Environmental laws provide for sanctions in the event of noncompliance and may be enforced by
governmental agencies or, in certain circumstances, by private parties. Certain environmental laws
and common law principles could be used to impose liability for release of and exposure to
hazardous substances, including asbestos-containing materials into the air, and third parties may
seek recovery from owners or operators of real properties for personal injury or property damage
associated with exposure to released hazardous substances. The cost of defending against claims of
liability, of compliance with environmental regulatory requirements, of remediating any
contaminated property, or of paying personal injury claims could materially adversely affect our
business, assets or results of operations and, consequently, amounts available for distribution to
you.
If we sell properties by providing financing to purchasers, defaults by the purchasers would
adversely affect our cash flows.
If we decide to sell any of our properties, we intend to use our best efforts to sell them for
cash. However, in some instances we may sell our properties by providing financing to purchasers.
When we provide financing to purchasers, we will bear the risk that the purchaser may default,
which could negatively impact our cash distributions to stockholders. Even in the absence of a
purchaser default, the distribution of the proceeds of sales to our stockholders, or their
reinvestment in other assets, will be delayed until the promissory notes or other property we may
accept upon the sale are actually paid, sold, refinanced or otherwise disposed of. In some cases,
we may receive initial down payments in cash and other property in the year of sale in an amount
less than the selling price and subsequent payments will be spread over a number of years. If any
purchaser defaults under a financing arrangement with us, it could negatively impact our ability to
pay cash distributions to you.
Our recovery of an investment in a mortgage that has defaulted may be limited.
There is no guarantee that the mortgage, loan or deed of trust securing an investment will,
following a default, permit us to recover the original investment and interest that would have been
received absent a default. The security provided by a mortgage, deed of trust or loan is directly
related to the difference between the amount owed and the appraised market value of the property.
Although we intend to rely on a current real estate appraisal when we make the investment, the
value of the property is affected by factors outside our control, including general fluctuations in
the real estate market, re-zoning, neighborhood changes, highway relocations and failure by the
borrower to maintain the property.
Our costs associated with complying with the Americans with Disabilities Act may affect cash
available for distributions.
Our properties will be subject to the Americans with Disabilities Act of 1990 (the
“Disabilities Act”). Under the Disabilities Act, all places of public accommodation are required
to comply with federal requirements related to access and use by disabled persons. The
Disabilities Act has separate compliance requirements for “public accommodations” and “commercial
facilities” that generally requires that buildings and services, including restaurants and retail
stores, be made accessible and available to people with disabilities. The Disabilities Act’s
requirements could require removal of access barriers and could result in the imposition of
injunctive relief, monetary penalties, or, in some cases, an award of damages. We will attempt to
acquire properties that comply with the Disabilities Act or place the burden on the seller or other
third party, such as a tenant, to ensure compliance with the Disabilities Act. However, we cannot
assure you that we will be able to acquire properties or allocate responsibilities in this manner.
If we cannot, our funds used for Disabilities Act compliance may affect cash available for
distributions and the amount of distributions to you.
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Risks Associated with Debt Financing
We have incurred, and expect to continue to incur, mortgage indebtedness and other borrowings,
which may increase our business risks, hinder our ability to make distributions, and decrease the
value of your investment.
We expect to incur additional indebtedness even if we raise significant proceeds in our
offering. We expect that in most instances, we will acquire real properties by using either
existing financing or borrowing new funds. In addition, we may incur mortgage debt and pledge all
or some of our real properties as security for that debt to obtain funds to acquire additional real
properties. We may borrow if we need funds to satisfy the REIT tax qualification requirement that
we distribute at least 90% of our annual REIT taxable income to our stockholders. We may also
borrow if we otherwise deem it necessary or advisable to assure that we maintain our qualification
as a REIT for federal income tax purposes.
Our advisor believes that utilizing borrowing is consistent with our investment objective of
maximizing the return to investors. There is no limitation on the amount we may borrow against any
single improved property. However, under our charter, we are required to limit our borrowings to
60% of the greater of cost (before deducting depreciation or other non-cash reserves) or fair
market value of our gross assets, unless excess borrowing is approved by a majority of the
independent directors. This level of borrowing is less than, and our borrowings will not exceed,
300% of our net assets, as set forth in the NASAA REIT Guidelines.
If there is a shortfall between the cash flow from a property and the cash flow needed to
service mortgage debt on a property, then the amount available for distributions to stockholders
may be reduced. In addition, incurring mortgage debt increases the risk of loss since defaults on
indebtedness secured by a property may result in lenders initiating foreclosure actions. In that
case, we could lose the property securing the loan that is in default, thus reducing the value of
your investment. For tax purposes, a foreclosure of any of our properties would be treated as a
sale of the property for a purchase price equal to the outstanding balance of the debt secured by
the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis
in the property, we would recognize taxable income on foreclosure, but would not receive any cash
proceeds. In such event, we may be unable to pay the amount of distributions required in order to
maintain our REIT status. We may give full or partial guarantees to lenders of mortgage debt to
the entities that own our properties. When we provide a guaranty on behalf of an entity that owns
one of our properties, we will be responsible to the lender for satisfaction of the debt if it is
not paid by such entity. If any mortgages contain cross-collateralization or cross-default
provisions, a default on a single property could affect multiple properties. If any of our
properties are foreclosed upon due to a default, our ability to pay cash distributions to our
stockholders will be adversely affected, which could result in our losing our REIT status and would
result in a decrease in the value of our stockholders investment.
High interest rates may make it difficult for us to finance or refinance properties, which could
reduce the number of properties we can acquire and the amount of cash distributions we can make to
you.
We run the risk of being unable to finance or refinance our properties on favorable terms or
at all. If interest rates are higher when we desire to mortgage our properties or when existing
loans come due and the properties need to be refinanced, we may not be able to finance the
properties and we would be required to use cash to purchase or repay outstanding obligations. Our
inability to use debt to finance or refinance our properties could reduce the number of properties
we can acquire, which could reduce our operating income and the amount of cash distributions we can
make to you. Higher costs of capital also could negatively impact operating income and returns on
our investments.
Lenders may require us to enter into restrictive covenants relating to our operations, which could
limit our ability to make distributions to our stockholders.
In connection with providing us financing, a lender could impose restrictions on us that
affect our distribution and operating policies and our ability to incur additional debt. Loan
documents we enter into may contain covenants that limit our ability to further mortgage the
property, discontinue insurance coverage or replace Cole Advisors II as our advisor. These or
other limitations may adversely affect our flexibility and our ability to achieve our investment
and operating objectives.
Increases in interest rates could increase the amount of our debt payments and adversely affect our
ability to pay distributions to our stockholders.
To the extent that we incur variable rate debt, increases in interest rates would increase our
interest costs, which could reduce our cash flows and our ability to pay distributions to our
stockholders. In addition, if we need to repay existing debt during periods of rising interest
rates, we could be required to liquidate one or more of our investments in properties at times that
may not permit realization of the maximum return on such investments.
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We have broad authority to incur debt, and high debt levels could hinder our ability to make
distributions and could decrease the value of your investment.
Our charter generally limits us to incurring debt no greater than 60% of the greater of cost
(before deducting depreciation or other non-cash reserves) or fair market value of all of our
assets, unless any excess borrowing is approved by a majority of our independent directors and
disclosed to our stockholders in our next quarterly report, along with a justification for such
excess borrowing. We expect that during the period of our offering we will request that our
independent directors approve borrowings in excess of this limitation since we will then be in the
process of raising our equity capital to acquire our portfolio. As a result, we expect that our
debt levels will be higher until we have invested most of our capital. High debt levels would
cause us to incur higher interest charges, would result in higher debt service payments, and could
be accompanied by restrictive covenants. These factors could limit the amount of cash we have
available to distribute and could result in a decline in the value of your investment.
Interest-only indebtedness may increase our risk of default and ultimately may reduce our funds
available for distribution to you.
We may finance our property acquisitions using interest-only mortgage indebtedness. During the
interest-only period, the amount of each scheduled payment will be less than that of a traditional
amortizing mortgage loan. The principal balance of the mortgage loan will not be reduced (except in
the case of prepayments) because there are no scheduled monthly payments of principal during this
period. After the interest-only period, we will be required either to make scheduled payments of
amortized principal and interest or to make a lump-sum or “balloon” payment at maturity. These
required principal or balloon payments will increase the amount of our scheduled payments and may
increase our risk of default under the related mortgage loan. If the mortgage loan has an
adjustable interest rate, the amount of our scheduled payments also may increase at a time of
rising interest rates. Increased payments and substantial principal or balloon maturity payments
will reduce the funds available for distribution to our stockholders because cash otherwise
available for distribution will be required to pay principal and interest associated with these
mortgage loans.
To hedge against exchange rate and interest rate fluctuations, we may use derivative financial
instruments that may be costly and ineffective and may reduce the overall returns on your
investment.
We may use derivative financial instruments to hedge our exposure to changes in exchange rates
and interest rates on loans secured by our assets and investments in collateralized mortgage-backed
securities. Derivative instruments may include interest rate swap contracts, interest rate cap or
floor contracts, futures or forward contracts, options or repurchase agreements. Our actual hedging
decisions will be determined in light of the facts and circumstances existing at the time of the
hedge and may differ from time to time.
To the extent that we use derivative financial instruments to hedge against exchange rate and
interest rate fluctuations, we will be exposed to credit risk, basis risk and legal enforceability
risks. In this context, credit risk is the failure of the counterparty to perform under the terms
of the derivative contract. If the fair value of a derivative contract is positive, the
counterparty owes us, which creates credit risk for us. We intend to manage credit risk by dealing
only with major financial institutions that have high credit ratings. Basis risk occurs when the
index upon which the contract is based is more or less variable than the index upon which the
hedged asset or liability is based, thereby making the hedge less effective. We intend to manage
basis risk by matching, to a reasonable extent, the contract index to the index upon which the
hedged asset or liability is based. Finally, legal enforceability risks encompass general
contractual risks, including the risk that the counterparty will breach the terms of, or fail to
perform its obligations under, the derivative contract. We intend to manage legal enforceability
risks by ensuring, to the best of our ability, that we contract with reputable counterparties and
that each counterparty complies with the terms and conditions of the derivative contract. If we are
unable to manage these risks effectively, our results of operations, financial condition and
ability to pay distributions to you will be adversely affected.
If we enter into financing arrangements involving balloon payment obligations, it may adversely
affect our ability to make distributions to you.
Some of our financing arrangements may require us to make a lump-sum or “balloon” payment at
maturity. Our ability to make a balloon payment at maturity is uncertain and may depend upon our
ability to obtain additional financing or our ability to sell the property. At the time the
balloon payment is due, we may or may not be able to refinance the balloon payment on terms as
favorable as the original loan, or at all, or sell the property at a price sufficient to make the
balloon payment. The effect of a refinancing or sale could affect the rate of return to
stockholders and the projected time of disposition of our assets. In addition, payments of
principal and interest made to service our debts may leave us with insufficient cash to pay the
distributions that we are required to pay to maintain our qualification as a REIT. Any of these
results would have a significant, negative impact on your investment.
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Risks Associated with Co-Ownership Transactions
Our participation in a co-ownership arrangement would subject us to risk that otherwise may not be
present in other real estate investments.
We may enter in co-ownership arrangements with respect to a portion of the properties we
acquire. Co-ownership arrangements involve risks generally not otherwise present with an
investment in real estate such as the following:
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the risk that a co-owner may at any time have economic or business interests or goals that are or
become inconsistent with our business interests or goals; |
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the risk that a co-owner may be in a position to take action contrary to our instructions or requests
or contrary to our policies or objectives; |
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the possibility that an individual co-owner might become insolvent or bankrupt, or otherwise default
under the applicable mortgage loan financing documents, which may constitute an event of default
under all of the applicable mortgage loan financing documents or allow the bankruptcy court to reject
the agreements entered into by the co-owners owning interests in the property; |
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the possibility that a co-owner might not have adequate liquid assets to make cash advances that may
be required in order to fund operations, maintenance and other expenses related to the property,
which could result in the loss of current or prospective tenants and may otherwise adversely affect
the operation and maintenance of the property, and could cause a default under the mortgage loan
financing documents applicable to the property and may result in late charges, penalties and
interest, and may lead to the exercise of foreclosure and other remedies by the lender; |
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the risk that a co-owner could breach agreements related to the property, which may cause a default,
or result in personal liability for, the applicable mortgage loan financing documents, violate
applicable securities law, result in a foreclosure or otherwise adversely affect the property and the
co-ownership arrangement; |
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we could have limited control and rights, with management decisions made entirely by a third-party; or |
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the possibility that we will not have the right to sell the property at a time that otherwise could
result in the property being sold for its maximum value. |
Any of the above might subject a property to liabilities in excess of those contemplated and
thus reduce the amount available for distribution to our stockholders.
In the event that our interests become adverse to those of the other co-owners, we will not
have the contractual right to purchase the co-ownership interests from the other co-owners. Even
if we are given the opportunity to purchase such co-ownership interests in the future, we cannot
guarantee that we will have sufficient funds available at the time to purchase co-ownership
interests from the co-owners.
We might want to sell our co-ownership interests in a given property at a time when the other
co-owners in such property do not desire to sell their interests. Therefore, because we anticipate
that it will be much more difficult to find a willing buyer for our co-ownership interests in a
property than it would be to find a buyer for a property we owned outright, we may not be able to
sell our interest in a property at the time we would like to sell.
Risks Associated with Investments in Mortgage, Bridge and Mezzanine Loans and Real Estate-Related
Securities
We do not have substantial experience investing in mortgage, bridge or mezzanine loans, which could
adversely affect our return on our loan investments.
We may make or acquire mortgage, bridge or mezzanine loans, or participations in such loans,
to the extent our advisor and board of directors determine that it is advantageous for us to do so.
However, neither our advisor nor any of its affiliates has any substantial experience investing in
mortgage, bridge or mezzanine loans. If we make or acquire mortgage, bridge or mezzanine loans or
participations in them, we may not have the expertise necessary to maximize the return on our
investment in these types of loans. If we make or invest in mortgage, bridge or mezzanine loans, we
will be at risk of defaults on those loans caused by many conditions beyond our control, including
local and other economic conditions affecting real estate values, interest rate changes, rezoning,
and failure by the borrower to maintain the property. If there are defaults under these loans, we
may not be able to repossess and sell quickly any properties securing such loans. An action to
foreclose on a property securing a loan is regulated by state statutes and regulations and is
subject to many of the delays and expenses of any lawsuit brought in connection with the
foreclosure if the defendant raises defenses or counterclaims. In the event of default by a
mortgagor, these restrictions, among other things, may impede
our ability to foreclose on or sell the mortgaged property or to obtain proceeds sufficient to
repay all amounts due to us on the loan, which could reduce the value of our investment in the
defaulted loan. In addition, investments in mezzanine loans involve a higher degree of risk than
long-term senior mortgage lending secured by income-producing real property because the investment
may become unsecured as a result of foreclosure on the underlying real property by the senior
lender.
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We may invest in various types of real estate-related securities.
Aside from investments in real estate, we are permitted to invest in real estate-related
securities, including securities issued by other real estate companies, CMBS, mortgage, bridge,
mezzanine or other loans and Section 1031 tenant-in-common interests, and we may invest in real
estate-related securities of both publicly traded and private real estate companies. We are
focused, however, on acquiring interests in retail and other income-producing properties. We may
not have the expertise necessary to maximize the return on our investment in real estate-related
securities. If our advisor determines that it is advantageous to us to make the types of
investments in which our advisor or its affiliates do not have experience, our advisor intends to
employ persons, engage consultants or partner with third parties that have, in our advisor’s
opinion, the relevant expertise necessary to assist our advisor in evaluating, making and
administering such investments.
Investments in real estate-related securities will be subject to specific risks relating to the
particular issuer of the securities and may be subject to the general risks of investing in
subordinated real estate securities, which may result in losses to us.
Our investments in real estate-related securities will involve special risks relating to the
particular issuer of the securities, including the financial condition and business outlook of the
issuer. Issuers of real estate-related equity securities generally invest in real estate or real
estate-related assets and are subject to the inherent risks associated with real estate-related
investments discussed in this prospectus, including risks relating to rising interest rates.
Real estate-related securities are often unsecured and also may be subordinated to other
obligations of the issuer. As a result, investments in real estate-related securities are subject
to risks of (1) limited liquidity in the secondary trading market in the case of unlisted or thinly
traded securities, (2) substantial market price volatility resulting from changes in prevailing
interest rates in the case of traded equity securities, (3) subordination to the prior claims of
banks and other senior lenders to the issuer, (4) the operation of mandatory sinking fund or
call/redemption provisions during periods of declining interest rates that could cause the issuer
to reinvest redemption proceeds in lower yielding assets, (5) the possibility that earnings of the
issuer may be insufficient to meet its debt service and distribution obligations and (6) the
declining creditworthiness and potential for insolvency of the issuer during periods of rising
interest rates and economic slow down or downturn. These risks may adversely affect the value of
outstanding real estate-related securities and the ability of the issuers thereof to repay
principal and interest or make distribution payments.
The CMBS in which we may invest are subject to all of the risks of the underlying mortgage loans,
the risks of the securitization process and dislocations in the mortgage-backed securities market
in general.
CMBS are securities that evidence interests in, or are secured by, a single commercial
mortgage loan or a pool of commercial mortgage loans. Accordingly, these securities are subject to
all of the risks of the underlying mortgage loans. In a rising interest rate environment, the value
of CMBS may be adversely affected when payments on underlying mortgages do not occur as
anticipated, resulting in the extension of the security’s effective maturity and the related
increase in interest rate sensitivity of a longer-term instrument. The value of CMBS may also
change due to shifts in the market’s perception of issuers and regulatory or tax changes adversely
affecting the mortgage securities market as a whole. In addition, CMBS are subject to the credit
risk associated with the performance of the underlying mortgage properties. CMBS are issued by
investment banks, not financial institutions, and are not insured or guaranteed by the U.S.
government.
CMBS are also subject to several risks created through the securitization process. Subordinate
CMBS are paid interest only to the extent that there are funds available to make payments. To the
extent the collateral pool includes delinquent loans, there is a risk that interest payments on
subordinate CMBS will not be fully paid. Subordinate CMBS are also subject to greater credit risk
than those CMBS that are more highly rated. In certain instances, third-party guarantees or other
forms of credit support can reduce the credit risk.
Although we intend to invest only in mortgage-backed securities collateralized by commercial
loans, the value of such CMBS can be negatively impacted by any dislocation in the mortgage-backed
securities market in general. Currently, the mortgage-backed securities market is suffering from a
severe dislocation created by mortgage pools that include sub-prime mortgages secured by
residential real estate. Sub-prime loans often have high interest rates and are often made to
borrowers with credit scores that would not qualify them for prime conventional loans. In recent
years, banks made a great number of the sub-prime residential mortgage loans with high interest
rates, floating interest rates, interest rates that reset from time to time, and/or interest-only
payment features that expire over time. These terms, coupled with rising interest rates, have
caused an increasing number of homeowners to default on their
mortgages. Purchasers of mortgage-backed securities collateralized by mortgage pools that
include risky sub-prime residential mortgages have experienced severe losses as a result of the
defaults and such losses have had a negative impact on the CMBS market.
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Federal Income Tax Risks
Failure to qualify as a REIT would adversely affect our operations and our ability to make
distributions.
If we fail to qualify as a REIT for any taxable year, we will be subject to federal income tax
on our taxable income at corporate rates. In addition, we would generally be disqualified from
treatment as a REIT for the four taxable years following the year of losing our REIT status.
Losing our REIT status would reduce our net earnings available for investment or distribution to
stockholders because of the additional tax liability. In addition, distributions to stockholders
would no longer qualify for the dividends paid deduction, and we would no longer be required to
make distributions. If this occurs, we might be required to borrow funds or liquidate some
investments in order to pay the applicable tax.
Re-characterization of the Section 1031 programs may result in a 100% tax on income from a
prohibited transaction, which would diminish our cash distributions to our stockholders.
The Internal Revenue Service could re-characterize transactions under the Section 1031 program
such that Cole OP II, rather than the co-owner in the program (Section 1031 Participant), is
treated as the bona fide owner, for tax purposes, of properties acquired and resold by a Section
1031 Participant in connection with the Section 1031 program. Such characterization could result
in the fees paid to Cole OP II by a Section 1031 Participant as being deemed income from a
prohibited transaction, in which event the fee income paid to us in connection with the Section
1031 programs would be subject to a 100% penalty tax. If this occurs, our ability to pay cash
distributions to our stockholders will be adversely affected. We expect to obtain a legal opinion
in connection with each co-ownership program to the effect that the program will qualify as a
like-kind exchange under Section 1031 of the Internal Revenue Code. However, the Internal Revenue
Service may take a position contrary to such an opinion.
Re-characterization of sale-leaseback transactions may cause us to lose our REIT status.
We may purchase properties and lease them back to the sellers of such properties. While we
will use our best efforts to structure any such sale-leaseback transaction so that the lease will
be characterized as a “true lease,” thereby allowing us to be treated as the owner of the property
for federal income tax purposes, the IRS could challenge such characterization. In the event that
any sale-leaseback transaction is challenged and re-characterized as a financing transaction or
loan for federal income tax purposes, deductions for depreciation and cost recovery relating to
such property would be disallowed. If a sale-leaseback transaction were so recharacterized, we
might fail to satisfy the REIT qualification “asset tests” or the “income tests” and, consequently,
lose our REIT status effective with the year of recharacterization. Alternatively, the amount of
our REIT taxable income could be recalculated which might also cause us to fail to meet the
distribution requirement for a taxable year.
You may have current tax liability on distributions you elect to reinvest in our common stock.
If you participate in our distribution reinvestment plan, you will be deemed to have received,
and for income tax purposes will be taxed on, the amount reinvested in common stock to the extent
the amount reinvested was not a tax-free return of capital. As a result, unless you are a
tax-exempt entity, you may have to use funds from other sources to pay your tax liability on the
value of the common stock received.
If our operating partnership fails to maintain its status as a partnership, its income may be
subject to taxation, which would reduce the cash available to us for distribution to you.
We intend to maintain the status of Cole OP II, our operating partnership, as a partnership
for federal income tax purposes. However, if the Internal Revenue Service were to successfully
challenge the status of our operating partnership as an entity taxable as a partnership, Cole OP II
would be taxable as a corporation. In such event, this would reduce the amount of distributions
that the operating partnership could make to us. This could also result in our losing REIT status,
and becoming subject to a corporate level tax on our income. This would substantially reduce the
cash available to us to make distributions to you and the return on your investment. In addition,
if any of the partnerships or limited liability companies through which Cole OP II owns its
properties, in whole or in part, loses its characterization as a partnership for federal income tax
purposes, it would be subject to taxation as a corporation, thereby reducing distributions to our
operating partnership. Such a re-characterization of an underlying property owner also could
threaten our ability to maintain REIT status.
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In certain circumstances, we may be subject to federal and state income taxes as a REIT, which
would reduce our cash available for distribution to our stockholders.
Even if we qualify and maintain our status as a REIT, we may be subject to federal income
taxes or state taxes. For example, net income from the sale of properties that are “dealer”
properties sold by a REIT (a “prohibited transaction” under the Internal Revenue Code) will be
subject to a 100% tax. We may not be able to make sufficient distributions to avoid excise taxes
applicable to REITs. We may also decide to retain income we earn from the sale or other
disposition of our property and pay income tax directly on such income. In that event, our
stockholders would be treated as if they earned that income and paid the tax on it directly.
However, stockholders that are tax-exempt, such as charities or qualified pension plans, would have
no benefit from their deemed payment of such tax liability. We may also be subject to state and
local taxes on our income or property, either directly or at the level of Cole OP II or at the
level of the other companies through which we indirectly own our assets. Any federal or state
taxes we pay will reduce our cash available for distribution to stockholders.
Legislative or regulatory action could adversely affect investors.
Changes to the tax laws are likely to occur, and such changes may adversely affect the
taxation of a stockholder. Any such changes could have an adverse effect on an investment in our
shares or on the market value or the resale potential of our assets. You are urged to consult with
your own tax advisor with respect to the status of legislative, regulatory or administrative
developments and proposals and their potential effect on an investment in our shares.
Congress passed major federal tax legislation in 2003, with modifications to that legislation
in 2005. One of the changes effected by that legislation generally reduced the tax rate on
dividends paid by corporations to individuals to a maximum of 15% prior to 2011. REIT distributions
generally do not qualify for this reduced rate. The tax changes did not, however, reduce the
corporate tax rates. Therefore, the maximum corporate tax rate of 35% has not been affected.
However, as a REIT, we generally would not be subject to federal or state corporate income taxes on
that portion of our ordinary income or capital gain that we distribute currently to our
stockholders, and we thus expect to avoid the “double taxation” that other corporations are
typically subject to.
Although REITs continue to receive substantially better tax treatment than entities taxed as
corporations, it is possible that future legislation would result in a REIT having fewer tax
advantages, and it could become more advantageous for a company that invests in real estate to
elect to be taxed, for federal income tax purposes, as a corporation. As a result, our charter
provides our board of directors with the power, under certain circumstances, to revoke or otherwise
terminate our REIT election and cause us to be taxed as a corporation, without the vote of our
stockholders. Our board of directors has fiduciary duties to us and our stockholders and could only
cause such changes in our tax treatment if it determines in good faith that such changes are in the
best interest of our stockholders.
Foreign holders of our common stock may be subject to FIRPTA tax upon the sale of their shares.
A foreign person disposing of a U.S. real property interest, including shares of a U.S.
corporation whose assets consist principally of U.S. real property interests, is generally subject
to a tax, known as FIRPTA tax, on the gain recognized on the disposition. Such FIRPTA tax does not
apply, however, to the disposition of stock in a REIT if the REIT is “domestically controlled.” A
REIT is “domestically controlled” if less than 50% of the REIT’s stock, by value, has been owned
directly or indirectly by persons who are not qualifying U.S. persons during a continuous five-year
period ending on the date of disposition or, if shorter, during the entire period of the REIT’s
existence. We cannot assure you that we will qualify as a “domestically controlled” REIT. If we
were to fail to so qualify, gain realized by foreign investors on a sale of our shares would be
subject to FIRPTA tax, unless our shares were traded on an established securities market and the
foreign investor did not at any time during a specified testing period directly or indirectly own
more than 5% of the value of our outstanding common stock.
In order to avoid triggering additional taxes and/or penalties, if you have invested in our shares
through pension or profit-sharing trusts or IRAs, you should consider additional factors.
If you are investing the assets of a pension, profit-sharing, 401(k), Keogh or other qualified
retirement plan or the assets of an IRA in our common stock, you should satisfy yourself that,
among other things:
| |
• |
|
your investment is consistent with your fiduciary obligations under
ERISA and the Internal Revenue Code; |
| |
• |
|
your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your plan’s
investment policy; |
| |
• |
|
your investment satisfies the prudence and diversification
requirements of ERISA and other applicable provisions of ERISA and the
Internal Revenue Code; |
36
| |
• |
|
your investment will not impair the liquidity of the plan or IRA; |
| |
• |
|
your investment will not produce UBTI for the plan or IRA; |
| |
• |
|
you will be able to value the assets of the plan annually in
accordance with ERISA requirements and applicable provisions of the
plan or IRA; and |
| |
• |
|
your investment will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Internal Revenue Code. |
Failure to satisfy the fiduciary standards of conduct and other applicable requirements of
ERISA and the Internal Revenue Code may result in the imposition of civil and criminal penalties
and could subject the fiduciary to equitable remedies. In addition, if an investment in our shares
constitutes a prohibited transaction under ERISA or the Internal Revenue Code, the fiduciary who
authorized or directed the investment may be subject to the imposition of excise taxes with respect
to the amount invested.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2. PROPERTIES
As of December 31, 2008, we owned, through separate wholly-owned limited partnerships or
limited liability companies, a portfolio of 673 properties located in 45 states and the U.S. Virgin
Islands comprising approximately 18.3 million rentable square feet. As of December 31, 2008, 378 of
the properties were freestanding, single-tenant retail properties, 274 of the properties were
freestanding, single-tenant commercial properties and 21 of the properties were multi-tenant retail
properties. Of the leases related to these properties, 13 were classified as direct financing
leases, as discussed in Note 4 to our consolidated financial statements. As of December 31, 2008,
we had outstanding debt of approximately $1.6 billion, secured by properties in our portfolio and
the related tenant leases. As of December 31, 2008, approximately 99% of our rentable square feet
was leased, with an average remaining lease term of approximately 12.8 years.
Property Statistics
The following table shows the tenant diversification of our portfolio, based on annualized
gross base rent, as of December 31, 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2008 Annualized |
|
|
Percentage of 2008 |
|
| |
|
Total Number |
|
|
Gross Base Rent |
|
|
Annualized Gross |
|
| Tenant |
|
of Leases |
|
|
(in thousands) |
|
|
Base Rent |
|
Walgreens — drug store |
|
|
44 |
|
|
$ |
14,736 |
|
|
|
6 |
% |
Church’s Chicken — restaurant |
|
|
1 |
|
|
|
13,210 |
|
|
|
6 |
% |
Academy Sports — sporting goods |
|
|
9 |
|
|
|
11,616 |
|
|
|
5 |
% |
Circle K — convenience store |
|
|
83 |
|
|
|
11,550 |
|
|
|
5 |
% |
Ferguson Enterprises — specialty retail |
|
|
8 |
|
|
|
6,940 |
|
|
|
3 |
% |
CVS — drug store |
|
|
29 |
|
|
|
6,909 |
|
|
|
3 |
% |
Petsmart — specialty retail |
|
|
8 |
|
|
|
6,146 |
|
|
|
3 |
% |
Station Casinos — gaming |
|
|
1 |
|
|
|
5,923 |
|
|
|
3 |
% |
Pep Boys — automotive parts |
|
|
2 |
|
|
|
5,478 |
|
|
|
2 |
% |
Applebee’s — restaurant |
|
|
3 |
|
|
|
5,397 |
|
|
|
2 |
% |
Other |
|
|
478 |
|
|
|
142,098 |
|
|
|
62 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
666 |
|
|
$ |
230,003 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
37
The following table shows the tenant industry diversification of our portfolio, based on
annualized gross base rent, as of December 31, 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
2008 Annualized |
|
|
Percentage of 2008 |
|
| |
|
Total Number |
|
|
Rentable |
|
|
Gross Base Rent |
|
|
Annualized Gross |
|
| Industry |
|
of Leases |
|
|
Square Feet |
|
|
(in thousands) |
|
|
Base Rent |
|
Specialty retail |
|
|
196 |
|
|
|
4,662,862 |
|
|
$ |
44,493 |
|
|
|
19 |
% |
Drugstore |
|
|
105 |
|
|
|
1,376,003 |
|
|
|
30,905 |
|
|
|
13 |
% |
Restaurant |
|
|
89 |
|
|
|
639,954 |
|
|
|
29,406 |
|
|
|
13 |
% |
Sporting goods |
|
|
19 |
|
|
|
2,325,954 |
|
|
|
17,015 |
|
|
|
7 |
% |
Convenience stores |
|
|
85 |
|
|
|
277,478 |
|
|
|
12,773 |
|
|
|
6 |
% |
Home improvement |
|
|
12 |
|
|
|
937,489 |
|
|
|
12,045 |
|
|
|
5 |
% |
Consumer electronics |
|
|
16 |
|
|
|
1,456,044 |
|
|
|
10,495 |
|
|
|
5 |
% |
Automotive parts |
|
|
23 |
|
|
|
633,773 |
|
|
|
9,751 |
|
|
|
4 |
% |
Fitness and health |
|
|
14 |
|
|
|
405,340 |
|
|
|
6,764 |
|
|
|
3 |
% |
Office supply |
|
|
24 |
|
|
|
523,519 |
|
|
|
6,285 |
|
|
|
3 |
% |
Other |
|
|
83 |
|
|
|
5,049,314 |
|
|
|
50,071 |
|
|
|
22 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666 |
|
|
|
18,287,730 |
|
|
$ |
230,003 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table shows the geographic diversification of our portfolio, based on annualized
gross base rent, as of December 31, 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
2008 Annualized |
|
|
Percentage of 2008 |
|
| |
|
Total Number |
|
|
Rentable |
|
|
Gross Base Rents |
|
|
Annualized Gross |
|
| Location |
|
of Properties |
|
|
Square Feet |
|
|
(in thousands) |
|
|
Base Rent |
|
Texas |
|
|
156 |
|
|
|
3,436,011 |
|
|
$ |
35,552 |
|
|
|
15 |
% |
Florida |
|
|
22 |
|
|
|
1,927,526 |
|
|
|
26,439 |
|
|
|
12 |
% |
Illinois |
|
|
19 |
|
|
|
1,656,530 |
|
|
|
16,904 |
|
|
|
7 |
% |
Georgia |
|
|
56 |
|
|
|
901,306 |
|
|
|
15,453 |
|
|
|
7 |
% |
Ohio |
|
|
59 |
|
|
|
580,392 |
|
|
|
11,425 |
|
|
|
5 |
% |
Nevada |
|
|
2 |
|
|
|
1,009,278 |
|
|
|
9,747 |
|
|
|
4 |
% |
Missouri |
|
|
23 |
|
|
|
517,190 |
|
|
|
8,654 |
|
|
|
4 |
% |
Tennessee |
|
|
36 |
|
|
|
481,378 |
|
|
|
7,297 |
|
|
|
3 |
% |
Virginia |
|
|
12 |
|
|
|
992,590 |
|
|
|
6,796 |
|
|
|
3 |
% |
North Carolina |
|
|
16 |
|
|
|
771,117 |
|
|
|
6,145 |
|
|
|
3 |
% |
Other |
|
|
272 |
|
|
|
6,014,412 |
|
|
|
85,591 |
|
|
|
37 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
673 |
|
|
|
18,287,730 |
|
|
$ |
230,003 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Leases
Although there are variations in the specific terms of the leases of our properties, the
following is a summary of the general structure of our leases. Generally, the leases of the
properties owned provide for initial terms of 10 to 20 years. As of December 31, 2008, the weighted
average remaining lease term was approximately 12.8 years. The properties are generally leased
under net leases pursuant to which the tenant bears responsibility for substantially all property
costs and expenses associated with ongoing maintenance and operation, including utilities, property
taxes and insurance. Certain of the leases require us to maintain the roof and structure. The
leases of the properties provide for annual base rental payments (payable in monthly installments)
ranging from approximately $4,000 to approximately $7.8 million (average of approximately
$230,000). Certain leases provide for limited increases in rent as a result of fixed increases,
increases in the consumer price index, and/or increases in the tenant’s sales volume.
Generally, the property leases provide the tenant with one or more multi-year renewal options,
subject to generally the same terms and conditions as the initial lease term. Certain leases also
provide that in the event we wish to sell the property subject to that lease, we first must offer
the lessee the right to purchase the property on the same terms and conditions as any offer which
we intend to accept for the sale of the property.
38
The following table shows lease expirations of our portfolio as of December 31, 2008, during
each of the next ten years and thereafter, assuming no exercise of renewal options or termination
rights:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
2008 Annualized |
|
|
Percentage of |
|
| |
|
Total Number |
|
|
Rentable Square |
|
|
Gross Base Rent |
|
|
2008 Annualized |
|
| Year of Lease Expiration |
|
of Leases |
|
|
Feet Expiring |
|
|
(in thousands) |
|
|
Gross Base Rent |
|
2009 |
|
|
14 |
|
|
|
86,626 |
|
|
$ |
637 |
|
|
|
>1 |
% |
2010 |
|
|
21 |
|
|
|
118,685 |
|
|
|
1,802 |
|
|
|
1 |
% |
2011 |
|
|
16 |
|
|
|
60,483 |
|
|
|
1,031 |
|
|
|
>1 |
% |
2012 |
|
|
41 |
|
|
|
265,517 |
|
|
|
4,298 |
|
|
|
2 |
% |
2013 |
|
|
62 |
|
|
|
534,036 |
|
|
|
7,465 |
|
|
|
3 |
% |
2014 |
|
|
16 |
|
|
|
302,736 |
|
|
|
3,821 |
|
|
|
2 |
% |
2015 |
|
|
23 |
|
|
|
1,254,208 |
|
|
|
9,890 |
|
|
|
4 |
% |
2016 |
|
|
38 |
|
|
|
1,803,844 |
|
|
|
17,841 |
|
|
|
8 |
% |
2017 |
|
|
58 |
|
|
|
1,764,223 |
|
|
|
18,972 |
|
|
|
8 |
% |
2018 |
|
|
73 |
|
|
|
1,381,102 |
|
|
|
19,854 |
|
|
|
9 |
% |
Thereafter |
|
|
304 |
|
|
|
10,716,270 |
|
|
|
144,392 |
|
|
|
63 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
666 |
|
|
|
18,287,730 |
|
|
$ |
230,003 |
|
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
Mortgage Information
As of December 31, 2008, we had approximately $1.6 billion of debt outstanding, consisting of
approximately $1.3 billion in fixed rate mortgage loans (the “Fixed Rate Debt”), approximately
$142.4 million of short-term variable rate mortgage loans (the “Variable Rate Debt”) and
approximately $66.0 million outstanding under the Credit Facility. The Fixed Rate Debt has interest
rates ranging from 4.46% to 7.23%, with a weighted average interest
rate of approximately 5.89%,
and matures on various dates from April 2009 through August 2031. The Variable Rate Debt has
interest rates that range from LIBOR plus 180 to 250 basis points and matures on various dates from
February 2009 through September 2011. Each of the notes payable is secured by the respective
property. See Note 10 to our consolidated financial statements for terms of the Credit Facility.
As of December 31, 2008, approximately $69.0 million was available under the Credit Facility. Each
of the mortgage notes are secured by the respective property. The mortgage notes are generally
non-recourse to us and Cole OP II, but both are liable for customary non-recourse carve-outs.
Generally, the mortgage notes may not be prepaid, in whole or in part, except under the
following circumstances: (i) full prepayment may be made on any of the three monthly payment dates
occurring immediately prior to the maturity date, and (ii) partial prepayments resulting from the
application of insurance or condemnation proceeds to reduce the outstanding principal balance of
the mortgage notes. Notwithstanding the prepayment limitations, we may sell the properties to a
buyer that assumes the respective mortgage loan. The transfer would be subject to the conditions
set forth in the individual property’s mortgage note document, including without limitation, the
lender’s approval of the proposed buyer and the payment of the lender’s fees, costs and expenses
associated with the sale of the property and the assumption of the loan.
Generally, in the event that a mortgage note is not paid off on the respective maturity date,
most mortgage notes include hyper-amortization provisions. Under the hyper-amortization
provisions, the individual mortgage note maturity date will be extended by 20 years. During such
period, the lender will apply 100% of the rents collected to the following items in the order
indicated: (i) payment of accrued interest at the original fixed interest rate, (ii) all payments
for escrow or reserve accounts, (iii) any operating expenses of the property pursuant to an
approved annual budget, (iv) any extraordinary expenses and (v) the balance of the rents collected
will be applied to the following in such order as the lender may determine: (1) any other amounts
due in accordance with the loan documents, (2) the reduction of the principal balance of the
mortgage note, and (3) capitalized interest at an interest rate equal to the greater of (A) the
initial fixed interest rate as stated on the respective mortgage note agreement plus 2.0% per annum
or (B) the then current Treasury Constant Maturity Yield Index plus 2.0% per annum.
ITEM 3. LEGAL PROCEEDINGS
In the ordinary course of business, we may become subject to litigation or claims. There are
no material pending legal proceedings or proceedings known to be contemplated against us or any of
our subsidiaries, or which any of our properties is the subject.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of our stockholders during the fourth quarter of the year
ended December 31, 2008.
39
PART II
|
|
|
| ITEM 5. |
|
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF
EQUITY SECURITIES |
Market Information
As of March 27, 2009, we had approximately 203.3 million shares of common stock outstanding,
held by a total of 41,915 stockholders of record. The number of stockholders is based on the
records of DST Systems, Inc., who serves as our registrar and transfer agent.
There is no established trading market for our common stock. Therefore, there is a risk that
a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder,
or at all. Pursuant to the Initial Offering and Follow-on Offering, we sold shares of our common
stock to the public at a price of $10.00 per share and at a price of $9.50 per share pursuant to
our distribution reinvestment plan. Pursuant to the DRIP Offering, we are issuing shares of our
common stock to our stockholders at a price of $9.50 per share pursuant to our distribution reinvestment plan. Additionally,
we provided discounts in our Follow-on Offering for certain categories of purchasers, including
based on volume discounts. Pursuant to the terms of our charter, certain restrictions are imposed
on the ownership and transfer of shares.
Unless and until our shares are listed on a national securities exchange, it is not expected
that a public market for the shares will develop. To assist fiduciaries of tax-qualified pension,
stock bonus or profit-sharing plans, employee benefit plans and annuities described in Section
403(a) or (b) of the Internal Revenue Code or an individual retirement account or annuity described
in Section 408 of the Internal Revenue Code subject to the annual reporting requirements of ERISA
and IRA trustees or custodians in preparation of reports relating to an investment in the shares,
we intend to provide reports of the quarterly and annual determinations of the current value of the
net assets per outstanding share to those fiduciaries who request such reports. In addition, in
order for FINRA members and their associated persons to participate in the offering and sale of our
shares of common stock, we are required pursuant to FINRA Rule 5110(f)(2)(M) to disclose in each
annual report distributed to investors a per share estimated value of the shares, the method by
which is was developed and the date of the data used to develop the estimated value. For these
purposes, the deemed value of our common stock is $10.00 per share as of December 31, 2008.
However, as set forth above, there is no public trading market for the shares at this time and
stockholders may not receive $10.00 per share if a market did exist. Until the later of 18 months
after the termination of the Follow-on Offering, which was
January 2, 2009 or the termination of any subsequent offering of
our shares, we intend to use the offering price of shares in the most recent offering as the per
share net asset value. Beginning 18 months after the completion of the last offering of shares,
the value of the properties and other assets will be based on valuations of either our properties
or us as a whole, whichever valuation method our board of directors determines to be appropriate,
which may include independent valuations of our properties or of our enterprise as a whole.
Share Redemption Program
Our board of directors has adopted a share redemption program that enables our stockholders to
sell their shares to us in limited circumstances. Our share redemption program permits
stockholders to sell their shares back to us after they have held them for at least one year,
subject to the significant conditions and limitations described below.
Our common stock is currently not listed on a national securities exchange, and we will not
seek to list our stock until such time as our independent directors believe that the listing of our
stock would be in the best interest of our stockholders. In order to provide stockholders with the
benefit of interim liquidity, stockholders who have held their shares for at least one year may
present all, or a portion consisting of at least 25%, of the holder’s shares to us for redemption
at any time in accordance with the procedures outlined below. At that time, we may, subject to the
conditions and limitations described below, redeem the shares presented for redemption for cash to
the extent that we have sufficient funds available to us to fund such redemption. We will not pay
to our board of directors, advisor or its affiliates any fees to complete any transactions under
our share redemption program.
During any calendar year, we will not redeem in excess of 3.0% of the weighted average number
of shares outstanding during the prior calendar year. The cash available for redemption will be
limited to the proceeds from the sale of shares pursuant to our distribution reinvestment plan. We
will determine whether we have sufficient funds available as soon as practicable after the end of
each quarter, but in any event prior to the applicable payment date.
40
During the term of the Follow-on Offering, the redemption price per share depended on the
length of time a redeeming stockholder held such shares as follows: after one year from the
purchase date — 92.5% of the amount paid for each share; after two years from the purchase date —
95.0% of the amount paid for each share, after three years from the purchase date — 97.5% of the
amount paid for each share; and after four years from the purchase date — 100.0% of the amount paid
for each share (in each case, as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like with respect to our common stock). At any time
we are engaged in an offering of shares, the per share price for shares purchased under our
redemption plan will always be equal to, or lower, than the applicable per share offering price.
Thereafter the per share redemption price will be based on the then-current net asset value of the
shares (as adjusted for any stock dividends, combinations, splits, recapitalizations and the like
with respect to our common stock). Our board of directors will announce any redemption price
adjustment and the time period of its effectiveness as a part of its regular communications with
our stockholders. At any time the redemption price is determined by any method other than the net
asset value of the shares, if we have sold property and have made one or more special distributions
to our stockholders of all or a portion of the net proceeds from such sales, the per share
redemption price will be reduced by the net sale proceeds per share distributed to investors prior
to the redemption date as a result of the sale of such property in the special distribution. Our
board of directors will, in its sole discretion, determine which distributions, if any, constitute
a special distribution. While our board of directors does not have specific criteria for
determining a special distribution, we expect that a special distribution will only occur upon the
sale of a property and the subsequent distribution of the net sale proceeds. Upon receipt of a
request for redemption, we will conduct a Uniform Commercial Code search to ensure that no liens
are held against the shares. We will charge an administrative fee to the stockholder for the
search and other costs, which will be deducted from the proceeds of the redemption or, if a lien
exists, will be charged to the stockholder. Subject to our waiver of the one-year holding period
requirement, shares required to be redeemed in connection with the death of a stockholder may be
repurchased without the one-year holding period requirement, at a purchase price equal to the price
actually paid for the shares.
We will redeem our shares on the last business day of the month following the end of each
quarter. Requests for redemption would have to be received on or prior to the end of the quarter
in order for us to repurchase the shares as of the end of the next month. Stockholders may
withdraw their request to have their shares redeemed at any time prior to the last day of the
applicable quarter.
If we cannot purchase all shares presented for redemption in any quarter, based upon
insufficient cash available and the limit on the number of shares we may redeem during any calendar
year, we would attempt to honor redemption requests on a pro rata basis. We would treat the
unsatisfied portion of the redemption request as a request for redemption the following quarter.
At such time, stockholders may then (1) withdraw their request for redemption at any time prior to
the last day of the new quarter or (2) ask that we honor their request at such time, if any, when
sufficient funds become available. Such pending requests will generally be honored on a pro rata
basis.
Our board of directors may choose to amend, suspend or terminate our share redemption program
upon 30 days notice at any time. We filed a new registration statement with the SEC and applicable
states pursuant to which we are offering shares under our DRIP. Because the redemption of shares
will be funded with the net proceeds we receive from the sale of shares under the distribution
reinvestment plan, the discontinuance or termination of the distribution reinvestment plan would
adversely affect our ability to redeem shares under the share redemption program. We would notify
stockholders of such developments (i) in the annual or quarterly reports mentioned above or (ii) by
means of a separate mailing to stockholders, accompanied by disclosure in a current or periodic
report under the Exchange Act. During the Follow-on Offering, we would also include this
information in a prospectus supplement or post-effective amendment to the registration statement,
as then required under federal securities laws.
Our share redemption program is only intended to provide interim liquidity for stockholders
until a liquidity event occurs, such as the listing of the shares on a national securities
exchange, or our merger with a listed company. The share redemption program will be terminated if
the shares become listed on a national securities exchange. We cannot guarantee that a liquidity
event will occur.
The shares we redeem under our share redemption program are cancelled and returned to the
status of authorized and unissued shares. We do not intend to resell such shares to the public
unless they are first registered with the SEC under the Securities Act and under appropriate state
securities laws or otherwise sold in compliance with such laws.
During the year ended December 31, 2008, we redeemed approximately 1.0 million shares under
our share redemption program, at an average redemption price of $9.66 per share. During the year
ended December 31, 2007, we redeemed approximately 227,000 shares under our share redemption
program, at an average redemption price of $9.60 per share. During the years ended December 31,
2008 and 2007, we issued approximately 5.6 million and approximately 2.1 million shares of common
stock under the DRIP, respectively, for proceeds of approximately $53.5 million and approximately
$20.3 million, respectively, which was recorded as redeemable common stock on the consolidated
balance sheets, net of redeemed shares.
41
During the three-month period ended December 31, 2008, we redeemed shares as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Shares Purchased as |
|
|
Maximum Number of |
|
| |
|
Total Number |
|
|
|
|
|
|
Part of Publicly |
|
|
Shares that May Yet Be |
|
| |
|
of Shares |
|
|
Average Price |
|
|
Announced Plans or |
|
|
Purchased Under the |
|
| |
|
Redeemed |
|
|
Paid per Share |
|
|
Programs |
|
|
Plans or Programs |
|
October 2008 |
|
|
1,219 |
|
|
$ |
9.50 |
|
|
|
1,219 |
|
|
|
(1 |
) |
November 2008 |
|
|
398,900 |
|
|
$ |
9.64 |
|
|
|
398,900 |
|
|
|
(1 |
) |
December 2008 |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
400,119 |
|
|
|
|
|
|
|
400,119 |
|
|
|
(1 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
A description of the maximum number of shares that may be purchased
under our redemption program is included in the narrative preceding
this table. |
Distributions
We qualified as a REIT for federal income tax purposes commencing with our taxable year ended
December 31, 2005. As a REIT, we have made, and intend to make, distributions each taxable year
(not including a return of capital for federal income tax purposes) equal to at least 90% of our
taxable income. One of our primary goals is to pay regular (monthly) distributions to our
stockholders.
For income tax purposes, distributions to common stockholders are characterized as ordinary
dividends, capital gain dividends, or as nontaxable distributions. To the extent that we make a
distribution in excess of our current or accumulated earnings and profits, the distribution will be
a non-taxable return of capital, reducing the tax basis in each U.S. stockholder’s shares, and the
amount of each distribution in excess of a U.S. stockholder’s tax basis in its shares will be
taxable as gain realized from the sale of its shares.
The following table shows the distributions we have declared during the years ended December
31, 2008, 2007 and 2006 (in thousands, except per share data):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Distributions |
|
|
|
|
|
|
|
| |
|
Total Distributions |
|
|
Declared per |
|
|
|
|
|
|
|
| Year |
|
Declared |
|
|
Common Share |
|
|
Return of Capital |
|
|
Ordinary Income |
|
2008 |
|
$ |
102,495 |
|
|
$ |
0.70 |
|
|
$ |
0.39 |
|
|
$ |
0.31 |
|
2007 |
|
$ |
41,550 |
|
|
$ |
0.68 |
|
|
$ |
0.40 |
|
|
$ |
0.28 |
|
2006 |
|
$ |
8,492 |
|
|
$ |
0.64 |
|
|
$ |
0.37 |
|
|
$ |
0.27 |
|
Use of Public Offering Proceeds
We registered 50,000,000 shares of our common stock in our Initial Offering (SEC File no.
333-121094, effective June 27, 2005), of which we registered 45,000,000 shares at $10.00 per share
to be offered to the public and 5,000,000 shares offered to our investors pursuant to our DRIP at
$9.50 per share. In November 2006, we filed an additional registration statement to increase the
aggregate number of shares available in our primary offering to 49,390,000 and the aggregate number
of shares available in our DRIP to 5,952,000. We terminated the Initial Offering on May 22, 2007.
We registered 150,000,000 shares of our common stock in our Follow-on Offering (SEC File no.
333-138444, effective May 11, 2007). The Follow-on Offering included up to 143,050,000 shares to
be offered for sale at $10.00 per share in the primary offering and up to 6,000,000 shares to be
offered for sale pursuant to the Company’s DRIP. On September 18, 2008, we registered 30,000,000
additional shares to be offered pursuant to our DRIP in our DRIP Offering. As of December 31,
2008, we were authorized to issue 10,000,000 shares of preferred stock, but had none issued or
outstanding. As of December 31, 2008, we had issued an aggregate of approximately 203,547,959
shares of common stock in our Offerings, raising gross offering proceeds of approximately $2.0
billion. From this amount, we paid approximately $62.0 million in acquisition fees to Cole Realty
Advisors, approximately $135.5 million in selling commissions and dealer manager fees to Cole
Capital (of which approximately $134.3 million was reallowed to third-party broker dealers),
approximately $16.7 million in finance coordination fees to Cole Advisors II and approximately
$15.8 million in organization and offering costs to Cole Advisors II. With the net offering
proceeds and indebtedness, we acquired approximately $3.6 billion in real estate and related assets
and made the other payments reflected under “Cash Flows from Financing Activities” in our
consolidated statements of cash flows.
42
On January 2, 2009, we terminated the Follow-on Offering. As of the close of business on
January 2, 2009, we had issued a total of 147,454,259 shares of common stock in the Follow-on
Offering, including 141,520,572 shares of common stock sold in the primary offering and 5,933,687
shares sold pursuant to the DRIP, resulting in gross proceeds from the Follow-on Offering of
approximately $1.5 billion. At the completion of the Follow-on Offering, a total of 1,595,741
shares of common stock remained unsold, including 1,529,428 shares of common stock that remained
unsold in the primary offering and 66,313 shares of common stock that remained unsold pursuant to
the DRIP. All unsold shares in the Follow-on Offering were deregistered.
As of March 27, 2009, we had issued approximately 3.3 million shares in the DRIP Offering at
an aggregate gross offering price of approximately $31.3 million.
Unregistered Sale of Securities and Issuance of Stock Options
We issued 20,000 shares of our common stock to Cole Holdings Corporation (“Cole Holdings”) in
connection with our inception in 2004 at $10.00 per share. On each of May 2, 2005, May 23, 2006,
August 15, 2007 and May 29, 2008, we issued options to purchase 10,000 shares of our common stock
to our independent directors under our Independent Director Stock Option Plan. These shares and
options were not registered under the Securities Act and were issued in reliance on Section 4(2) of
the Securities Act.
The following table provides information regarding our equity compensation plan as of December
31, 2008:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Number of Securities |
|
|
Weighted-Average |
|
|
Number of Securities |
|
| |
|
to be Issued Upon |
|
|
Exercise Price of |
|
|
Remaining Available for |
|
| |
|
Exercise of |
|
|
Outstanding |
|
|
Future Issuance Under |
|
| |
|
Outstanding Options, |
|
|
Options, Warrants |
|
|
Equity Compensation |
|
| Plan Category |
|
Warrants and Rights |
|
|
and Rights |
|
|
Plans |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Equity compensation
plans approved by
security holders |
|
|
40,000 |
|
|
$ |
9.13 |
|
|
|
960,000 |
|
Equity compensation
plans not approved
by security holders |
|
|
— |
|
|
|
N/A |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
40,000 |
|
|
$ |
9.13 |
|
|
|
960,000 |
|
|
|
|
|
|
|
|
|
|
|
43
ITEM 6. SELECTED FINANCIAL DATA
The following data should be read in conjunction with our consolidated financial statements
and the notes thereto and “Item 7 — Management’s Discussion and Analysis of Financial Condition and
Results of Operations” appearing elsewhere in this Annual Report on Form 10-K. The selected
financial data (in thousands, except share and per share amounts) presented below was derived
from our audited consolidated financial statements.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
From |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inception |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(September |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
29, 2004) |
|
| |
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
Year Ended |
|
|
through |
|
| |
|
December 31, |
|
|
December 31, |
|
|
December |
|
|
December |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
31, 2006 |
|
|
31, 2005 |
|
|
2004 |
|
Balance Sheet Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total investment in real estate assets, net |
|
$ |
3,127,334 |
|
|
$ |
1,794,352 |
|
|
$ |
446,544 |
|
|
$ |
91,618 |
|
|
$ |
— |
|
Investment in mortgages receivable, net |
|
$ |
84,994 |
|
|
$ |
87,100 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Marketable securities |
|
$ |
24,583 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Investment in unconsolidated joint venture |
|
$ |
25,792 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Cash and cash equivalents |
|
$ |
106,485 |
|
|
$ |
43,517 |
|
|
$ |
37,566 |
|
|
$ |
4,575 |
|
|
$ |
200 |
|
Total assets |
|
$ |
3,432,028 |
|
|
$ |
1,967,698 |
|
|
$ |
500,421 |
|
|
$ |
98,810 |
|
|
$ |
— |
|
Mortgage notes payable |
|
$ |
1,550,314 |
|
|
$ |
1,055,682 |
|
|
$ |
218,266 |
|
|
$ |
66,804 |
|
|
$ |
— |
|
Notes payable to affiliates |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
4,453 |
|
|
$ |
— |
|
Stockholders’ equity |
|
$ |
1,614,976 |
|
|
$ |
781,086 |
|
|
$ |
266,236 |
|
|
$ |
25,205 |
|
|
$ |
200 |
|
Operating Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
$ |
201,004 |
|
|
$ |
89,842 |
|
|
$ |
19,520 |
|
|
$ |
742 |
|
|
$ |
— |
|
General and administrative |
|
$ |
5,632 |
|
|
$ |
2,011 |
|
|
$ |
953 |
|
|
$ |
156 |
|
|
$ |
— |
|
Property operating expenses |
|
$ |
16,796 |
|
|
$ |
6,467 |
|
|
$ |
1,417 |
|
|
$ |
— |
|
|
$ |
— |
|
Property and asset management fees |
|
$ |
9,762 |
|
|
$ |
4,184 |
|
|
$ |
937 |
|
|
$ |
39 |
|
|
$ |
— |
|
Depreciation and amortization |
|
$ |
63,859 |
|
|
$ |
30,482 |
|
|
$ |
6,469 |
|
|
$ |
221 |
|
|
$ |
— |
|
Impairment of real estate assets |
|
$ |
3,550 |
|
|
$ |
5,400 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Operating Income |
|
$ |
101,405 |
|
|
$ |
41,298 |
|
|
$ |
9,744 |
|
|
$ |
325 |
|
|
$ |
— |
|
Interest expense |
|
$ |
78,063 |
|
|
$ |
39,076 |
|
|
$ |
8,901 |
|
|
$ |
467 |
|
|
$ |
— |
|
Net income (loss) |
|
$ |
25,092 |
|
|
$ |
4,480 |
|
|
$ |
1,346 |
|
|
$ |
(115 |
) |
|
$ |
— |
|
Funds from operations (1) |
|
$ |
92,566 |
|
|
$ |
40,362 |
|
|
$ |
7,815 |
|
|
$ |
107 |
|
|
$ |
— |
|
Cash Flow Data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows provided by operations |
|
$ |
96,073 |
|
|
$ |
43,366 |
|
|
$ |
7,861 |
|
|
$ |
398 |
|
|
$ |
— |
|
Cash flows used in investing activities |
|
$ |
(1,216,078 |
) |
|
$ |
(1,364,777 |
) |
|
$ |
(320,177 |
) |
|
$ |
(93,641 |
) |
|
$ |
— |
|
Cash flows provided by financing activities |
|
$ |
1,182,973 |
|
|
$ |
1,327,362 |
|
|
$ |
345,307 |
|
|
$ |
97,618 |
|
|
$ |
200 |
|
Per share data: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) — basic and diluted |
|
$ |
0.17 |
|
|
$ |
0.07 |
|
|
$ |
0.10 |
|
|
$ |
(0.28 |
) |
|
$ |
— |
|
Weighted average dividends declared |
|
$ |
0.70 |
|
|
$ |
0.68 |
|
|
$ |
0.64 |
|
|
$ |
0.47 |
|
|
$ |
— |
|
Weighted average shares outstanding — basic |
|
|
146,198,235 |
|
|
|
60,929,996 |
|
|
|
13,275,635 |
|
|
|
411,909 |
|
|
|
— |
|
Weighted average shares outstanding — diluted |
|
|
146,201,399 |
|
|
|
60,931,316 |
|
|
|
13,275,635 |
|
|
|
411,909 |
|
|
|
— |
|
| |
|
|
| (1) |
|
See “Item 7 — Management’s Discussion and Analysis of Financial
Condition and Results of Operations — Funds From Operations” for
information regarding why we present funds from operations and for a
reconciliation of this non-GAAP financial measure to net income
(loss). |
44
|
|
|
| ITEM 7. |
|
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS |
The following discussion and analysis should be read in conjunction with the “Selected
Financial Data” and our accompanying consolidated financial statements and notes thereto. See also
“Cautionary Note Regarding Forward-Looking Statements” preceding Part I.
Overview
We were formed on September 29, 2004 to acquire and operate commercial real estate primarily
consisting of freestanding, single-tenant, retail properties net leased to investment grade and
other creditworthy tenants located throughout the United States. We commenced our principal
operations on September 23, 2005, when we issued the initial 486,000 shares of our common stock in
the Initial Offering. Prior to such date, we were considered a development stage company. We
acquired our first real estate property on September 26, 2005. We have no paid employees and are
externally advised and managed by Cole Advisors II, an affiliate of ours. We intend to qualify,
and currently qualify, as a real estate investment trust for federal income tax purposes.
Our operating results and cash flows are primarily influenced by rental income from our
commercial properties and interest expense on our property acquisition indebtedness. Rental income
accounted for approximately 89% and approximately 92% of total revenue during the years ended
December 31, 2008 and 2007, respectively. As approximately 99% of the rentable square feet is
under lease, with an average remaining lease term of approximately 12.8 years, we believe our
exposure to changes in commercial rental rates on our portfolio is substantially mitigated, except
for vacancies caused by tenant bankruptcies or other factors. Our advisor regularly monitors the
creditworthiness of our tenants by reviewing the tenant’s financial results, credit rating agency
reports (if any) on the tenant or guarantor, the operating history of the property with such
tenant, the tenant’s market share and track record within its industry segment, the general health
and outlook of the tenant’s industry segment, and other information for changes and possible
trends. If our advisor identifies significant changes or trends that may adversely affect the
creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial
condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible
sale of the property, or identifying a possible replacement tenant should the current tenant fail
to perform on the lease. As of December 31, 2008, the debt leverage ratio of our portfolio, which
is the ratio of debt to total gross real estate assets, was approximately 44%, with approximately
13% of the debt, or approximately $208.4 million, subject to variable interest rates. As of March
27, 2009, we had repaid approximately $40.0 million of the debt subject to variable interest rates.
The repayments of the debt subject to variable interest rates were made with proceeds from our
Follow-on Offering. As we continue to invest the proceeds of our Offerings, including proceeds
from DRIP shares, in commercial real estate, we will be subject to changes in real estate prices
and changes in interest rates on any new indebtedness used to acquire the properties. We may
manage our risk of changes in real estate prices on future property acquisitions by entering into
purchase agreements and loan commitments simultaneously so that our operating yield is
determinable, by contracting with developers for future delivery of properties, or by entering into
sale-leaseback transactions. We expect to manage our interest rate risk by monitoring the interest
rate environment in connection with our planned property acquisitions to determine the appropriate
acquisition financing, which may include fixed rate loans, variable rate loans or interest rate
hedges. If we are unable to acquire suitable properties or obtain suitable financing for future
acquisitions, our results of operations may be adversely affected.
Recent Market Conditions
The current mortgage lending and interest rate environment for real estate in general
continues to be dislocated and the overall economic fundamentals remain uncertain. Domestic and
international financial markets currently are experiencing significant disruptions, which have been
brought about in large part by failures in the world-wide banking system. These disruptions have
severely impacted the availability of credit and have contributed to rising costs associated with
obtaining credit. We have experienced and may continue to experience more stringent lending
criteria, which may affect our ability to finance certain property acquisitions or refinance our
debt at maturity. Additionally, for properties for which we are able to obtain acquisition
financing, the interest rates on such loans may be unacceptable. We expect to manage the current
mortgage lending environment by utilizing fixed rate loans if the terms are acceptable, borrowing
on our existing $135.0 million Credit Facility, short-term variable rate loans, assume existing
mortgage loans in connection with property acquisitions, or enter into interest rate lock or swap
agreements, or any combination of the foregoing. We have acquired,
and may continue to acquire, a
much larger percentage of our properties for cash without financing. If we are unable to obtain
suitable financing for future acquisitions or we are unable to identify suitable properties at
appropriate prices in the current credit environment, we may have a larger amount of uninvested
cash, which may adversely affect our results of operations. We will continue to evaluate
alternatives in the current market, including purchasing or originating debt backed by real estate,
which could produce attractive yields in the current market environment.
45
The current economic environment, including the dislocation of the credit markets, has lead to
higher unemployment and a decline in consumer spending. These economic trends have adversely
impacted the retail and real estate markets causing higher tenant vacancies, declining rental
rates, and declining property values. As of December 31, 2008, approximately 99% of our rentable
square feet was under lease. However, we have experienced some tenant
vacancies subsequent to year-end due to tenant bankruptcies, such as Circuit City, and
approximately 94% of our rentable square feet was under
lease as of March 27, 2009. We expect that we may experience additional vacancies if the current
economic conditions persist. Our advisor is actively seeking to lease all of our vacant space,
however, as retailers and other tenants have been reducing their store expansion plans the amount
of time required to re-tenant a property has been increasing. As a result of these factors, our
projected operating results for year ending December 31, 2009 are expected to be adversely
affected. However, we believe that our projected operating results
for the year ended December 31, 2009, will benefit from anticipated future
acquisitions and the impact of owning the properties we acquired during the year ended December 31,
2008 for the full year ending December 31, 2009.
Application of Critical Accounting Policies
Our accounting policies have been established to conform with GAAP. The preparation of
financial statements in conformity with GAAP requires management to use judgment in the application
of accounting policies, including making estimates and assumptions. These judgments affect the
reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at
the dates of the financial statements and the reported amounts of revenue and expenses during the
reporting periods. If management’s judgment or interpretation of the facts and circumstances
relating to various transactions had been different, it is possible that different accounting
policies would have been applied, thus, resulting in a different presentation of the financial
statements. Additionally, other companies may utilize different estimates that may impact
comparability of our results of operations to those of companies in similar businesses.
The critical accounting policies outlined below have been discussed with members of the audit
committee of the board of directors.
Investment in Real Estate Assets
We are required to make subjective assessments as to the useful lives of our depreciable
assets. We consider the period of future benefit of the asset to determine the appropriate useful
life of each asset. Real estate assets are stated at cost, less accumulated depreciation. Amounts
capitalized to real estate assets consist of the cost of acquisition or construction and any tenant
improvements or major improvements and betterments that extend the useful life of the related
asset. All repairs and maintenance are expensed as incurred.
All assets are depreciated on a straight line basis. The estimated useful lives of our assets
by class are generally as follows:
| |
|
|
Building
|
|
40 years |
Tenant improvements
|
|
Lesser of useful life or lease term |
Intangible lease assets
|
|
Lesser of useful life or lease term |
Impairment losses are recorded on long-lived assets used in operations, which includes the
operating property, when indicators of impairment are present and the assets’ carrying amount is
greater than the sum of the future undiscounted cash flows, excluding interest, estimated to be
generated by those assets. We have identified certain properties with impairment indicators,
including two properties with impairment indicators for which the undiscounted future cash flows
expected from the use of the properties and related intangible assets and their eventual
disposition was less than the carrying value of the assets. As a result, we reduced the carrying
value of the real estate and related intangible assets to their estimated fair values and recorded
impairment losses of approximately $3.6 million and approximately $5.4 million during the years
ended December 31, 2008 and 2007, respectively.
Projections of expected future cash flows require us to estimate future market rental income
amounts subsequent to the expiration of current lease agreements, property operating expenses,
discount rates, the number of months it takes to release the property and the number of years the
property is held for investment. The use of inappropriate assumptions in the future cash flow
analysis would result in an incorrect assessment of the property’s future cash flow and fair value
and could result in the overstatement of the carrying value of our real estate and related
intangible assets and net income.
When a real estate asset is identified by management as held for sale, we cease depreciation
of the asset and estimate the sales price, net of selling costs. If, in management’s opinion, the
net sales price of the asset is less than the net book value of the asset, an adjustment to the
carrying value would be recorded to reflect the estimated fair value of the property.
46
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, we allocate the purchase price of such properties to
acquired tangible assets, consisting of land and building, and identified intangible assets and
liabilities, consisting of the value of above market and below market leases and the value of
in-place leases, based in each case on their fair values. We utilize independent appraisals to
assist in the determination of the fair values of the tangible assets of an acquired property
(which includes land and building). We obtain an independent appraisal for each real property
acquisition. The information in the appraisal, along with any additional information available to
us, is used in estimating the amount of the purchase price that is allocated to land. Other
information in the appraisal, such as building value and market rents, may be used by us in
estimating the allocation of purchase price to the building and to lease intangibles. The
appraisal firm has no involvement in management’s allocation decisions other than providing this
market information.
The fair values of above market and below market in-place lease values are recorded based on
the present value (using an interest rate which reflects the risks associated with the leases
acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place
leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which
is generally obtained from independent appraisals, measured over a period equal to the
non-cancelable term of the lease including any bargain renewal periods, with respect to a below
market lease. The above market and below market lease values are capitalized as intangible lease
assets or liabilities. Above market lease values are amortized as an adjustment of rental income
over the lesser of the useful life or the remaining terms of the respective leases. Below market
leases are amortized as an adjustment of rental income over the remaining terms of the respective
leases, including any bargain renewal periods.
The fair values of in-place leases include direct costs associated with obtaining a new
tenant, opportunity costs associated with lost rentals which are avoided by acquiring an in-place
lease. Direct costs associated with obtaining a new tenant include commissions, tenant
improvements, and other direct costs and are estimated in part by utilizing information obtained
from independent appraisals and management’s consideration of current market costs to execute a
similar lease. These direct costs are included in intangible lease assets in the accompanying
consolidated balance sheet and are amortized to expense over the lesser of the useful life or the
remaining terms of the respective leases. The value of opportunity costs is calculated using the
contractual amounts to be paid pursuant to the in-place leases over a market absorption period for
a similar lease. These intangibles are included in intangible lease assets in the accompanying
consolidated balance sheet and are amortized to expense over the lesser of the useful life or the
remaining term of the respective leases.
The determination of the fair values of the assets and liabilities acquired requires the use
of significant assumptions with regard to the current market rental rates, rental growth rates,
discount rates and other variables. The use of inappropriate estimates would result in an
incorrect assessment of our purchase price allocations, which could impact the amount of our
reported net income.
Investment in Direct Financing Leases
We evaluate the leases associated with our real estate properties in accordance with
Statements of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (“SFAS No.
13”). For the real estate property leases classified as direct financing leases, the building
portion of the property leases are accounted for as direct financing leases while the land portion
of these leases are accounted for as operating leases. For the direct financing leases, we record
an asset (net investment) representing the aggregate future minimum lease payments, estimated
residual value of the leased property and deferred incremental direct costs less unearned income.
Income is recognized over the life of the lease to approximate a level rate of return on the net
investment. Residual values, which are reviewed quarterly, represent the estimated amount we
expect to receive at lease termination from the disposition of the leased property. Actual
residual values realized could differ from these estimates. Write-downs of estimated residual
value are recognized as permanent impairments in the current period. There were no write-downs
recognized during the years ended December 31, 2008 and 2007.
Investment in Mortgage Notes Receivable
Mortgage notes receivable consist of loans we acquired, which are secured by real estate.
Mortgage notes receivable are recorded at stated principal amounts net of any discount or premium
and deferred loan origination costs or fees. The related discounts or premiums on mortgage notes
receivable purchased are amortized or accreted over the life of the related mortgage receivable.
We defer certain loan origination and commitment fees, and amortize them as an adjustment of the
mortgage notes receivable’s yield over the term of the related mortgage receivable. We evaluate
the collectibility of both interest and principal on each mortgage note receivable to determine
whether it is collectible. A mortgage note receivable is considered to be impaired, when based
upon current information and events, it is probable that we will be unable to collect all amounts
due according to the existing contractual terms. When a mortgage note receivable is considered to
be impaired, the amount of loss is calculated as the amount that the recorded investment exceeds
the greater of the value determined by discounting the expected future cash flows at the mortgage
note receivable’s effective interest rate or the value of the underlying collateral if the mortgage
note receivable is collateralized. Interest income on performing mortgage note receivable is
accrued as earned. Interest income on impaired mortgage notes receivable is
recognized on a cash basis. No impairment losses were recorded related to mortgage notes
receivable for the years ended December 31, 2008 and 2007.
47
Investment in Marketable Securities
Investments in marketable securities consist of investments in CMBS. SFAS No. 115,
“Accounting for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”), requires us to
classify our investments in real estate securities as trading, available-for-sale or
held-to-maturity. We classify our investments as available-for-sale as we intend to hold our
investments until maturity, however we may sell them prior to their maturity. These investments
are carried at estimated fair value, with unrealized gains and losses reported in accumulated other
comprehensive income (loss). Estimated fair values are based on quoted market prices, when
available, or on estimates provided by independent pricing sources or dealers who make markets in
such securities. Upon the sale of a security, the realized net gain or loss is computed on a
specific identification basis.
Our marketable securities are valued using Level 3 inputs. We primarily use quoted market
prices from third parties that actively participate in the CMBS market. We receive non-binding
quotes from established financial institutions and select a fair value using the quotes received.
Market conditions, such as interest rates, liquidity, trading activity and credit spreads may cause
significant variability to the received quotes. We generally do not adjust values from quotes
received. If we are unable to obtain quotes from third parties or if we believe quotes received
are inaccurate, we will estimate fair value using internal models that primarily consider the CMBX
index, expected cash flows, known and expected defaults and rating agency reports. Changes in
market conditions, as well as changes in the assumptions or methodology used to estimate fair
value, could result in a significant increase or decrease in the recorded amount of the financial
asset or liability. As of December 31, 2008, no marketable securities were valued using internal
models. Significant judgment is involved in valuations and different judgments and assumptions
used in our valuation could result in different valuations. As there continues to be significant
disruptions to the financial markets, our estimates of fair value may have significant volatility.
We monitor our available-for-sale securities for impairments. A loss is recognized when we
determine that a decline in the estimated fair value of a security below its amortized cost is
other-than-temporary. We consider many factors in determining whether the impairment of a security
is deemed to be other-than-temporary, including, but not limited to, any changes in expected cash
flows, the length of time the security has had a decline in estimated fair value below its
amortized cost, the amount of the unrealized loss, our intent and ability to hold the security for
a period of time sufficient for a recovery in value, recent events specific to the issuer or
industry, external credit ratings and recent changes in such ratings. The analysis of determining
whether the impairment of a security is deemed to be other-than-temporary requires significant
judgments and assumptions. The use of different judgments and assumptions could result in a
different conclusion.
Unamortized premiums and discounts on securities available-for-sale are recognized in interest
income on marketable securities over the contractual life, adjusted for actual prepayments, of the
securities using the effective interest method.
Revenue Recognition
Upon the acquisition of real estate, certain properties have leases where minimum rent
payments increase during the term of the lease. We record rental revenue for the full term of each
lease on a straight-line basis. When we acquire a property, the term of existing leases is
considered to commence as of the acquisition date for the purposes of this calculation. We defer
the recognition of contingent rental income, such as percentage rents, until the specific target
that triggers the contingent rental income is achieved. Reimbursements from tenants for
recoverable real estate taxes and operating expenses are included in rental income in the period
the related costs are incurred.
Income Taxes
We are taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code. We
generally will not be subject to federal corporate income tax to the extent we distribute our REIT
taxable income to our stockholders, and so long as we distribute at least 90% of our REIT taxable
income. REITs are subject to a number of other organizational and operational requirements. Even
if we qualify for taxation as a REIT, we may be subject to certain state and local taxes on our
income and property, and federal income and excise taxes on our undistributed income.
48
Results of Operations
As of December 31, 2008, we owned 378 single-tenant, freestanding retail properties, 274
single-tenant, freestanding commercial properties, and 21 multi-tenant retail properties, of which
approximately 99% of the rentable space was leased. Of the leases related to these properties, 13
were classified as direct financing leases, as discussed in Note 4 to our consolidated financial
statements. During the years ended December 31, 2008 and 2007, we acquired 340 and 242 properties,
respectively. During the year ended December 31,
2007, we purchased two portfolios of mortgage notes receivable for an aggregate price of
approximately $87.4 million, consisting of 69 mortgage notes receivable secured by 43 restaurant
properties and 26 single-tenant retail properties, each of which is subject to a net lease. See
Note 7 to our consolidated financial statements. During the year ended December 31, 2008, we
purchased four CMBS bonds, with an aggregate fair value of approximately $24.6 million at
December 31, 2008. See Note 8 to our consolidated financial statements in this Annual Report on
Form 10-K. 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.
Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
As of December 31, 2008, we owned 673 commercial properties, of which approximately 99% of the
rentable space was leased, compared to 333 commercial properties at December 31, 2007, an increase
of approximately 102%. Accordingly, our results of operations for the year ended December 31,
2008, as compared to the year ended December 31, 2007, reflect significant increases in most
categories.
Revenue. Revenue increased approximately $111.2 million, or approximately 124%, to
approximately $201.0 million for the year ended December 31, 2008, compared to approximately $89.8
million for the year ended December 31, 2007. Our revenue primarily consists of rental income from
net leased commercial properties, which accounted for approximately 89% and 92% of total revenues
during the years ended December 31, 2008 and 2007, respectively.
Rental income increased approximately $95.8 million, or approximately 116%, to approximately
$178.3 million for the year ended December 31, 2008, compared to approximately $82.5 million for
the year ended December 31, 2007. The increase was primarily due to the acquisition of 340 new
properties during the year ended December 31, 2008 and the ownership of the 333 properties acquired
during the year ended December 31, 2007 for the full year in 2008. During the year ended December
31, 2008, we acquired additional properties for which we pay certain operating expenses subject
to reimbursement by the tenant, which resulted in approximately $12.2 million of tenant
reimbursement income in 2008 compared to approximately $5.2 million in 2007.
Earned income from direct financing leases increased approximately $1.1 million, or
approximately 103%, to approximately $2.2 million for the year ended December 31, 2008, compared to
approximately $1.1 million for the year ended December 31, 2007. The increase was due to the
recording of earned income from direct financing leases on 13 properties accounted for as direct
financing leases acquired during the year ended December 31, 2007 for the full year ended December
31, 2008.
Interest income on mortgages receivable increased approximately $6.0 million, or approximately
536%, to approximately $7.1 million for the year ended December 31, 2008, compared to approximately
$1.1 million for the year ended December 31, 2007. The increase was due to the recording of
interest income on mortgages receivable on 69 mortgage notes receivable acquired during the year
ended December 31, 2007 for the full year ended December 31, 2008.
Interest income on marketable securities was approximately $1.2 million for the year ended
December 31, 2008, compared to no interest income on marketable securities for the year ended
December 31, 2007. The increase was due to the acquisition of four CMBS bonds with an
aggregate face amount of approximately $68.8 million, during the year ended December 31,
2008.
General and Administrative Expenses. General and administrative expenses increased
approximately $3.6 million, or approximately 180%, to approximately $5.6 million for the year ended
December 31, 2008, compared to approximately $2.0 million for the year ended December 31, 2007.
The increase was primarily due to increases in legal and accounting fees and state franchise and
income taxes due to the increase in the number of properties owned from 333
properties at December 31, 2007 to 673 properties at December 31, 2008. The primary general and
administrative expense items are legal and accounting fees, state franchise and income taxes,
escrow and trustee fees, organizational costs, and other licenses and fees.
Property Operating Expenses. Property operating expenses increased approximately $10.3
million, or approximately 160%, to approximately $16.8 million for the year ended December 31,
2008, compared to approximately $6.5 million for the year ended December 31, 2007. The increase
was primarily due to the ownership of more properties during the year ended December 31, 2008 than
in the year ended December 31, 2007, for which we initially pay certain operating expenses and are
reimbursed by the tenant in accordance with the respective lease agreements, including seven
additional multi-tenant shopping centers. At December 31, 2008, we owned 21 multi-tenant shopping
centers compared to 14 at December 31, 2007. The primary property operating expense items are
property taxes, repairs and maintenance, bad debt expense and insurance.
49
Property and Asset Management Fees. Pursuant to the advisory agreement with our advisor, we
are required to pay to our advisor a monthly asset management fee equal to one-twelfth
of 0.25% of the aggregate asset value of our properties determined in accordance
with the advisory agreement as of the last day of the preceding month. Pursuant to the
property management agreement with our affiliated property manager, during the year ended December
31, 2008, we paid to our property manager a property management fee in an amount equal to 2% of
gross revenues from our single-tenant properties and 2% to 4% of gross revenues from our
multi-tenant properties, less all payments to third-party management subcontractors.
Property and asset management fees increased approximately $5.6 million, or approximately
133%, to approximately $9.8 million for the year ended December 31, 2008, compared to approximately
$4.2 million for the year ended December 31, 2007. Property management fees increased
approximately $2.2 million to approximately $3.8 million for the year ended December 31, 2008 from
approximately $1.6 million for the year ended December 31, 2007. The increase in property
management fees was primarily due to an increase in rental income to approximately $178.3 million
for the year ended December 31, 2008, from approximately $82.5 million for the year ended December
31, 2007, due to the acquisition of 340 new properties during the year ended December 31, 2008. In
addition, during the year ended December 31, 2008, we paid to our property manager 4% of gross
revenues from certain multi-tenant properties. During the year ended December 31, 2007, we paid to
our property manager 2% of gross revenues from all multi-tenant properties. Asset management fees
increased approximately $3.4 million to approximately $6.0 million for the year ended December 31,
2008 from approximately $2.6 million for the year ended December 31, 2007. The increase in asset
management fees was primarily due to an increase in the average aggregate book value of properties
owned to approximately $2.6 billion during the year ended December 31, 2008 from approximately $1.2
billion during the year ended December 31, 2007. The increase in aggregate book value is due to
the acquisition of 340 new properties during the year ended December 31, 2008.
Depreciation and Amortization Expenses. Depreciation and amortization expenses increased
approximately $33.4 million, or approximately 109%, to approximately $63.9 million for the year
ended December 31, 2008, compared to approximately $30.5 million for the year ended December 31,
2007. The increase was primarily due to an increase in the average aggregate book value of
properties owned to approximately $2.6 billion at
December 31, 2008 from approximately $1.2 billion
at December 31, 2007. The increase in aggregate book value was primarily due to the acquisition of
340 new properties during the year ended December 31, 2008.
Impairment
of Real Estate Assets. Impairment of real estate assets decreased approximately
$1.9 million, or approximately 34%, to approximately $3.6 million for the year ended December 31,
2008, compared to approximately $5.4 million for the year ended December 31, 2007. Impairment
losses were recorded on one property during the year ended December 31, 2008 and one property
during the year ended December 31, 2007, as discussed in Note 2 to our consolidated financial
statements in this Annual Report on Form 10-K.
Equity in income of unconsolidated joint venture. Equity in income of unconsolidated joint
venture was approximately $471,000 during the year ended December 31, 2008, compared to no equity
in income of unconsolidated joint venture during the year ended December 31, 2007. Through a joint
venture that we entered into during the year ended December 31, 2008, we acquired an indirect
interest in an approximately 386,000 square foot multi-tenant retail building in Independence,
Missouri for approximately $53.7 million, including acquisition costs, which represents an 85.48%
interest in the joint venture.
Interest and Other Income. Interest and other income decreased approximately $979,000, or
approximately 43% to approximately $1.3 million during the year ended December 31, 2008, compared
to approximately $2.3 million during the year ended December 31, 2007. Other income primarily
consisted of the net gain on disposal of a rate lock, of approximately $478,000 for the year ended
December 31, 2007, as discussed in Note 12 to our consolidated audited financial statements
accompanying this Annual Report on Form 10-K. Interest income decreased approximately $501,000, or
approximately 28%, to approximately $1.3 million during the year ended December 31, 2008, compared
to approximately $1.8 million for the year ended December 31, 2007. The decrease was primarily due
to a decline in interest rates.
Interest Expense. Interest expense increased approximately $39.0 million, or approximately
100%, to approximately $78.1 million for the year ended December 31, 2008, compared to
approximately $39.1 million during the year ended December 31, 2007. The increase was primarily
due to an increase in the average notes payable and line of credit outstanding during the year
ended December 31, 2008 to approximately $1.3 billion from approximately $637.0 million during the
year ended December 31, 2007 and an increase of weighted average interest rate to approximately
5.89% at December 31, 2008 from approximately 5.85% at December 31, 2007.
Our property acquisitions during the year ended December 31, 2008, were purchased with
proceeds from the Follow-on Offering, available cash, borrowings from our Credit Facility and
short-term and long-term notes payable as discussed in Note 10 to our consolidated financial
statements in this Annual Report on Form 10-K. We expect that our interest expense in future
periods will vary based on our level of future borrowings, which will depend on the cost of our
borrowings and the opportunity to acquire real estate assets that meet our investment objectives.
50
Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
As of December 31, 2007, we owned 333 commercial properties, of which approximately 99% of the
rentable space was leased, compared to 91 commercial properties at December 31, 2006, an increase
of approximately 266%. We also owned a portfolio of 69 mortgage notes receivable at December 31,
2007. We had no mortgage notes receivable at December 31, 2006. Accordingly, our results of
operations for the year ended December 31, 2007, as compared to the year ended December 31, 2006,
reflect significant increases in all categories.
Revenue. Revenue increased approximately $70.3 million, or approximately 360%, to
approximately $89.8 million for the year ended December 31, 2007, compared to approximately $19.5
million for the year ended December 31, 2006. Our revenue primarily consists of rental income from
net leased commercial properties, which accounted for approximately 92% and 94% of total revenues
during the years ended December 31, 2007 and 2006, respectively.
Rental income increased approximately $64.1 million, or approximately 349%, to approximately
$82.5 million for the year ended December 31, 2007, compared to approximately $18.4 million for the
year ended December 31, 2006. The increase was primarily due to the acquisition of 242 new
properties during the year ended December 31, 2007 and the ownership of the 77 properties acquired
during the year ended December 31, 2006 for the full year in 2007. During the year ended December
31, 2007, we acquired additional properties for which we pay certain operating expenses subject
to reimbursement by the tenant, which resulted in approximately $5.2 million of tenant
reimbursement income in 2007 compared to approximately $1.2 million in 2006.
During the year ended December 31, 2007, we acquired 13 properties that we accounted for as
direct financing leases. We had no properties accounted for as direct financing leases at December
31, 2006. Earned income from direct financing leases was approximately $1.1 million for the year
ended December 31, 2007, with no earned income from direct financing leases recorded for year ended
December 31, 2006.
Interest income on mortgages receivable was approximately $1.1 million for the year ended
December 31, 2007, with no mortgages receivable interest income recorded for the year ended
December 31, 2006. We purchased approximately $87.4 million of mortgage notes receivable during
the year ended December 31, 2007. We had no mortgage notes receivable at December 31, 2006.
General and Administrative Expenses. General and administrative expenses increased
approximately $1.0 million, or approximately 111%, to approximately $2.0 million for the year ended
December 31, 2007, compared to approximately $953,000 for the year ended December 31, 2006. The
increase was primarily due to increases in state franchise and income taxes due to the increase in
the number of properties owned from 91 properties at December 31, 2006 to 333 properties at
December 31, 2007. The primary general and administrative expense items are legal and accounting
fees, state franchise and income taxes, organizational costs, and other licenses and fees.
Property Operating Expenses. Property operating expenses increased approximately $5.1 million,
or approximately 356%, to approximately $6.5 million for the year ended December 31, 2007, compared
to approximately $1.4 million for the year ended December 31, 2006. The increase was primarily due
to the ownership of more properties during the year ended December 31, 2007 than in the year ended
December 31, 2006, for which we initially pay certain operating expenses and are reimbursed by the
tenant in accordance with the respective lease agreements, including 10 additional multi-tenant
shopping centers. At December 31, 2007, we owned 14 multi-tenant shopping centers compared to four
at December 31, 2006. The primary property operating expense items are repairs and maintenance,
property taxes, bad debt expense and insurance.
Property and Asset Management Fees. Pursuant to the advisory agreement with our advisor, we
are required to pay to our advisor a monthly asset management fee equal to one-twelfth
of 0.25% of the aggregate asset value of our properties determined in accordance with the
advisory agreement as of the last day of the preceding month. Pursuant to the property management
agreement with our affiliated property manager, during the year ended December 31, 2007, we paid to
our property manager a property management and leasing fee in an amount equal to 2% of gross
revenues. In accordance with the property management agreement, we may pay Cole Realty Advisors
(i) up to 2% of gross revenues from our single-tenant properties and (ii) up to 4% of gross
revenues from our multi-tenant properties, as determined pursuant to the agreement, less all
payments to third-party management subcontractors.
Property and asset management fees increased approximately $3.2 million, or approximately
347%, to approximately $4.2 million for the year ended December 31, 2007, compared to approximately
$937,000 for the year ended December 31, 2006. Property management fees increased approximately
$1.2 million to approximately $1.6 million for the year ended December 31, 2007 from approximately
$350,000 for the year ended December 31, 2006. The increase in property management fees was
primarily due to an increase in rental income to approximately $82.5 million for the year ended
December 31, 2007, from approximately $18.4 million for the year ended December 31, 2006, due to
the acquisition of 242 new properties during the year ended December 31, 2007. Asset
management fees increased approximately $2.0 million to approximately $2.6 million for the
year ended December 31, 2007 from approximately $587,000 for the year ended December 31, 2006. The
increase in asset management fees was primarily due to an increase in the average aggregate book
value of properties owned to approximately $1.2 billion during the year ended December 31, 2007
from approximately $272.5 million during the year ended December 31, 2006. The increase in
aggregate book value is due to the acquisition of 242 new properties during the year ended December
31, 2007.
51
Depreciation and Amortization Expenses. Depreciation and amortization expenses increased
approximately $24.0 million, or approximately 371%, to approximately $30.5 million for the year
ended December 31, 2007, compared to approximately $6.5 million for the year ended December 31,
2006. The increase was primarily due to an increase in the average aggregate book value of
properties owned to approximately $1.2 billion at December 31, 2007 from approximately $272.5
million at December 31, 2006. The increase in aggregate book value was primarily due to the
acquisition of 242 new properties during the year ended December 31, 2007
Impairment
of Real Estate Assets. Impairment of real estate assets was approximately $5.4
million for the year ended December 31, 2007, with no impairment loss recorded for the year ended
December 31, 2006. The impairment was due to losses recorded on one property during the year ended
December 31, 2007, as discussed in Note 2 to our to our consolidated financial statements in this
Annual Report on Form 10-K.
Interest and Other Income. Interest and other income increased approximately $1.8 million, or
approximately 349%, to approximately $2.3 million for the year ended December 31, 2007, compared to
approximately $503,000 for the year ended December 31, 2006. Interest income increased
approximately $1.3 million, or approximately 253%, to approximately $1.8 million for the year ended
December 31, 2007, compared to approximately $503,000 for the year ended December 31, 2006. The
increase was primarily due to higher uninvested cash during the year ended December 31, 2007,
compared to the year ended December 31, 2006 due to increased proceeds from the Initial Offering
and Follow-on Offering. Cash and cash equivalents was approximately $43.5 million at December 31,
2007 compared to approximately $37.6 million at December 31, 2006. Other income consists of the
net gain on disposal of rate locks of approximately $478,000 for the year ended December 31, 2007.
On August 10, 2007, we elected to terminate our rate lock agreements, as discussed in Note 12 to
our consolidated financial statements in this Annual Report on Form 10-K. No other income was
recorded for the year ended December 31, 2006.
Interest Expense. Interest expense increased approximately $30.2 million, or approximately
339%, to approximately $39.1 million for the year ended December 31, 2007, compared to
approximately $8.9 million for the year ended December 31, 2006. The increase was primarily due to
an increase in the average mortgage notes payable outstanding during the year ended December 31,
2007 to approximately $637.0 million from approximately $142.5 million during the year ended
December 31, 2006. The increase in average mortgage notes payable was due to our acquisition of
105 new debt agreements during the year ended December 31, 2007.
Our property acquisitions during the year ended December 31, 2007, were financed in part with
short-term and long-term notes payable as discussed in Note 10 to our consolidated financial
statements in this Annual Report on Form 10-K. We expect that our interest expense in future
periods will vary based on our level of future borrowings, which will depend on the level of
proceeds raised in the Follow-on Offering, the cost of our borrowings, and the opportunity to
acquire real estate assets that meet our investment objectives.
Portfolio Information
Real Estate Portfolio
As of December 31, 2008, we owned 673 properties located in 45 states and the U.S. Virgin
Islands, the gross rentable space of which was approximately 99% leased with an average lease term
remaining of approximately 12.8 years. Of the leases related to these properties, 13 were
classified as direct financing leases, as discussed in Note 4 to our consolidated financial
statements in this Annual Report on Form 10-K.
52
As of
December 31, 2008, our five highest geographic concentrations,
based on annualized gross base rents, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
2008 Annualized |
|
|
Percentage of 2008 |
|
| |
|
Total Number |
|
|
Rentable Square |
|
|
Gross Base Rents |
|
|
Annualized Gross |
|
| Location |
|
of Properties |
|
|
Feet |
|
|
(in thousands) |
|
|
Base Rent |
|
Texas |
|
|
156 |
|
|
|
3,436,011 |
|
|
$ |
35,552 |
|
|
|
15 |
% |
Florida |
|
|
22 |
|
|
|
1,927,526 |
|
|
|
26,439 |
|
|
|
12 |
% |
Illinois |
|
|
19 |
|
|
|
1,656,530 |
|
|
|
16,904 |
|
|
|
7 |
% |
Georgia |
|
|
56 |
|
|
|
901,306 |
|
|
|
15,453 |
|
|
|
7 |
% |
Ohio |
|
|
59 |
|
|
|
580,392 |
|
|
|
11,425 |
|
|
|
5 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
312 |
|
|
|
8,501,765 |
|
|
$ |
105,773 |
|
|
|
46 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2008, our five highest tenant industry concentrations, based on annualized gross
base rents, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
2008 Annualized |
|
|
Percentage of 2008 |
|
| |
|
Total Number |
|
|
Rentable |
|
|
Gross Base Rent |
|
|
Annualized Gross |
|
| Industry |
|
of Leases |
|
|
Square Feet |
|
|
(in thousands) |
|
|
Base Rent |
|
Specialty retail |
|
|
196 |
|
|
|
4,662,862 |
|
|
$ |
44,493 |
|
|
|
19 |
% |
Drugstore |
|
|
105 |
|
|
|
1,376,003 |
|
|
|
30,905 |
|
|
|
13 |
% |
Restaurant |
|
|
89 |
|
|
|
639,954 |
|
|
|
29,406 |
|
|
|
13 |
% |
Sporting goods |
|
|
19 |
|
|
|
2,325,954 |
|
|
|
17,015 |
|
|
|
7 |
% |
Convenience stores |
|
|
85 |
|
|
|
277,478 |
|
|
|
12,773 |
|
|
|
6 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
494 |
|
|
|
9,282,251 |
|
|
$ |
134,592 |
|
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of
December 31, 2008, our five highest tenant concentrations, based on annualized gross
base rents, were as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
2008 Annualized |
|
|
Percentage of 2008 |
|
| |
|
Total Number |
|
|
Gross Base Rent |
|
|
Annualized Gross |
|
| Tenant |
|
of Leases |
|
|
(in thousands) |
|
|
Base Rent |
|
Walgreens — drug store |
|
|
44 |
|
|
$ |
14,736 |
|
|
|
6 |
% |
Church’s Chicken — restaurant |
|
|
1 |
|
|
|
13,210 |
|
|
|
6 |
% |
Academy Sports — sporting goods |
|
|
9 |
|
|
|
11,616 |
|
|
|
5 |
% |
Circle K — convenience store |
|
|
83 |
|
|
|
11,550 |
|
|
|
5 |
% |
Ferguson Enterprises — specialty retail |
|
|
8 |
|
|
|
6,940 |
|
|
|
3 |
% |
|
|
|
|
|
|
|
|
|
|
|
|
|
145 |
|
|
$ |
58,052 |
|
|
|
25 |
% |
|
|
|
|
|
|
|
|
|
|
For more information on our portfolio diversification and statistics, see “Item 2 —
Properties” above.
Mortgage Notes Receivable Portfolio
At December 31, 2008, the Company owned two portfolios of mortgage notes receivable of
approximately $85.0 million consisting of 69 mortgage notes receivable, secured by 23 restaurant
properties leased to Cracker Barrel Old Country Store, 20 restaurant properties leased to KFC, and
26 retail properties leased to O’Reilly Auto Parts.
Investment in Marketable Securities
At December 31,
2008, we owned four CMBS bonds, with an aggregate fair value of
approximately $24.6 million.
Investment in Unconsolidated Joint Venture
Through a joint venture that we entered into during the year ended December 31, 2008, we
acquired an indirect interest in an approximately 386,000 square foot multi-tenant retail building
in Independence, Missouri for approximately $53.7 million, including acquisition costs, which
represents an 85.48% interest in the joint venture.
53
Funds From Operations
We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of
a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real
estate assets and gains or losses from sales or impairment of operating real estate assets (which
can vary among owners of identical assets in similar conditions based on historical cost accounting
and useful-life estimates), they facilitate comparisons of operating performance between periods
and between other REITs. Our management believes that accounting for real estate assets in
accordance with 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 or may interpret the
current NAREIT definition differently than we do.
FFO is a non-GAAP financial measure and does not represent net income as defined by GAAP. Net
income as defined by GAAP is the most relevant measure in determining our operating performance
because FFO includes adjustments that investors may deem subjective, such as adding back expenses
such as depreciation and amortization. Accordingly, FFO should not be considered as an alternative
to net income as an indicator of our operating performance.
Our calculation of FFO is presented in the following table for the years ended as indicated
(in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended |
|
| |
|
December 31, |
|
|
December 31, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Net income |
|
$ |
25,092 |
|
|
$ |
4,480 |
|
|
$ |
1,346 |
|
Add: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation of real estate assets |
|
|
42,647 |
|
|
|
20,460 |
|
|
|
4,396 |
|
Amortization of lease related costs |
|
|
21,212 |
|
|
|
10,022 |
|
|
|
2,073 |
|
Adjustments for unconsolidated joint venture |
|
|
99 |
|
|
|
— |
|
|
|
— |
|
Impairment on real estate assets |
|
|
3,550 |
|
|
|
5,400 |
|
|
|
— |
|
Less: Property condemnation gain |
|
|
(34 |
) |
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
FFO |
|
$ |
92,566 |
|
|
$ |
40,362 |
|
|
$ |
7,815 |
|
|
|
|
|
|
|
|
|
|
|
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 $9.7 million,
approximately $4.4 million, and approximately $790,000 during the
years ended December 31, 2008, 2007 and 2006, respectively. |
| |
• |
|
Net income includes a net gain on disposal of rate lock of
approximately $478,000 for the year ended December 31, 2007. No gain
on disposal of rate lock was recorded for the years ended December 31,
2008 and 2006. See Note 12 to our consolidated audited financial
statements accompanying this Annual Report on Form 10-K. |
| |
• |
|
Amortization of deferred financing costs totaled approximately $5.8
million, approximately $1.9 million and approximately $548,000 during
the years ended December 31, 2008, 2007 and 2006, respectively. |
Liquidity and Capital Resources
General
Our principal demands for funds will be for property acquisitions, the payment of operating
expenses and distributions to stockholders and payment of principal and interest on our outstanding
indebtedness. Generally, cash needs for items other than property acquisitions will be generated
from operations and our current investments. The sources of our operating cash flows are primarily
driven by the rental income received from leased properties, interest income on mortgage notes
receivable and marketable securities, interest earned on our cash balances and by distributions
from our unconsolidated joint venture. We expect to utilize the net proceeds from the sale of our
common stock, including proceeds from the sale of shares under the DRIP, proceeds from secured or
unsecured financings and borrowings on our Credit Facility to complete future property
acquisitions.
54
As of December 31, 2008, we had cash and cash equivalents of approximately $106.5 million and
available borrowings of approximately $69.0 million under our Credit Facility. Additionally, as of
December 31, 2008, we had approximately $404.4 million of unencumbered properties which may be used
as collateral to secure additional financing in future periods or as additional collateral to
facilitate the refinancing of current mortgage debt as it becomes due.
Short-term Liquidity and Capital Resources
We expect to meet our
short-term liquidity requirements, including our potential future
acquisitions and repayment of our debt that matures in 2009, of
approximately $99.5 million, through net cash provided by property
operations, as well as, secured or unsecured borrowings from banks and other lenders and borrowings
on our Credit Facility, under which approximately $69.0 million
was available at December 31, 2008, or favorable
refinancing of existing debt. We are currently negotiating a one-year
extension of approximately $70.0 million of our debt that matures during 2009, although there can
be no guarantees we will be successful in obtaining an extension. We expect our operating cash
flows to increase as we own the properties acquired during 2008 for the full year in future periods
and as additional properties are added to our portfolio.
During the year ended December 31, 2008, the Company paid distributions of approximately $96.1
million, including approximately $53.5 million through the issuance DRIP shares, which were funded
by cash flows from operations of approximately $96.1 million. During the year ended December 31,
2007, the Company paid distributions of approximately $37.7 million, including approximately $20.3
million through the issuance DRIP shares, which were funded by cash flows from operations of
approximately $43.4 million. During the year ended December 31, 2006, the Company paid
distributions of approximately $7.1 million, including approximately $3.5 million through the
issuance DRIP shares, which were funded by cash flows from operations of approximately $7.9
million.
During the period
from January 1, 2009 to March 27, 2009, we completed the acquisition of 13 single-tenant
properties for an aggregate purchase price of approximately $79.0 million, exclusive of closing costs.
The acquisitions were funded with proceeds from the Follow-on
Offering and the assumption of approximately $68.3 million of
mortgage notes payable secured by the properties.
On December 31, 2008, our board of directors declared a daily distribution of $0.001917809 per
share for stockholders of record as of the close of business on each day of the period commencing
on January 1, 2009 and ending on March 31, 2009. The distributions for the period commencing on
January 1, 2009 and ending on January 31, 2009 were paid in February 2009 and totaled approximately
$12.0 million, of which approximately $6.6 million was reinvested in shares through our
distribution reinvestment program. The distributions for the period commencing on February 1, 2009
and ending on February 28, 2009 were paid in March 2009 and totaled approximately $10.9 million, of
which approximately $5.9 million was reinvested in shares through our distribution reinvestment
program.
Long-term Liquidity and Capital Resources
We expect to meet our long-term liquidity requirements through proceeds from secured or
unsecured financings from banks and other lenders, borrowing on our Credit Facility, the selective
and strategic sale of properties and net cash flows from operations. We expect that our primary
uses of capital will be for property acquisitions, for the payment of tenant improvements, for the
payment of offering-related costs, for the payment of operating expenses, including interest
expense on any outstanding indebtedness, and for the payment of distributions to our stockholders.
We expect that substantially all net cash generated from operations will be used to pay
distributions to our stockholders after certain capital expenditures, including tenant improvements
and leasing commissions, are paid at the properties; however, we may use other sources to fund
distributions as necessary. To the extent that cash flows from operations are lower due to fewer
properties being acquired or lower than expected returns on the properties, distributions paid to
our stockholders may be lower. We expect that substantially all net cash resulting from equity or
debt financing will be used to fund acquisitions, certain capital expenditures identified at
acquisition, repayments of outstanding debt, or distributions to our stockholders.
As of December 31, 2008, we had received and accepted subscriptions for 203,547,959 shares of
common stock in the Offerings for gross proceeds of approximately $2.0 billion. As of December 31,
2008, we had redeemed approximately 1.3 million shares of common stock for a cost of approximately
$12.3 million.
As of December 31, 2008, we had approximately $1.6 billion of debt outstanding, consisting of
approximately $1.3 billion of Fixed Rate Debt, approximately $142.4 million of Variable Rate Debt
and approximately $66.0 million outstanding under the Credit Facility. The Fixed Rate Debt has
interest rates ranging from 4.46% to 7.23%, with a weighted average interest rate of approximately
5.89%, and matures on various dates from April 2009 through August 2031. The Variable Rate Debt has
interest rates that range from LIBOR plus 180 to 250 basis points and matures on various dates from
February 2009 through September 2011. See Note 10 to our
consolidated financial statements in this Annual Report on Form 10-K for terms of the Credit
Facility. Additionally the ratio of debt to total gross assets was approximately 44% and the
weighted average years to maturity was approximately 5.9 years.
55
Our contractual obligations as of December 31, 2008 were as follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Payments due by period (2) |
|
| |
|
|
|
|
|
Less Than 1 |
|
|
|
|
|
|
|
|
|
|
More Than 5 |
|
| |
|
Total |
|
|
Year |
|
|
1-3 Years |
|
|
4-5 Years |
|
|
Years |
|
Principal payments — fixed rate debt (3) |
|
$ |
1,344,382 |
|
|
$ |
27,015 |
|
|
$ |
209,002 |
|
|
$ |
12,505 |
|
|
$ |
1,095,860 |
|
Interest payments — fixed rate debt |
|
|
570,396 |
|
|
|
78,519 |
|
|
|
221,505 |
|
|
|
131,652 |
|
|
|
138,720 |
|
Principal payments — variable rate debt (3) |
|
|
142,375 |
|
|
|
72,470 |
|
|
|
69,905 |
|
|
|
— |
|
|
|
— |
|
Interest payments — variable rate debt (1) |
|
|
3,970 |
|
|
|
1,898 |
|
|
|
2,072 |
|
|
|
— |
|
|
|
— |
|
Principal payments — line of credit |
|
|
66,000 |
|
|
|
— |
|
|
|
66,000 |
|
|
|
— |
|
|
|
— |
|
Interest payments — line of credit |
|
|
3,583 |
|
|
|
1,476 |
|
|
|
2,107 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,130,706 |
|
|
$ |
181,378 |
|
|
$ |
570,591 |
|
|
$ |
144,157 |
|
|
$ |
1,234,580 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Rates ranging from 2.24% to 2.94% were used to calculate the variable debt payment
obligations in future periods. These were the rates effective as of December 31, 2008. |
| |
| (2) |
|
Principal paydown amounts are included in payments due by period. |
| |
| (3) |
|
Principal payment amounts reflect actual payments based on face value of notes payable. |
Our charter prohibits us from incurring debt that would cause our borrowings to exceed the
greater of 60% of our gross assets, valued at the greater of the aggregate cost (before
depreciation and other non-cash reserves) or fair market value of all assets owned by us, unless
approved by a majority of our independent directors and disclosed to our stockholders in our next
quarterly report. During the quarter ended March 31, 2006, the independent directors approved
borrowings that caused our leverage ratio at certain times to exceed the 60% limitation. The
independent directors believed such borrowing levels were justified for the following reasons:
| |
• |
|
the borrowings enabled us to purchase the properties and earn rental income more quickly; |
| |
• |
|
the property acquisitions were likely to increase the net offering proceeds from our
initial public offering by allowing us to show potential investors actual acquisitions,
thereby improving our ability to meet our goal of acquiring a diversified portfolio of
properties to generate current income for investors and preserve investor capital; and |
| |
• |
|
based on expected equity sales at the time and scheduled maturities of our short-term
variable rate debt, leverage was likely to exceed the charter’s guidelines only for a
limited period of time. |
Cash Flow Analysis
Year Ended December 31, 2008 Compared to the Year Ended December 31, 2007
Operating Activities. Net cash provided by operating activities increased approximately $52.7
million, or approximately 122%, to approximately $96.1 million for the year ended December 31,
2008, compared to approximately $43.4 million for the year ended December 31, 2007. The increase
was primarily due to increases in net income of approximately $20.6 million, depreciation and
amortization expenses totaling approximately $33.2 million and an increase in accounts payable and
accrued expenses of approximately $7.2 million, offset primarily by a decrease in impairment of
real estate assets of approximately $1.9 million and an increase in rents and tenant receivables of
approximately $8.8 million for the year ended December 31, 2008. See “Results of Operations” for a
more complete discussion of the factors impacting our operating performance.
Investing Activities. Net cash used in investing activities decreased approximately $148.7
million, or approximately 11%, to approximately $1.2 billion for the year ended December 31, 2008
compared to approximately $1.4 billion for the year ended December 31, 2007. The decrease is
primarily due to the assumption of approximately $171.3 million of mortgage notes payable in
conjunction with our real estate acquisitions during the year ended December 31, 2008. We assumed
no mortgage notes payable during the year ended December 31, 2007. During the year ended December
31, 2008, we acquired 340 properties, with an average purchase price of approximately $3.8 million,
compared to the acquisition of 242 properties, with an average purchase price of approximately $5.3
million during the year ended December 31, 2007. In addition, we
purchased four CMBS bonds at
a discounted price of approximately $50.0 million, including acquisition costs, during the year
ended December 31, 2008 and acquired an indirect interest in a multi-tenant retail building for
approximately $53.7 million, including acquisition costs.
56
Financing Activities. Net cash provided by financing activities decreased approximately
$144.4 million, or approximately 11%, to approximately $1.2 billion for the year ended December 31,
2008, compared to approximately $1.3 billion for the year ended December 31, 2007. The decrease
was primarily due to an increase in repayment of mortgage and affiliate notes payable of
approximately $340.5 million, a decrease in proceeds from mortgage and affiliate notes payable of
approximately $137.4 million and an increase in offering costs on issuance of common stock of
approximately $42.5 million, offset primarily by an increase in proceeds from issuance of common
stock of approximately $430.4 million. The decrease in proceeds from issuance of mortgage and
affiliate notes payable was due to the issuance of 29 new notes payable during the year ended
December 31, 2008, compared to the issuance of 105 new notes payable during the year ended December
31, 2007.
Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006
Operating Activities. Net cash provided by operating activities increased approximately $35.5
million, or approximately 452%, to approximately $43.4 million for the year ended December 31,
2007, compared to net cash provided by operating activities of approximately $7.9 million for the
year ended December 31, 2006. The increase was primarily due to an increase in net income of
approximately $3.1 million, increases in depreciation and amortization expenses totaling
approximately $24.5 million, an impairment of real estate assets of approximately $5.4 million and
an increase in accounts payable and accrued expenses of approximately $4.0 million, offset by an
increase in rents and tenant receivables of approximately $3.3 million for the year ended December
31, 2007. See “Results of Operations” for a more complete discussion of the factors impacting our
operating performance.
Investing Activities. Net cash used in investing activities increased approximately $1.0
billion, or approximately 326%, to approximately $1.4 billion for the year ended December 31, 2007,
compared to net cash used in investing activities of approximately $320.2 million for the year
ended December 31, 2006. The increase was primarily due to the acquisition of 242 real estate
properties during the year ended December 31, 2007 compared to the acquisition of 77 properties
during the year ended December 31, 2006, and we acquired approximately $87.4 million of mortgage
notes receivable using cash of approximately $51.1 million and mortgage notes payable obtained from
the seller of approximately $36.3 million.
Financing Activities. Net cash provided by financing activities increased approximately
$982.1 million, or approximately 284%, to approximately $1.3 billion for the year ended December
31, 2007, compared to net cash provided by financing activities of approximately $345.3 million for
the year ended December 31, 2006. The increase was primarily due to an increase in aggregate net
proceeds from the issuance of common stock in the Initial, Follow-on and DRIP Offerings of
approximately $335.1 million, an increase in proceeds from the issuance of mortgage and affiliate
notes of approximately $686.3 million, and a decrease in repayments of mortgage and affiliate notes
payable of approximately $10.5 million, offset by an increase in distributions to investors of
approximately $13.9 million, an increase in offering costs on issuance of common stock of
approximately $31.4 million and an increase in deferred financing costs paid of approximately $15.6
million. The increase in proceeds from issuance of mortgage and affiliate notes payable was due to
our issuance of 105 new mortgages during the year ended December 31, 2007, compared to 46 new
mortgages during the year ended December 31, 2006. Also, we borrowed approximately $72.2 million
from our revolving mortgage notes payable.
Election as a REIT
We are taxed as a REIT under the Internal Revenue Code of 1986, as amended. To qualify as a
REIT, we must meet certain organizational and operational requirements, including a requirement to
distribute at least 90% of our ordinary taxable income to stockholders. As a REIT, we generally
will not be subject to federal income tax on taxable income that we distribute to our stockholders.
If we fail to qualify as a REIT in any taxable year, we will then be subject to federal income
taxes on our taxable income for four years following the year during which qualification is lost,
unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an
event could materially adversely affect our net income and net cash available for distribution to
stockholders. However, we believe that we are organized and operate in such a manner as to qualify
for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has
been made in our accompanying consolidated financial statements. We are subject to certain state
and local taxes related to the operations of properties in certain locations, which have been
provided for in our accompanying financial statements.
Inflation
We are exposed to inflation risk as income from long-term leases is the primary source of our
cash flows from operations. There are provisions in the majority of our tenant leases that are
intended to protect us from, and mitigate the risk of, the impact of inflation. These provisions
include rent steps and clauses enabling us to receive payment of additional rent calculated as a
percentage of the tenants’ gross sales above pre-determined thresholds. In addition, most of our
leases require the tenant to pay all or a majority of the operating expenses, including real estate
taxes, special assessments and sales and use taxes, utilities, insurance and building repairs,
related to the property. However, due to the long-term nature of the leases, the leases may not
reset frequently enough to fully cover inflation.
57
Related-Party Transactions and Agreements
We have entered into agreements with Cole Advisors II and its affiliates, whereby we pay
certain fees to, or reimburse certain expenses of, Cole Advisors II or its affiliates for
acquisition and advisory fees and expenses, organization and offering costs, sales commissions,
dealer manager fees, asset and property management fees and reimbursement of operating costs. See
Note 15 to our consolidated financial statements included in this Annual Report on Form 10-K for a
discussion of the various related-party transactions, agreements and fees.
Conflicts of Interest
Affiliates of Cole Advisors II act as sponsor, general partner or advisor to various private
real estate limited partnerships and other real estate-related programs, a REIT that offered its
shares pursuant to an exemption from registration, and a REIT that currently is offering its shares
pursuant to a registration statement on Form S-11. As such, there are conflicts of interest where
Cole Advisors II or its affiliates, while serving in the capacity as sponsor, general partner, key
personnel or advisor for another Cole sponsored program, may be in competition with us in
connection with property acquisitions, property dispositions, and property management. The
compensation arrangements between affiliates of Cole Advisors II and these other Cole sponsored
programs could influence its advice to us. See “Item 1. Business — Conflicts of Interest” in this
Annual Report on Form 10-K.
Subsequent Events
Certain events subsequent to December 31, 2008 through March 27, 2009, including the sale of
shares of common stock, the acquisition of 13 properties and the attainment of additional mortgage
financing are discussed in Note 22 to the consolidated financial statements included in this Annual
Report on Form 10-K.
On January 2, 2009, we terminated the Follow-on Offering. As of the close of business on
January 2, 2009, we had issued a total of 147,454,259 shares in the Follow-on Offering, including
141,520,572 shares sold in the primary offering and 5,933,687 shares sold pursuant to the DRIP,
resulting in gross offering proceeds of approximately $1.5 billion. At the completion of the
Follow-on Offering, a total of 1,595,741 shares of common stock remained unsold, including
1,529,428 shares that remained unsold in the primary offering and 66,313 shares of common stock
that remained unsold pursuant to the DRIP. All unsold shares in the Follow-on Offering have been
deregistered.
Impact of Recent Accounting Pronouncements
Reference is made to Note 2 to the consolidated financial statements included in this Annual
Report on Form 10-K regarding the impact of recent accounting pronouncements.
Off Balance Sheet Arrangements
As of December 31, 2008 and 2007, we had no off balance sheet arrangements.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
In connection with property acquisitions, we have obtained variable rate debt financing (see
Note 10 to our consolidated financial statements included in this Annual Report on Form 10-K) 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. 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.
As of December 31, 2008, approximately $208.4 million of the approximately $1.6 billion
outstanding on notes payable and the Credit Facility was subject to variable interest rates, which
bore interest at the one-month LIBOR rate plus 180 to 250 basis points. As of December 31, 2008, a
1% change in interest rates would result in a change in interest expense of approximately $2.1
million per year.
We do not have any foreign operations and thus we are not exposed to foreign currency
fluctuations.
58
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements and supplementary data filed as part of this report are set forth
beginning on page F-1 of this report.
|
|
| ITEM 9. |
|
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE |
There were no changes in or disagreements with our independent registered public accountants
during the year ended December 31, 2008.
ITEM 9A(T). 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) and Rule 15d-15(e) of the
Exchange Act) as of the end of the period covered by this Annual Report on Form 10-K. Based on
that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our
disclosure controls and procedures, as of December 31, 2008, were effective for the purpose of
ensuring that information required to be disclosed by us in this Annual Report on Form 10-K is
recorded, processed, summarized and reported within the time periods specified by the rules and
forms promulgated under the Exchange Act, and is accumulated and communicated to management,
including our Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely
decisions regarding required disclosures.
No change occurred in our internal controls over financial reporting (as defined in Rules
13a-15(f) and 15d -15(f) of the Exchange Act) during the three months ended December 31, 2008 that
has materially affected, or is reasonably likely to materially affect, our internal controls over
financial reporting.
Management’s Report on Internal Controls Over Financial Reporting
Cole Credit Property Trust II, Inc.’s management is responsible for establishing and
maintaining adequate internal control over financial reporting, as such term is defined in Exchange
Act Rule 13a — 15(f). Internal control over financial reporting is a process to provide reasonable
assurance regarding the reliability of our financial reporting and the preparation of financial
statements for external purposes in accordance with accounting principles generally accepted in the
United States. Because of its inherent limitations, internal control over financial reporting is
not intended to provide absolute assurance that a misstatement of our financial statements would be
prevented or detected. Also, projections of any evaluation of internal control effectiveness to
future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of our management, including our Chief
Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of
Cole Credit Property Trust II, Inc.’s internal control over financial reporting based on the
framework in Internal Control — Integrated Framework issued by the Committee of Sponsoring
Organizations of the Treadway Commission.
Based on this evaluation, management has concluded that Cole Credit Property Trust II, Inc.’s
internal control over financial reporting was effective as of December 31, 2008.
This annual report does not include an attestation report of the company’s registered public
accounting firm regarding internal control over financial reporting. Management’s report was not
subject to attestation by the company’s registered public accounting firm pursuant to temporary
rules of the Securities and Exchange Commission that permit the company to provide only
management’s report in this annual report.
ITEM 9B. OTHER INFORMATION
As of the quarter ended December 31, 2008, all items required to be disclosed under Form 8-K
were reported as such.
59
PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with the SEC with respect to our 2009 annual meeting of stockholders.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with the SEC with respect to our 2009 annual meeting of stockholders.
|
|
| ITEM 12. |
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER
MATTERS |
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with the SEC with respect to our 2009 annual meeting of stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTORS INDEPENDENCE
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with the SEC with respect to our 2009 annual meeting of stockholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference to our definitive proxy
statement to be filed with the SEC with respect to our 2009 annual meeting of stockholders.
60
PART IV
ITEM 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) List of Documents Filed.
1. The list of the financial statements contained herein is set forth on page F-1 hereof.
2. Financial Statement Schedules —
Schedule II — Valuation and Qualifying Accounts is set forth beginning on page S-1
hereof.
Schedule III — Real Estate Assets and Accumulated Depreciation is set forth beginning on
page S-2 hereof.
Schedule IV — Mortgage Loans on Real Estate Assets is set forth beginning on page S-23
hereof.
All other schedules for which provision is made in the applicable accounting regulations of
the SEC are not required under the related instructions or are not applicable and therefore
have been omitted.
| |
3. |
|
The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit
Index attached hereto. |
(b) See (a) 3 above.
(c) See (a) 2 above.
61
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934,
the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized this 30th day of March 2009.
| |
|
|
|
|
| |
Cole Credit Property Trust II, Inc.
|
|
| Date: March 30, 2009 |
By: |
/s/ CHRISTOPHER H. COLE
|
|
| |
|
Christopher H. Cole |
|
| |
|
Chief Executive Officer and President |
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following person on behalf of the Registrant and in the capacity as and on the
date indicated.
| |
|
|
|
|
| Signature |
|
Title |
|
Date |
|
|
|
|
|
/s/ CHRISTOPHER H. COLE
Christopher H. Cole
|
|
Chief Executive Officer,
President and Director
(Principal Executive
Officer)
|
|
March 30, 2009 |
|
|
|
|
|
/s/ D. KIRK MCALLASTER, JR.
D. Kirk McAllaster, Jr.
|
|
Executive Vice President
and Chief Financial
Officer (Principal
Financial and Accounting
Officer)
|
|
March 30, 2009 |
|
|
|
|
|
/s/ MARCUS E. BROMLEY
|
|
Director
|
|
March 30, 2009 |
|
|
|
|
|
|
|
|
|
|
/s/ ELIZABETH L. WATSON
|
|
Director
|
|
March 30, 2009 |
|
|
|
|
|
62
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
| |
|
|
|
|
| Financial Statements |
|
Page |
|
|
|
|
|
|
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements |
|
|
F-2 |
|
|
|
|
|
|
Consolidated Balance Sheets as of December 31, 2008 and 2007 |
|
|
F-3 |
|
|
|
|
|
|
Consolidated Statements of Operations for the Years Ended December 31, 2008, 2007 and 2006 |
|
|
F-4 |
|
|
|
|
|
|
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2008, 2007 and 2006 |
|
|
F-5 |
|
|
|
|
|
|
Consolidated Statements of Cash Flows for the Years Ended December 31, 2008, 2007 and 2006 |
|
|
F-6 |
|
|
|
|
|
|
Notes to Consolidated Financial Statements |
|
|
F-7 |
|
F-1
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Stockholders of
Cole Credit Property Trust II, Inc.
Phoenix, Arizona
We have audited the accompanying consolidated balance sheets of Cole Credit Property Trust II,
Inc. and subsidiaries (“the Company”) as of December 31, 2008 and 2007 and the related consolidated
statements of operations, stockholders’ equity, and cash flows for each of the three years in the
period ended December 31, 2008. Our audits also included the financial statement schedules listed
in the index at Item 15. These financial statements and financial statement schedules are the
responsibility of the Company’s management. Our responsibility is to express an opinion on these
financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its
internal control over financial reporting. Our audits included consideration of internal control
over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company’s internal control over financial reporting. Accordingly, we express no such opinion. An
audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.
In our opinion, such consolidated financial statements presents fairly, in all material
respects, the financial position of Cole Credit Property Trust II,
Inc. and subsidiaries as of December 31, 2008 and 2007 and the results of
their operations and their cash flows for each of the three years in the period ended December 31,
2008, in conformity with accounting principles generally accepted in the United States of America.
Also, in our opinion, such financial statement schedules, when considered in relation to the basic
consolidated financial statements taken as a whole, present fairly, in all material respects, the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Phoenix, Arizona
March 30, 2009
F-2
COLE CREDIT PROPERTY TRUST II, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands except share and per share amounts)
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
ASSETS: |
|
|
|
|
|
|
|
|
Investment in real estate assets: |
|
|
|
|
|
|
|
|
Land |
|
$ |
774,901 |
|
|
$ |
412,948 |
|
Buildings and improvements, less accumulated depreciation of $67,326 and $24,075, respectively |
|
|
1,929,829 |
|
|
|
1,090,362 |
|
Real estate assets under direct financing leases, less unearned income of $19,888 and $17,298, respectively |
|
|
38,612 |
|
|
|
39,260 |
|
Acquired intangible lease assets, less accumulated amortization of $37,578 and $12,926, respectively |
|
|
383,992 |
|
|
|
228,791 |
|
Real estate assets held for sale, less accumulated depreciation and accumulated amortization of $0 and
$1,104, respectively |
|
|
— |
|
|
|
22,991 |
|
|
|
|
|
|
|
|
Total real estate assets, net |
|
|
3,127,334 |
|
|
|
1,794,352 |
|
Investment in mortgage notes receivable, less accumulated amortization of $714 and $79, respectively |
|
|
84,994 |
|
|
|
87,100 |
|
|
|
|
|
|
|
|
Total real estate and mortgage assets, net |
|
|
3,212,328 |
|
|
|
1,881,452 |
|
| |
Cash and cash equivalents |
|
|
106,485 |
|
|
|
43,517 |
|
Restricted cash |
|
|
8,565 |
|
|
|
14,033 |
|
Marketable securities |
|
|
24,583 |
|
|
|
— |
|
Investment in unconsolidated joint venture |
|
|
25,792 |
|
|
|
— |
|
Rents and tenant receivables, less allowance for doubtful accounts of $922 and $522, respectively |
|
|
22,212 |
|
|
|
8,098 |
|
Prepaid expenses and other assets |
|
|
4,032 |
|
|
|
1,145 |
|
Deferred financing costs, less accumulated amortization of $6,512 and $2,272, respectively |
|
|
28,031 |
|
|
|
19,453 |
|
|
|
|
|
|
|
|
Total assets |
|
$ |
3,432,028 |
|
|
$ |
1,967,698 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Notes payable and line of credit |
|
$ |
1,550,314 |
|
|
$ |
1,037,982 |
|
Mortgage notes payable associated with assets held for sale |
|
|
— |
|
|
|
17,700 |
|
Accounts payable and accrued expenses |
|
|
20,723 |
|
|
|
7,777 |
|
Escrowed investor proceeds |
|
|
18 |
|
|
|
12,738 |
|
Due to affiliates |
|
|
123 |
|
|
|
1,505 |
|
Acquired below market lease intangibles, less accumulated amortization of $10,897 and $2,083, respectively |
|
|
156,813 |
|
|
|
80,032 |
|
Distributions payable |
|
|
11,877 |
|
|
|
5,434 |
|
Derivative liabilities |
|
|
2,794 |
|
|
|
— |
|
Deferred rent and other liabilities |
|
|
9,344 |
|
|
|
1,784 |
|
|
|
|
|
|
|
|
Total liabilities |
|
|
1,752,006 |
|
|
|
1,164,952 |
|
|
|
|
|
|
|
|
Redeemable common stock |
|
|
65,046 |
|
|
|
21,660 |
|
|
|
|
|
|
|
|
STOCKHOLDERS’ EQUITY: |
|
|
|
|
|
|
|
|
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding |
|
|
— |
|
|
|
— |
|
Common stock, $0.01 par value; 240,000,000 shares authorized, 202,296,748 and 93,621,094 shares issued and
outstanding, respectively |
|
|
2,023 |
|
|
|
936 |
|
Capital in excess of par value |
|
|
1,763,432 |
|
|
|
824,676 |
|
Accumulated distributions in excess of earnings |
|
|
(121,929 |
) |
|
|
(44,526 |
) |
Accumulated other comprehensive loss |
|
|
(28,550 |
) |
|
|
— |
|
|
|
|
|
|
|
|
Total stockholders’ equity |
|
|
1,614,976 |
|
|
|
781,086 |
|
|
|
|
|
|
|
|
Total liabilities and stockholders’ equity |
|
$ |
3,432,028 |
|
|
$ |
1,967,698 |
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-3
COLE CREDIT PROPERTY TRUST II, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands except share and per share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year Ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Revenues: |
|
|
|
|
|
|
|
|
|
|
|
|
Rental and other income |
|
$ |
178,297 |
|
|
$ |
82,492 |
|
|
$ |
18,358 |
|
Tenant reimbursement income |
|
|
12,225 |
|
|
|
5,161 |
|
|
|
1,162 |
|
Earned income from direct financing leases |
|
|
2,183 |
|
|
|
1,075 |
|
|
|
— |
|
Interest income on mortgages receivable |
|
|
7,081 |
|
|
|
1,114 |
|
|
|
— |
|
Interest income on marketable securities |
|
|
1,218 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total revenue |
|
|
201,004 |
|
|
|
89,842 |
|
|
|
19,520 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Expenses: |
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative |
|
|
5,632 |
|
|
|
2,011 |
|
|
|
953 |
|
Property operating expenses |
|
|
16,796 |
|
|
|
6,467 |
|
|
|
1,417 |
|
Property and asset management fees |
|
|
9,762 |
|
|
|
4,184 |
|
|
|
937 |
|
Depreciation |
|
|
42,647 |
|
|
|
20,460 |
|
|
|
4,396 |
|
Amortization |
|
|
21,212 |
|
|
|
10,022 |
|
|
|
2,073 |
|
Impairment of real estate assets |
|
|
3,550 |
|
|
|
5,400 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses |
|
|
99,599 |
|
|
|
48,544 |
|
|
|
9,776 |
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
101,405 |
|
|
|
41,298 |
|
|
|
9,744 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expense): |
|
|
|
|
|
|
|
|
|
|
|
|
Equity in income of unconsolidated joint venture |
|
|
471 |
|
|
|
— |
|
|
|
— |
|
Interest and other income |
|
|
1,279 |
|
|
|
2,258 |
|
|
|
503 |
|
Interest expense |
|
|
(78,063 |
) |
|
|
(39,076 |
) |
|
|
(8,901 |
) |
|
|
|
|
|
|
|
|
|
|
Total other expense |
|
|
(76,313 |
) |
|
|
(36,818 |
) |
|
|
(8,398 |
) |
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
25,092 |
|
|
$ |
4,480 |
|
|
$ |
1,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic and diluted |
|
$ |
0.17 |
|
|
$ |
0.07 |
|
|
$ |
0.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares
outstanding: |
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
146,198,235 |
|
|
|
60,929,996 |
|
|
|
13,275,635 |
|
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
146,201,399 |
|
|
|
60,931,316 |
|
|
|
13,275,635 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-4
COLE CREDIT PROPERTY TRUST II, INC.
CONSOLIDATED STATEMENT OF STOCKHOLDERS’ EQUITY
(in thousands, except share amounts)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Accumulated |
|
|
Accumulated |
|
|
|
|
| |
|
Common Stock |
|
|
Capital in |
|
|
Distributions |
|
|
Other |
|
|
Total |
|
| |
|
Number of |
|
|
|
|
|
|
Excess |
|
|
in Excess of |
|
|
Comprehensive |
|
|
Stockholders’ |
|
| |
|
Shares |
|
|
Par Value |
|
|
of Par Value |
|
|
Earnings |
|
|
Loss |
|
|
Equity |
|
Balance, December 31, 2005 |
|
|
2,832,387 |
|
|
$ |
28 |
|
|
$ |
25,487 |
|
|
$ |
(310 |
) |
|
$ |
— |
|
|
$ |
25,205 |
|
Issuance of common stock |
|
|
27,858,817 |
|
|
|
279 |
|
|
|
277,953 |
|
|
|
— |
|
|
|
— |
|
|
|
278,232 |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(8,492 |
) |
|
|
— |
|
|
|
(8,492 |
) |
Commissions on stock sales
and related dealer manager
fees |
|
|
— |
|
|
|
— |
|
|
|
(23,254 |
) |
|
|
— |
|
|
|
— |
|
|
|
(23,254 |
) |
Other offering costs |
|
|
— |
|
|
|
— |
|
|
|
(3,333 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,333 |
) |
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
54 |
|
|
|
— |
|
|
|
— |
|
|
|
54 |
|
Redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
(3,521 |
) |
|
|
— |
|
|
|
— |
|
|
|
(3,521 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
1,346 |
|
|
|
— |
|
|
|
1,346 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2006 |
|
|
30,691,204 |
|
|
|
307 |
|
|
|
273,386 |
|
|
|
(7,456 |
) |
|
|
— |
|
|
|
266,237 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
63,156,834 |
|
|
|
631 |
|
|
|
629,526 |
|
|
|
— |
|
|
|
— |
|
|
|
630,157 |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(41,550 |
) |
|
|
— |
|
|
|
(41,550 |
) |
Commissions on stock sales
and related dealer manager
fees |
|
|
— |
|
|
|
— |
|
|
|
(53,346 |
) |
|
|
— |
|
|
|
— |
|
|
|
(53,346 |
) |
Other offering costs |
|
|
— |
|
|
|
— |
|
|
|
(4,600 |
) |
|
|
— |
|
|
|
— |
|
|
|
(4,600 |
) |
Redemptions of common stock |
|
|
(226,944 |
) |
|
|
(2 |
) |
|
|
(2,176 |
) |
|
|
— |
|
|
|
— |
|
|
|
(2,178 |
) |
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
25 |
|
|
|
— |
|
|
|
— |
|
|
|
25 |
|
Redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
(18,139 |
) |
|
|
— |
|
|
|
— |
|
|
|
(18,139 |
) |
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
4,480 |
|
|
|
— |
|
|
|
4,480 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2007 |
|
|
93,621,094 |
|
|
|
936 |
|
|
|
824,676 |
|
|
|
(44,526 |
) |
|
|
— |
|
|
|
781,086 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Issuance of common stock |
|
|
109,719,921 |
|
|
|
1,097 |
|
|
|
1,092,615 |
|
|
|
— |
|
|
|
— |
|
|
|
1,093,712 |
|
Distributions |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(102,495 |
) |
|
|
— |
|
|
|
(102,495 |
) |
Commissions on stock sales
and related dealer manager
fees |
|
|
— |
|
|
|
— |
|
|
|
(93,004 |
) |
|
|
— |
|
|
|
— |
|
|
|
(93,004 |
) |
Other offering costs |
|
|
— |
|
|
|
— |
|
|
|
(7,397 |
) |
|
|
— |
|
|
|
— |
|
|
|
(7,397 |
) |
Redemptions of common stock |
|
|
(1,044,267 |
) |
|
|
(10 |
) |
|
|
(10,080 |
) |
|
|
— |
|
|
|
— |
|
|
|
(10,090 |
) |
Stock compensation expense |
|
|
— |
|
|
|
— |
|
|
|
8 |
|
|
|
— |
|
|
|
— |
|
|
|
8 |
|
Redeemable common stock |
|
|
— |
|
|
|
— |
|
|
|
(43,386 |
) |
|
|
— |
|
|
|
— |
|
|
|
(43,386 |
) |
Comprehensive loss: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
25,092 |
|
|
|
— |
|
|
|
25,092 |
|
Unrealized loss on
marketable securities |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(25,756 |
) |
|
|
(25,756 |
) |
Unrealized loss on
interest rate swap |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
(2,794 |
) |
|
|
(2,794 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total comprehensive loss |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(3,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance, December 31, 2008 |
|
|
202,296,748 |
|
|
$ |
2,023 |
|
|
$ |
1,763,432 |
|
|
$ |
(121,929 |
) |
|
$ |
(28,550 |
) |
|
$ |
1,614,976 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-5
COLE CREDIT PROPERTY TRUST II, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Cash flows from operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
25,092 |
|
|
$ |
4,480 |
|
|
$ |
1,346 |
|
Adjustments to reconcile net income to net cash provided by operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation |
|
|
42,647 |
|
|
|
20,460 |
|
|
|
4,396 |
|
Amortization |
|
|
21,785 |
|
|
|
11,001 |
|
|
|
2,631 |
|
Amortization of premiums on mortgage notes receivable |
|
|
635 |
|
|
|
79 |
|
|
|
— |
|
Amortization of discount on marketable securities |
|
|
(310 |
) |
|
|
— |
|
|
|
— |
|
Allowance for doubtful accounts |
|
|
1,933 |
|
|
|
447 |
|
|
|
75 |
|
Stock compensation expense |
|
|
8 |
|
|
|
25 |
|
|
|
54 |
|
Impairment of real estate assets |
|
|
3,550 |
|
|
|
5,400 |
|
|
|
— |
|
Equity in loss (income) of unconsolidated joint venture |
|
|
(471 |
) |
|
|
— |
|
|
|
— |
|
Distributions from unconsolidated joint venture |
|
|
376 |
|
|
|
— |
|
|
|
— |
|
Net gain on disposal of rate lock deposits |
|
|
— |
|
|
|
(478 |
) |
|
|
— |
|
Property condemnation gain |
|
|
(34 |
) |
|
|
— |
|
|
|
— |
|
Changes in assets and liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
Decrease in investment in real estate under direct financing leases |
|
|
649 |
|
|
|
267 |
|
|
|
— |
|
Rents and tenant receivables |
|
|
(16,047 |
) |
|
|
(6,113 |
) |
|
|
(2,472 |
) |
Prepaid expenses and other assets |
|
|
(2,864 |
) |
|
|
(843 |
) |
|
|
(270 |
) |
Accounts payable and accrued expenses |
|
|
12,945 |
|
|
|
5,761 |
|
|
|
1,734 |
|
Deferred rent and other liabilities |
|
|
6,179 |
|
|
|
2,880 |
|
|
|
367 |
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by operating activities |
|
|
96,073 |
|
|
|
43,366 |
|
|
|
7,861 |
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Investment in real estate and related assets |
|
|
(1,055,675 |
) |
|
|
(1,155,146 |
) |
|
|
(278,577 |
) |
Investment in real estate under direct financing leases |
|
|
— |
|
|
|
(39,527 |
) |
|
|
— |
|
Investment in marketable securities |
|
|
(50,029 |
) |
|
|
— |
|
|
|
— |
|
Investment in unconsolidated joint venture |
|
|
(53,744 |
) |
|
|
— |
|
|
|
— |
|
Return of investment in unconsolidated joint venture |
|
|
28,046 |
|
|
|
|
|
|
|
|
|
Acquired intangible lease assets |
|
|
(177,684 |
) |
|
|
(190,401 |
) |
|
|
(40,305 |
) |
Acquired below market lease intangibles |
|
|
85,594 |
|
|
|
79,378 |
|
|
|
2,731 |
|
Investment in mortgage notes receivable |
|
|
(102 |
) |
|
|
(51,120 |
) |
|
|
— |
|
Proceeds from mortgage notes receivable |
|
|
1,573 |
|
|
|
232 |
|
|
|
— |
|
Proceeds from condemnation of assets |
|
|
475 |
|
|
|
— |
|
|
|
— |
|
Restricted cash |
|
|
5,468 |
|
|
|
(8,193 |
) |
|
|
(4,026 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities |
|
|
(1,216,078 |
) |
|
|
(1,364,777 |
) |
|
|
(320,177 |
) |
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from issuance of common stock |
|
|
1,040,237 |
|
|
|
609,841 |
|
|
|
274,711 |
|
Offering costs on issuance of common stock |
|
|
(100,402 |
) |
|
|
(57,946 |
) |
|
|
(26,587 |
) |
Redemptions of common stock |
|
|
(10,090 |
) |
|
|
(2,179 |
) |
|
|
— |
|
Distributions to investors |
|
|
(42,575 |
) |
|
|
(17,410 |
) |
|
|
(3,554 |
) |
Proceeds from notes payable and line of credit |
|
|
717,604 |
|
|
|
855,019 |
|
|
|
168,764 |
|
Repayment of notes payable and line of credit |
|
|
(394,390 |
) |
|
|
(53,894 |
) |
|
|
(64,375 |
) |
Refund of loan deposits |
|
|
5,169 |
|
|
|
16,333 |
|
|
|
1,936 |
|
Payment of loan deposits |
|
|
(5,194 |
) |
|
|
(12,386 |
) |
|
|
(5,903 |
) |
Proceeds from rate lock breakage gain |
|
|
— |
|
|
|
2,162 |
|
|
|
— |
|
Escrowed investor proceeds liability |
|
|
(12,720 |
) |
|
|
7,027 |
|
|
|
3,897 |
|
Deferred financing costs paid |
|
|
(14,666 |
) |
|
|
(19,205 |
) |
|
|
(3,582 |
) |
|
|
|
|
|
|
|
|
|
|
Net cash provided by financing activities |
|
|
1,182,973 |
|
|
|
1,327,362 |
|
|
|
345,307 |
|
|
|
|
|
|
|
|
|
|
|
Net increase in cash and cash equivalents |
|
|
62,968 |
|
|
|
5,951 |
|
|
|
32,991 |
|
Cash and cash equivalents, beginning of year |
|
|
43,517 |
|
|
|
37,566 |
|
|
|
4,575 |
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of year |
|
$ |
106,485 |
|
|
$ |
43,517 |
|
|
$ |
37,566 |
|
|
|
|
|
|
|
|
|
|
|
The accompanying notes are an integral part of these consolidated financial statements.
F-6
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1 — Organization and Business
Cole Credit Property Trust II, Inc. (the “Company”) is a Maryland corporation that was formed
on September 29, 2004 to operate as a real estate investment trust (“REIT”) for federal income tax
purposes. Substantially all of the Company’s business is conducted through Cole Operating
Partnership II, LP (“Cole OP II”), a Delaware limited partnership. The Company is the sole general
partner of and owns an approximately 99.99% partnership interest in Cole OP II. Cole REIT Advisors
II, LLC (“Cole Advisors II”), the affiliate advisor to the Company, is the sole limited partner and
owner of an approximately 0.01% (minority interest) of the partnership interests of Cole OP II.
At December 31, 2008, the Company owned 673 properties comprising approximately 18.3 million
square feet of single and multi-tenant commercial space located in 45 states and the U.S. Virgin
Islands. At December 31, 2008, the rentable space at these properties was approximately 99% leased.
As of December 31, 2008, the Company also owned 69 mortgage notes receivable, aggregating
approximately $85.0 million, secured by 43 restaurant properties and 26 single-tenant retail
properties, each of which is subject to a net lease. Through a joint venture that the Company
entered into during the year ended December 31, 2008, the Company acquired an indirect interest in
an approximately 386,000 square foot multi-tenant retail building in Independence, Missouri for
approximately $53.7 million, including acquisition costs, which represents an 85.48% interest in
the joint venture. In addition, the Company owned four commercial mortgage-backed securities
(“CMBS”) bonds, with an aggregate fair value of approximately $24.6 million.
On June 27, 2005, the Company commenced an initial public offering on a “best efforts” basis
of up to 45,000,000 shares of common stock offered at a price of $10.00 per share, subject to
certain volume and other discounts, pursuant to a Registration Statement on Form S-11 filed with
the Securities and Exchange Commission under the Securities Act of 1933, as amended (the “Initial
Offering”). The Registration Statement also covered up to 5,000,000 shares available pursuant to a
distribution reinvestment plan (the “DRIP”) under which our stockholders may elect to have their
distributions reinvested in additional shares of the Company’s common stock at the greater of $9.50
per share or 95% of the estimated value of a share of common stock. On November 13, 2006, the
Company increased the aggregate amount of the public offering to 49,390,000 shares for the primary
offering and 952,000 shares pursuant to the DRIP in a related Registration Statement on Form
S-11. Subsequently, the Company reallocated the shares of common stock available such that a
maximum of 54,140,000 shares of common stock was available under the primary offering for an
aggregate offering price of approximately $541.4 million and a maximum of 1,202,000 shares was
available under the DRIP for an aggregate offering price of approximately $11.4 million.
The Company commenced its principal operations on September 23, 2005, when it issued the
initial 486,000 shares of its common stock in the Initial Offering. Prior to such date, the Company
was considered a development stage company. The Company terminated the Initial Offering on May 22,
2007. As of the close of business on May 22, 2007, the Company had issued a total of 54,838,315
shares in the Initial Offering, including 53,909,877 shares sold in the primary offering and
928,438 shares sold pursuant to the DRIP, resulting in gross offering proceeds to the Company of
approximately $547.4 million. At the completion of the Initial Offering, a total of 503,685 shares
of common stock remained unsold, including 230,123 shares that remained unsold in the primary
offering and 273,562 shares of common stock that remained unsold pursuant to the DRIP. All unsold
shares in Initial Offering have been deregistered.
On May 23, 2007, the Company commenced its follow-on public offering of up to 150,000,000
shares of our common stock (the “Follow-on Offering”). The Follow-on Offering includes up to
143,050,000 shares to be offered for sale at $10.00 per share in the primary offering and up to
6,000,000 shares to be offered for sale pursuant to the DRIP. As of December 31, 2008, the Company
had accepted subscriptions for 147,430,874 shares of its common stock in the Follow-on Offering,
resulting in gross proceeds to the Company of approximately $1.4 billion. On September 18, 2008,
the Company registered 30,000,000 additional shares to be offered pursuant to its DRIP in a
Registration Statement on Form S-3 (the “DRIP Offering”) (collectively with the Initial Offering
and Follow-on Offering, the “Offerings”). As of December 31, 2008, the Company had issued
1,278,770 shares in the DRIP Offering, resulting in gross proceeds of approximately $12.2 million.
Combined with the gross proceeds from the Initial Offering and Follow-on Offering, the Company had
aggregate gross proceeds from the Offerings of approximately $2.0 billion (including shares sold
pursuant to the DRIP) as of December 31, 2008, before offering costs, selling commissions, and
dealer management fees of approximately $187.7 million and before share redemptions of
approximately $12.3 million.
F-7
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On January 2, 2009, the Company terminated the Follow-on Offering. As of the close of
business on January 2, 2009, the Company had issued a total of 147,454,259 shares in the Follow-on
Offering, including 141,520,572 shares sold in the primary offering and 5,933,687 shares sold
pursuant to the DRIP, resulting in gross offering proceeds of approximately $1.5 billion. At the
completion of the Follow-on Offering, a total of 1,595,741 shares of common stock remained unsold,
including 1,529,428 shares that remained unsold in the primary offering and 66,313 shares of common
stock that remained unsold pursuant to the DRIP. All unsold shares in the Follow-on Offering have
been deregistered.
The Company’s stock is not currently listed on a national securities exchange. The Company may
seek to list its stock for trading on a national securities exchange only if a majority of its
independent directors believe listing would be in the best interest of its stockholders. The
Company does not intend to list its shares at this time. The Company does not anticipate that there
would be any market for its common stock until its shares are listed for trading. In the event it
does not obtain listing prior to May 22, 2017, its charter requires that it either: (1) seek
stockholder approval of an extension or amendment of this listing deadline; or (2) seek stockholder
approval to adopt a plan of liquidation of the corporation.
Note 2 — Summary of Significant Accounting Policies
The summary of significant accounting policies presented below is designed to assist in
understanding the Company’s consolidated financial statements. These accounting policies conform
to generally accepted accounting principles in the United States (“GAAP”), in all material
respects, and have been consistently applied in preparing the accompanying consolidated financial
statements.
Principles of Consolidation and Basis of Presentation
The consolidated financial statements include the accounts of the Company and its wholly-owned
subsidiaries. All intercompany accounts and transactions have been eliminated in consolidation.
The Company evaluates the need to consolidate joint ventures based on standards set forth in
Financial Accounting Standards Board (“FASB”) Interpretation No. 46R, “Consolidation of Variable
Interest Entities” (“FIN 46R”) and Accounting Research Bulletin (“ARB”) No. 51, “Consolidated
Financial Statements” (“ARB 51”). In determining whether the Company has a controlling interest in
a joint venture and the requirement to consolidate the accounts of that entity, management
considers factors such as ownership interest, authority to make decisions and contractual and
substantive participating rights of the partners/members as well as whether the entity is a
variable interest entity (“VIE”) for which it is the primary beneficiary.
Certain reclassifications related to our allowance for doubtful accounts have been made to
prior years’ Consolidated Statement of Cash Flows in order to conform to current year presentation.
Use of Estimates
The preparation of financial statements in conformity with GAAP necessarily requires
management to make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of the consolidated
financial statements and the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Investment in Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation. Amounts capitalized to
real estate assets consist of the cost of acquisition or construction and any tenant improvements
or major improvements and betterments that extend the useful life of the related asset. All repairs
and maintenance are expensed as incurred.
All assets are depreciated on a straight line basis. The estimated useful lives of our assets
by class are generally as follows:
| |
|
|
Building
|
|
40 years |
Tenant improvements
|
|
Lesser of useful life or lease term |
Intangible lease assets
|
|
Lesser of useful life or lease term |
F-8
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company continually monitors events and changes in circumstances that could indicate that
the carrying amounts of its real estate and related intangible assets may not be recoverable.
Impairment losses are recorded on long-lived assets used in operations, which includes the
operating property, when indicators of impairment are present and the assets’ carrying amount is
greater than the sum of the future undiscounted cash flows, excluding interest expense, estimated
to be generated by those assets. The Company has certain properties under operating leases with
impairment indicators. The undiscounted future operating cash flow scenarios expected from the use
of the properties and related intangible assets and their eventual disposition exceeded the
carrying value of the assets as of December 31, 2008. Except as discussed in the note relating to
real estate assets held for sale, no impairment losses were recorded during the year ended December
31, 2008. The Company recorded an impairment loss of approximately $5.4 million during the year
ended December 31, 2007.
Allocation of Purchase Price of Acquired Assets
Upon the acquisition of real properties, the Company allocates the purchase price of such
properties to acquired tangible assets, consisting of land and building, and identified intangible
assets and liabilities, consisting of the value of above market and below market leases and the
value of in-place leases, based in each case on their fair values. The Company utilizes
independent appraisals to assist in the determination of the fair values of the tangible assets of
an acquired property (which includes land and building). The Company obtains an independent
appraisal for each real property acquisition. The information in the appraisal, along with any
additional information available to the Company’s management, is used by its management in
estimating the amount of the purchase price that is allocated to land. Other information in the
appraisal, such as building value and market rents, may be used by the Company’s management in
estimating the allocation of purchase price to the building and to lease intangibles. The
appraisal firm has no involvement in management’s allocation decisions other than providing this
market information.
The fair values of above market and below market in-place lease values are recorded based on
the present value (using an interest rate which reflects the risks associated with the leases
acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place
leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which
is generally obtained from independent appraisals, measured over a period equal to the
non-cancelable term of the lease including any bargain renewal periods, with respect to a below
market lease. The above market and below market lease values are capitalized as intangible lease
assets or liabilities. Above market lease values are amortized as an adjustment of rental income
over the lesser of the useful life or the remaining terms of the respective leases. Below market
leases are amortized as an adjustment of rental income over the remaining terms of the respective
leases, including any bargain renewal periods.
The fair values of in-place leases include direct costs associated with obtaining a new tenant
and opportunity costs associated with lost rentals which are avoided by acquiring an in-place
lease. Direct costs associated with obtaining a new tenant include commissions, tenant
improvements, and other direct costs and are estimated in part by utilizing information obtained
from independent appraisals and management’s consideration of current market costs to execute a
similar lease. These direct costs are included in intangible lease assets in the accompanying
consolidated balance sheet and are amortized to expense over the lesser of the useful life or the
remaining terms of the respective leases. The value of opportunity costs is calculated using the
contractual amounts to be paid pursuant to the in-place leases over a market absorption period for
a similar lease. These intangibles are included in intangible lease assets in the accompanying
consolidated balance sheet and are amortized to expense over the lesser of the useful life or the
remaining term of the respective leases.
The determination of the fair values of the assets and liabilities acquired requires the use
of significant assumptions with regard to the current market rental rates, rental growth rates,
discount rates and other variables. The use of inappropriate estimates would result in an incorrect
assessment of the Company’s purchase price allocations, which could impact the amount of its
reported net income.
The Company estimates the fair value of assumed mortgage notes payable based upon indications
of current market pricing for similar types of debt with similar maturities. Assumed mortgage
notes payable are initially recorded at their estimated fair value as of the assumption date, and
the difference between such estimated fair value and the note’s outstanding principal balance is
amortized to interest expense over the term of the mortgage note payable.
Real Estate Assets Held for Sale
The Company continually monitors the performance of its properties, including their
demographics, potential current capital appreciation, and tenants and may identify properties for
potential disposition based on such performance characteristics. During the three months ended
June 30, 2007, the Company identified one property based on such performance characteristics that
it elected to market for sale. Therefore, as of June 30, 2007, the Company reclassified its
consolidated statements of operations to reflect income
and expenses for the property held for sale as discontinued operations and reclassified its
consolidated balance sheets to reflect assets related to such property as held for sale.
F-9
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
On February 1, 2008, the tenant of the property held for sale filed for Chapter 11 bankruptcy
protection and, as a result, the Company elected to no longer market the property for sale.
Accordingly, the Company no longer classified the property as a discontinued operation within its
consolidated statements of operations or its consolidated balance sheet at December 31, 2007. The
Company reclassified the property as held for investment during the year ended December 31, 2008.
The Company reduced the carrying value of the real estate and related intangible assets to their
estimated fair value and recorded an impairment loss of approximately $3.6 million during the year
ended December 31, 2008. No assets were identified as held for sale during the year ended December
31, 2008.
Investment in Direct Financing Leases
The Company evaluates the leases associated with its real estate properties in accordance with
Statements of Financial Accounting Standards (“SFAS”) No. 13, “Accounting for Leases” (“SFAS 13”).
For the real estate property leases classified as direct financing leases, the building portion of
the property leases are accounted for as direct financing leases while the land portion of these
leases are accounted for as operating leases. For the direct financing leases, we record an asset
(net investment) representing the aggregate future minimum lease payments, estimated residual value
of the leased property and deferred incremental direct costs less unearned income. Income is
recognized over the life of the lease to approximate a level rate of return on the net investment.
Residual values, which are reviewed quarterly, represent the estimated amount we expect to receive
at lease termination from the disposition of leased property. Actual residual values realized
could differ from these estimates. Write-downs of estimated residual value are recognized as
permanent impairments in the current period.
Investment in Mortgage Notes Receivable
Mortgage notes receivable consist of loans acquired by the Company, which are secured by real
estate properties. Mortgage notes receivable are recorded at stated principal amounts net of any
discount or premium or deferred loan origination costs or fees. The related discounts or premiums
on mortgage notes receivable purchased are amortized or accreted over the life of the related
mortgage receivable. The Company defers certain loan origination and commitment fees, net of
certain origination costs, and amortizes them as an adjustment of the mortgage notes receivable’s
yield over the term of the related mortgage receivable. The Company evaluates the collectibility of
both interest and principal on each mortgage note receivable to determine whether it is
collectible. A mortgage note receivable is considered to be impaired, when based upon current
information and events, it is probable that the Company will be unable to collect all amounts due
according to the existing contractual terms. When a mortgage note receivable is considered to be
impaired, the amount of loss is calculated by comparing the recorded investment to the value
determined by discounting the expected future cash flows at the mortgage note receivable’s
effective interest rate or to the value of the underlying collateral if the mortgage note
receivable is collateralized. Interest income on performing mortgage note receivable is accrued as
earned. Interest income on impaired mortgage notes receivable is recognized on a cash basis. No
impairment losses were recorded related to mortgage notes receivable for the years ended December
31, 2008, 2007 and 2006.
Cash and Cash Equivalents
The Company considers all highly liquid instruments with maturities when purchased of three
months or less to be cash equivalents. The Company considers investments in highly liquid money
market funds with maturities when purchased of three months or less to be cash equivalents.
Restricted Cash and Escrowed Investor Proceeds
At December 31, 2008, the Company was engaged in a public offering of its common stock.
Included in restricted cash is escrowed investor proceeds of approximately $380,000 and
approximately $12.7 million for which shares of common stock had not been issued as of December 31,
2008 and 2007, respectively. Additionally, restricted cash includes approximately $2.2 million as
of December 31, 2008 for the contractual obligations related to an earnout agreement discussed in
Note 4 below. There were no earnout provisions as of December 31, 2007. Restricted cash also
includes approximately $5.0 million and approximately $566,000 as of December 31, 2008 and 2007,
respectively, of lender reserves to be held by the lender in accordance with the respective
lender’s loan agreement. Restricted cash also includes approximately $964,000 and approximately
$728,000 as of December 31, 2008 and 2007, respectively, which was restricted to fund capital
expenditures for the Company’s real estate investment properties.
F-10
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Marketable Securities
Investments in marketable securities consist of investments in CMBS. SFAS No. 115, “Accounting
for Certain Investments in Debt and Equity Securities” (“SFAS No. 115”), requires the Company to
classify its investments in real estate securities as “trading”, “available-for-sale” or
“held-to-maturity”. The Company classifies its investments as available-for-sale as the Company
intends to hold its investments until maturity, however the Company may sell them prior to their
maturity. These investments are carried at estimated fair value, with unrealized gains and losses
reported in accumulated other comprehensive income (loss). Estimated fair values are based on
quoted market prices, when available, or on estimates provided by independent pricing sources or
dealers who make markets in such securities. Upon the sale of a security, the realized net gain or
loss is computed on a specific identification basis.
The Company monitors its available-for-sale securities for impairments. A loss is recognized
when the Company determines that a decline in the estimated fair value of a security below its
amortized cost is other-than-temporary. The Company considers many factors in determining whether
the impairment of a security is deemed to be other-than-temporary, including, but not limited to,
the length of time the security has had a decline in estimated fair value below its amortized cost,
the amount of the unrealized loss, the intent and ability of the Company to hold the security for a
period of time sufficient for a recovery in value, recent events specific to the issuer or
industry, external credit ratings and recent changes in such ratings. The analysis of determining
whether the impairment of a security is deemed to be other-than-temporary requires significant
judgments and assumptions. The use of different judgments and assumptions could result in a
different conclusion.
Unamortized premiums and discounts on securities available-for-sale are recognized in interest
income on marketable securities over the contractual life, adjusted for actual prepayments, of the
securities using the effective interest method.
Investment in Unconsolidated Joint Venture
Investment in unconsolidated joint venture consists of the Company’s non-controlling 85.48%
interest in a joint venture that owns a multi-tenant property in Independence, Missouri.
Consolidation of this investment is not required as the entity does not qualify as a VIE, as
defined in FIN 46R, and do not meet the control requirements for consolidation under ARB 51.
The Company accounts for this investment using the equity method of accounting per guidance
established under Accounting Principals Board Opinion No. 18, “The Equity Method of Accounting for
Investments in Common Stock.” The equity method of accounting requires this investment to be
initially recorded at cost and subsequently adjusted for the Company’s share of equity in earnings
and distributions. The Company reports its share of income and losses based on the Company’s
ownership interest in the investment.
Rents and Tenant Receivables
Rents and tenant receivables primarily includes amounts to be collected in future periods
related to the recognition of rental income on a straight-line basis over the lease term and cost
recoveries from tenants. See “Revenue Recognition” below. The Company makes estimates of the
uncollectability of its accounts receivable related to base rents, expense reimbursements and other
revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit
worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful
accounts. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with
the expected recovery of pre-petition and post-petition claims. The Company’s reported net income
is directly affected by management’s estimate of the collectability of accounts receivable. The
Company records allowances for those balances that the Company deems to be uncollectible, including
any amounts relating to straight-line rent receivables.
Prepaid Expenses and Other Assets
Prepaid expenses and other assets includes expenses incurred as of the balance sheet date that
relate to future periods and will be expensed or reclassified to another account during the period
to which the costs relate. Any amounts with no future economic benefit are charged to earnings when
identified.
Deferred Financing Costs
Deferred financing costs are capitalized and amortized on a straight-line basis over the term
of the related financing arrangement. Amortization of deferred financing costs for the years ended
December 31, 2008, 2007 and 2006, was approximately $5.8 million, approximately $1.9 million and
approximately $548,000, respectively, and was recorded in interest expense in the consolidated
statements of operations.
F-11
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Revenue Recognition
Upon the acquisition of real estate, certain properties have leases where minimum rent
payments increase during the term of the lease. The Company records rental revenue for the full
term of each lease on a straight-line basis. When the Company acquires a property, the term of
existing leases is considered to commence as of the acquisition date for the purposes of this
calculation. The Company defers the recognition of contingent rental income, such as percentage
rents, until the specific target that triggers the contingent rental income is achieved. Expected
reimbursements from tenants for recoverable real estate taxes and operating expenses are included
in tenant reimbursement income in the period the related costs are incurred.
Income Taxes
The Company is taxed as a REIT under Sections 856 through 860 of the Internal Revenue Code.
The Company generally will not be subject to federal corporate income tax to the extent it
distributes its REIT taxable income to its stockholders, and so long as it distributes at least 90%
of its REIT taxable income. REITs are subject to a number of other organizational and operational
requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain
state and local taxes on its income and property, and federal income and excise taxes on its
undistributed income.
Concentration of Credit Risk
As of December 31, 2008, the Company had cash on deposit in seven financial institutions, of
which five had deposits in excess of federally insured levels totaling approximately $105.6
million; however, the Company has not experienced any losses in such accounts. The Company limits
cash investments to financial institutions with high credit standing; therefore, the Company
believes it is not exposed to any significant credit risk on cash.
As of December 31, 2008, no single tenant accounted for more than 10% of the Company’s gross
annualized base rental revenues. Tenants in the specialty retail, drugstore and restaurant
industries comprised approximately 19%, approximately 13%, and approximately 13%, respectively, of
the Company’s gross annualized base rental revenues for the year ended December 31, 2008. As of
December 31, 2007, no single tenant accounted for more than 10% of the Company’s gross annualized
base rental revenues. Tenants in the drugstore, specialty retail, and sporting goods industries
comprise approximately 15%, approximately 14%, and approximately 11%, respectively, of the
Company’s gross annualized base rental revenues for the year ended December 31, 2007. Additionally,
the Company has certain geographic concentration in its property holdings. In particular, as of
December 31, 2008, 156 of the Company’s properties were located in Texas and 22 of the Company’s
properties were located in Florida, accounting for approximately 15% and approximately 12% of the
Company’s 2008 gross annualized base rental revenues, respectively. As of December 31, 2007, 37 of
the Company’s properties were located in Texas and 15 of the Company’s properties were located in
Illinois, accounting for approximately 16% and approximately 13% of Company’s 2007 gross annualized
base rental revenues, respectively.
Offering and Related Costs
Cole Advisors II funds all of the organization and offering costs on the Company’s behalf and
is reimbursed for such costs up to 1.5% of gross proceeds from the Offerings, excluding selling
commissions and the dealer-manager fee. During the years ended December 31, 2008 and 2007, Cole
Advisors II incurred organization and offering costs of approximately $7.4 million and
approximately $4.6 million, respectively, on behalf of the Company, of which, all were reimbursable
by the Company. The offering costs, which include items such as legal and accounting fees,
marketing, and promotional printing costs, are recorded as a reduction of capital in excess of par
value along with sales commissions and dealer manager fees of 7% and 2%, respectively. Organization
costs are expensed as incurred. No organization costs were expensed during the years ended
December 31, 2008 and 2007.
Due to Affiliates
As of December 31, 2008, the amount due to affiliates primarily consisted of approximately
$123,000 due to Cole Realty Advisors for acquisition fees incurred. As of December 31, 2007, the
amount due to affiliates primarily consisted of approximately $743,000 due to Cole Realty Advisors
for acquisition fees incurred, approximately $350,000 due to Cole Advisors II for finance
coordination fees incurred, and approximately $383,000 due to Cole Advisors II for offering costs
incurred.
F-12
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Stockholders’ Equity
As of each of December 31, 2008 and 2007 the Company was authorized to issue 240,000,000
shares of common stock and 10,000,000 shares of preferred stock. All shares of such stock have a
par value of $.01 per share. The Company’s board of directors may authorize additional shares of
capital stock and amend the terms without obtaining stockholder approval.
The par value of investor proceeds raised from the Offerings is classified as common stock,
with the remainder allocated to capital in excess of par value. The Company’s share redemption
program provides that all redemptions during any calendar year, including those upon death or
qualifying disability, are limited to those that can be funded with proceeds from the 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 December 31, 2008 and 2007, the Company had
issued approximately 8.1 million and approximately 2.5 million shares of common stock under the
DRIP, respectively, for cumulative proceeds of approximately $77.3 million and approximately $23.8
million under its DRIP, respectively, which are recorded as redeemable common stock in the
respective consolidated balance sheets, net of redemptions. As of December 31, 2008, the Company
had redeemed approximately 1.3 million shares of common stock for an aggregate price of
approximately $12.3 million. As of December 31, 2007, the Company had redeemed approximately
227,000 shares of common stock for an aggregate price of approximately $2.2 million.
Earnings Per Share
Earnings per share are calculated based on the weighted average number of common shares
outstanding during each period. Diluted income per share considers the effect of all potentially
dilutive share equivalents, including outstanding employee stock options. See Note 17 below.
Stock Options
On January 1, 2006, the Company adopted SFAS No. 123 (revised 2004), “Share-Based Payment”
(“SFAS 123R”), which requires the measurement and recognition of compensation expense for all
share-based payment awards made to employees and directors, including stock options related to the
2004 Independent Directors Stock Option Plan (“IDSOP”) (see Note 17), based on estimated fair
values. The Company adopted SFAS 123R using the modified prospective application. Accordingly,
prior period amounts were not restated. As of December 31, 2008, there were 40,000 stock options
outstanding under the IDSOP at a weighted average exercise price of approximately $9.13 per share.
As of December 31, 2007, there were 30,000 stock options outstanding under the IDSOP at a weighted
average exercise price of approximately $9.13 per share.
Reportable Segments
The 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’s operating segments consist of commercial
properties, which include activities related to investing in real estate including retail, office
and distribution properties and other real estate related assets. The commercial properties are
geographically diversified throughout the United States, the chief operating decision maker
evaluates operating performance on an overall portfolio level. These commercial properties have
similar economic characteristics, therefore the Company’s properties have been aggregated into one
reportable segment.
Interest
Interest is charged to interest expense as it accrues. No interest costs were capitalized
during the years ended December 31, 2008 and 2007.
Distributions Payable and Distribution Policy
In order to maintain its status as a REIT, the Company is required to make distributions each
taxable year equal to at least 90% of its REIT taxable income excluding capital gains. To the
extent funds are available, the Company intends to pay regular quarterly distributions to
stockholders. Distributions are paid to those stockholders who are stockholders of record as of
applicable record dates.
During January 2009, the Company’s board of directors declared a daily distribution of
$0.001917809 per share for stockholders
of record as of the close of business on each day of the period commencing on January 1, 2009
and ending on March 31, 2009. The monthly distributions were calculated to be equivalent to an
annualized distribution of seven percent (7.0%) per share, assuming a purchase price of $10.00 per
share.
F-13
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During March 2009, the Company’s board of directors declared a daily distribution of
$0.001917809 per share for stockholders of record as of the close of business on each day of the
period commencing on April 1, 2009 and ending on June 30, 2009. The monthly distributions were
calculated to be equivalent to an annualized distribution of seven percent (7.0%) per share,
assuming a purchase price of $10.00 per share. As of December 31, 2008, the Company had
distributions payable of approximately $11.9 million. The distributions were paid in January 2009,
of which approximately $6.6 million was reinvested in shares
through the DRIP.
Derivative Instruments and Hedging Activities
SFAS No. 133, “Accounting for Derivative Instruments and Hedging Activities”, as amended
(“SFAS No. 133”), establishes accounting and reporting standards for derivative instruments,
including certain derivative instruments embedded in other contracts, and for hedging activities.
Accounting for changes in the fair value of a derivative instrument depends on the intended use of
the derivative instrument and the designation of the derivative instrument. The change in fair
value of the effective portion of the derivative instrument that is designated as a hedge is
recorded as other comprehensive income (loss). The changes in fair value for derivative
instruments that are not designated as a hedge or that do not meet the hedge accounting criteria of
SFAS No. 133 are recorded as a gain or loss to operations.
Fair Value Measurements
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”).
SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and
expands disclosures about fair value measurements. SFAS No. 157 emphasizes that fair value is a
market-based measurement, as opposed to a transaction-specific measurement. In February 2008, the
FASB issued Staff Position No. SFAS 157-1, “Application of FASB Statement No. 157 to FASB Statement
No. 13 and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of
Lease Classification or Measurement under Statement 13” (“FSP 157-1”). FSP 157-1, which is
effective upon the initial adoption of SFAS No. 157, excludes SFAS Statement No. 13, as well as
other accounting pronouncements that address fair value measurements on lease classification or
measurement under SFAS 13, from the scope of SFAS No. 157. In February 2008, the FASB issued Staff
Position No. SFAS 157-2, “Effective Date of FASB Statement No. 157” (“FSP 157-2”), which delays the
effective date of SFAS No. 157 for all nonrecurring nonfinancial assets and liabilities until
fiscal years beginning after November 15, 2008. Accordingly, FSP 157-2 will be effective for the
Company beginning January 1, 2009, and all other aspects of SFAS No. 157 were effective for the
Company on January 1, 2008. The adoption of this guidance has not had a material impact on the
Company’s consolidated financial statements.
On October 10, 2008, the FASB voted to issue Staff Position No. SFAS 157-3, “Determining the
Fair Value of a Financial Asset When the Market for That Asset Is Not Active” (“FSP 157-3”), which
was effective upon issuance. FSP 157-3 clarifies the application of SFAS No. 157 in an inactive
market. The Company calculated the fair value of the Company’s financial assets in accordance with
FSP 157-3.
Recent Accounting Pronouncements
In June 2006, the FASB issued FASB Interpretation No. 48, “Accounting for Uncertainty in
Income Taxes, an interpretation of SFAS No.109” (“FIN 48”). FIN 48 clarifies the accounting for
uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with
SFAS No. 109, “Accounting for Income Taxes.” FIN 48 prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position
taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition,
classification, interest and penalties, accounting in interim periods, disclosure and transition.
FIN 48 became effective for the Company on January 1, 2007 and its adoption did not have a material
impact on its consolidated financial statements.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets
and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows entities to choose to measure
eligible financial instruments at fair value with changes in fair value recognized in earnings of
each subsequent reporting date. The fair value election is available for most financial assets and
liabilities on an instrument-by-instrument basis and is to be elected on the date of the financial
instrument is initially recognized. SFAS 159 is effective for all entities as of the beginning of a
reporting entity’s first fiscal year that begins after November 15, 2007
(with earlier application permitted under certain circumstances). The Company did not choose
to take the fair value election allowed by the standard.
F-14
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated
Financial Statements — an Amendment of ARB 51” (“SFAS No. 160”). This statement amends ARB 51 and
revises accounting and reporting requirements for noncontrolling interest (formerly minority
interest) in a subsidiary and for the deconsolidation of a subsidiary. Upon its adoption, January
1, 2009 for the Company, noncontrolling interest will be classified as equity, and income
attributed to the noncontrolling interest will be included in the Company’s income. The provisions
of this standard are applied retrospectively upon adoption. The Company is currently evaluating the
impact of adopting SFAS No. 160 on the consolidated financial statements; however, the Company does
not expect it to have a material impact on the consolidated financial statements.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS
No. 141(R)”). SFAS No. 141(R) clarifies and amends the accounting guidance for how an acquirer in a
business combination recognizes and measures the assets acquired, liabilities assumed, and any
noncontrolling interest in the acquiree. The provisions of SFAS No. 141(R) are effective for the
Company for any business combinations occurring on or after January 1, 2009. The adoption of SFAS
No. 141(R) on January 1, 2009 will materially impact the Company’s future financial results to the
extent that the Company acquires real estate properties. The adoption of SFAS No. 141(R) will
require, the Company to expense acquisition costs related to real estate transactions as incurred,
compared to the former practice of capitalizing such costs and amortizing them over the estimated
useful life of the assets acquired. At December 31, 2008, the Company had no outstanding
obligations to purchase real estate properties for which deferred acquisitions costs would be
recorded.
In March 2008, the FASB issued SFAS No. 161, “Disclosures about Derivative Instruments and
Hedging Activities — an amendment to FASB Statement No. 133” (“SFAS No. 161”). SFAS No. 161
requires additional disclosures about an entity’s derivative and hedging activities including,
descriptions of how and why the entity uses derivative instruments, how such instruments are
accounted for under SFAS No. 133, “Accounting for Derivatives Instruments and Hedging Activities”,
and how derivative instruments affect the entity’s financial position, operations, and cash flow.
SFAS No. 161 is effective for financial statements issued for fiscal years beginning after November
15, 2008. The Company does not expect FAS No. 161 to have a material impact on its consolidated
financial statements.
In April 2008, the FASB issued staff position (“FSP”) FAS 142-3, “Determination of the Useful
Life of Intangible Assets” (“FSP FAS 142-3”), which amends the factors that entities should
consider in developing renewal or extension assumptions used in determining the useful life of a
recognized intangible asset under Statement 142, “Goodwill and Other Intangible Assets”. FSP FAS
142-3 is effective for financial statements issued for fiscal years beginning after December 15,
2008, and interim periods within those fiscal years. The Company believes FSP FAS 142-3 will have
no material impact on its consolidated financial statements.
In May 2008, the FASB issued SFAS No. 162, “The Hierarchy of Generally Accepted Accounting
Principles” (“SFAS No. 162”). SFAS No. 162 identifies the sources of accounting principles and the
framework for selecting the principles to be used in the preparation of financial statements of
nongovernmental entities that are presented in conformity GAAP. SFAS No. 162 is effective 60 days
following the SEC’s approval of the Public Company Accounting Oversight Board amendments to AU
Section 411, “The Meaning of Present Fairly in Conformity with Generally Accepted Accounting
Principles”. The Company does not expect the application of SFAS No. 162 to result in a change to
the Company’s current practices.
In November 2008, the FASB issued EITF Issue No. 08-6, “Equity Method Investment Accounting
Considerations” (“EITF 08-6”). EITF 08-6 clarifies the accounting for certain transactions and
impairment considerations involving equity method investments. EITF 08-6 is effective for fiscal
years and interim periods beginning on or after December 15, 2008. The Company is currently
assessing the impact, if any, the adoption of EITF 08-6 will have on its consolidated financial
statements.
In March 2009, the FASB proposed two FSPs intented to provide additional application guidance
regarding fair value measurements and impairments of securities. Proposed FSP FAS 157-e,
"Determining Whether a Market is Not Active and a Transaction is Not Distressed”, provides
guidelines for making fair value measurements more consistent with the principles presented in SFAS
No. 157. Proposed FSP FAS 115-a, FAS 124-a and EITF 99-20-b, “Recognition and Presentation of
Other-Than-Temporary Impairments”, provides additional guidance designed to create greater clarity
and consistency in accounting for and presenting impairment losses on securities. SFAS No. 157
provides a framework for measuring fair value and a definition of fair value that contemplates an
orderly transaction between market participants, not a forced or distressed sale. In the current
economic crisis, many constituents have requested additional authoritative guidance to assist them
in determining whether a market is active or inactive, and whether a transaction is distressed.
Proposed FSP FAS 157-e would provide application guidance. Proposed FSP FAS 115-a, FAS
124-a and EITF 99-20-b on other-than-temporary impairments (“OTTI”) is intended to provide
greater clarity to investors about the credit and noncredit component of an OTTI event and to more
effectively communicate when an OTTI event has occurred. As proposed, the FSP would apply to both
debt and equity securities. The proposed FSP requires separate display of losses related to credit
deterioration and losses related to other market factors on the income statement. Market-related
losses would be recorded in other comprehensive income if it is not likely that the investor will
have to sell the security prior to recovery. If approved, both FSPs would be effective for interim
and annual periods ending after March 15, 2009. The Company will continue to monitor the status of
this FSP.
F-15
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 3 — Fair Value Measurements
The Company adopted the provisions of SFAS No. 157, as amended by FSP FAS No. 157-1, FSP FAS
No. 157-2 and FSP FAS No. 157-3, on January 1, 2008. Fair value is defined by SFAS No. 157 as the
price that would be received to sell an asset or paid to transfer a liability in an orderly
transaction between market participants at the measurement date. Depending on the nature of the
asset or liability, various techniques and assumptions can be used to estimate the fair value.
Financial assets and liabilities are measured using inputs from three levels of the fair value
hierarchy, as defined in SFAS No. 157. The three levels are as follows:
Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or
liabilities that the Company has the ability to access at the measurement date. An active market
is defined as a market in which transactions for the assets or liabilities occur with sufficient
frequency and volume to provide pricing information on an ongoing basis.
Level 2 — Inputs include quoted prices for similar assets and liabilities in active markets,
quoted prices for identical or similar assets or liabilities in markets that are not active
(markets with few transactions), inputs other than quoted prices that are observable for the asset
or liability (i.e., interest rates, yield curves, etc.), and inputs that derived principally from
or corroborated by observable market data correlation or other means (market corroborated inputs).
Level 3 — Unobservable inputs, only used to the extent that observable inputs are not
available, reflect the Company’s assumptions about the pricing of an asset or liability.
SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” (“SFAS No. 107”),
requires disclosure of fair value of financial instruments, whether or not recognized on the face
of the balance sheet, for which it is practical to estimate that value.
The following describes the methods the Company uses to estimate the fair value of the
Company’s financial assets and liabilities:
Cash and cash equivalents, restricted cash, rents and tenant receivable and accounts payable
and accrued expenses - The Company considers the carrying values of these financial instruments to
approximate fair value for these financial instruments because of the short period of time between
origination of the instruments and their expected realization. The Company’s investments in
highly liquid money market funds are valued using level 1 inputs.
Mortgage notes receivable — The fair value is estimated by discounting the current rates at
which management believes similar loans would be made. The fair value of these notes was
approximately $83.8 million and approximately $87.1 million at December 31, 2008 and 2007,
respectively, as compared to the carrying values of approximately $85.0 million and approximately
$87.1 million at December 31, 2008 and 2007, respectively.
Notes payable and line of credit — The fair value is estimated using a discounted cash flow
technique based on borrowing rates available to the Company as of December 31, 2008. The fair
value of the notes payable and line of credit was approximately $1.5 billion and approximately $1.1
billion at December 31, 2008 and 2007, respectively, as compared to the carrying value of
approximately $1.6 billion and approximately $1.1 billion at December 31, 2008 and 2007,
respectively.
Marketable securities — The Company’s marketable securities are valued using Level 3 inputs.
The Company primarily uses quoted market prices from third parties that actively participate in the
CMBS market. The Company receives non-binding quotes from established financial institutions and
selects a fair value using the quotes received. Market conditions, such as interest rates,
liquidity, trading activity and credit spreads may cause significant variability to the received
quotes. The Company generally does not adjust values from quotes received. If the Company is
unable to obtain quotes from third parties or if the Company believes quotes received are
inaccurate, the Company estimates fair value using internal models that primarily consider the CMBX
index, expected cash flows, known and expected defaults and rating agency reports. Changes in
market conditions, as well as changes in the assumptions or methodology used to estimate fair
value, could result in a significant increase or decrease in the recorded amount of the financial
asset or liability. As of December 31, 2008, no marketable securities were valued using internal
models. Significant judgment is involved in valuations and different judgments and assumptions
used in management’s valuation could result in different valuations. As there continues to be
significant disruptions to the financial markets, the Company’s estimates of fair value may have
significant volatility.
F-16
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Derivative Instruments — The Company’s derivative financial assets represent interest rate
caps and the Company’s derivative liabilities represent interest rate swaps and are valued using
Level 2 inputs. The fair value of these instruments is determined using interest rate market
pricing models. With the adoption of SFAS No. 157, the Company includes the impact of credit
valuation adjustments on derivatives measured at fair value.
Considerable judgment is necessary to develop estimated fair values of financial instruments.
Accordingly, the estimates presented herein are not necessarily indicative of the amounts the
Company could realize on disposition of the financial instruments.
In accordance with the fair value hierarchy described above, the following table shows the
fair value of the Company’s financial assets and liabilities that are required to be measured at
fair value on a recurring basis at December 31, 2008 (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Quoted Prices in |
|
|
|
|
|
|
Significant |
|
| |
|
|
|
|
|
Active Markets for |
|
|
Significant Other |
|
|
Unobservable |
|
| |
|
Balance at |
|
|
Identical Assets |
|
|
Observable Inputs |
|
|
Inputs |
|
| |
|
December 31, 2008 |
|
|
(Level 1) |
|
|
(Level 2) |
|
|
(Level 3) |
|
Assets: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marketable securities |
|
$ |
24,583 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24,583 |
|
Interest rate cap agreements (1) |
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Assets |
|
$ |
24,583 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24,583 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest rate swaps |
|
$ |
2,794 |
|
|
$ |
— |
|
|
$ |
2,794 |
|
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
The fair value of the interest rate cap agreements was less than $1,000 at December 31, 2008. |
The following table shows a reconciliation of the change in fair value for the year ended
December 31, 2008 of the Company’s financial assets and liabilities with significant unobservable
inputs (Level 3) (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Net realized/ |
|
|
|
|
|
|
Purchases, |
|
|
|
|
|
|
|
| |
|
|
|
|
|
unrealized gains |
|
|
Net |
|
|
issuances, |
|
|
Transfers in |
|
|
Balance at |
|
| |
|
Balance at |
|
|
(losses) included in |
|
|
unrealized |
|
|
settlements and |
|
|
and out of |
|
|
December 31, |
|
| |
|
January 1, 2008 |
|
|
earnings |
|
|
loss |
|
|
amortization |
|
|
Level 3 |
|
|
2008 |
|
Marketable securities |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(25,756 |
) |
|
$ |
50,339 |
|
|
$ |
— |
|
|
$ |
24,583 |
|
The amount of total losses for the period included in changes in net assets attributable to
the change in the unrealized loss relating to assets still held at December 31, 2008 was
approximately $25.8 million.
Note 4 — Investment in Direct Financing Leases
The Company evaluates the leases associated with its real estate properties in accordance with
SFAS 13. For the real estate property leases classified as direct financing leases, the building
portion of the property leases are accounted for as direct financing leases while the land portion
of these leases are accounted for as operating leases. For the direct financing leases, we record
an asset (net investment) representing the aggregate future minimum lease payments, estimated
residual value of the leased property and deferred incremental direct costs less unearned income.
Income is recognized over the life of the lease to approximate a level rate of return on the net
investment. Residual values, which are reviewed quarterly, represent the estimated amount we
expect to receive at lease termination from the disposition of leased property. Actual residual
values realized could differ from these estimates. Write-downs of estimated residual value are
recognized as permanent impairments in the current period. There were no write-downs recognized
during the years ended December 31, 2008 and 2007.
F-17
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The components of investment in direct financing leases at December 31, 2008 and 2007 were as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, 2008 |
|
|
December 31, 2007 |
|
Minimum lease payments receivable |
|
$ |
30,646 |
|
|
$ |
26,862 |
|
Estimated residual value of
leased assets |
|
|
27,854 |
|
|
|
29,696 |
|
Deferred incremental direct costs |
|
|
— |
|
|
|
— |
|
Unearned income |
|
|
(19,888 |
) |
|
|
(17,298 |
) |
|
|
|
|
|
|
|
Total |
|
$ |
38,612 |
|
|
$ |
39,260 |
|
|
|
|
|
|
|
|
A summary of minimum lease future rentals, exclusive of any renewals, under the non-cancelable
direct financing leases in existence at December 31, 2008 is as follows (in thousands):
| |
|
|
|
|
| Year ending December 31: |
|
Amount |
|
|
|
|
|
|
2009 |
|
$ |
2,840 |
|
2010 |
|
|
2,867 |
|
2011 |
|
|
2,904 |
|
2012 |
|
|
2,958 |
|
2013 |
|
|
2,963 |
|
Thereafter |
|
|
16,114 |
|
|
|
|
|
Total |
|
$ |
30,646 |
|
|
|
|
|
Note 5 — Real Estate Acquisitions
During the year ended December 31, 2008, the Company acquired a 100% interest in 340
commercial properties for an aggregate purchase price of approximately $1.3 billion. In addition
to cash from net proceeds of the Offerings, the Company financed the acquisitions with
approximately $647.1 million of notes payable and borrowings from the line of credit and the
assumption of mortgage loans, with a face value totaling approximately $173.8 million. The notes
payable generally are secured by the individual property on which the loan was made. The Company
allocated the purchase price of these properties, including aggregate acquisition costs of
approximately $40.4 million, to the fair market value of the assets acquired and liabilities
assumed. The Company allocated approximately $359.1 million to land, approximately $858.6 million
to building and improvements, approximately $147.7 million to acquired in-place leases,
approximately $76.2 million to acquired below market leases, and approximately $28.8 million to
acquired above market leases during the year ended December 31, 2008. Additionally, during the
year ended December 31, 2008, the Company capitalized approximately $1.1 million of expenditures
relating to building and improvements, which will be depreciated over the estimated useful life of
each asset.
The Company acquired two properties subject to the obligation to pay to the respective seller
additional monies depending on the future leasing and occupancy of the properties. These earnout
payments are based on a predetermined formula. Each earnout agreement has a time limit regarding
the obligation to pay any additional monies. If at the end of the time period, certain space has
not been leased and occupied, the Company will not have any further obligation. Assuming all the
conditions are satisfied, the Company would be obligated to pay an aggregate of approximately $7.7
million, of which $1.5 million was paid during the year ended December 31, 2008, resulting in a
liability of approximately $6.2 million as of December 31, 2008. Approximately $2.2 million, of the
$6.2 million, is recorded in restricted cash and approximately $4.0 million is recorded in accounts
payable and accrued expenses in the accompanying consolidated balance sheet, in accordance with the
respective purchase agreement. The Company estimated the fair value of its contingent liability
based on the expected payout obligation.
Through a joint venture that the Company entered into during the year ended December 31, 2008,
the Company acquired an indirect interest in an approximately 386,000 square foot multi-tenant
retail building in Independence, Missouri for approximately $53.7 million, including acquisition
costs, which represents an 85.48% interest in the joint venture.
During the year ended December 31, 2007, the Company acquired a 100% interest in 242
commercial properties for an aggregate purchase price of approximately $1.3 billion, including
acquisition costs of approximately $32.5 million. The Company financed the acquisitions through
the issuance and assumption of approximately $820.0 million of mortgage loans generally secured by
the individual properties. The Company allocated the purchase price of these properties, including
aggregate acquisition costs, to the fair value of the assets acquired and liabilities assumed. The
Company allocated approximately $306.7 million to land, approximately
$848.2 million to building and improvements, approximately $158.6 million to acquired in-place
leases, approximately $39.5 million to investment in direct financing leases, approximately $79.4
million to acquired below market leases and approximately $31.8 million to acquired above market
leases during the year ended December 31, 2007. Additionally, during the year ended December 31,
2007, the Company capitalized approximately $232,000 of expenditures relating to building and
improvements, which will be depreciated over the estimated useful life of each asset.
F-18
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 6 — Intangible Lease Assets
Identified intangible lease assets consisted of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Acquired in place leases, net of accumulated
amortization of $33,168 and $11,737, respectively
(with a weighted average life of 156 and 185 months
for in-place leases, respectively) |
|
$ |
325,894 |
|
|
$ |
196,320 |
|
Acquired above market leases, net of accumulated
amortization of $4,410 and $1,188, respectively
(with a weighted average life of 174 and 183 months
for acquired above market leases, respectively) |
|
|
58,098 |
|
|
|
32,471 |
|
|
|
|
|
|
|
|
|
|
$ |
383,992 |
|
|
$ |
228,791 |
|
|
|
|
|
|
|
|
Amortization expense recorded on the identified intangible assets, for each of fiscal years
ended December 31, 2008, 2007 and 2006, was approximately $24.4 million, approximately $11.0
million, and approximately $2.2 million, respectively.
Estimated amortization expense of the respective intangible lease assets as of December 31,
2008 for each of the five succeeding fiscal years is as follows (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
Amount |
|
| Year |
|
Lease In-Place |
|
|
Above Market Lease |
|
2009 |
|
$ |
27,834 |
|
|
$ |
4,559 |
|
2010 |
|
$ |
27,253 |
|
|
$ |
4,479 |
|
2011 |
|
$ |
26,974 |
|
|
$ |
4,442 |
|
2012 |
|
$ |
26,582 |
|
|
$ |
4,407 |
|
2013 |
|
$ |
25,371 |
|
|
$ |
4,302 |
|
Note 7 — Mortgage Notes Receivable Acquisitions
As of December 31, 2008, the Company owned 69 mortgage notes receivable, which are secured by
43 restaurant properties and 26 retail properties (collectively, the “Mortgage Notes”). The
mortgage notes receivable balance of approximately $85.0 million as of December 31, 2008 consists
of the face value of the Mortgage Notes of approximately $76.8 million, an approximately $6.9
million premium, and approximately $2.0 million of acquisition costs, net of accumulated
amortization of approximately $714,000. The premium and acquisition costs will be amortized over
the terms of each respective Mortgage Note using the effective interest rate method. The Mortgage
Notes mature on various dates from August 1, 2020 to January 1, 2021. Interest and principal are
due each month at interest rates ranging from 8.60% to 10.47% per annum.
Note 8 — Marketable Securities
As of
December 31, 2008, the Company owned four CMBS bonds, with an aggregate fair
value of approximately $24.6 million. The following describes the CMBS bonds in more detail
as of December 31, 2008 (in thousands). The Company owned no
CMBS bonds as of December 31, 2007.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Amortized Cost |
|
|
Unrealized |
|
|
|
|
| |
|
Basis |
|
|
Loss |
|
|
Total |
|
Marketable securities at December 31, 2007 |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Face value of marketable securities acquired |
|
|
68,836 |
|
|
|
— |
|
|
|
68,836 |
|
Discounts on purchases of marketable securities |
|
|
(18,807 |
) |
|
|
— |
|
|
|
(18,807 |
) |
Decrease in fair value of marketable securities |
|
|
— |
|
|
|
(25,756 |
) |
|
|
(25,756 |
) |
Accretion of discounts on marketable securities |
|
|
310 |
|
|
|
— |
|
|
|
310 |
|
|
|
|
|
|
|
|
|
|
|
Marketable securities at December 31, 2008 |
|
$ |
50,339 |
|
|
$ |
(25,756 |
) |
|
$ |
24,583 |
|
|
|
|
|
|
|
|
|
|
|
F-19
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
The Company recognized an unrealized loss of approximately $25.8 million related to this
investment for the year ended December 31, 2008, which is included in other comprehensive loss on
the accompanying consolidated balance sheet and statement of stockholders’ equity at December 31,
2008.
The unrealized loss at December 31, 2008 was deemed to be a temporary impairment based upon
(i) the length of time and the extent to which the fair value had been less than cost, (ii) an
analysis of the anticipated future cash flow from the underlying collateral and (iii) the Company’s
ability and intent to retain the investment for a period of time sufficient to allow for the
recovery in the fair value. The Company determined that the unrealized loss resulted from
volatility in interest rates, widening of credit spreads and other qualitative factors relating to
macro-credit conditions in the mortgage market. Additionally, as of December 31, 2008, the Company
determined that the subordinate CMBS tranches below the Company’s CMBS investment adequately
protect the Company’s ability to recover its investment and that the Company’s estimates of
anticipated future cash flows from the CMBS investment had not been adversely impacted by the
deterioration in the creditworthiness of the specific CMBS issuers.
The following table shows fair value and gross unrealized losses of the Company’s marketable
securities that were deemed temporary impairments and the length of time that the securities had
been in a continuous unrealized loss position at December 31, 2008.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Holding Period of Gross Unrealized Losses of Marketable Securities |
|
| |
|
(in thousands) |
|
| |
|
Less than 12 months |
|
|
12 Months or More |
|
|
Total |
|
| |
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
Gross |
|
| |
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
|
|
|
|
|
Unrealized |
|
| Description of Securities |
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
|
Fair Value |
|
|
Losses |
|
Commercial
mortgage-backed
securities |
|
$ |
24,583 |
|
|
$ |
25,756 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
24,583 |
|
|
$ |
25,756 |
|
Note 9 — Derivative Instruments and Hedging Activities
In the normal course of business, the Company uses certain types of derivative instruments for
the purpose of managing or hedging interest rate risks. The following table summarizes the
notional and fair value of the Company’s derivative instruments and hedging activities (in
thousands). The notional value is an indication of the extent of the Company’s involvement in each
instrument at the time, but does not represent exposure to credit, interest rate or market risks.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value of Asset (Liability) |
|
| |
|
Notional |
|
|
Interest |
|
|
Effective |
|
|
Maturity |
|
|
December 31, |
|
|
December 31, |
|
| |
|
Value |
|
|
Rate |
|
|
Date |
|
|
Date |
|
|
2008 |
|
|
2007 |
|
Interest Rate Cap (1) |
|
$ |
36,000 |
|
|
|
7.0 |
% |
|
|
8/5/2008 |
|
|
|
8/5/2010 |
|
|
$ |
— |
|
|
$ |
— |
|
Interest Rate Cap (1) |
|
|
34,000 |
|
|
|
7.0 |
% |
|
|
10/1/2008 |
|
|
|
9/1/2010 |
|
|
|
— |
|
|
|
— |
|
Interest Rate Swap (2) |
|
|
32,000 |
|
|
|
6.2 |
% |
|
|
11/4/2008 |
|
|
|
10/31/2012 |
|
|
|
(2,090 |
) |
|
|
— |
|
Interest Rate Swap (3) |
|
|
38,250 |
|
|
|
5.6 |
% |
|
|
12/10/2008 |
|
|
|
9/26/2011 |
|
|
|
(704 |
) |
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
140,250 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
(2,794 |
) |
|
$ |
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (1) |
|
Neither of these agreements were designated as hedges as of December
31, 2008. In accordance with SFAS No. 133, the Company recorded the
rate caps at fair value in the accompanying consolidated balance
sheet. The rate caps are included in prepaid expenses and other
assets at fair value of less than $1,000 at December 31, 2008. The
loss resulting from the decrease in fair value of the interest rate
caps of approximately $223,000 was recorded to interest expense in the
consolidated statement of operations for the year ended December 31,
2008. |
| |
| (2) |
|
The Company designated the interest rate swap as a cash flow hedge.
The interest rate swap effectively fixes the interest rate on
approximately $32.0 million of debt at 6.2% based on a LIBOR swap rate
of 3.7%. Changes in the fair value of the effective portion of the
interest rate swap designated as hedges were recorded to other
comprehensive loss in the accompanying consolidated statement of
stockholders’ equity. Other comprehensive loss for the year ended
December 31, 2008 relating to fair value adjustments of the interest
rate swap agreement was approximately $2.1 million. |
| |
| (3) |
|
The Company designated the interest rate swap as a cash flow hedge.
The interest rate swap effectively fixes the interest rate on
approximately $38.3 million of debt at 5.6% based on a LIBOR swap rate
of 2.35%. Changes in the fair value of the effective portion of the
interest rate swap designated as hedges were recorded to other
comprehensive loss in the accompanying consolidated statement of
stockholders’ equity. Other comprehensive loss for the year ended
December 31, 2008 relating to fair value adjustments of the interest
rate swap agreement was approximately $704,000. |
F-20
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 10 —Notes Payable and Line of Credit
As of December 31, 2008, the Company had approximately $1.6 billion of debt outstanding,
consisting of approximately $1.3 billion in fixed rate mortgage loans (the “Fixed Rate Debt”),
approximately $142.4 million in variable rate mortgage loans (the “Variable Rate Debt”) and
approximately $66.0 million outstanding under a line of credit (the “Credit Facility”). The Fixed
Rate Debt has interest rates ranging from 4.46% to 7.23%, with a weighted average interest rate of
approximately 5.89%, and matures on various dates from April 2009 through August 2031. The Variable
Rate Debt has interest rates that range from LIBOR plus 180 to 250 basis points and matures on
various dates from February 2009 through September 2011. Each of the notes payable is secured by
the respective property. See below for terms of the Credit Facility.
On May 23, 2008, the Company entered into the Credit Facility, a revolving credit facility
with a syndication of banks, providing up to $135.0 million of secured borrowing. The amount of
the Credit Facility may be increased up to a maximum of $235.0 million, with each increase being no
less than $25.0 million. Loans under the Credit Facility bear interest at variable rates depending
on the type of loan used. The variable rates are generally equal to the one-month, two-month,
three-month, or six-month LIBOR plus 180 to 210 basis points, determined by the aggregate amount
borrowed in accordance with the agreement, or 0.25% plus the greater of (i) the federal funds rate
plus 0.50% or (ii) Bank of America’s prime rate. The Credit Facility matures in May 2011, with the
option to extend to May 2012. As of December 31, 2008, the Company had an outstanding balance of
approximately $66.0 million, and approximately $69.0 million was available, under the Credit
Facility. The Credit Facility contains customary affirmative, negative and financial covenants,
representations, warranties and borrowing conditions. The amounts drawn on the Credit Facility are
secured by an assignment of 100% of Cole OP II’s equity interests in the assets of certain of its
subsidiary limited liability companies in a designated collateral pool. The notes payable are
generally non-recourse to the Company and Cole OP II, but both are liable for customary
non-recourse carveouts. The Company was in compliance with the financial covenants at December 31,
2008.
During the year ended December 31, 2008, the Company issued or assumed approximately $672.4
million of notes payable secured by real estate assets, of which approximately $434.1 million was
fixed rate debt which bore interest at rates ranging from 4.29% to 7.23%, with a weighted average
interest rate of approximately 5.98%, and approximately $238.4 million was variable rate debt,
which bore interest at the one month LIBOR rate plus 180 to 325 basis points. In connection with
the acquisition of two CMBS bonds, JP Morgan Chase Bank, N.A. provided the 30-Day
Repurchase Financing in the amount of approximately $17.4 million and the 60-Day Repurchase
Financing in the amount of approximately $10.6 million. On October 14, 2008, the Company renewed
the 30-Day Repurchase Financing in the amount of approximately $13.2 million. During the year
ended December 31, 2008, the Company repaid the Repurchase Financings. During the year ended
December 31, 2008, the Company borrowed approximately $191.0 million from the Credit Facility and
subsequently repaid approximately $125.0 million. In addition, the Company repaid approximately
$29.1 million of fixed rate debt and approximately $167.3 million of variable rate debt and
terminated three outstanding lines of credit by repaying the total outstanding balance of
approximately $43.5 million under those lines of credit.
As of December 31, 2007, the Company had approximately $1.1 billion of debt outstanding, of
which approximately $940.9 million was fixed rate mortgage loans with interest rates ranging from
5.15% to 6.88% and a weighted average interest rate of approximately 5.85%. The Company also had
approximately $71.3 million of short-term variable rate debt with variable rates equal to the
one-month LIBOR plus 200 to 275 basis points and approximately $43.5 million outstanding under
three revolving lines of credit with variable rates equal to the one-month LIBOR plus 150 to 200
basis points.
Generally, the Fixed Rate Debt may not be prepaid, in whole or in part, except under the
following circumstances: (i) full prepayment may be made on any of the three (3) monthly payment
dates occurring immediately prior to the maturity date, and (ii) partial prepayments resulting from
the application of insurance or condemnation proceeds to reduce the outstanding principal balance
of the mortgage notes. Notwithstanding the prepayment limitations, the Company may sell the
properties to a buyer that assumes the respective mortgage loan. The transfer would be subject to
the conditions set forth in the individual property’s mortgage note document, including without
limitation, the lender’s approval of the proposed buyer and the payment of the lender’s fees, costs
and expenses associated with the sale of the property and the assumption of the loan.
F-21
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In the event that a mortgage note is not paid off on the respective maturity date, most
mortgage notes include hyperamortization
provisions. The interest rate during the hyperamortization period shall be the fixed interest
rate as stated on the respective mortgage note agreement plus two percent (2.0%). The individual
mortgage note maturity date, under the hyperamortization provisions, will be extended by twenty
(20) years. During such period, the lender will apply 100% of the rents collected to (i) all
payments for escrow or reserve accounts, (ii) payment of interest at the original fixed interest
rate, (iii) payments for the replacement reserve account, (iv) any other amounts due in accordance
with the mortgage note agreement other than any additional interest expense, (v) any operating
expenses of the property pursuant to an approved annual budget, (vi) any extraordinary expenses,
(vii) payments to be applied to the reduction of the principal balance of the mortgage note, and
(viii) any additional interest expense, which is not paid will be added to the principal balance of
the mortgage note.
The following table summarizes the scheduled aggregate principal repayments for the five years
subsequent to December 31, 2008 (in thousands):
| |
|
|
|
|
| |
|
Principal |
|
| For the year ending December 31: |
|
Repayments (1) |
|
2009 |
|
$ |
99,485 |
|
2010 |
|
|
56,046 |
|
2011 |
|
|
208,647 |
|
2012 |
|
|
80,214 |
|
2013 |
|
|
5,371 |
|
Thereafter |
|
|
1,102,994 |
|
|
|
|
|
Total |
|
$ |
1,552,757 |
|
|
|
|
|
| |
|
|
| (1) |
|
Principal payment amounts reflect actual payments based on face value of notes payable. |
As
of March 27, 2009, the Company is negotiating a one-year
extension of approximately $70.0 million of the debt that
matures during 2009.
Related party notes
On March 25, 2008, Cole OP II borrowed approximately $16.0 million from Series B, LLC and
approximately $16.0 million from Series C, LLC, each of which are affiliates of the Company and the
Company’s advisor, by executing two promissory notes that were secured by the membership interest
held by Cole OP II in certain wholly-owned subsidiaries of Cole OP II. The loan proceeds were used
to acquire properties with a purchase price of approximately $63.6 million, exclusive of closing
costs. The loans bore interest at variable rates equal to the one-month LIBOR rate plus 200 basis
points with monthly interest-only payments. The Company repaid approximately $32.0 million of the
aforementioned loans in May 2008. The Company’s board of directors, including all of the
independent directors, approved the loans as fair, competitive and commercially reasonable, and
determined that their terms were no less favorable to the Company than loans between unaffiliated
third parties under the same circumstances.
On February 10, 2006, Cole OP II borrowed approximately $4.7 million from Series B, LLC
(“Series B”), an affiliate of the Company and the Company’s advisor, by executing a promissory note
which was secured by membership interest held by Cole OP II in a wholly-owned subsidiary. The loan
proceeds were used to acquire a property with a purchase price of approximately $5.9 million,
exclusive of closing costs. The loan had a variable interest rate based on the one-month LIBOR rate
plus 200 basis points with monthly interest-only payments, and the outstanding principal and
accrued and unpaid interest was payable in full on December 31, 2006. The loan was generally
non-recourse to Cole OP II and could be prepaid at any time without penalty or premium. The
Company’s board of directors, including all of the independent directors, approved the loan and
determined that its terms were no less favorable to the Company than loans between unaffiliated
third parties under the same circumstances. Cole OP II repaid the note in full in May 2006.
On February 6, 2006, Cole OP II borrowed approximately $2.3 million from Series C by executing
a promissory note which was secured by membership interest held by Cole OP II in a wholly-owned
subsidiary. The loan proceeds were used to acquire a property with a purchase price of
approximately $18.5 million, exclusive of closing costs. The loan had a variable interest rate
based on the one-month LIBOR rate plus 200 basis points with monthly interest-only payments, and
the outstanding principal and accrued and unpaid interest was payable in full on December 31, 2006.
The loan was generally non recourse to Cole OP II and could be prepaid at any time without penalty
or premium. The Company’s board of directors, including all of the independent directors, approved
the loan and determined that its terms were no less favorable to the Company than loans between
unaffiliated third parties under the same circumstances. Cole OP II repaid the note in full in
April 2006.
F-22
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the year ended December 31, 2008, Cole OP II incurred approximately $278,000 in
interest expense to affiliates under the aforementioned loans. During the year ended December 31,
2007, no interest expense was incurred for related party transactions. During the year ended
December 31, 2006, Cole OP II incurred approximately $210,000 in interest expense to affiliates
under the aforementioned loans.
Note 11 — Intangible Lease Liability
Identified intangible liability relating to the real estate acquisitions discussed in Note 4
consisted of the following (in thousands):
| |
|
|
|
|
|
|
|
|
| |
|
December 31, |
|
| |
|
2008 |
|
|
2007 |
|
Acquired below-market leases, net of accumulated
amortization of $10,897 and $2,083, respectively
(with a weighted average life of 172 and 199 months,
respectively) |
|
$ |
156,813 |
|
|
$ |
80,032 |
|
|
|
|
|
|
|
|
Amortization income recorded on the identified intangible liability, for each of fiscal years
ended December 31, 2008, 2007 and 2006 was approximately $8.8 million, approximately $2.0 million
and approximately $96,000, respectively.
Estimated amortization income of the respective intangible lease liability as of December 31,
2008 for each of the five succeeding fiscal years is as follows (in thousands):
| |
|
|
|
|
| |
|
Amount Below |
|
| Year |
|
Market Lease |
|
2009 |
|
$ |
11,501 |
|
2010 |
|
$ |
11,342 |
|
2011 |
|
$ |
11,240 |
|
2012 |
|
$ |
11,127 |
|
2013 |
|
$ |
10,769 |
|
Note 12 — Extended Rate Lock Agreements
During the year ended December 31, 2008, the Company entered into no extended rate lock
agreements. During the year ended December 31, 2007, the Company entered into extended rate lock
agreements with Bear Stearns Commercial Mortgage, Inc. (“Bear Stearns”), JP Morgan Chase Bank, N.A.
(“JP Morgan”), Wachovia Bank, N.A. (“Wachovia”), and Wells Fargo Bank, N.A. (“Wells Fargo”) (the
“Rate Locks”) to lock interest rates ranging from 5.49% to 6.69% for up to approximately $647.8
million in borrowings. Under the terms of Rate Locks, the Company made rate lock deposits totaling
approximately $12.4 million to Bear Stearns, JP Morgan, Wachovia and Wells Fargo.
On August 10, 2007, the Company terminated its rate lock agreement with Bear Stearns, which
fixed interest rates for the remaining unallocated borrowings of up to approximately $275.8
million. As a result, approximately $5.7 million in rate lock deposits was refunded to the Company.
In accordance with the terms of the rate lock agreements, the Company earned a rate lock breakage
gain of approximately $2.2 million. In addition, the Company expensed previously deferred financing
costs of approximately $1.7 million relating to the remaining unallocated borrowings. The net gain
of approximately $478,000 is included in interest and other income on the consolidated statements
of operations. As of December 31, 2007, the Company had no available borrowings under the Rate
Locks and no rate lock deposits outstanding.
Note 13 — Supplemental Cash Flow Disclosures
Supplemental cash flow disclosures for the years ended December 31, 2008, 2007 and 2006 are as
follows (in thousands):
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
Year ended December 31, |
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Supplemental Disclosures of Non-Cash Investing and
Financing Activities: |
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared and unpaid |
|
$ |
11,877 |
|
|
$ |
5,434 |
|
|
$ |
1,612 |
|
Mortgage notes assumed in real estate acquisitions |
|
$ |
171,340 |
|
|
$ |
— |
|
|
$ |
42,620 |
|
Mortgage notes payable from seller of mortgages receivable |
|
$ |
— |
|
|
$ |
36,290 |
|
|
$ |
— |
|
Common stock issued through distribution reinvestment plan |
|
$ |
53,476 |
|
|
$ |
20,317 |
|
|
$ |
3,521 |
|
Unrealized loss on marketable securities |
|
$ |
25,756 |
|
|
$ |
— |
|
|
$ |
— |
|
Unrealized loss on interest rate swap |
|
$ |
2,794 |
|
|
$ |
— |
|
|
$ |
— |
|
Supplemental Cash Flow Disclosures: |
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid |
|
$ |
68,919 |
|
|
$ |
34,320 |
|
|
$ |
7,982 |
|
F-23
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 14 — Commitments and Contingencies
Litigation
In the ordinary
course of business, the Company may become subject to litigation or claims.
There are no material pending legal proceedings, or proceedings known
to be contemplated, against us.
Environmental Matters
In connection with the ownership and operation of real estate, the Company potentially may be
liable for costs and damages related to environmental matters. As of December 31, 2008, the Company
owned certain properties that are subject to environmental remediation. In each case, the seller
of the property, the tenant of the property and/or another third party has been identified as the
responsible party for environmental remediation costs related to the property. Additionally, in
connection with the purchase of certain of the properties, the respective sellers and/or tenants
have indemnified the Company against future remediation costs. The Company does not believe that
the environmental matters identified at such properties will have a material adverse effect on its
consolidated results of operations, nor is it aware of any environmental matters at other
properties which it believes will have a material adverse effect on its consolidated financial
statements.
Note 15— Related Party Transactions and Arrangements
Certain affiliates of the Company receive, and will continue to receive fees and compensation
in connection with the Offerings, and the acquisition, management and sale of the assets of the
Company. Cole Capital Corporation (“Cole Capital”), the affiliated dealer manager,
received a selling commission of up to 7.0% of gross offering proceeds, before
reallowance of commissions earned by participating broker-dealers, in connection with the Follow-on
Offering. Cole Capital reallowed 100% of commissions earned to participating
broker-dealers. In addition, Cole Capital received 2.0% of gross
offering proceeds, before reallowance to participating broker-dealers, as a dealer-manager fee, in
connection with the Follow-on Offering. Cole Capital, in its sole
discretion, reallowed a portion of its dealer-manager fee to such participating broker-dealers as a marketing and due
diligence expense reimbursement, based on factors such as the volume of shares sold by such
participating broker-dealers and the amount of marketing support provided by such participating
broker-dealers. No selling commissions or dealer-manager fees are paid to Cole Capital or other
broker-dealers in respect to shares sold under the DRIP. During the years ended December 31, 2008,
2007 and 2006, the Company paid approximately $92.8 million, approximately $53.3 million and
approximately $23.3 million, respectively, to Cole Capital for commissions and dealer manager fees,
of which approximately $77.5 million, approximately $45.4 million and approximately $20.0 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. During the
years ended December 31, 2008, 2007 and 2006, the Company reimbursed Cole Advisors II approximately
$7.4 million, approximately $4.6 and approximately $3.4 million, respectively, for organization and
offering expenses of the Offerings.
Cole Advisors II or its affiliates also receive acquisition and advisory fees of up to 2.0% of
the contract purchase price of each asset for the acquisition, development or construction of
properties and will be reimbursed for acquisition costs incurred in the process of acquiring
properties, so long as the total acquisition fees and expenses relating to the transaction does not
exceed 4.0% of the contract purchase price. The Company expects acquisition expenses to be
approximately 0.5% of the purchase price of each property. During the years ended December 31,
2008, 2007 and 2006, the Company paid an affiliate of Cole Advisors II approximately $27.5 million,
approximately $26.9 million and approximately $5.8 million, respectively, for acquisition fees.
F-24
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
If Cole Advisors II provides services in connection with the origination or refinancing of any
debt financing obtained by the
Company that is used to acquire properties or to make other permitted investments, or that is
assumed, directly or indirectly, in connection with the acquisition of properties, the Company will
pay Cole Advisors II or its affiliates a financing coordination fee equal to 1% of the amount
available under such financing; provided however, that Cole Advisors II or its affiliates shall not
be entitled to a financing coordination fee in connection with the refinancing of any loan secured
by any particular property that was previously subject to a refinancing in which Cole Advisors II
or its affiliates received such a fee. Financing coordination fees payable from loan proceeds from
permanent financing are paid to Cole Advisors II or its affiliates as the Company acquires such
permanent financing. However, no finance coordination fees are paid on loan proceeds from any line
of credit until such time as all net offering proceeds have been invested by the Company. During
the years ended December 31, 2008, 2007 and 2006, the Company paid Cole Advisors II approximately
$6.5 million, $8.0 million and approximately $1.8 million, respectively, for finance coordination
fees.
The Company pays, and expects to continue to pay, to Cole Realty Advisors, Inc. (“Cole Realty
Advisors”), its affiliated property manager, fees for the management and leasing of the Company’s
properties. Such fees equaled 2.0% for single-tenant properties and 2.0% to 4.0% for multi-tenant
properties of gross revenues plus leasing commissions at prevailing market rates during year ended
ended December 31, 2008. In accordance with the property management agreement, the Company may pay
Cole Realty Advisors up to (i) 2.0% of gross revenues from the Company’s single tenant properties
and (ii) 4.0% of gross revenues from the Company’s multi-tenant properties, plus leasing
commissions at prevailing market rates; provided however, that the aggregate of all property
management and leasing fees paid to affiliates plus all payments to third parties will not exceed
the amount that other nonaffiliated management and leasing companies generally charge for similar
services in the same geographic location. Cole Realty Advisors may subcontract its duties for a fee
that may be less than the fee provided for in the property management agreement. During the years
ended December 31, 2008, 2007 and 2006, the Company paid to Cole Realty Advisors approximately $2.8
million, approximately $1.6 million and approximately $350,000, respectively, for property
management fees.
The Company pays to Cole Advisors II an annualized asset management fee of 0.25% of the
aggregate asset value of the Company’s assets (the “Asset Management Fee”). The fee is payable
monthly in an amount equal to 0.02083% of aggregate asset value as of the last day of the
immediately preceding month. During the years ended December 31, 2008, 2007 and 2006, the Company
paid to Cole Advisors II approximately $6.0 million, approximately $2.6 million and approximately
$587,000, respectively, for asset management fees.
If Cole Advisors II or its affiliates provides a substantial amount of services, as determined
by the Company’s independent directors, in connection with the sale of one or more properties, the
Company will pay Cole Advisors II up to one-half of the brokerage commission paid, but in no event
to exceed an amount equal to 2% of the sales price of each property sold. In no event will the
combined real estate commission paid to Cole Advisors II, its affiliates and unaffiliated third
parties exceed 6% of the contract sales price. In addition, after investors have received a return
of their net capital contributions and an 8% annual cumulative, non-compounded return, then Cole
Advisors II is entitled to receive 10% of the remaining net sale proceeds. During the years ended
December 31, 2008, 2007 and 2006, the Company did not pay any fees or amounts to Cole Advisors II
relating to the sale of properties.
Upon listing of the Company’s common stock on a national securities exchange, a fee equal to
10% of the amount by which the market value of the Company’s outstanding stock plus all
distributions paid by the Company prior to listing, exceeds the sum of the total amount of capital
raised from investors and the amount of cash flow necessary to generate an 8% annual cumulative,
non-compounded return to investors will be paid to Cole Advisors II (the “Subordinated Incentive
Listing Fee”).
Upon termination of the advisory agreement with Cole Advisors II, other than termination by
the Company because of a material breach of the advisory agreement by Cole Advisors II, a
performance fee of 10% of the amount, if any, by which (i) the appraised asset value at the time of
such termination plus total distributions paid to stockholders through the termination date exceeds
(ii) the aggregate capital contribution contributed by investors less distributions from sale
proceeds plus payment to investors of an 8% annual, cumulative, non-compounded return on capital.
No subordinated performance fee will be paid to the extent that the Company has already paid or
become obligated to pay Cole Advisors II a subordinated participation in net sale proceeds or the
Subordinated Incentive Listing Fee.
The Company will reimburse Cole Advisors II for all expenses it paid or incurred in connection
with the services provided to the Company, subject to the limitation that the Company will not
reimburse Cole Advisors II for any amount by which its operating expenses (including the Asset
Management Fee) at the end of the four preceding fiscal quarters exceeds the greater of (i) 2% of
average invested assets, or (ii) 25% of net income other than any additions to reserves for
depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of
assets for that period, unless the Company’s independent directors find that a higher level of
expense is justified for that year based on unusual and non-recurring factors. The Company will not
reimburse Cole Advisors II for personnel costs in connection with services for which Cole Advisors II
receives acquisition fees or real estate commissions. During the years ended December 31, 2008,
2007 and 2006, the Company did not reimburse Cole Advisors II for any such costs.
F-25
As of December 31, 2008, the Company had approximately $123,000 due to Cole Realty Advisors
for acquisition fees incurred. As of December 31, 2007, the Company had approximately $1.5 million
payable to Cole Advisors II, which generally consisted of acquisition and finance coordination fees
and reimbursement of organization and offering costs. These amounts are included the accompanying
consolidated balance sheet in accounts payable and accrued expenses.
On September 30, 2008, Cole OP II acquired a portfolio of 12 properties or investments therein
from Cole Credit Property Fund, LP, an affiliate of the Company and the Company’s advisor, for
approximately $54.8 million, and a portfolio of ten properties from Cole Credit Property Fund II,
LP, an affiliate of the Company and the Company’s advisor, for approximately $66.5 million. These
acquisitions were funded by net proceeds from the Follow-on Offering and the assumption of 22
loans, secured by the properties, with a face value totaling approximately $68.6 million and a fair
value totaling approximately $68.2 million. The Company’s board of directors, including all of the
independent directors, not otherwise interested in the transaction, approved the transaction as
being fair and reasonable to the Company, at a price in excess of the cost to Cole Credit Property
Fund, LP and Cole Credit Property Fund II, LP. Substantial justification existed for such excess as
such excess was reasonable and the costs of the interests did not exceed its then current fair
market value as determined by an independent appraiser approved by the Company’s independent
directors. During the year ended December 30, 2007, Cole OP II acquired no properties from
affiliates of the Company or the Company’s advisor. During the year ended December 31, 2006, the
Company acquired 16 properties from affiliates of the Company or the Company’s advisor for
approximately $60.6 million. These acquisitions were funded by the Company’s Initial Offering and
the assumption of 16 loans, secured by the properties, of approximately $37.0 million. The
Company’s board of directors, including all of the independent directors, not otherwise interested
in the transactions, approved the transactions as being fair and reasonable to the Company. The
purchase price of three of the properties, of approximately $13.5 million, was in excess of the
cost to the affiliate of the Company or the Company’s advisor. Substantial justification existed
for such excess as such excess was reasonable and the costs of the interests did not exceed its
then current fair market value as determined by an independent appraiser approved by the Company’s
independent directors. The purchase price of 13 of the properties, of approximately $47.1 million,
was at a price no greater than the cost to the affiliated entity, and at a cost that did not exceed
its then current fair market value as determined by an independent appraiser approved by the
Company’s independent directors.
On March 25, 2008, Cole OP II borrowed approximately $16.0 million from Series B, LLC and
approximately $16.0 million from Series C, LLC, each of which are affiliates of the Company and the
Company’s advisor, by executing two promissory notes that were secured by the membership interest
held by Cole OP II in certain wholly-owned subsidiaries of Cole OP II. The loan proceeds were used
to acquire properties with a purchase price of approximately $63.6 million, exclusive of closing
costs. The loans bore interest at variable rates equal to the one-month LIBOR rate plus 200 basis
points with monthly interest-only payments. The Company repaid approximately $32.0 million of the
aforementioned loans in May 2008. The Company’s board of directors, including all of the
independent directors, approved the loans as fair, competitive and commercially reasonable, and
determined that their terms were no less favorable to the Company than loans between unaffiliated
third parties under the same circumstances.
On February 10, 2006, Cole OP II borrowed approximately $4.7 million from Series B, an
affiliate of the Company and the Company’s advisor, by executing a promissory note which was
secured by the membership interest held by Cole OP II in a wholly-owned subsidiary. The loan
proceeds were used to acquire a property with a purchase price of approximately $5.9 million,
exclusive of closing costs. The loan had a variable interest rate based on the one-month LIBOR rate
plus 200 basis points with monthly interest-only payments, and the outstanding principal and
accrued and unpaid interest was payable in full on December 31, 2006. The loan was generally
non-recourse to Cole OP II and could be prepaid at any time without penalty or premium. The
Company’s board of directors, including all of the independent directors, approved the loan and
determined that its terms were no less favorable to the Company than loans between unaffiliated
third parties under the same circumstances. Cole OP II repaid the note in full in May 2006.
On February 6, 2006, Cole OP II borrowed approximately $2.3 million from Series C, an
affiliate of the Company and the Company’s advisor, by executing a promissory note which was
secured by the membership interest held by Cole OP II in a wholly-owned subsidiary. The loan
proceeds were used to acquire a property with a purchase price of approximately $18.5 million,
exclusive of closing costs. The loan had a variable interest rate based on the one-month LIBOR rate
plus 200 basis points with monthly interest-only payments, and the outstanding principal and
accrued and unpaid interest was payable in full on December 31, 2006. The loan was generally non
recourse to Cole OP II and could be prepaid at any time without penalty or premium. The Company’s
board of directors, including all of the independent directors, approved the loan and determined
that its terms were no less favorable to the Company than loans between unaffiliated third parties
under the same circumstances. Cole OP II repaid the note in full in April 2006.
F-26
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
During the year ended December 31, 2008, Cole OP II incurred approximately $278,000 in
interest expense to affiliates under the aforementioned loans. During the year ended December 31,
2007, no interest expense was incurred for related party transactions. During the year ended
December 31, 2006, Cole OP II incurred approximately $210,000 in interest expense to affiliates
under the aforementioned loans.
Note 16 — 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 17 — Independent Director’s Stock Option Plan
The Company has a stock option plan, the IDSOP, which authorizes the grant of non-qualified
stock options to the Company’s independent directors, subject to the absolute discretion of the
board of directors and the applicable limitations of the plan. The Company intends to grant options
under the IDSOP to each qualifying director annually. The exercise price for the options granted
under the IDSOP was $9.15 per share for 2005 and 2006 and $9.10 per share for 2007 and 2008. 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
December 31, 2008 and 2007, the Company had granted options to purchase 40,000, and 30,000 shares,
respectively. The 10,000 options granted during the year ended
December 31, 2007 had a vesting
period of approximately nine months. The remaining 30,000 options have a one year vesting period.
A total of 1,000,000 shares have been authorized and reserved for issuance under the IDSOP. On
January 1, 2006, we adopted SFAS No. 123 (revised 2004), “Share-Based Payment” (“SFAS 123R”), which
requires the measurement and recognition of compensation expense for all share-based payment awards
made to employees and directors, including stock options related to the IDSOP, based on estimated
fair values. The Company adopted SFAS 123R using the modified prospective application.
Accordingly, prior period amounts were not restated.
During the year ended December 31, 2008, the Company recorded stock-based compensation charges
of approximately $8,000. During the year ended December 31, 2007, the adoption of SFAS 123R
resulted in stock-based compensation charges of approximately $25,000. Stock-based compensation
expense recognized in the years ended December 31, 2008 and 2007 was based on awards ultimately
expected to vest, and has been reduced for estimated forfeitures. SFAS 123R requires forfeitures to
be estimated at the time of grant and revised, if necessary, in subsequent periods if actual
forfeitures differ from those estimates. The Company’s calculations do not assume any forfeitures.
A summary of the Company’s stock option activity under its IDSOP during the years ended
December 31, 2008 and 2007 is as follows:
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Weighted |
|
|
|
|
| |
|
|
|
|
|
Average |
|
|
|
|
| |
|
|
|
|
|
Exercise |
|
|
|
|
| |
|
Number |
|
|
Price |
|
|
Exercisable |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2006 |
|
|
20,000 |
|
|
$ |
9.15 |
|
|
|
10,000 |
|
Granted in 2007 |
|
|
10,000 |
|
|
$ |
9.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2007 |
|
|
30,000 |
|
|
$ |
9.13 |
|
|
|
20,000 |
|
Granted in 2008 |
|
|
10,000 |
|
|
$ |
9.10 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at December 31, 2008 |
|
|
40,000 |
|
|
$ |
9.13 |
|
|
|
30,000 |
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2008 and 2007, options to purchase 10,000 shares were unvested with a
weighted average contractual remaining life of approximately 7.8 and approximately 8.4 years,
respectively.
The weighted average fair value of options granted were $0.77 in 2008 and $0.70 in 2007. As of
December 31, 2008 the number of options that were currently vested and expected to become vested
was 40,000 shares which had an intrinsic value of $35,000.
F-27
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In accordance with SFAS 123R, the fair value of each stock option granted was estimated as of
the date of the grant using the Black-Scholes method based on the following assumptions: a weighted
average risk-free interest rate from 4.08% to 5.07%, a projected future dividend yield from 6.25%
to 7.00%, expected volatility from 0% to 18.02%, and an expected life of an option of 10 years. The
Company used the calculated value method to determine volatility as calculated using the Composite
REIT Index. Based on these assumptions, the fair value of the options granted during the years
ended December 31, 2008 and 2007 was approximately $8,000 and $7,000, respectively. As of
December 31, 2008, there was approximately $3,000 of total unrecognized compensation cost related
to unvested share-based compensation awards granted under the IDSOP. That cost is expected to be
recognized during 2009.
Note 18 — Stockholders’ Equity
Distribution Reinvestment Plan
The Company maintains a distribution reinvestment plan that allows common stockholders (the
“Stockholders”) to elect to have the distributions the Stockholders receive reinvested in
additional shares of the Company’s common stock. The purchase price per share under the
distribution reinvestment plan will be the higher of 95% of the fair market value per share as
determined by the Company’s board of directors and $9.50 per share. No sales commissions or dealer
manager fees will be paid on shares sold under the distribution reinvestment plan. The Company may
terminate or amend the distribution reinvestment plan at the Company’s discretion at any time upon
ten days prior written notice to the Stockholders. On September 18, 2008, the Company registered
30,000,000 additional shares to be offered pursuant to its DRIP in a Registration Statement on Form
S-3. On January 2, 2009, the Company terminated the Follow-on Offering. As of the close of
business on January 2, 2009, the Company had issued 5,933,687 shares sold pursuant to the DRIP. At
the completion of the Follow-on Offering, 66,313 shares of common stock remained unsold pursuant to
the DRIP. All unsold shares in the Follow-on Offering have been deregistered.
During the years ended December 31, 2008 and 2007, approximately 5.6 million and approximately
2.1 million shares were purchased under the distribution reinvestment plan, for approximately $53.5
million and approximately $20.3 million, respectively, which were recorded as redeemable common
stock on the consolidated balance sheets.
Share Redemption Program
The Company’s share redemption program permits its stockholders to sell their shares back to
the Company after they have held them for at least one year, subject to the significant conditions
and limitations described below.
There are several restrictions on the stockholder’s ability to sell their shares to the
Company under the program. The stockholders generally have to hold their shares for one year before
selling the shares to the Company under the plan; however, the Company may waive the one-year
holding period in the event of the death or bankruptcy of a Stockholder. In addition, the Company
will limit the number of shares redeemed pursuant to the Company’s share redemption program as
follows: (1) during any calendar year, the Company will not redeem in excess of 3.0% of the
weighted average number of shares outstanding during the prior calendar year; and (2) funding for
the redemption of shares will be limited to the amount of net proceeds the Company receives from
the sale of shares under the Company’s distribution reinvestment plan. These limits may prevent the
Company from accommodating all requests made in any year. During the term of the Offering, and
subject to certain provisions the redemption price per share will depend on the length of time the
stockholder has held such shares as follows: after one year from the purchase date — 92.5% of the
amount the stockholder paid for each share; after two years from the purchase date — 95.0% of the
amount the stockholder paid for each share; after three years from the purchase date — 97.5% of the
amount the stockholder paid for each share; and after four years from the purchase date — 100.0% of
the amount the stockholder paid for each share.
Upon receipt of a request for redemption, the Company will conduct a Uniform Commercial Code
search to ensure that no liens are held against the shares. Repurchases will be made quarterly. If
funds are not available to redeem all requested redemptions at the end of each quarter, the shares
will be purchased on a pro rata basis and the unfulfilled requests will be held until the next
quarter, unless withdrawn. The Company’s board of directors may amend, suspend or terminate the
share redemption program at any time upon 30 days prior written notice to the stockholders. The
Company redeemed approximately 1.0 million shares under the share redemption program during the
year ended December 31, 2008 for approximately $10.1 million. The Company redeemed approximately
227,000 shares under the share redemption program during the year ended December 31, 2007 for
approximately $2.2 million.
F-28
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 19 — Income Taxes
For federal income tax purposes, distributions to common stockholders are characterized as
dividend income, capital gain income, or as a return of a stockholder’s invested capital. The
following table represents the character of distributions to stockholder for the years ended
December 31, 2008, 2007 and 2006.
| |
|
|
|
|
|
|
|
|
|
|
|
|
| Character of Distributions: |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Dividend income |
|
|
45 |
% |
|
|
41 |
% |
|
|
42 |
% |
Return of capital |
|
|
55 |
% |
|
|
59 |
% |
|
|
58 |
% |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
100 |
% |
|
|
100 |
% |
|
|
100 |
% |
|
|
|
|
|
|
|
|
|
|
At December 31, 2008, 2007 and 2006, the tax basis carrying value of the Company’s land and
depreciable real estate assets was approximately $3.0 billion, approximately $1.7 billion and
approximately $500.5 million, respectively. During the years ended December 31, 2008, 2007 and
2006, the Company had state income taxes of approximately $550,000, approximately $158,000 and
approximately $24,000, respectively, which were recorded in general and administrative expenses in
the consolidated statements of operations.
Note 20 — Operating Leases
The Company’s operating leases’ terms and expirations vary. The leases frequently have
provisions to extend the lease agreement and other terms and conditions as negotiated. The Company
retains substantially all of the risks and benefits of ownership of the real estate assets leased
to tenants.
The future minimum rental income from the Company’s investment in real estate assets under
non-cancelable operating leases, at December 31, 2008, is as follows (in thousands):
| |
|
|
|
|
| |
|
Amount |
|
Year ending December 31: |
|
|
|
|
2009 |
|
$ |
225,229 |
|
2010 |
|
|
223,055 |
|
2011 |
|
|
221,747 |
|
2012 |
|
|
220,028 |
|
2013 |
|
|
213,283 |
|
Thereafter |
|
|
1,754,292 |
|
|
|
|
|
Total |
|
$ |
2,857,634 |
|
|
|
|
|
F-29
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
Note 21 — Quarterly Results (Unaudited)
Presented below is a summary of the unaudited quarterly financial information for the years
ended December 31, 2008 and 2007 (in thousands, except for per share amounts). The Company believes
that all necessary adjustments, consisting only of normal recurring adjustments, have been included
in the amounts stated below to present fairly, and in accordance with GAAP, the selected quarterly
information.
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
| |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
Revenues |
|
$ |
40,680 |
|
|
$ |
44,108 |
|
|
$ |
51,092 |
|
|
$ |
65,124 |
|
Operating income |
|
|
18,184 |
|
|
|
23,392 |
|
|
|
26,828 |
|
|
|
33,001 |
|
Net income |
|
|
587 |
|
|
|
7,047 |
|
|
|
8,961 |
|
|
|
8,497 |
|
Basic and diluted net income per share |
|
|
0.01 |
|
|
|
0.05 |
|
|
|
0.06 |
|
|
|
0.05 |
|
Dividends per share |
|
$ |
0.17 |
|
|
$ |
0.17 |
|
|
$ |
0.18 |
|
|
$ |
0.18 |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2007 |
|
| |
|
First Quarter |
|
|
Second Quarter |
|
|
Third Quarter |
|
|
Fourth Quarter |
|
Revenues |
|
$ |
12,597 |
|
|
$ |
18,821 |
|
|
$ |
26,539 |
|
|
$ |
31,885 |
|
Operating income |
|
|
6,443 |
|
|
|
4,068 |
|
|
|
13,512 |
|
|
|
17,274 |
|
Net income (loss) |
|
|
1,685 |
|
|
|
(3,367 |
) |
|
|
2,998 |
|
|
|
3,164 |
|
Basic and diluted net income (loss) per share |
|
|
0.05 |
|
|
|
(0.06 |
) |
|
|
0.04 |
|
|
|
0.04 |
|
Dividends per share |
|
$ |
0.16 |
|
|
$ |
0.16 |
|
|
$ |
0.18 |
|
|
$ |
0.18 |
|
Note 22 — Subsequent Events
Sale of Shares of Common Stock
On January 2, 2009, the Company terminated the Follow-on Offering. As of the close of
business on January 2, 2009, the Company had issued a total of 147,454,259 shares in the Follow-on
Offering, including 141,520,572 shares sold in the primary offering and 5,933,687 shares sold
pursuant to the DRIP, resulting in gross offering proceeds of approximately $1.5 billion. At the
completion of the Follow-on Offering, a total of 1,595,741 shares of common stock remained unsold,
including 1,529,428 shares that remained unsold in the primary offering and 66,313 shares of common
stock that remained unsold pursuant to the DRIP. All unsold shares in the Follow-on Offering have
been deregistered.
As of March 27, 2009, the Company had raised approximately $2.1 billion of gross proceeds
through the issuance of approximately 205.6 million shares of
its common stock in the Offerings
(including shares sold under the DRIP).
Property Acquisitions
Subsequent to December 31, 2008, the Company acquired a 100% interest in 13 single-tenant
properties for an aggregate purchase price of approximately $79.0 million, excluding closing costs.
The Company financed the acquisitions through the assumption of approximately $68.3 million of
mortgage notes payable secured by the properties. The Company allocated the purchase price of this
property, including aggregate acquisitions costs, to the fair market value of the assets acquired
and liabilities assumed.
Mortgage Notes Payable
Subsequent to December 31, 2008, the Company issued or assumed notes payable, totaling
approximately $75.5 million. The Company obtained approximately $68.3 million of fixed rate debt
which bears interest between 5.45% and 6.40% (the “Fixed Debt”). The Fixed Debt matures
between September 2012 and April 2017. The Company obtained approximately $7.2 million of variable
rate debt which bears interest at one-month LIBOR plus 2.75% (the “Variable Debt”). The
Variable Debt matures in February of 2016. The Company subsequently entered
into an interest rate swap on the Variable Debt, which fixes LIBOR at 2.75% with a spread of 3.0%.
F-30
COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)
In addition, subsequent to December 31, 2008, the Company repaid approximately $40.0 million
of variable rate debt related to the Credit Facility. As of March 27, 2009, approximately $109.0
million was available for borrowing under the Credit Facility.
In
addition, subsequent to December 31, 2008, the Company extended
the maturity date of one variable rate note payable, with an outstanding balance of approximately $70.6 million, to June 1,
2009.
Marketable Securities
Subsequent to December
31, 2008, the Company purchased two CMBS bonds with an aggregate face value of approximately
$19.8 million for an aggregate purchase price of approximately $10.3 million.
The bonds are rated Aaa by Moody’s and AAA by Fitch Ratings and are secured by a
diversified pool of commercial mortgage loans secured by commercial real estate.
F-31
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Adjustments |
|
|
|
|
|
|
|
|
| |
|
Balance at |
|
|
Charged |
|
|
to |
|
|
|
|
|
|
Balance at |
|
| |
|
beginning |
|
|
to |
|
|
valuation |
|
|
|
|
|
|
end of |
|
| |
|
of period |
|
|
expenses |
|
|
accounts |
|
|
Deductions |
|
|
period |
|
Year Ended December 31, 2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
— |
|
|
$ |
75 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
75 |
|
|
$ |
447 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts |
|
$ |
522 |
|
|
$ |
1,933 |
|
|
$ |
— |
|
|
$ |
1,533 |
|
|
$ |
922 |
|
S-1
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
| Real Estate Held for Investment the Company has Invested in Under Operating Leases: |
24 Hour Fitness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Olathe, KS |
|
|
4,817 |
|
|
|
1,090 |
|
|
|
5,353 |
|
|
|
— |
|
|
|
6,443 |
|
|
|
189 |
|
|
|
08/24/07 |
|
|
|
2007 |
|
7500 Cottonwood Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Jenison, MI |
|
|
— |
|
|
|
1,079 |
|
|
|
4,023 |
|
|
|
(12 |
) |
|
|
5,090 |
|
|
|
205 |
|
|
|
03/30/07 |
|
|
|
1993 |
|
Aaron Rents: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alamogordo, NM |
|
|
— |
|
|
|
273 |
|
|
|
619 |
|
|
|
— |
|
|
|
892 |
|
|
|
5 |
|
|
|
09/15/08 |
|
|
|
2006 |
|
Anderson, SC |
|
|
— |
|
|
|
156 |
|
|
|
978 |
|
|
|
— |
|
|
|
1,134 |
|
|
|
7 |
|
|
|
09/15/08 |
|
|
|
1992 |
|
Baton Rouge, LA |
|
|
— |
|
|
|
226 |
|
|
|
603 |
|
|
|
— |
|
|
|
829 |
|
|
|
5 |
|
|
|
09/15/08 |
|
|
|
1999 |
|
Beeville, TX |
|
|
— |
|
|
|
80 |
|
|
|
808 |
|
|
|
— |
|
|
|
888 |
|
|
|
6 |
|
|
|
09/15/08 |
|
|
|
2004 |
|
Calmut City, IL |
|
|
— |
|
|
|
277 |
|
|
|
992 |
|
|
|
— |
|
|
|
1,269 |
|
|
|
8 |
|
|
|
09/15/08 |
|
|
|
1977 |
|
Charlotte, NC |
|
|
— |
|
|
|
272 |
|
|
|
424 |
|
|
|
— |
|
|
|
696 |
|
|
|
3 |
|
|
|
09/15/08 |
|
|
|
1957 |
|
Chiefland, FL |
|
|
— |
|
|
|
380 |
|
|
|
651 |
|
|
|
— |
|
|
|
1,031 |
|
|
|
5 |
|
|
|
09/15/08 |
|
|
|
2007 |
|
Clanton, AL |
|
|
— |
|
|
|
231 |
|
|
|
817 |
|
|
|
— |
|
|
|
1,048 |
|
|
|
6 |
|
|
|
09/15/08 |
|
|
|
2007 |
|
Essex, MD |
|
|
— |
|
|
|
632 |
|
|
|
966 |
|
|
|
— |
|
|
|
1,598 |
|
|
|
7 |
|
|
|
09/15/08 |
|
|
|
1988 |
|
Forrest City, AR |
|
|
— |
|
|
|
246 |
|
|
|
623 |
|
|
|
— |
|
|
|
869 |
|
|
|
5 |
|
|
|
09/15/08 |
|
|
|
2002 |
|
Griffin, GA |
|
|
— |
|
|
|
483 |
|
|
|
599 |
|
|
|
— |
|
|
|
1,082 |
|
|
|
5 |
|
|
|
09/15/08 |
|
|
|
2007 |
|
Grovetown, GA |
|
|
— |
|
|
|
220 |
|
|
|
799 |
|
|
|
— |
|
|
|
1,019 |
|
|
|
6 |
|
|
|
09/15/08 |
|
|
|
2007 |
|
Harrisonville, MO |
|
|
— |
|
|
|
509 |
|
|
|
252 |
|
|
|
— |
|
|
|
761 |
|
|
|
2 |
|
|
|
09/15/08 |
|
|
|
1996 |
|
Hartsville, SC |
|
|
— |
|
|
|
304 |
|
|
|
875 |
|
|
|
— |
|
|
|
1,179 |
|
|
|
6 |
|
|
|
09/15/08 |
|
|
|
2007 |
|
Largo, FL |
|
|
— |
|
|
|
393 |
|
|
|
884 |
|
|
|
— |
|
|
|
1,277 |
|
|
|
7 |
|
|
|
09/15/08 |
|
|
|
1999 |
|
Mansfield, TX |
|
|
— |
|
|
|
244 |
|
|
|
906 |
|
|
|
— |
|
|
|
1,150 |
|
|
|
7 |
|
|
|
09/15/08 |
|
|
|
2007 |
|
Navasota, TX |
|
|
— |
|
|
|
121 |
|
|
|
866 |
|
|
|
— |
|
|
|
987 |
|
|
|
7 |
|
|
|
09/15/08 |
|
|
|
2007 |
|
Okeechobee, FL |
|
|
— |
|
|
|
305 |
|
|
|
792 |
|
|
|
— |
|
|
|
1,097 |
|
|
|
6 |
|
|
|
09/15/08 |
|
|
|
2006 |
|
Rensselaer, NY |
|
|
— |
|
|
|
699 |
|
|
|
1,337 |
|
|
|
— |
|
|
|
2,036 |
|
|
|
11 |
|
|
|
09/15/08 |
|
|
|
1971 |
|
Rome, TX |
|
|
— |
|
|
|
387 |
|
|
|
1,050 |
|
|
|
— |
|
|
|
1,437 |
|
|
|
8 |
|
|
|
09/15/08 |
|
|
|
1996 |
|
Sandersville, GA |
|
|
— |
|
|
|
153 |
|
|
|
856 |
|
|
|
— |
|
|
|
1,009 |
|
|
|
7 |
|
|
|
09/15/08 |
|
|
|
2006 |
|
Shreveport, LA |
|
|
— |
|
|
|
267 |
|
|
|
569 |
|
|
|
— |
|
|
|
836 |
|
|
|
5 |
|
|
|
09/15/08 |
|
|
|
2001 |
|
Stuart, FL |
|
|
— |
|
|
|
651 |
|
|
|
1,822 |
|
|
|
— |
|
|
|
2,473 |
|
|
|
15 |
|
|
|
09/15/08 |
|
|
|
1995 |
|
Wichita, KS |
|
|
— |
|
|
|
247 |
|
|
|
627 |
|
|
|
— |
|
|
|
874 |
|
|
|
5 |
|
|
|
09/15/08 |
|
|
|
2005 |
|
Wilton, NY |
|
|
— |
|
|
|
2,693 |
|
|
|
3,577 |
|
|
|
— |
|
|
|
6,270 |
|
|
|
29 |
|
|
|
09/15/08 |
|
|
|
1987 |
|
S-2
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
ABX Air: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Coventry, RI |
|
|
2,454 |
|
|
|
548 |
|
|
|
3,293 |
|
|
|
16 |
|
|
|
3,857 |
|
|
|
174 |
|
|
|
02/16/07 |
|
|
|
1998 |
|
Academy Sports: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Macon, GA |
|
|
3,478 |
|
|
|
1,232 |
|
|
|
3,901 |
|
|
|
— |
|
|
|
5,133 |
|
|
|
331 |
|
|
|
01/06/06 |
|
|
|
2005 |
|
Katy, TX |
|
|
68,250 |
|
|
|
8,853 |
|
|
|
88,008 |
|
|
|
— |
|
|
|
96,861 |
|
|
|
4,823 |
|
|
|
01/18/07 |
|
|
|
1976 |
|
Lufkin, TX |
|
|
3,060 |
|
|
|
1,512 |
|
|
|
3,260 |
|
|
|
— |
|
|
|
4,772 |
|
|
|
74 |
|
|
|
02/07/08 |
|
|
|
2003 |
|
Advanced Auto: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenfield, IN |
|
|
— |
|
|
|
670 |
|
|
|
609 |
|
|
|
— |
|
|
|
1,279 |
|
|
|
52 |
|
|
|
06/29/06 |
|
|
|
2003 |
|
Trenton, OH |
|
|
— |
|
|
|
333 |
|
|
|
651 |
|
|
|
— |
|
|
|
984 |
|
|
|
56 |
|
|
|
06/29/06 |
|
|
|
2003 |
|
Columbia Heights, MN |
|
|
1,038 |
|
|
|
549 |
|
|
|
1,071 |
|
|
|
— |
|
|
|
1,620 |
|
|
|
79 |
|
|
|
07/06/06 |
|
|
|
2005 |
|
Fergus Falls, MN |
|
|
722 |
|
|
|
187 |
|
|
|
911 |
|
|
|
— |
|
|
|
1,098 |
|
|
|
70 |
|
|
|
07/06/06 |
|
|
|
2005 |
|
Holland Township, MI |
|
|
1,231 |
|
|
|
647 |
|
|
|
1,134 |
|
|
|
— |
|
|
|
1,781 |
|
|
|
87 |
|
|
|
07/12/06 |
|
|
|
2006 |
|
Holland, MI |
|
|
1,193 |
|
|
|
614 |
|
|
|
1,118 |
|
|
|
— |
|
|
|
1,732 |
|
|
|
86 |
|
|
|
07/12/06 |
|
|
|
2006 |
|
Zeeland, MI |
|
|
1,057 |
|
|
|
430 |
|
|
|
1,109 |
|
|
|
(1 |
) |
|
|
1,538 |
|
|
|
85 |
|
|
|
07/12/06 |
|
|
|
2006 |
|
Grand Forks, ND |
|
|
840 |
|
|
|
346 |
|
|
|
889 |
|
|
|
— |
|
|
|
1,235 |
|
|
|
67 |
|
|
|
08/15/06 |
|
|
|
2005 |
|
Duluth, MN |
|
|
860 |
|
|
|
284 |
|
|
|
1,050 |
|
|
|
— |
|
|
|
1,334 |
|
|
|
73 |
|
|
|
09/08/06 |
|
|
|
2006 |
|
Grand Bay, AL |
|
|
— |
|
|
|
256 |
|
|
|
770 |
|
|
|
(1 |
) |
|
|
1,025 |
|
|
|
57 |
|
|
|
09/29/06 |
|
|
|
2005 |
|
Hurley, MS |
|
|
— |
|
|
|
171 |
|
|
|
811 |
|
|
|
— |
|
|
|
982 |
|
|
|
60 |
|
|
|
09/29/06 |
|
|
|
2005 |
|
Rainsville, AL |
|
|
— |
|
|
|
383 |
|
|
|
823 |
|
|
|
— |
|
|
|
1,206 |
|
|
|
60 |
|
|
|
09/29/06 |
|
|
|
2005 |
|
Ashland, KY |
|
|
— |
|
|
|
641 |
|
|
|
827 |
|
|
|
— |
|
|
|
1,468 |
|
|
|
59 |
|
|
|
11/17/06 |
|
|
|
2006 |
|
Jackson, OH |
|
|
— |
|
|
|
449 |
|
|
|
755 |
|
|
|
— |
|
|
|
1,204 |
|
|
|
55 |
|
|
|
11/17/06 |
|
|
|
2005 |
|
New Boston, OH |
|
|
— |
|
|
|
477 |
|
|
|
846 |
|
|
|
— |
|
|
|
1,323 |
|
|
|
61 |
|
|
|
11/17/06 |
|
|
|
2005 |
|
Scottsburg, IN |
|
|
— |
|
|
|
264 |
|
|
|
844 |
|
|
|
— |
|
|
|
1,108 |
|
|
|
61 |
|
|
|
11/17/06 |
|
|
|
2006 |
|
Maryland Heights, MO |
|
|
— |
|
|
|
736 |
|
|
|
896 |
|
|
|
— |
|
|
|
1,632 |
|
|
|
59 |
|
|
|
01/12/07 |
|
|
|
2005 |
|
Allstate Insurance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cross Plains, WI |
|
|
— |
|
|
|
864 |
|
|
|
4,488 |
|
|
|
— |
|
|
|
5,352 |
|
|
|
136 |
|
|
|
12/07/07 |
|
|
|
2007 |
|
Yuma, AZ |
|
|
4,687 |
|
|
|
1,426 |
|
|
|
5,885 |
|
|
|
— |
|
|
|
7,311 |
|
|
|
106 |
|
|
|
05/22/08 |
|
|
|
2008 |
|
American TV & Appliance: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoria, IL |
|
|
6,954 |
|
|
|
2,028 |
|
|
|
8,172 |
|
|
|
— |
|
|
|
10,200 |
|
|
|
500 |
|
|
|
10/23/06 |
|
|
|
2003 |
|
Applebee’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albany, OR |
|
|
1,923 |
|
|
|
808 |
|
|
|
1,836 |
|
|
|
— |
|
|
|
2,644 |
|
|
|
84 |
|
|
|
04/26/07 |
|
|
|
2005 |
|
Augusta, GA |
|
|
2,252 |
|
|
|
621 |
|
|
|
2,474 |
|
|
|
— |
|
|
|
3,095 |
|
|
|
109 |
|
|
|
04/26/07 |
|
|
|
2005 |
|
Aurora (Iliff), OR |
|
|
1,878 |
|
|
|
1,324 |
|
|
|
1,258 |
|
|
|
— |
|
|
|
2,582 |
|
|
|
55 |
|
|
|
04/26/07 |
|
|
|
1992 |
|
S-3
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Applebee’s
(Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aurora, CO |
|
|
1,727 |
|
|
|
1,001 |
|
|
|
1,373 |
|
|
|
— |
|
|
|
2,374 |
|
|
|
60 |
|
|
|
04/26/07 |
|
|
|
1998 |
|
Clovis, NM |
|
|
1,918 |
|
|
|
512 |
|
|
|
2,125 |
|
|
|
— |
|
|
|
2,637 |
|
|
|
92 |
|
|
|
04/26/07 |
|
|
|
2005 |
|
Colorado Springs, CO |
|
|
1,285 |
|
|
|
781 |
|
|
|
985 |
|
|
|
— |
|
|
|
1,766 |
|
|
|
43 |
|
|
|
04/26/07 |
|
|
|
1998 |
|
Columbus (Airport),
GA |
|
|
2,176 |
|
|
|
726 |
|
|
|
2,265 |
|
|
|
— |
|
|
|
2,991 |
|
|
|
100 |
|
|
|
04/26/07 |
|
|
|
2006 |
|
Columbus (Gentian),
GA |
|
|
2,449 |
|
|
|
1,098 |
|
|
|
2,263 |
|
|
|
6 |
|
|
|
3,367 |
|
|
|
100 |
|
|
|
04/26/07 |
|
|
|
2005 |
|
Fountain, CO |
|
|
1,871 |
|
|
|
747 |
|
|
|
1,825 |
|
|
|
— |
|
|
|
2,572 |
|
|
|
80 |
|
|
|
04/26/07 |
|
|
|
2005 |
|
Gallup , NM |
|
|
2,165 |
|
|
|
499 |
|
|
|
2,477 |
|
|
|
— |
|
|
|
2,976 |
|
|
|
107 |
|
|
|
04/26/07 |
|
|
|
2004 |
|
Garden City, GA |
|
|
1,812 |
|
|
|
803 |
|
|
|
1,688 |
|
|
|
— |
|
|
|
2,491 |
|
|
|
74 |
|
|
|
04/26/07 |
|
|
|
1998 |
|
Grand Junction, CO |
|
|
2,136 |
|
|
|
915 |
|
|
|
2,021 |
|
|
|
— |
|
|
|
2,936 |
|
|
|
88 |
|
|
|
04/26/07 |
|
|
|
1995 |
|
Littleton, CO |
|
|
1,561 |
|
|
|
1,491 |
|
|
|
656 |
|
|
|
— |
|
|
|
2,147 |
|
|
|
29 |
|
|
|
04/26/07 |
|
|
|
1990 |
|
Longview, WA |
|
|
2,475 |
|
|
|
969 |
|
|
|
2,429 |
|
|
|
5 |
|
|
|
3,403 |
|
|
|
109 |
|
|
|
04/26/07 |
|
|
|
2004 |
|
Loveland, CO |
|
|
1,441 |
|
|
|
437 |
|
|
|
1,543 |
|
|
|
— |
|
|
|
1,980 |
|
|
|
67 |
|
|
|
04/26/07 |
|
|
|
1997 |
|
Macon (Eisenhower),
GA |
|
|
1,706 |
|
|
|
785 |
|
|
|
1,561 |
|
|
|
— |
|
|
|
2,346 |
|
|
|
69 |
|
|
|
04/26/07 |
|
|
|
1998 |
|
Macon (Riverside),
GA |
|
|
1,726 |
|
|
|
794 |
|
|
|
1,579 |
|
|
|
— |
|
|
|
2,373 |
|
|
|
70 |
|
|
|
04/26/07 |
|
|
|
1998 |
|
Santa Fe, NM |
|
|
2,783 |
|
|
|
1,637 |
|
|
|
2,184 |
|
|
|
5 |
|
|
|
3,826 |
|
|
|
95 |
|
|
|
04/26/07 |
|
|
|
1997 |
|
Savannah, GA |
|
|
1,842 |
|
|
|
1,079 |
|
|
|
1,454 |
|
|
|
— |
|
|
|
2,533 |
|
|
|
65 |
|
|
|
04/26/07 |
|
|
|
1993 |
|
Union Gap, WA |
|
|
1,756 |
|
|
|
196 |
|
|
|
2,218 |
|
|
|
— |
|
|
|
2,414 |
|
|
|
99 |
|
|
|
04/26/07 |
|
|
|
2004 |
|
Walla Walla, WA |
|
|
1,642 |
|
|
|
770 |
|
|
|
1,487 |
|
|
|
— |
|
|
|
2,257 |
|
|
|
69 |
|
|
|
04/26/07 |
|
|
|
2005 |
|
Warner Robins, GA |
|
|
1,727 |
|
|
|
677 |
|
|
|
1,696 |
|
|
|
— |
|
|
|
2,373 |
|
|
|
75 |
|
|
|
04/26/07 |
|
|
|
1994 |
|
Apria Healthcare: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. John, MO |
|
|
4,420 |
|
|
|
1,669 |
|
|
|
4,390 |
|
|
|
— |
|
|
|
6,059 |
|
|
|
307 |
|
|
|
03/28/07 |
|
|
|
1996 |
|
Arby’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
New Castle, PA |
|
|
883 |
|
|
|
555 |
|
|
|
810 |
|
|
|
— |
|
|
|
1,365 |
|
|
|
20 |
|
|
|
01/31/08 |
|
|
|
1999 |
|
Ashley Furniture: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amarillo, TX |
|
|
4,026 |
|
|
|
1,367 |
|
|
|
4,747 |
|
|
|
— |
|
|
|
6,114 |
|
|
|
224 |
|
|
|
04/06/07 |
|
|
|
1980 |
|
Anderson, SC |
|
|
— |
|
|
|
677 |
|
|
|
3,240 |
|
|
|
(4 |
) |
|
|
3,913 |
|
|
|
106 |
|
|
|
09/28/07 |
|
|
|
2006 |
|
S-4
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
AT&T: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beaumont, TX |
|
|
8,592 |
|
|
|
611 |
|
|
|
10,717 |
|
|
|
— |
|
|
|
11,328 |
|
|
|
654 |
|
|
|
03/19/07 |
|
|
|
1971 |
|
Santa Clara, CA |
|
|
6,032 |
|
|
|
2,455 |
|
|
|
10,876 |
|
|
|
— |
|
|
|
13,331 |
|
|
|
80 |
|
|
|
09/30/08 |
|
|
|
2002 |
|
Bank of America: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Delray Beach, FL |
|
|
8,827 |
|
|
|
11,890 |
|
|
|
2,984 |
|
|
|
— |
|
|
|
14,874 |
|
|
|
74 |
|
|
|
01/31/08 |
|
|
|
1975 |
|
BE Aerospace: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winston-Salem, NC |
|
|
— |
|
|
|
346 |
|
|
|
4,387 |
|
|
|
— |
|
|
|
4,733 |
|
|
|
24 |
|
|
|
10/31/08 |
|
|
|
1987 |
|
Best Buy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fayettville, NC |
|
|
— |
|
|
|
2,020 |
|
|
|
4,285 |
|
|
|
301 |
|
|
|
6,606 |
|
|
|
141 |
|
|
|
10/04/07 |
|
|
|
1999 |
|
Wichita, KS |
|
|
6,708 |
|
|
|
2,192 |
|
|
|
8,319 |
|
|
|
— |
|
|
|
10,511 |
|
|
|
229 |
|
|
|
02/07/08 |
|
|
|
1984 |
|
Las Cruces, NM |
|
|
3,809 |
|
|
|
1,584 |
|
|
|
4,043 |
|
|
|
— |
|
|
|
5,627 |
|
|
|
32 |
|
|
|
09/30/08 |
|
|
|
2002 |
|
Big 5 Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Aurora, CO |
|
|
2,804 |
|
|
|
1,265 |
|
|
|
2,827 |
|
|
|
— |
|
|
|
4,092 |
|
|
|
130 |
|
|
|
04/11/07 |
|
|
|
2006 |
|
BJ’s Wholesale: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Ft. Lauderdale, FL |
|
|
— |
|
|
|
10,920 |
|
|
|
14,762 |
|
|
|
— |
|
|
|
25,682 |
|
|
|
112 |
|
|
|
09/23/08 |
|
|
|
2007 |
|
Haverhill, MA |
|
|
12,247 |
|
|
|
5,497 |
|
|
|
13,904 |
|
|
|
— |
|
|
|
19,401 |
|
|
|
257 |
|
|
|
04/14/08 |
|
|
|
2006 |
|
Borders: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rapid City, SD |
|
|
4,393 |
|
|
|
1,589 |
|
|
|
1,951 |
|
|
|
— |
|
|
|
3,540 |
|
|
|
83 |
|
|
|
06/01/07 |
|
|
|
1999 |
|
Reading, PA |
|
|
4,257 |
|
|
|
2,128 |
|
|
|
3,186 |
|
|
|
— |
|
|
|
5,314 |
|
|
|
129 |
|
|
|
06/01/07 |
|
|
|
1997 |
|
Boscov’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voorhees, NJ |
|
|
— |
|
|
|
1,889 |
|
|
|
5,012 |
|
|
|
— |
|
|
|
6,901 |
|
|
|
122 |
|
|
|
02/07/08 |
|
|
|
1970 |
|
Bridgestone Tire: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta, GA |
|
|
1,456 |
|
|
|
1,623 |
|
|
|
977 |
|
|
|
— |
|
|
|
2,600 |
|
|
|
23 |
|
|
|
02/07/08 |
|
|
|
1998 |
|
Broadview Village Square: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Broadview , IL |
|
|
31,500 |
|
|
|
8,489 |
|
|
|
46,933 |
|
|
|
(3 |
) |
|
|
55,419 |
|
|
|
1,735 |
|
|
|
09/14/07 |
|
|
|
1994 |
|
Carmax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greenville, SC |
|
|
15,125 |
|
|
|
8,061 |
|
|
|
11,830 |
|
|
|
— |
|
|
|
19,891 |
|
|
|
291 |
|
|
|
01/25/08 |
|
|
|
1998 |
|
Pineville, NC |
|
|
5,826 |
|
|
|
6,980 |
|
|
|
4,014 |
|
|
|
— |
|
|
|
10,994 |
|
|
|
106 |
|
|
|
01/31/08 |
|
|
|
2002 |
|
Raleigh, NC |
|
|
5,414 |
|
|
|
4,000 |
|
|
|
7,669 |
|
|
|
— |
|
|
|
11,669 |
|
|
|
187 |
|
|
|
01/31/08 |
|
|
|
1994 |
|
Chambers Corner: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wayland, MI |
|
|
— |
|
|
|
1,608 |
|
|
|
7,277 |
|
|
|
37 |
|
|
|
8,922 |
|
|
|
280 |
|
|
|
09/19/07 |
|
|
|
2000 |
|
S-5
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Chili’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Paris, TX |
|
|
1,790 |
|
|
|
600 |
|
|
|
1,851 |
|
|
|
— |
|
|
|
2,451 |
|
|
|
103 |
|
|
|
12/28/06 |
|
|
|
1999 |
|
Fredericksburg, TX |
|
|
1,504 |
|
|
|
820 |
|
|
|
1,290 |
|
|
|
— |
|
|
|
2,110 |
|
|
|
57 |
|
|
|
06/05/07 |
|
|
|
1985 |
|
Church’s Chicken: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
191 Locations |
|
|
70,217 |
|
|
|
47,249 |
|
|
|
57,362 |
|
|
|
— |
|
|
|
104,611 |
|
|
|
363 |
|
|
|
10/31/08 |
|
|
|
Various |
|
Circle K: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Akron (1178
Arlington), OH |
|
|
714 |
|
|
|
434 |
|
|
|
834 |
|
|
|
— |
|
|
|
1,268 |
|
|
|
24 |
|
|
|
12/20/07 |
|
|
|
1994 |
|
Akron (1559
Market), OH |
|
|
714 |
|
|
|
539 |
|
|
|
832 |
|
|
|
8 |
|
|
|
1,379 |
|
|
|
23 |
|
|
|
12/20/07 |
|
|
|
1995 |
|
Akron (1693 West
Market), OH |
|
|
842 |
|
|
|
664 |
|
|
|
2,064 |
|
|
|
8 |
|
|
|
2,736 |
|
|
|
56 |
|
|
|
12/20/07 |
|
|
|
2000 |
|
Akron (940
Arlington), OH |
|
|
575 |
|
|
|
362 |
|
|
|
1,062 |
|
|
|
— |
|
|
|
1,424 |
|
|
|
30 |
|
|
|
12/20/07 |
|
|
|
1991 |
|
Akron (Albrecht), OH |
|
|
565 |
|
|
|
400 |
|
|
|
908 |
|
|
|
— |
|
|
|
1,308 |
|
|
|
25 |
|
|
|
12/20/07 |
|
|
|
1997 |
|
Akron (Brittain), OH |
|
|
634 |
|
|
|
345 |
|
|
|
1,005 |
|
|
|
8 |
|
|
|
1,358 |
|
|
|
29 |
|
|
|
12/20/07 |
|
|
|
1995 |
|
Akron (Brown), OH |
|
|
634 |
|
|
|
329 |
|
|
|
707 |
|
|
|
— |
|
|
|
1,036 |
|
|
|
21 |
|
|
|
12/20/07 |
|
|
|
1950 |
|
Akron (Cuyahoga), OH |
|
|
852 |
|
|
|
518 |
|
|
|
794 |
|
|
|
— |
|
|
|
1,312 |
|
|
|
23 |
|
|
|
12/20/07 |
|
|
|
1998 |
|
Akron (Darrow), OH |
|
|
634 |
|
|
|
544 |
|
|
|
849 |
|
|
|
8 |
|
|
|
1,401 |
|
|
|
24 |
|
|
|
12/20/07 |
|
|
|
1994 |
|
Akron (Exchange), OH |
|
|
743 |
|
|
|
559 |
|
|
|
900 |
|
|
|
— |
|
|
|
1,459 |
|
|
|
25 |
|
|
|
12/20/07 |
|
|
|
1996 |
|
Akron (Main), OH |
|
|
595 |
|
|
|
330 |
|
|
|
1,288 |
|
|
|
8 |
|
|
|
1,626 |
|
|
|
37 |
|
|
|
12/20/07 |
|
|
|
2000 |
|
Akron (Manchester),
OH |
|
|
833 |
|
|
|
304 |
|
|
|
945 |
|
|
|
— |
|
|
|
1,249 |
|
|
|
27 |
|
|
|
12/20/07 |
|
|
|
1994 |
|
Akron (Ridgewood),
OH |
|
|
634 |
|
|
|
435 |
|
|
|
386 |
|
|
|
— |
|
|
|
821 |
|
|
|
12 |
|
|
|
12/20/07 |
|
|
|
1969 |
|
Akron (Waterloo), OH |
|
|
624 |
|
|
|
385 |
|
|
|
1,019 |
|
|
|
— |
|
|
|
1,404 |
|
|
|
28 |
|
|
|
12/20/07 |
|
|
|
2001 |
|
Albuquerque, NM |
|
|
644 |
|
|
|
748 |
|
|
|
626 |
|
|
|
— |
|
|
|
1,374 |
|
|
|
17 |
|
|
|
12/20/07 |
|
|
|
1994 |
|
Auburn, AL |
|
|
813 |
|
|
|
693 |
|
|
|
1,045 |
|
|
|
— |
|
|
|
1,738 |
|
|
|
29 |
|
|
|
12/20/07 |
|
|
|
1990 |
|
Augusta, GA |
|
|
525 |
|
|
|
783 |
|
|
|
953 |
|
|
|
— |
|
|
|
1,736 |
|
|
|
27 |
|
|
|
12/20/07 |
|
|
|
1985 |
|
Barberton (31st
St), OH |
|
|
476 |
|
|
|
389 |
|
|
|
1,519 |
|
|
|
— |
|
|
|
1,908 |
|
|
|
42 |
|
|
|
12/20/07 |
|
|
|
1991 |
|
Barberton (5th
St.), OH |
|
|
624 |
|
|
|
283 |
|
|
|
1,067 |
|
|
|
— |
|
|
|
1,350 |
|
|
|
29 |
|
|
|
12/20/07 |
|
|
|
1996 |
|
Barberton
(Wooster), OH |
|
|
1,130 |
|
|
|
520 |
|
|
|
1,168 |
|
|
|
— |
|
|
|
1,688 |
|
|
|
32 |
|
|
|
12/20/07 |
|
|
|
2000 |
|
Baton Rouge
(Burbank), LA |
|
|
466 |
|
|
|
538 |
|
|
|
708 |
|
|
|
— |
|
|
|
1,246 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1976 |
|
Baton Rouge
(Floynell), LA |
|
|
664 |
|
|
|
551 |
|
|
|
686 |
|
|
|
— |
|
|
|
1,237 |
|
|
|
19 |
|
|
|
12/20/07 |
|
|
|
1977 |
|
S-6
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Circle K (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Baton Rouge
(Jefferson), LA |
|
|
505 |
|
|
|
770 |
|
|
|
600 |
|
|
|
— |
|
|
|
1,370 |
|
|
|
17 |
|
|
|
12/20/07 |
|
|
|
1970 |
|
Beaufort, SC |
|
|
823 |
|
|
|
745 |
|
|
|
663 |
|
|
|
— |
|
|
|
1,408 |
|
|
|
18 |
|
|
|
12/20/07 |
|
|
|
1997 |
|
Bedford, OH |
|
|
654 |
|
|
|
416 |
|
|
|
708 |
|
|
|
— |
|
|
|
1,124 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
2000 |
|
Bluffton , SC |
|
|
1,219 |
|
|
|
1,075 |
|
|
|
777 |
|
|
|
— |
|
|
|
1,852 |
|
|
|
22 |
|
|
|
12/20/07 |
|
|
|
1997 |
|
Bossier City, LA |
|
|
773 |
|
|
|
755 |
|
|
|
771 |
|
|
|
— |
|
|
|
1,526 |
|
|
|
21 |
|
|
|
12/20/07 |
|
|
|
1987 |
|
Brookpark, OH |
|
|
684 |
|
|
|
472 |
|
|
|
819 |
|
|
|
— |
|
|
|
1,291 |
|
|
|
22 |
|
|
|
12/20/07 |
|
|
|
1998 |
|
Canton (12th St.) ,
OH |
|
|
550 |
|
|
|
459 |
|
|
|
878 |
|
|
|
— |
|
|
|
1,337 |
|
|
|
26 |
|
|
|
12/20/07 |
|
|
|
1992 |
|
Canton (Tuscarwas),
OH |
|
|
1,120 |
|
|
|
730 |
|
|
|
1,339 |
|
|
|
— |
|
|
|
2,069 |
|
|
|
37 |
|
|
|
12/20/07 |
|
|
|
2000 |
|
Charleston, SC |
|
|
1,318 |
|
|
|
1,182 |
|
|
|
758 |
|
|
|
— |
|
|
|
1,940 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1987 |
|
Charlotte
(Independence), NC |
|
|
956 |
|
|
|
589 |
|
|
|
581 |
|
|
|
— |
|
|
|
1,170 |
|
|
|
16 |
|
|
|
12/20/07 |
|
|
|
1996 |
|
Charlotte (Sharon),
NC |
|
|
991 |
|
|
|
663 |
|
|
|
734 |
|
|
|
— |
|
|
|
1,397 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1997 |
|
Charlotte (Sugar
Creek), SC |
|
|
1,021 |
|
|
|
623 |
|
|
|
603 |
|
|
|
— |
|
|
|
1,226 |
|
|
|
17 |
|
|
|
12/20/07 |
|
|
|
1991 |
|
Cleveland , OH |
|
|
803 |
|
|
|
573 |
|
|
|
1,352 |
|
|
|
— |
|
|
|
1,925 |
|
|
|
38 |
|
|
|
12/20/07 |
|
|
|
2002 |
|
Columbia (Garners),
SC |
|
|
1,070 |
|
|
|
645 |
|
|
|
739 |
|
|
|
— |
|
|
|
1,384 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1993 |
|
Columbia
(Hardscrabble), SC |
|
|
892 |
|
|
|
587 |
|
|
|
777 |
|
|
|
— |
|
|
|
1,364 |
|
|
|
21 |
|
|
|
12/20/07 |
|
|
|
1997 |
|
Columbia (Lumpkin),
GA |
|
|
793 |
|
|
|
526 |
|
|
|
756 |
|
|
|
— |
|
|
|
1,282 |
|
|
|
22 |
|
|
|
12/20/07 |
|
|
|
1978 |
|
Columbus (Airport),
GA |
|
|
723 |
|
|
|
569 |
|
|
|
455 |
|
|
|
— |
|
|
|
1,024 |
|
|
|
13 |
|
|
|
12/20/07 |
|
|
|
1984 |
|
Columbus (Buena
Vista), GA |
|
|
763 |
|
|
|
576 |
|
|
|
623 |
|
|
|
— |
|
|
|
1,199 |
|
|
|
18 |
|
|
|
12/20/07 |
|
|
|
1990 |
|
Columbus (Warm
Springs), GA |
|
|
932 |
|
|
|
2,085 |
|
|
|
2,949 |
|
|
|
— |
|
|
|
5,034 |
|
|
|
80 |
|
|
|
12/20/07 |
|
|
|
1978 |
|
Columbus
(Whiteville), GA |
|
|
1,586 |
|
|
|
1,394 |
|
|
|
1,039 |
|
|
|
— |
|
|
|
2,433 |
|
|
|
28 |
|
|
|
12/20/07 |
|
|
|
1995 |
|
Copley, OH |
|
|
585 |
|
|
|
336 |
|
|
|
692 |
|
|
|
8 |
|
|
|
1,036 |
|
|
|
21 |
|
|
|
12/20/07 |
|
|
|
1993 |
|
Cuyahoga Falls
(Bath), OH |
|
|
1,031 |
|
|
|
472 |
|
|
|
1,287 |
|
|
|
— |
|
|
|
1,759 |
|
|
|
35 |
|
|
|
12/20/07 |
|
|
|
2002 |
|
Cuyahoga Falls
(Port), OH |
|
|
704 |
|
|
|
413 |
|
|
|
988 |
|
|
|
— |
|
|
|
1,401 |
|
|
|
28 |
|
|
|
12/20/07 |
|
|
|
1995 |
|
Cuyahoga Falls
(State), OH |
|
|
486 |
|
|
|
327 |
|
|
|
613 |
|
|
|
7 |
|
|
|
947 |
|
|
|
17 |
|
|
|
12/20/07 |
|
|
|
1972 |
|
El Paso (Americas),
TX |
|
|
1,160 |
|
|
|
696 |
|
|
|
1,272 |
|
|
|
— |
|
|
|
1,968 |
|
|
|
36 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
El Paso (Mesa), TX |
|
|
605 |
|
|
|
684 |
|
|
|
821 |
|
|
|
— |
|
|
|
1,505 |
|
|
|
23 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
S-7
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Circle K (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
El Paso (Zaragosa),
TX |
|
|
1,080 |
|
|
|
967 |
|
|
|
764 |
|
|
|
— |
|
|
|
1,731 |
|
|
|
21 |
|
|
|
12/20/07 |
|
|
|
1998 |
|
Fairlawn, OH |
|
|
793 |
|
|
|
480 |
|
|
|
818 |
|
|
|
— |
|
|
|
1,298 |
|
|
|
23 |
|
|
|
12/20/07 |
|
|
|
1993 |
|
Fort Mill, SC |
|
|
1,229 |
|
|
|
1,207 |
|
|
|
2,007 |
|
|
|
— |
|
|
|
3,214 |
|
|
|
54 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
Goose Creek, SC |
|
|
664 |
|
|
|
671 |
|
|
|
578 |
|
|
|
— |
|
|
|
1,249 |
|
|
|
16 |
|
|
|
12/20/07 |
|
|
|
1983 |
|
Huntersville, NC |
|
|
1,021 |
|
|
|
680 |
|
|
|
716 |
|
|
|
— |
|
|
|
1,396 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1996 |
|
Kent, OH |
|
|
496 |
|
|
|
223 |
|
|
|
678 |
|
|
|
— |
|
|
|
901 |
|
|
|
19 |
|
|
|
12/20/07 |
|
|
|
1994 |
|
Lanett, AL |
|
|
451 |
|
|
|
1,645 |
|
|
|
4,693 |
|
|
|
— |
|
|
|
6,338 |
|
|
|
135 |
|
|
|
12/20/07 |
|
|
|
1974 |
|
Macon (Arkwright),
GA |
|
|
555 |
|
|
|
422 |
|
|
|
675 |
|
|
|
— |
|
|
|
1,097 |
|
|
|
19 |
|
|
|
12/20/07 |
|
|
|
1993 |
|
Macon (Riverside),
GA |
|
|
595 |
|
|
|
588 |
|
|
|
625 |
|
|
|
— |
|
|
|
1,213 |
|
|
|
18 |
|
|
|
12/20/07 |
|
|
|
1974 |
|
Maple Heights, OH |
|
|
753 |
|
|
|
524 |
|
|
|
1,052 |
|
|
|
— |
|
|
|
1,576 |
|
|
|
30 |
|
|
|
12/20/07 |
|
|
|
1998 |
|
Martinez, GA |
|
|
624 |
|
|
|
506 |
|
|
|
702 |
|
|
|
— |
|
|
|
1,208 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1986 |
|
Midland (Beaver
Run), GA |
|
|
1,229 |
|
|
|
1,066 |
|
|
|
1,099 |
|
|
|
— |
|
|
|
2,165 |
|
|
|
31 |
|
|
|
12/20/07 |
|
|
|
1995 |
|
Mobile (Airport) ,
AL |
|
|
852 |
|
|
|
516 |
|
|
|
651 |
|
|
|
— |
|
|
|
1,167 |
|
|
|
19 |
|
|
|
12/20/07 |
|
|
|
1987 |
|
Mobile (Moffett) ,
AL |
|
|
649 |
|
|
|
475 |
|
|
|
374 |
|
|
|
— |
|
|
|
849 |
|
|
|
11 |
|
|
|
12/20/07 |
|
|
|
1988 |
|
Mount Pleasant, SC |
|
|
743 |
|
|
|
616 |
|
|
|
631 |
|
|
|
— |
|
|
|
1,247 |
|
|
|
18 |
|
|
|
12/20/07 |
|
|
|
1978 |
|
North Augusta, SC |
|
|
585 |
|
|
|
380 |
|
|
|
678 |
|
|
|
— |
|
|
|
1,058 |
|
|
|
19 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
North Monroe, LA |
|
|
773 |
|
|
|
816 |
|
|
|
1,375 |
|
|
|
— |
|
|
|
2,191 |
|
|
|
37 |
|
|
|
12/20/07 |
|
|
|
1986 |
|
Northfield , OH |
|
|
981 |
|
|
|
829 |
|
|
|
1,564 |
|
|
|
— |
|
|
|
2,393 |
|
|
|
42 |
|
|
|
12/20/07 |
|
|
|
1983 |
|
Norton, OH |
|
|
723 |
|
|
|
374 |
|
|
|
1,430 |
|
|
|
— |
|
|
|
1,804 |
|
|
|
40 |
|
|
|
12/20/07 |
|
|
|
2001 |
|
Opelika (2nd
Avenue), AL |
|
|
624 |
|
|
|
778 |
|
|
|
1,590 |
|
|
|
— |
|
|
|
2,368 |
|
|
|
44 |
|
|
|
12/20/07 |
|
|
|
1989 |
|
Opelika (Columbus),
AL |
|
|
1,150 |
|
|
|
829 |
|
|
|
968 |
|
|
|
— |
|
|
|
1,797 |
|
|
|
29 |
|
|
|
12/20/07 |
|
|
|
1988 |
|
Parma, OH |
|
|
664 |
|
|
|
451 |
|
|
|
1,052 |
|
|
|
— |
|
|
|
1,503 |
|
|
|
29 |
|
|
|
12/20/07 |
|
|
|
2002 |
|
Phenix City, AL |
|
|
813 |
|
|
|
674 |
|
|
|
1,148 |
|
|
|
— |
|
|
|
1,822 |
|
|
|
32 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
Pine Mountain, GA |
|
|
595 |
|
|
|
744 |
|
|
|
3,016 |
|
|
|
— |
|
|
|
3,760 |
|
|
|
82 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
Port Wentworth, GA |
|
|
1,140 |
|
|
|
945 |
|
|
|
861 |
|
|
|
— |
|
|
|
1,806 |
|
|
|
26 |
|
|
|
12/20/07 |
|
|
|
1991 |
|
Savannah (Johnny
Mercer), GA |
|
|
733 |
|
|
|
551 |
|
|
|
480 |
|
|
|
— |
|
|
|
1,031 |
|
|
|
14 |
|
|
|
12/20/07 |
|
|
|
1990 |
|
Savannah (King
George), GA |
|
|
793 |
|
|
|
816 |
|
|
|
712 |
|
|
|
— |
|
|
|
1,528 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1997 |
|
S-8
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Circle K (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Seville, OH |
|
|
1,288 |
|
|
|
642 |
|
|
|
1,989 |
|
|
|
7 |
|
|
|
2,638 |
|
|
|
54 |
|
|
|
12/20/07 |
|
|
|
2003 |
|
Shreveport , LA |
|
|
614 |
|
|
|
517 |
|
|
|
1,074 |
|
|
|
— |
|
|
|
1,591 |
|
|
|
29 |
|
|
|
12/20/07 |
|
|
|
1988 |
|
Springdale, SC |
|
|
852 |
|
|
|
368 |
|
|
|
609 |
|
|
|
— |
|
|
|
977 |
|
|
|
17 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
Twinsburg, OH |
|
|
684 |
|
|
|
409 |
|
|
|
1,146 |
|
|
|
— |
|
|
|
1,555 |
|
|
|
33 |
|
|
|
12/20/07 |
|
|
|
1984 |
|
Valley, AL |
|
|
793 |
|
|
|
512 |
|
|
|
733 |
|
|
|
— |
|
|
|
1,245 |
|
|
|
20 |
|
|
|
12/20/07 |
|
|
|
1974 |
|
West Monroe (1602),
LA |
|
|
842 |
|
|
|
538 |
|
|
|
1,127 |
|
|
|
— |
|
|
|
1,665 |
|
|
|
31 |
|
|
|
12/20/07 |
|
|
|
1999 |
|
West Monroe (503),
LA |
|
|
743 |
|
|
|
918 |
|
|
|
660 |
|
|
|
— |
|
|
|
1,578 |
|
|
|
18 |
|
|
|
12/20/07 |
|
|
|
1983 |
|
Willoughby, OH |
|
|
605 |
|
|
|
390 |
|
|
|
1,001 |
|
|
|
— |
|
|
|
1,391 |
|
|
|
27 |
|
|
|
12/20/07 |
|
|
|
1986 |
|
Circuit City: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mesquite, TX |
|
|
4,305 |
|
|
|
1,094 |
|
|
|
6,687 |
|
|
|
— |
|
|
|
7,781 |
|
|
|
263 |
|
|
|
06/29/07 |
|
|
|
1996 |
|
Taunton, MA |
|
|
4,323 |
|
|
|
2,219 |
|
|
|
6,314 |
|
|
|
— |
|
|
|
8,533 |
|
|
|
252 |
|
|
|
07/13/07 |
|
|
|
2001 |
|
Groveland, FL |
|
|
20,250 |
|
|
|
4,990 |
|
|
|
24,740 |
|
|
|
— |
|
|
|
29,730 |
|
|
|
919 |
|
|
|
07/17/07 |
|
|
|
1991 |
|
Aurora, CO |
|
|
4,777 |
|
|
|
1,763 |
|
|
|
4,295 |
|
|
|
3 |
|
|
|
6,061 |
|
|
|
155 |
|
|
|
08/22/07 |
|
|
|
1995 |
|
Kennesaw, GA |
|
|
11,769 |
|
|
|
2,242 |
|
|
|
18,075 |
|
|
|
— |
|
|
|
20,317 |
|
|
|
523 |
|
|
|
01/31/08 |
|
|
|
1998 |
|
Conns: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
San Antonio, TX |
|
|
2,461 |
|
|
|
1,026 |
|
|
|
3,055 |
|
|
|
— |
|
|
|
4,081 |
|
|
|
214 |
|
|
|
05/26/06 |
|
|
|
2002 |
|
Convergys: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Cruces, NM |
|
|
5,031 |
|
|
|
1,740 |
|
|
|
5,785 |
|
|
|
— |
|
|
|
7,525 |
|
|
|
95 |
|
|
|
06/02/08 |
|
|
|
1983 |
|
Coral Walk: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cape Coral, FL |
|
|
— |
|
|
|
7,737 |
|
|
|
20,708 |
|
|
|
— |
|
|
|
28,445 |
|
|
|
372 |
|
|
|
06/12/08 |
|
|
|
2007 |
|
Cost-U-Less: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
St. Croix, USVI |
|
|
4,035 |
|
|
|
706 |
|
|
|
4,472 |
|
|
|
— |
|
|
|
5,178 |
|
|
|
212 |
|
|
|
03/26/07 |
|
|
|
2005 |
|
Cumming Town Center: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cumming, GA |
|
|
33,700 |
|
|
|
13,555 |
|
|
|
48,146 |
|
|
|
— |
|
|
|
61,701 |
|
|
|
605 |
|
|
|
07/11/08 |
|
|
|
2007 |
|
CVS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpharetta, GA |
|
|
2,015 |
|
|
|
1,214 |
|
|
|
1,693 |
|
|
|
— |
|
|
|
2,907 |
|
|
|
147 |
|
|
|
12/01/05 |
|
|
|
1998 |
|
Richland Hills, TX |
|
|
2,379 |
|
|
|
1,141 |
|
|
|
2,302 |
|
|
|
— |
|
|
|
3,443 |
|
|
|
186 |
|
|
|
12/08/05 |
|
|
|
1997 |
|
Portsmouth (Scioto
Trail), OH |
|
|
1,424 |
|
|
|
561 |
|
|
|
1,639 |
|
|
|
169 |
|
|
|
2,369 |
|
|
|
139 |
|
|
|
03/08/06 |
|
|
|
1997 |
|
Lakewood, OH |
|
|
1,348 |
|
|
|
552 |
|
|
|
1,225 |
|
|
|
81 |
|
|
|
1,858 |
|
|
|
116 |
|
|
|
04/19/06 |
|
|
|
1996 |
|
Madison, MS |
|
|
2,809 |
|
|
|
1,068 |
|
|
|
2,835 |
|
|
|
— |
|
|
|
3,903 |
|
|
|
207 |
|
|
|
05/26/06 |
|
|
|
2004 |
|
Portsmouth, OH |
|
|
— |
|
|
|
328 |
|
|
|
1,862 |
|
|
|
193 |
|
|
|
2,383 |
|
|
|
150 |
|
|
|
06/28/06 |
|
|
|
1997 |
|
S-9
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
CVS (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Okeechobee, FL |
|
|
4,076 |
|
|
|
1,623 |
|
|
|
3,563 |
|
|
|
— |
|
|
|
5,186 |
|
|
|
237 |
|
|
|
07/07/06 |
|
|
|
2001 |
|
Orlando, FL |
|
|
3,016 |
|
|
|
2,125 |
|
|
|
2,213 |
|
|
|
— |
|
|
|
4,338 |
|
|
|
152 |
|
|
|
07/12/06 |
|
|
|
2005 |
|
Gulfport, MS |
|
|
2,611 |
|
|
|
1,231 |
|
|
|
2,483 |
|
|
|
— |
|
|
|
3,714 |
|
|
|
160 |
|
|
|
08/10/06 |
|
|
|
2000 |
|
Clinton, NY |
|
|
1,983 |
|
|
|
684 |
|
|
|
2,014 |
|
|
|
— |
|
|
|
2,698 |
|
|
|
126 |
|
|
|
08/24/06 |
|
|
|
2006 |
|
Glenville Scotia, NY |
|
|
3,413 |
|
|
|
1,601 |
|
|
|
2,928 |
|
|
|
— |
|
|
|
4,529 |
|
|
|
164 |
|
|
|
11/16/06 |
|
|
|
2006 |
|
Florence, SC |
|
|
1,706 |
|
|
|
771 |
|
|
|
1,803 |
|
|
|
— |
|
|
|
2,574 |
|
|
|
80 |
|
|
|
05/17/07 |
|
|
|
1998 |
|
Indianapolis, IN |
|
|
2,221 |
|
|
|
1,077 |
|
|
|
2,238 |
|
|
|
— |
|
|
|
3,315 |
|
|
|
50 |
|
|
|
02/07/08 |
|
|
|
1998 |
|
Onley, VA |
|
|
3,350 |
|
|
|
1,584 |
|
|
|
3,156 |
|
|
|
— |
|
|
|
4,740 |
|
|
|
52 |
|
|
|
05/08/08 |
|
|
|
2007 |
|
Columbia (I), TN |
|
|
1,715 |
|
|
|
1,090 |
|
|
|
1,752 |
|
|
|
— |
|
|
|
2,842 |
|
|
|
15 |
|
|
|
09/30/08 |
|
|
|
1998 |
|
Columbia (II), TN |
|
|
1,735 |
|
|
|
1,205 |
|
|
|
1,579 |
|
|
|
— |
|
|
|
2,784 |
|
|
|
13 |
|
|
|
09/30/08 |
|
|
|
1998 |
|
Hamilton, OH |
|
|
— |
|
|
|
917 |
|
|
|
1,682 |
|
|
|
— |
|
|
|
2,599 |
|
|
|
13 |
|
|
|
09/30/08 |
|
|
|
1999 |
|
Mechanicsville, NY |
|
|
— |
|
|
|
415 |
|
|
|
2,104 |
|
|
|
— |
|
|
|
2,519 |
|
|
|
16 |
|
|
|
09/30/08 |
|
|
|
1997 |
|
Atlanta, GA |
|
|
— |
|
|
|
910 |
|
|
|
2,450 |
|
|
|
— |
|
|
|
3,360 |
|
|
|
14 |
|
|
|
10/07/08 |
|
|
|
2006 |
|
Carrollton, TX |
|
|
— |
|
|
|
542 |
|
|
|
1,428 |
|
|
|
— |
|
|
|
1,970 |
|
|
|
2 |
|
|
|
12/23/08 |
|
|
|
1995 |
|
Kissimmee, FL |
|
|
— |
|
|
|
810 |
|
|
|
1,607 |
|
|
|
— |
|
|
|
2,417 |
|
|
|
2 |
|
|
|
12/23/08 |
|
|
|
1995 |
|
Lake Worth, TX |
|
|
— |
|
|
|
474 |
|
|
|
1,323 |
|
|
|
— |
|
|
|
1,797 |
|
|
|
2 |
|
|
|
12/23/08 |
|
|
|
1996 |
|
Richardson, TX |
|
|
— |
|
|
|
476 |
|
|
|
1,769 |
|
|
|
— |
|
|
|
2,245 |
|
|
|
2 |
|
|
|
12/23/08 |
|
|
|
1996 |
|
River Oaks, TX |
|
|
— |
|
|
|
819 |
|
|
|
1,711 |
|
|
|
— |
|
|
|
2,530 |
|
|
|
2 |
|
|
|
12/23/08 |
|
|
|
1996 |
|
The Colony, TX |
|
|
— |
|
|
|
460 |
|
|
|
1,422 |
|
|
|
— |
|
|
|
1,882 |
|
|
|
2 |
|
|
|
12/23/08 |
|
|
|
1996 |
|
Wichita Falls (SW),
TX |
|
|
— |
|
|
|
451 |
|
|
|
1,655 |
|
|
|
— |
|
|
|
2,106 |
|
|
|
2 |
|
|
|
12/23/08 |
|
|
|
1996 |
|
Wichita Falls, TX |
|
|
— |
|
|
|
471 |
|
|
|
1,276 |
|
|
|
— |
|
|
|
1,747 |
|
|
|
1 |
|
|
|
12/23/08 |
|
|
|
1995 |
|
Dave and Buster’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Addison, IL |
|
|
5,600 |
|
|
|
5,837 |
|
|
|
6,810 |
|
|
|
— |
|
|
|
12,647 |
|
|
|
272 |
|
|
|
07/19/07 |
|
|
|
2006 |
|
David’s Bridal: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lenexa, KS |
|
|
1,799 |
|
|
|
766 |
|
|
|
2,197 |
|
|
|
— |
|
|
|
2,963 |
|
|
|
221 |
|
|
|
01/11/06 |
|
|
|
2005 |
|
Topeka, KS |
|
|
2,000 |
|
|
|
569 |
|
|
|
2,193 |
|
|
|
— |
|
|
|
2,762 |
|
|
|
165 |
|
|
|
10/13/06 |
|
|
|
2006 |
|
Dickinson Theater: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Yukon, OK |
|
|
— |
|
|
|
980 |
|
|
|
3,403 |
|
|
|
— |
|
|
|
4,383 |
|
|
|
127 |
|
|
|
07/17/07 |
|
|
|
2007 |
|
S-10
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Dick’s Sporting Goods: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amherst, NY |
|
|
6,321 |
|
|
|
3,147 |
|
|
|
6,084 |
|
|
|
864 |
|
|
|
10,095 |
|
|
|
399 |
|
|
|
12/20/06 |
|
|
|
1986 |
|
Dollar General: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossville, TN |
|
|
1,950 |
|
|
|
647 |
|
|
|
2,088 |
|
|
|
— |
|
|
|
2,735 |
|
|
|
156 |
|
|
|
06/02/06 |
|
|
|
2006 |
|
Ardmore, TN |
|
|
1,804 |
|
|
|
735 |
|
|
|
1,839 |
|
|
|
— |
|
|
|
2,574 |
|
|
|
136 |
|
|
|
06/09/06 |
|
|
|
2005 |
|
Livingston, TN |
|
|
1,856 |
|
|
|
899 |
|
|
|
1,687 |
|
|
|
— |
|
|
|
2,586 |
|
|
|
127 |
|
|
|
06/12/06 |
|
|
|
2006 |
|
Drexel Heritage: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hickory, NC |
|
|
2,763 |
|
|
|
394 |
|
|
|
3,622 |
|
|
|
— |
|
|
|
4,016 |
|
|
|
569 |
|
|
|
02/24/06 |
|
|
|
1963 |
|
Eckerd: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lincolnton, NC |
|
|
1,538 |
|
|
|
557 |
|
|
|
2,131 |
|
|
|
— |
|
|
|
2,688 |
|
|
|
95 |
|
|
|
04/03/07 |
|
|
|
1998 |
|
Easton, PA |
|
|
4,060 |
|
|
|
2,308 |
|
|
|
3,411 |
|
|
|
— |
|
|
|
5,719 |
|
|
|
148 |
|
|
|
04/25/07 |
|
|
|
2005 |
|
Spartanburg, SC |
|
|
2,259 |
|
|
|
1,368 |
|
|
|
1,791 |
|
|
|
— |
|
|
|
3,159 |
|
|
|
79 |
|
|
|
05/17/07 |
|
|
|
1998 |
|
EDS Information Systems: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Salt Lake City, UT |
|
|
18,000 |
|
|
|
2,283 |
|
|
|
19,796 |
|
|
|
— |
|
|
|
22,079 |
|
|
|
736 |
|
|
|
07/17/07 |
|
|
|
1999 |
|
Federal Express: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Rockford, IL |
|
|
3,998 |
|
|
|
1,469 |
|
|
|
3,669 |
|
|
|
— |
|
|
|
5,138 |
|
|
|
322 |
|
|
|
12/09/05 |
|
|
|
1994 |
|
Council Bluffs, IA |
|
|
2,185 |
|
|
|
530 |
|
|
|
1,845 |
|
|
|
— |
|
|
|
2,375 |
|
|
|
107 |
|
|
|
11/15/06 |
|
|
|
1999 |
|
Edwardsville, KS |
|
|
12,880 |
|
|
|
1,693 |
|
|
|
15,439 |
|
|
|
— |
|
|
|
17,132 |
|
|
|
881 |
|
|
|
11/15/06 |
|
|
|
1999 |
|
Peoria, IL |
|
|
2,080 |
|
|
|
337 |
|
|
|
2,629 |
|
|
|
— |
|
|
|
2,966 |
|
|
|
98 |
|
|
|
07/20/07 |
|
|
|
1997 |
|
Walker, MI |
|
|
4,669 |
|
|
|
1,387 |
|
|
|
4,424 |
|
|
|
4 |
|
|
|
5,815 |
|
|
|
156 |
|
|
|
08/08/07 |
|
|
|
2001 |
|
Mishawaka, IN |
|
|
2,324 |
|
|
|
303 |
|
|
|
3,356 |
|
|
|
— |
|
|
|
3,659 |
|
|
|
77 |
|
|
|
02/07/08 |
|
|
|
1993 |
|
Huntsville, Al |
|
|
— |
|
|
|
1,576 |
|
|
|
8,252 |
|
|
|
— |
|
|
|
9,828 |
|
|
|
61 |
|
|
|
09/30/08 |
|
|
|
2008 |
|
Baton Rouge, LA |
|
|
— |
|
|
|
1,822 |
|
|
|
6,332 |
|
|
|
— |
|
|
|
8,154 |
|
|
|
33 |
|
|
|
10/03/08 |
|
|
|
2008 |
|
Ferguson Enterprises: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auburn, AL |
|
|
— |
|
|
|
663 |
|
|
|
1,401 |
|
|
|
— |
|
|
|
2,064 |
|
|
|
14 |
|
|
|
08/21/08 |
|
|
|
2007 |
|
Charlotte, NC |
|
|
1,371 |
|
|
|
2,347 |
|
|
|
7,782 |
|
|
|
— |
|
|
|
10,129 |
|
|
|
81 |
|
|
|
08/21/08 |
|
|
|
2007 |
|
Cohasset, MN |
|
|
— |
|
|
|
65 |
|
|
|
1,221 |
|
|
|
— |
|
|
|
1,286 |
|
|
|
12 |
|
|
|
08/21/08 |
|
|
|
2007 |
|
Front Royal, VA |
|
|
26,549 |
|
|
|
3,475 |
|
|
|
38,699 |
|
|
|
— |
|
|
|
42,174 |
|
|
|
382 |
|
|
|
08/21/08 |
|
|
|
2007 |
|
Ocala, FL |
|
|
4,080 |
|
|
|
650 |
|
|
|
6,207 |
|
|
|
— |
|
|
|
6,857 |
|
|
|
63 |
|
|
|
08/21/08 |
|
|
|
2006 |
|
Powhatan, VA |
|
|
— |
|
|
|
522 |
|
|
|
4,712 |
|
|
|
— |
|
|
|
5,234 |
|
|
|
46 |
|
|
|
08/21/08 |
|
|
|
2007 |
|
Salisbury, MD |
|
|
— |
|
|
|
773 |
|
|
|
8,016 |
|
|
|
— |
|
|
|
8,789 |
|
|
|
78 |
|
|
|
08/21/08 |
|
|
|
2007 |
|
Shallotte, NC |
|
|
— |
|
|
|
594 |
|
|
|
1,717 |
|
|
|
— |
|
|
|
2,311 |
|
|
|
17 |
|
|
|
08/21/08 |
|
|
|
2006 |
|
S-11
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Gallina Centro: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Collierville, TN |
|
|
14,200 |
|
|
|
5,669 |
|
|
|
10,347 |
|
|
|
— |
|
|
|
16,016 |
|
|
|
522 |
|
|
|
03/26/07 |
|
|
|
2000 |
|
Gold’s Gym: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
O’Fallon, IL |
|
|
3,650 |
|
|
|
1,407 |
|
|
|
5,253 |
|
|
|
— |
|
|
|
6,660 |
|
|
|
361 |
|
|
|
09/29/06 |
|
|
|
2005 |
|
St. Peters, MO |
|
|
5,179 |
|
|
|
2,338 |
|
|
|
4,428 |
|
|
|
— |
|
|
|
6,766 |
|
|
|
172 |
|
|
|
07/31/07 |
|
|
|
2007 |
|
O’Fallon, MS |
|
|
5,425 |
|
|
|
3,120 |
|
|
|
3,992 |
|
|
|
— |
|
|
|
7,112 |
|
|
|
156 |
|
|
|
08/29/07 |
|
|
|
2007 |
|
Gordman’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Peoria, IL |
|
|
4,950 |
|
|
|
1,558 |
|
|
|
6,674 |
|
|
|
— |
|
|
|
8,232 |
|
|
|
344 |
|
|
|
01/18/07 |
|
|
|
2006 |
|
Gregg Appliances: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Greensboro, NC |
|
|
— |
|
|
|
2,412 |
|
|
|
3,931 |
|
|
|
(366 |
) |
|
|
5,977 |
|
|
|
96 |
|
|
|
01/11/08 |
|
|
|
2007 |
|
Grove City, OH |
|
|
— |
|
|
|
987 |
|
|
|
4,477 |
|
|
|
— |
|
|
|
5,464 |
|
|
|
40 |
|
|
|
09/17/08 |
|
|
|
2008 |
|
Mt Juliet, TN |
|
|
— |
|
|
|
2,088 |
|
|
|
3,638 |
|
|
|
— |
|
|
|
5,726 |
|
|
|
31 |
|
|
|
09/23/08 |
|
|
|
2008 |
|
Hilltop Plaza: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bridgeton, MO |
|
|
— |
|
|
|
8,012 |
|
|
|
13,342 |
|
|
|
— |
|
|
|
21,354 |
|
|
|
314 |
|
|
|
02/06/08 |
|
|
|
1991 |
|
HOM Furniture: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fargo, ND |
|
|
4,800 |
|
|
|
1,155 |
|
|
|
9,779 |
|
|
|
— |
|
|
|
10,934 |
|
|
|
523 |
|
|
|
01/04/07 |
|
|
|
2004 |
|
Home Depot: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bedford Park, IL |
|
|
— |
|
|
|
9,024 |
|
|
|
20,877 |
|
|
|
— |
|
|
|
29,901 |
|
|
|
744 |
|
|
|
08/21/07 |
|
|
|
1992 |
|
Lakewood, CO |
|
|
7,978 |
|
|
|
9,367 |
|
|
|
— |
|
|
|
— |
|
|
|
9,367 |
|
|
|
— |
|
|
|
08/27/08 |
|
|
|
2006 |
|
Colma, CA |
|
|
21,613 |
|
|
|
17,636 |
|
|
|
20,114 |
|
|
|
— |
|
|
|
37,750 |
|
|
|
148 |
|
|
|
09/30/08 |
|
|
|
1995 |
|
Infiniti: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Davie, FL |
|
|
5,188 |
|
|
|
3,076 |
|
|
|
5,410 |
|
|
|
— |
|
|
|
8,486 |
|
|
|
325 |
|
|
|
11/30/06 |
|
|
|
2006 |
|
Jo-Ann Fabrics: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alpharetta, GA |
|
|
— |
|
|
|
2,578 |
|
|
|
3,682 |
|
|
|
— |
|
|
|
6,260 |
|
|
|
46 |
|
|
|
08/05/08 |
|
|
|
2000 |
|
Kohl’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wichita, KS |
|
|
5,200 |
|
|
|
1,798 |
|
|
|
6,200 |
|
|
|
618 |
|
|
|
8,616 |
|
|
|
413 |
|
|
|
09/27/06 |
|
|
|
1996 |
|
Lake Zurich, IL |
|
|
9,075 |
|
|
|
1,854 |
|
|
|
10,086 |
|
|
|
— |
|
|
|
11,940 |
|
|
|
388 |
|
|
|
07/17/07 |
|
|
|
2000 |
|
Grand Forks, ND |
|
|
5,080 |
|
|
|
1,855 |
|
|
|
5,680 |
|
|
|
— |
|
|
|
7,535 |
|
|
|
82 |
|
|
|
06/11/08 |
|
|
|
2006 |
|
Kroger: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
LaGrange, GA |
|
|
4,750 |
|
|
|
1,101 |
|
|
|
6,032 |
|
|
|
176 |
|
|
|
7,309 |
|
|
|
243 |
|
|
|
06/28/07 |
|
|
|
1998 |
|
LA Fitness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brooklyn Park, MN |
|
|
6,049 |
|
|
|
1,963 |
|
|
|
7,460 |
|
|
|
— |
|
|
|
9,423 |
|
|
|
106 |
|
|
|
06/17/08 |
|
|
|
2008 |
|
Matteson, IL |
|
|
6,122 |
|
|
|
2,628 |
|
|
|
6,474 |
|
|
|
— |
|
|
|
9,102 |
|
|
|
89 |
|
|
|
07/16/08 |
|
|
|
2007 |
|
Greenwood, IN |
|
|
— |
|
|
|
2,233 |
|
|
|
7,670 |
|
|
|
— |
|
|
|
9,903 |
|
|
|
81 |
|
|
|
08/05/08 |
|
|
|
2007 |
|
S-12
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
La-Z-Boy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Glendale, AZ |
|
|
3,415 |
|
|
|
2,515 |
|
|
|
2,968 |
|
|
|
— |
|
|
|
5,483 |
|
|
|
267 |
|
|
|
10/25/05 |
|
|
|
2001 |
|
Newington, CT |
|
|
4,140 |
|
|
|
1,466 |
|
|
|
4,979 |
|
|
|
— |
|
|
|
6,445 |
|
|
|
248 |
|
|
|
01/05/07 |
|
|
|
2006 |
|
Kentwood, MI |
|
|
3,602 |
|
|
|
1,442 |
|
|
|
3,702 |
|
|
|
— |
|
|
|
5,144 |
|
|
|
164 |
|
|
|
06/28/07 |
|
|
|
1986 |
|
Lincoln Place: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairview Heights, IL |
|
|
35,432 |
|
|
|
6,010 |
|
|
|
36,738 |
|
|
|
468 |
|
|
|
43,216 |
|
|
|
1,679 |
|
|
|
04/05/07 |
|
|
|
1998 |
|
Logan’s Roadhouse: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairfax, VA |
|
|
1,605 |
|
|
|
1,527 |
|
|
|
1,414 |
|
|
|
— |
|
|
|
2,941 |
|
|
|
67 |
|
|
|
03/28/07 |
|
|
|
1998 |
|
Johnson City, TN |
|
|
1,933 |
|
|
|
1,280 |
|
|
|
1,794 |
|
|
|
— |
|
|
|
3,074 |
|
|
|
84 |
|
|
|
03/28/07 |
|
|
|
1996 |
|
Long John Silvers: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX |
|
|
— |
|
|
|
965 |
|
|
|
— |
|
|
|
120 |
|
|
|
1,085 |
|
|
|
4 |
|
|
|
07/19/07 |
|
|
|
2004 |
|
Lowe’s: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Enterprise, AL |
|
|
4,859 |
|
|
|
1,012 |
|
|
|
5,803 |
|
|
|
— |
|
|
|
6,815 |
|
|
|
503 |
|
|
|
12/01/05 |
|
|
|
1995 |
|
Lubbock, TX |
|
|
7,475 |
|
|
|
4,581 |
|
|
|
6,563 |
|
|
|
— |
|
|
|
11,144 |
|
|
|
431 |
|
|
|
09/27/06 |
|
|
|
1996 |
|
Midland, TX |
|
|
7,150 |
|
|
|
3,525 |
|
|
|
7,332 |
|
|
|
— |
|
|
|
10,857 |
|
|
|
476 |
|
|
|
09/27/06 |
|
|
|
1996 |
|
Cincinnati, OH |
|
|
13,800 |
|
|
|
5,592 |
|
|
|
11,319 |
|
|
|
— |
|
|
|
16,911 |
|
|
|
452 |
|
|
|
07/17/07 |
|
|
|
1998 |
|
Chester, NY |
|
|
— |
|
|
|
5,704 |
|
|
|
— |
|
|
|
— |
|
|
|
5,704 |
|
|
|
— |
|
|
|
09/19/08 |
|
|
|
2008 |
|
Market Pointe: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Papillion, NE |
|
|
— |
|
|
|
11,626 |
|
|
|
12,882 |
|
|
|
— |
|
|
|
24,508 |
|
|
|
195 |
|
|
|
06/20/08 |
|
|
|
2007 |
|
Marsh Supermarket: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indianapolis, IN |
|
|
8,503 |
|
|
|
1,842 |
|
|
|
10,764 |
|
|
|
— |
|
|
|
12,606 |
|
|
|
244 |
|
|
|
02/07/08 |
|
|
|
1999 |
|
Massard Farms
Fort Smith, AR |
|
|
10,133 |
|
|
|
4,295 |
|
|
|
10,755 |
|
|
|
— |
|
|
|
15,050 |
|
|
|
357 |
|
|
|
10/11/07 |
|
|
|
2001 |
|
Mealey’s Furniture: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Maple Shade, NJ |
|
|
— |
|
|
|
1,716 |
|
|
|
3,907 |
|
|
|
821 |
|
|
|
6,444 |
|
|
|
133 |
|
|
|
12/12/07 |
|
|
|
2007 |
|
Mercedes Benz: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Atlanta, GA |
|
|
— |
|
|
|
2,623 |
|
|
|
7,208 |
|
|
|
— |
|
|
|
9,831 |
|
|
|
375 |
|
|
|
12/15/06 |
|
|
|
2000 |
|
Milford Commons: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Milford, CT |
|
|
5,708 |
|
|
|
7,525 |
|
|
|
4,257 |
|
|
|
— |
|
|
|
11,782 |
|
|
|
177 |
|
|
|
01/17/08 |
|
|
|
2005 |
|
Mountainside Fitness: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chandler, AZ |
|
|
— |
|
|
|
1,177 |
|
|
|
4,480 |
|
|
|
— |
|
|
|
5,657 |
|
|
|
425 |
|
|
|
02/09/06 |
|
|
|
2001 |
|
Mustang Engineering: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX |
|
|
11,181 |
|
|
|
1,859 |
|
|
|
16,198 |
|
|
|
— |
|
|
|
18,057 |
|
|
|
487 |
|
|
|
01/31/08 |
|
|
|
1983 |
|
S-13
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Northern Tool & Equipment: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Blaine, MN |
|
|
3,185 |
|
|
|
2,233 |
|
|
|
2,432 |
|
|
|
— |
|
|
|
4,665 |
|
|
|
133 |
|
|
|
02/28/07 |
|
|
|
2006 |
|
O’Reilly Auto Parts: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX |
|
|
3,290 |
|
|
|
1,896 |
|
|
|
2,904 |
|
|
|
— |
|
|
|
4,800 |
|
|
|
141 |
|
|
|
02/06/07 |
|
|
|
1970 |
|
Office Depot: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dayton, OH |
|
|
2,130 |
|
|
|
807 |
|
|
|
2,183 |
|
|
|
— |
|
|
|
2,990 |
|
|
|
140 |
|
|
|
07/07/06 |
|
|
|
2005 |
|
Greenville, MS |
|
|
2,192 |
|
|
|
666 |
|
|
|
2,469 |
|
|
|
— |
|
|
|
3,135 |
|
|
|
161 |
|
|
|
07/12/06 |
|
|
|
2000 |
|
Warrensburg, MO |
|
|
1,810 |
|
|
|
1,024 |
|
|
|
1,540 |
|
|
|
— |
|
|
|
2,564 |
|
|
|
140 |
|
|
|
07/19/06 |
|
|
|
2001 |
|
Benton, AR |
|
|
2,130 |
|
|
|
560 |
|
|
|
2,506 |
|
|
|
— |
|
|
|
3,066 |
|
|
|
139 |
|
|
|
11/21/06 |
|
|
|
2001 |
|
Oxford, MS |
|
|
2,295 |
|
|
|
916 |
|
|
|
2,141 |
|
|
|
— |
|
|
|
3,057 |
|
|
|
114 |
|
|
|
12/01/06 |
|
|
|
2006 |
|
Enterprise, AL |
|
|
1,850 |
|
|
|
771 |
|
|
|
1,635 |
|
|
|
— |
|
|
|
2,406 |
|
|
|
81 |
|
|
|
02/27/07 |
|
|
|
2006 |
|
Alcoa, TN |
|
|
2,398 |
|
|
|
1,164 |
|
|
|
2,537 |
|
|
|
— |
|
|
|
3,701 |
|
|
|
62 |
|
|
|
01/31/08 |
|
|
|
1999 |
|
Laurel, MS |
|
|
— |
|
|
|
351 |
|
|
|
2,214 |
|
|
|
— |
|
|
|
2,565 |
|
|
|
17 |
|
|
|
09/30/08 |
|
|
|
2002 |
|
London, KY |
|
|
— |
|
|
|
724 |
|
|
|
2,687 |
|
|
|
— |
|
|
|
3,411 |
|
|
|
25 |
|
|
|
09/30/08 |
|
|
|
2001 |
|
OfficeMax: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Orangeburg, SC |
|
|
1,875 |
|
|
|
590 |
|
|
|
2,363 |
|
|
|
— |
|
|
|
2,953 |
|
|
|
136 |
|
|
|
02/28/07 |
|
|
|
1999 |
|
Old Time Pottery: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fairview Heights, IL |
|
|
2,140 |
|
|
|
1,044 |
|
|
|
2,943 |
|
|
|
— |
|
|
|
3,987 |
|
|
|
301 |
|
|
|
11/21/06 |
|
|
|
1979 |
|
One Pacific Place: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Omaha, NE |
|
|
23,400 |
|
|
|
6,254 |
|
|
|
27,877 |
|
|
|
496 |
|
|
|
34,627 |
|
|
|
1,990 |
|
|
|
02/06/07 |
|
|
|
1988 |
|
Oxford Theater: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oxford, MS |
|
|
— |
|
|
|
281 |
|
|
|
4,051 |
|
|
|
— |
|
|
|
4,332 |
|
|
|
246 |
|
|
|
08/31/06 |
|
|
|
2006 |
|
Payless Shoes: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Columbia, SC |
|
|
— |
|
|
|
568 |
|
|
|
742 |
|
|
|
— |
|
|
|
1,310 |
|
|
|
6 |
|
|
|
09/30/08 |
|
|
|
1998 |
|
PepBoys: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Albuquerque, NM |
|
|
2,274 |
|
|
|
1,495 |
|
|
|
1,980 |
|
|
|
— |
|
|
|
3,475 |
|
|
|
42 |
|
|
|
03/25/08 |
|
|
|
1990 |
|
Arlington Heights,
IL |
|
|
3,700 |
|
|
|
1,379 |
|
|
|
4,376 |
|
|
|
— |
|
|
|
5,755 |
|
|
|
93 |
|
|
|
03/25/08 |
|
|
|
1995 |
|
Clarksville, IN |
|
|
— |
|
|
|
1,017 |
|
|
|
1,492 |
|
|
|
— |
|
|
|
2,509 |
|
|
|
33 |
|
|
|
03/25/08 |
|
|
|
1993 |
|
Colorado Springs, CO |
|
|
1,606 |
|
|
|
1,223 |
|
|
|
1,820 |
|
|
|
— |
|
|
|
3,043 |
|
|
|
40 |
|
|
|
03/25/08 |
|
|
|
1994 |
|
El Centro, CA |
|
|
— |
|
|
|
1,000 |
|
|
|
1,202 |
|
|
|
— |
|
|
|
2,202 |
|
|
|
26 |
|
|
|
03/25/08 |
|
|
|
2006 |
|
Fort Myers, FL |
|
|
1,837 |
|
|
|
2,121 |
|
|
|
2,546 |
|
|
|
— |
|
|
|
4,667 |
|
|
|
53 |
|
|
|
03/25/08 |
|
|
|
1994 |
|
Frederick, MD |
|
|
— |
|
|
|
1,786 |
|
|
|
2,812 |
|
|
|
— |
|
|
|
4,598 |
|
|
|
57 |
|
|
|
03/25/08 |
|
|
|
1987 |
|
S-14
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
PepBoys (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hampton, VA |
|
|
— |
|
|
|
2,024 |
|
|
|
1,757 |
|
|
|
— |
|
|
|
3,781 |
|
|
|
38 |
|
|
|
03/25/08 |
|
|
|
1993 |
|
Lakeland, FL |
|
|
— |
|
|
|
3,313 |
|
|
|
1,991 |
|
|
|
— |
|
|
|
5,304 |
|
|
|
45 |
|
|
|
03/25/08 |
|
|
|
1991 |
|
Nashua, NH |
|
|
2,637 |
|
|
|
2,415 |
|
|
|
2,006 |
|
|
|
— |
|
|
|
4,421 |
|
|
|
43 |
|
|
|
03/25/08 |
|
|
|
1996 |
|
New Hartford, NY |
|
|
1,428 |
|
|
|
1,280 |
|
|
|
1,178 |
|
|
|
— |
|
|
|
2,458 |
|
|
|
31 |
|
|
|
03/25/08 |
|
|
|
1992 |
|
Orem, UT |
|
|
— |
|
|
|
1,392 |
|
|
|
1,224 |
|
|
|
— |
|
|
|
2,616 |
|
|
|
27 |
|
|
|
03/25/08 |
|
|
|
1990 |
|
Pasadena, TX |
|
|
— |
|
|
|
1,703 |
|
|
|
2,656 |
|
|
|
— |
|
|
|
4,359 |
|
|
|
57 |
|
|
|
03/25/08 |
|
|
|
1995 |
|
Redlands, CA |
|
|
2,784 |
|
|
|
1,460 |
|
|
|
2,918 |
|
|
|
— |
|
|
|
4,378 |
|
|
|
61 |
|
|
|
03/25/08 |
|
|
|
1994 |
|
San Antonio, TX |
|
|
1,483 |
|
|
|
905 |
|
|
|
2,091 |
|
|
|
— |
|
|
|
2,996 |
|
|
|
46 |
|
|
|
03/25/08 |
|
|
|
1988 |
|
Tamarac, FL |
|
|
— |
|
|
|
1,690 |
|
|
|
2,106 |
|
|
|
— |
|
|
|
3,796 |
|
|
|
44 |
|
|
|
03/25/08 |
|
|
|
1997 |
|
Tampa, FL |
|
|
1,160 |
|
|
|
3,902 |
|
|
|
2,035 |
|
|
|
— |
|
|
|
5,937 |
|
|
|
51 |
|
|
|
03/25/08 |
|
|
|
1991 |
|
West Warwick, RI |
|
|
— |
|
|
|
2,429 |
|
|
|
1,198 |
|
|
|
— |
|
|
|
3,627 |
|
|
|
27 |
|
|
|
03/25/08 |
|
|
|
1993 |
|
Petsmart: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
McCarran, NV |
|
|
— |
|
|
|
5,151 |
|
|
|
43,546 |
|
|
|
— |
|
|
|
48,697 |
|
|
|
522 |
|
|
|
07/02/08 |
|
|
|
2008 |
|
Chattanooga, TN |
|
|
— |
|
|
|
1,136 |
|
|
|
3,418 |
|
|
|
— |
|
|
|
4,554 |
|
|
|
33 |
|
|
|
08/05/08 |
|
|
|
1996 |
|
Daytona Beach, FL |
|
|
— |
|
|
|
1,735 |
|
|
|
3,270 |
|
|
|
— |
|
|
|
5,005 |
|
|
|
31 |
|
|
|
08/05/08 |
|
|
|
1996 |
|
Fredericksburg, VA |
|
|
— |
|
|
|
3,247 |
|
|
|
2,083 |
|
|
|
— |
|
|
|
5,330 |
|
|
|
20 |
|
|
|
08/05/08 |
|
|
|
1997 |
|
Plastech: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Auburn Hills, MI |
|
|
— |
|
|
|
3,283 |
|
|
|
18,153 |
|
|
|
(3,264 |
) |
|
|
18,172 |
|
|
|
1,205 |
|
|
|
12/15/05 |
|
|
|
1995 |
|
Pocatello Square: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pocatello, ID |
|
|
17,250 |
|
|
|
3,262 |
|
|
|
18,418 |
|
|
|
(203 |
) |
|
|
21,477 |
|
|
|
821 |
|
|
|
04/06/07 |
|
|
|
2006 |
|
Rayford Square: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Spring, TX |
|
|
5,940 |
|
|
|
2,339 |
|
|
|
6,696 |
|
|
|
178 |
|
|
|
9,213 |
|
|
|
485 |
|
|
|
03/02/06 |
|
|
|
1973 |
|
Rite Aid: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Alliance, OH |
|
|
— |
|
|
|
432 |
|
|
|
1,446 |
|
|
|
— |
|
|
|
1,878 |
|
|
|
138 |
|
|
|
10/20/05 |
|
|
|
1996 |
|
Enterprise, AL |
|
|
2,043 |
|
|
|
920 |
|
|
|
2,391 |
|
|
|
— |
|
|
|
3,311 |
|
|
|
197 |
|
|
|
01/26/06 |
|
|
|
2005 |
|
Wauseon, OH |
|
|
2,142 |
|
|
|
1,047 |
|
|
|
2,333 |
|
|
|
— |
|
|
|
3,380 |
|
|
|
194 |
|
|
|
01/26/06 |
|
|
|
2005 |
|
Saco, ME |
|
|
1,375 |
|
|
|
391 |
|
|
|
1,989 |
|
|
|
2 |
|
|
|
2,382 |
|
|
|
165 |
|
|
|
01/27/06 |
|
|
|
1997 |
|
Cleveland, OH |
|
|
1,413 |
|
|
|
566 |
|
|
|
1,753 |
|
|
|
— |
|
|
|
2,319 |
|
|
|
144 |
|
|
|
04/27/06 |
|
|
|
1997 |
|
Fremont, OH |
|
|
1,388 |
|
|
|
863 |
|
|
|
1,435 |
|
|
|
— |
|
|
|
2,298 |
|
|
|
115 |
|
|
|
04/27/06 |
|
|
|
1997 |
|
Defiance, OH |
|
|
2,321 |
|
|
|
1,174 |
|
|
|
2,373 |
|
|
|
— |
|
|
|
3,547 |
|
|
|
175 |
|
|
|
05/26/06 |
|
|
|
2005 |
|
S-15
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Rite Aid (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Lansing, MI |
|
|
1,041 |
|
|
|
254 |
|
|
|
1,276 |
|
|
|
— |
|
|
|
1,530 |
|
|
|
103 |
|
|
|
06/29/06 |
|
|
|
1950 |
|
Glassport, PA |
|
|
2,325 |
|
|
|
674 |
|
|
|
3,112 |
|
|
|
— |
|
|
|
3,786 |
|
|
|
175 |
|
|
|
10/04/06 |
|
|
|
2006 |
|
Hanover, PA |
|
|
4,115 |
|
|
|
1,924 |
|
|
|
3,804 |
|
|
|
— |
|
|
|
5,728 |
|
|
|
212 |
|
|
|
10/17/06 |
|
|
|
2006 |
|
Plains, PA |
|
|
3,380 |
|
|
|
1,147 |
|
|
|
3,780 |
|
|
|
— |
|
|
|
4,927 |
|
|
|
168 |
|
|
|
04/16/07 |
|
|
|
2006 |
|
Fredericksburg, VA |
|
|
2,979 |
|
|
|
1,522 |
|
|
|
3,378 |
|
|
|
— |
|
|
|
4,900 |
|
|
|
140 |
|
|
|
05/02/07 |
|
|
|
2007 |
|
Lima, OH |
|
|
3,103 |
|
|
|
1,814 |
|
|
|
2,402 |
|
|
|
— |
|
|
|
4,216 |
|
|
|
104 |
|
|
|
05/14/07 |
|
|
|
2005 |
|
Allentown, PA |
|
|
3,615 |
|
|
|
1,635 |
|
|
|
3,654 |
|
|
|
— |
|
|
|
5,289 |
|
|
|
154 |
|
|
|
05/15/07 |
|
|
|
2006 |
|
Sportsman’s Warehouse: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Wichita, KS |
|
|
— |
|
|
|
1,586 |
|
|
|
5,954 |
|
|
|
— |
|
|
|
7,540 |
|
|
|
388 |
|
|
|
06/27/06 |
|
|
|
2006 |
|
DePere, WI |
|
|
3,907 |
|
|
|
1,131 |
|
|
|
4,295 |
|
|
|
— |
|
|
|
5,426 |
|
|
|
200 |
|
|
|
04/20/07 |
|
|
|
2004 |
|
Staples: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Crossville, TN |
|
|
1,885 |
|
|
|
549 |
|
|
|
2,134 |
|
|
|
— |
|
|
|
2,683 |
|
|
|
222 |
|
|
|
01/26/06 |
|
|
|
2001 |
|
Peru, IL |
|
|
1,930 |
|
|
|
1,285 |
|
|
|
1,959 |
|
|
|
— |
|
|
|
3,244 |
|
|
|
133 |
|
|
|
11/10/06 |
|
|
|
1998 |
|
Clarksville, IN |
|
|
2,900 |
|
|
|
939 |
|
|
|
3,080 |
|
|
|
— |
|
|
|
4,019 |
|
|
|
190 |
|
|
|
12/29/06 |
|
|
|
2006 |
|
Greenville, SC |
|
|
2,955 |
|
|
|
1,718 |
|
|
|
2,496 |
|
|
|
— |
|
|
|
4,214 |
|
|
|
112 |
|
|
|
04/11/07 |
|
|
|
2007 |
|
Warsaw, IN |
|
|
1,850 |
|
|
|
1,084 |
|
|
|
1,984 |
|
|
|
— |
|
|
|
3,068 |
|
|
|
88 |
|
|
|
05/17/07 |
|
|
|
1998 |
|
Guntersville, AL |
|
|
2,161 |
|
|
|
969 |
|
|
|
2,330 |
|
|
|
— |
|
|
|
3,299 |
|
|
|
90 |
|
|
|
07/06/07 |
|
|
|
2001 |
|
Moraine, OH |
|
|
— |
|
|
|
1,168 |
|
|
|
2,182 |
|
|
|
(11 |
) |
|
|
3,339 |
|
|
|
72 |
|
|
|
10/12/07 |
|
|
|
2006 |
|
Angola, IN |
|
|
1,999 |
|
|
|
457 |
|
|
|
2,366 |
|
|
|
— |
|
|
|
2,823 |
|
|
|
19 |
|
|
|
09/30/08 |
|
|
|
1999 |
|
Starbucks: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Covington, TN |
|
|
— |
|
|
|
563 |
|
|
|
856 |
|
|
|
— |
|
|
|
1,419 |
|
|
|
38 |
|
|
|
06/22/07 |
|
|
|
2007 |
|
Sedalia, MO |
|
|
— |
|
|
|
249 |
|
|
|
837 |
|
|
|
— |
|
|
|
1,086 |
|
|
|
34 |
|
|
|
06/22/07 |
|
|
|
2006 |
|
Bowling Green, KY |
|
|
— |
|
|
|
557 |
|
|
|
1,005 |
|
|
|
4 |
|
|
|
1,566 |
|
|
|
34 |
|
|
|
10/23/07 |
|
|
|
2007 |
|
Shawnee, OK |
|
|
— |
|
|
|
362 |
|
|
|
644 |
|
|
|
4 |
|
|
|
1,010 |
|
|
|
23 |
|
|
|
10/31/07 |
|
|
|
2006 |
|
Oklahoma City, OK |
|
|
— |
|
|
|
386 |
|
|
|
725 |
|
|
|
4 |
|
|
|
1,115 |
|
|
|
25 |
|
|
|
11/20/07 |
|
|
|
2007 |
|
Chattanooga, TN |
|
|
— |
|
|
|
533 |
|
|
|
788 |
|
|
|
5 |
|
|
|
1,326 |
|
|
|
26 |
|
|
|
11/26/07 |
|
|
|
2007 |
|
Maryville, TN |
|
|
— |
|
|
|
663 |
|
|
|
733 |
|
|
|
4 |
|
|
|
1,400 |
|
|
|
24 |
|
|
|
11/26/07 |
|
|
|
2007 |
|
Powell, TN |
|
|
— |
|
|
|
517 |
|
|
|
728 |
|
|
|
4 |
|
|
|
1,249 |
|
|
|
24 |
|
|
|
11/26/07 |
|
|
|
2007 |
|
Seymour, TN |
|
|
— |
|
|
|
509 |
|
|
|
752 |
|
|
|
4 |
|
|
|
1,265 |
|
|
|
25 |
|
|
|
11/26/07 |
|
|
|
2007 |
|
Altus, OK |
|
|
— |
|
|
|
191 |
|
|
|
885 |
|
|
|
— |
|
|
|
1,076 |
|
|
|
25 |
|
|
|
01/16/08 |
|
|
|
2007 |
|
S-16
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Starbucks (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Stillwater, OK |
|
|
— |
|
|
|
164 |
|
|
|
990 |
|
|
|
— |
|
|
|
1,154 |
|
|
|
25 |
|
|
|
02/28/08 |
|
|
|
2007 |
|
Memphis, TN |
|
|
— |
|
|
|
201 |
|
|
|
1,077 |
|
|
|
— |
|
|
|
1,278 |
|
|
|
24 |
|
|
|
03/04/08 |
|
|
|
2007 |
|
Ponca City, OK |
|
|
— |
|
|
|
218 |
|
|
|
778 |
|
|
|
— |
|
|
|
996 |
|
|
|
18 |
|
|
|
03/11/08 |
|
|
|
2007 |
|
Kingsport, TN |
|
|
— |
|
|
|
544 |
|
|
|
733 |
|
|
|
— |
|
|
|
1,277 |
|
|
|
17 |
|
|
|
03/25/08 |
|
|
|
2008 |
|
Stations Casino: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Las Vegas, NV |
|
|
42,250 |
|
|
|
4,976 |
|
|
|
50,024 |
|
|
|
— |
|
|
|
55,000 |
|
|
|
1,441 |
|
|
|
11/01/07 |
|
|
|
2007 |
|
Taco Bell: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson, IN |
|
|
— |
|
|
|
344 |
|
|
|
640 |
|
|
|
(12 |
) |
|
|
972 |
|
|
|
35 |
|
|
|
07/19/07 |
|
|
|
1995 |
|
Brazil, IN |
|
|
— |
|
|
|
539 |
|
|
|
569 |
|
|
|
(12 |
) |
|
|
1,096 |
|
|
|
30 |
|
|
|
07/19/07 |
|
|
|
1996 |
|
Henderson, KY |
|
|
— |
|
|
|
380 |
|
|
|
946 |
|
|
|
(13 |
) |
|
|
1,313 |
|
|
|
45 |
|
|
|
07/19/07 |
|
|
|
1992 |
|
Martinsville, IN |
|
|
— |
|
|
|
421 |
|
|
|
633 |
|
|
|
(12 |
) |
|
|
1,042 |
|
|
|
34 |
|
|
|
07/19/07 |
|
|
|
1986 |
|
Princeton, IN |
|
|
— |
|
|
|
287 |
|
|
|
628 |
|
|
|
(14 |
) |
|
|
901 |
|
|
|
36 |
|
|
|
07/19/07 |
|
|
|
1992 |
|
Robinson, IN |
|
|
— |
|
|
|
300 |
|
|
|
527 |
|
|
|
(12 |
) |
|
|
815 |
|
|
|
29 |
|
|
|
07/19/07 |
|
|
|
1994 |
|
Spencer, IN |
|
|
— |
|
|
|
216 |
|
|
|
583 |
|
|
|
(14 |
) |
|
|
785 |
|
|
|
31 |
|
|
|
07/19/07 |
|
|
|
1999 |
|
Vinceness, IN |
|
|
— |
|
|
|
623 |
|
|
|
648 |
|
|
|
(16 |
) |
|
|
1,255 |
|
|
|
35 |
|
|
|
07/19/07 |
|
|
|
2000 |
|
Washington, IN |
|
|
— |
|
|
|
334 |
|
|
|
583 |
|
|
|
(12 |
) |
|
|
905 |
|
|
|
32 |
|
|
|
07/19/07 |
|
|
|
1995 |
|
TelerX Marketing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Kings Mountain, NC |
|
|
6,083 |
|
|
|
367 |
|
|
|
7,795 |
|
|
|
— |
|
|
|
8,162 |
|
|
|
316 |
|
|
|
07/17/07 |
|
|
|
2007 |
|
Three Forks Restaurant: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dallas, TX |
|
|
6,675 |
|
|
|
3,641 |
|
|
|
5,678 |
|
|
|
— |
|
|
|
9,319 |
|
|
|
81 |
|
|
|
06/05/08 |
|
|
|
1998 |
|
TJ Maxx: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Staunton, VA |
|
|
3,116 |
|
|
|
933 |
|
|
|
3,082 |
|
|
|
— |
|
|
|
4,015 |
|
|
|
24 |
|
|
|
09/30/08 |
|
|
|
1988 |
|
Tractor Supply: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Parkersburg, WV |
|
|
1,793 |
|
|
|
934 |
|
|
|
2,050 |
|
|
|
— |
|
|
|
2,984 |
|
|
|
195 |
|
|
|
09/26/05 |
|
|
|
2005 |
|
La Grange, TX |
|
|
1,405 |
|
|
|
256 |
|
|
|
2,091 |
|
|
|
— |
|
|
|
2,347 |
|
|
|
132 |
|
|
|
11/06/06 |
|
|
|
2006 |
|
Livingston, TN |
|
|
1,725 |
|
|
|
430 |
|
|
|
2,360 |
|
|
|
— |
|
|
|
2,790 |
|
|
|
147 |
|
|
|
11/22/06 |
|
|
|
2006 |
|
New Braunfels, TX |
|
|
1,750 |
|
|
|
511 |
|
|
|
2,350 |
|
|
|
— |
|
|
|
2,861 |
|
|
|
147 |
|
|
|
11/22/06 |
|
|
|
2006 |
|
Crockett, TX |
|
|
1,325 |
|
|
|
291 |
|
|
|
1,957 |
|
|
|
— |
|
|
|
2,248 |
|
|
|
118 |
|
|
|
12/01/06 |
|
|
|
2006 |
|
Ankeny, IA |
|
|
1,950 |
|
|
|
717 |
|
|
|
1,984 |
|
|
|
— |
|
|
|
2,701 |
|
|
|
112 |
|
|
|
02/09/07 |
|
|
|
2006 |
|
Greenfield, MN |
|
|
2,228 |
|
|
|
1,311 |
|
|
|
2,367 |
|
|
|
— |
|
|
|
3,678 |
|
|
|
105 |
|
|
|
04/02/07 |
|
|
|
2006 |
|
S-17
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Tractor Supply (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Marinette, WI |
|
|
1,918 |
|
|
|
448 |
|
|
|
2,123 |
|
|
|
— |
|
|
|
2,571 |
|
|
|
108 |
|
|
|
04/10/07 |
|
|
|
2006 |
|
Paw Paw, MI |
|
|
2,048 |
|
|
|
537 |
|
|
|
2,349 |
|
|
|
— |
|
|
|
2,886 |
|
|
|
104 |
|
|
|
04/10/07 |
|
|
|
2006 |
|
Navasota, TX |
|
|
2,050 |
|
|
|
348 |
|
|
|
2,368 |
|
|
|
— |
|
|
|
2,716 |
|
|
|
118 |
|
|
|
04/18/07 |
|
|
|
2006 |
|
Fredericksburg, TX |
|
|
2,031 |
|
|
|
593 |
|
|
|
2,235 |
|
|
|
(1 |
) |
|
|
2,827 |
|
|
|
94 |
|
|
|
05/08/07 |
|
|
|
2007 |
|
Fairview, TN |
|
|
1,931 |
|
|
|
449 |
|
|
|
2,234 |
|
|
|
(1 |
) |
|
|
2,682 |
|
|
|
93 |
|
|
|
05/25/07 |
|
|
|
2007 |
|
Baytown, TX |
|
|
2,251 |
|
|
|
808 |
|
|
|
2,212 |
|
|
|
(1 |
) |
|
|
3,019 |
|
|
|
88 |
|
|
|
06/11/07 |
|
|
|
2007 |
|
Prior Lake, MN |
|
|
3,283 |
|
|
|
1,756 |
|
|
|
2,948 |
|
|
|
98 |
|
|
|
4,802 |
|
|
|
120 |
|
|
|
06/29/07 |
|
|
|
1991 |
|
Rome, NY |
|
|
— |
|
|
|
1,231 |
|
|
|
1,747 |
|
|
|
— |
|
|
|
2,978 |
|
|
|
44 |
|
|
|
01/04/08 |
|
|
|
2003 |
|
Clovis, NM |
|
|
1,932 |
|
|
|
695 |
|
|
|
2,129 |
|
|
|
— |
|
|
|
2,824 |
|
|
|
40 |
|
|
|
04/07/08 |
|
|
|
2007 |
|
Carroll, OH |
|
|
1,123 |
|
|
|
798 |
|
|
|
1,030 |
|
|
|
— |
|
|
|
1,828 |
|
|
|
35 |
|
|
|
05/08/08 |
|
|
|
1976 |
|
Baldwinsville, NY |
|
|
2,013 |
|
|
|
1,110 |
|
|
|
1,938 |
|
|
|
— |
|
|
|
3,048 |
|
|
|
11 |
|
|
|
10/15/08 |
|
|
|
2005 |
|
LaGrange, KY |
|
|
— |
|
|
|
584 |
|
|
|
2,322 |
|
|
|
— |
|
|
|
2,906 |
|
|
|
9 |
|
|
|
11/19/08 |
|
|
|
2008 |
|
Victoria Crossing: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Victoria, TX |
|
|
8,288 |
|
|
|
2,207 |
|
|
|
9,531 |
|
|
|
— |
|
|
|
11,738 |
|
|
|
487 |
|
|
|
01/12/07 |
|
|
|
2006 |
|
Wadsworth Boulevard: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denver, CO |
|
|
12,025 |
|
|
|
4,723 |
|
|
|
12,728 |
|
|
|
87 |
|
|
|
17,538 |
|
|
|
956 |
|
|
|
02/06/06 |
|
|
|
1991 |
|
Walgreens: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Brainerd, MN |
|
|
2,814 |
|
|
|
981 |
|
|
|
2,882 |
|
|
|
— |
|
|
|
3,863 |
|
|
|
264 |
|
|
|
10/05/05 |
|
|
|
2000 |
|
Florissant, MO |
|
|
3,372 |
|
|
|
1,482 |
|
|
|
3,205 |
|
|
|
— |
|
|
|
4,687 |
|
|
|
259 |
|
|
|
11/02/05 |
|
|
|
2001 |
|
St Louis (Gravois),
MO |
|
|
3,999 |
|
|
|
2,220 |
|
|
|
3,305 |
|
|
|
— |
|
|
|
5,525 |
|
|
|
267 |
|
|
|
11/02/05 |
|
|
|
2001 |
|
St Louis
(Telegraph), MO |
|
|
3,289 |
|
|
|
1,745 |
|
|
|
2,875 |
|
|
|
— |
|
|
|
4,620 |
|
|
|
233 |
|
|
|
11/02/05 |
|
|
|
2001 |
|
Columbia, MO |
|
|
3,806 |
|
|
|
2,353 |
|
|
|
3,351 |
|
|
|
— |
|
|
|
5,704 |
|
|
|
288 |
|
|
|
11/22/05 |
|
|
|
2002 |
|
Olivette, MO |
|
|
4,747 |
|
|
|
3,077 |
|
|
|
3,798 |
|
|
|
— |
|
|
|
6,875 |
|
|
|
318 |
|
|
|
11/22/05 |
|
|
|
2001 |
|
Knoxville, TN |
|
|
3,088 |
|
|
|
1,826 |
|
|
|
2,465 |
|
|
|
— |
|
|
|
4,291 |
|
|
|
188 |
|
|
|
05/08/06 |
|
|
|
2000 |
|
Picayune, MS |
|
|
2,766 |
|
|
|
1,212 |
|
|
|
2,548 |
|
|
|
— |
|
|
|
3,760 |
|
|
|
156 |
|
|
|
09/15/06 |
|
|
|
2006 |
|
Cincinnati, OH |
|
|
3,341 |
|
|
|
1,335 |
|
|
|
3,272 |
|
|
|
— |
|
|
|
4,607 |
|
|
|
152 |
|
|
|
03/06/07 |
|
|
|
2000 |
|
Madeira, OH |
|
|
2,876 |
|
|
|
1,060 |
|
|
|
2,911 |
|
|
|
— |
|
|
|
3,971 |
|
|
|
136 |
|
|
|
03/06/07 |
|
|
|
1998 |
|
Sharonville, OH |
|
|
2,655 |
|
|
|
1,203 |
|
|
|
2,836 |
|
|
|
352 |
|
|
|
4,391 |
|
|
|
146 |
|
|
|
03/06/07 |
|
|
|
1998 |
|
Shreveport, LA |
|
|
2,815 |
|
|
|
477 |
|
|
|
2,648 |
|
|
|
— |
|
|
|
3,125 |
|
|
|
123 |
|
|
|
03/23/07 |
|
|
|
1998 |
|
Bridgetown, OH |
|
|
3,043 |
|
|
|
1,537 |
|
|
|
2,356 |
|
|
|
— |
|
|
|
3,893 |
|
|
|
106 |
|
|
|
04/30/07 |
|
|
|
1998 |
|
Dallas, TX |
|
|
2,175 |
|
|
|
992 |
|
|
|
2,749 |
|
|
|
619 |
|
|
|
4,360 |
|
|
|
141 |
|
|
|
05/09/07 |
|
|
|
1996 |
|
S-18
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Walgreens (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Bryan, TX |
|
|
4,111 |
|
|
|
783 |
|
|
|
4,792 |
|
|
|
— |
|
|
|
5,575 |
|
|
|
198 |
|
|
|
05/18/07 |
|
|
|
2001 |
|
Harris County, TX |
|
|
3,673 |
|
|
|
1,651 |
|
|
|
3,007 |
|
|
|
— |
|
|
|
4,658 |
|
|
|
129 |
|
|
|
05/18/07 |
|
|
|
2000 |
|
Gainesville, FL |
|
|
2,465 |
|
|
|
1,079 |
|
|
|
2,398 |
|
|
|
— |
|
|
|
3,477 |
|
|
|
95 |
|
|
|
06/01/07 |
|
|
|
1997 |
|
Kansas City (63rd
St), MO |
|
|
3,035 |
|
|
|
1,255 |
|
|
|
2,944 |
|
|
|
364 |
|
|
|
4,563 |
|
|
|
122 |
|
|
|
07/11/07 |
|
|
|
2000 |
|
Kansas City
(Independence), MO |
|
|
2,990 |
|
|
|
1,233 |
|
|
|
3,066 |
|
|
|
1 |
|
|
|
4,300 |
|
|
|
115 |
|
|
|
07/11/07 |
|
|
|
1997 |
|
Kansas City
(Linwood), MO |
|
|
2,438 |
|
|
|
1,066 |
|
|
|
2,634 |
|
|
|
202 |
|
|
|
3,902 |
|
|
|
105 |
|
|
|
07/11/07 |
|
|
|
2000 |
|
Kansas City
(Troost), MO |
|
|
2,464 |
|
|
|
1,149 |
|
|
|
3,288 |
|
|
|
1 |
|
|
|
4,438 |
|
|
|
123 |
|
|
|
07/11/07 |
|
|
|
2000 |
|
Topeka, KS |
|
|
1,870 |
|
|
|
860 |
|
|
|
2,142 |
|
|
|
— |
|
|
|
3,002 |
|
|
|
80 |
|
|
|
07/11/07 |
|
|
|
1999 |
|
Fort Worth, TX |
|
|
3,675 |
|
|
|
276 |
|
|
|
2,982 |
|
|
|
1 |
|
|
|
3,259 |
|
|
|
110 |
|
|
|
07/17/07 |
|
|
|
1992 |
|
Richmond, VA |
|
|
— |
|
|
|
745 |
|
|
|
2,902 |
|
|
|
— |
|
|
|
3,647 |
|
|
|
107 |
|
|
|
08/17/07 |
|
|
|
1997 |
|
Dallas, TX |
|
|
— |
|
|
|
367 |
|
|
|
2,214 |
|
|
|
(1 |
) |
|
|
2,580 |
|
|
|
77 |
|
|
|
08/27/07 |
|
|
|
1997 |
|
Brentwood, TN |
|
|
3,465 |
|
|
|
2,904 |
|
|
|
2,179 |
|
|
|
(74 |
) |
|
|
5,009 |
|
|
|
68 |
|
|
|
10/17/07 |
|
|
|
2006 |
|
Harriman, TN |
|
|
3,209 |
|
|
|
1,133 |
|
|
|
3,526 |
|
|
|
— |
|
|
|
4,659 |
|
|
|
109 |
|
|
|
10/24/07 |
|
|
|
2007 |
|
Beverly Hills, TX |
|
|
2,185 |
|
|
|
1,286 |
|
|
|
2,562 |
|
|
|
691 |
|
|
|
4,539 |
|
|
|
85 |
|
|
|
12/05/07 |
|
|
|
2007 |
|
Waco, TX |
|
|
2,185 |
|
|
|
1,138 |
|
|
|
2,683 |
|
|
|
700 |
|
|
|
4,521 |
|
|
|
89 |
|
|
|
12/05/07 |
|
|
|
2007 |
|
Cincinnati
(Seymour), OH |
|
|
— |
|
|
|
756 |
|
|
|
2,587 |
|
|
|
— |
|
|
|
3,343 |
|
|
|
73 |
|
|
|
12/21/07 |
|
|
|
2000 |
|
Oneida, TN |
|
|
3,171 |
|
|
|
555 |
|
|
|
3,938 |
|
|
|
— |
|
|
|
4,493 |
|
|
|
90 |
|
|
|
02/29/08 |
|
|
|
2007 |
|
Batesville, MS |
|
|
3,359 |
|
|
|
1,558 |
|
|
|
3,265 |
|
|
|
— |
|
|
|
4,823 |
|
|
|
69 |
|
|
|
03/31/08 |
|
|
|
2007 |
|
Elmira, NY |
|
|
3,836 |
|
|
|
1,996 |
|
|
|
3,831 |
|
|
|
— |
|
|
|
5,827 |
|
|
|
63 |
|
|
|
05/01/08 |
|
|
|
2007 |
|
Hibbing, MN |
|
|
2,564 |
|
|
|
1,048 |
|
|
|
2,763 |
|
|
|
— |
|
|
|
3,811 |
|
|
|
44 |
|
|
|
05/14/08 |
|
|
|
2007 |
|
Essex, MD |
|
|
3,933 |
|
|
|
1,208 |
|
|
|
4,725 |
|
|
|
— |
|
|
|
5,933 |
|
|
|
74 |
|
|
|
05/30/08 |
|
|
|
2007 |
|
Bath, NY |
|
|
2,589 |
|
|
|
1,114 |
|
|
|
2,924 |
|
|
|
— |
|
|
|
4,038 |
|
|
|
41 |
|
|
|
06/02/08 |
|
|
|
2008 |
|
Chino Valley, AZ |
|
|
3,282 |
|
|
|
1,779 |
|
|
|
3,014 |
|
|
|
— |
|
|
|
4,793 |
|
|
|
41 |
|
|
|
06/02/08 |
|
|
|
2007 |
|
Albany, GA |
|
|
2,791 |
|
|
|
929 |
|
|
|
3,177 |
|
|
|
— |
|
|
|
4,106 |
|
|
|
45 |
|
|
|
06/11/08 |
|
|
|
2008 |
|
Rome, NY |
|
|
2,758 |
|
|
|
1,170 |
|
|
|
3,121 |
|
|
|
— |
|
|
|
4,291 |
|
|
|
38 |
|
|
|
07/15/08 |
|
|
|
2007 |
|
Columbus, MS |
|
|
2,731 |
|
|
|
1,193 |
|
|
|
2,831 |
|
|
|
— |
|
|
|
4,024 |
|
|
|
36 |
|
|
|
07/24/08 |
|
|
|
2004 |
|
S-19
\
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
Walgreens (Continued): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mobile, AL |
|
|
— |
|
|
|
1,654 |
|
|
|
3,286 |
|
|
|
— |
|
|
|
4,940 |
|
|
|
33 |
|
|
|
08/28/08 |
|
|
|
2007 |
|
Akron, OH |
|
|
1,900 |
|
|
|
565 |
|
|
|
1,961 |
|
|
|
— |
|
|
|
2,526 |
|
|
|
16 |
|
|
|
09/30/08 |
|
|
|
1994 |
|
Broken Arrow, OK |
|
|
— |
|
|
|
770 |
|
|
|
1,274 |
|
|
|
— |
|
|
|
2,044 |
|
|
|
11 |
|
|
|
09/30/08 |
|
|
|
1993 |
|
Crossville, TN |
|
|
2,753 |
|
|
|
878 |
|
|
|
3,154 |
|
|
|
— |
|
|
|
4,032 |
|
|
|
27 |
|
|
|
09/30/08 |
|
|
|
2001 |
|
Jacksonville, FL |
|
|
— |
|
|
|
1,044 |
|
|
|
4,178 |
|
|
|
— |
|
|
|
5,222 |
|
|
|
32 |
|
|
|
09/30/08 |
|
|
|
2000 |
|
LaMarque, TX |
|
|
— |
|
|
|
450 |
|
|
|
3,461 |
|
|
|
— |
|
|
|
3,911 |
|
|
|
26 |
|
|
|
09/30/08 |
|
|
|
2000 |
|
Newton, IA |
|
|
2,393 |
|
|
|
505 |
|
|
|
3,456 |
|
|
|
— |
|
|
|
3,961 |
|
|
|
27 |
|
|
|
09/30/08 |
|
|
|
2000 |
|
Saginaw, MI |
|
|
— |
|
|
|
801 |
|
|
|
2,977 |
|
|
|
— |
|
|
|
3,778 |
|
|
|
23 |
|
|
|
09/30/08 |
|
|
|
2001 |
|
Seattle, WA |
|
|
— |
|
|
|
2,944 |
|
|
|
3,206 |
|
|
|
— |
|
|
|
6,150 |
|
|
|
25 |
|
|
|
09/30/08 |
|
|
|
2002 |
|
Tulsa, OK |
|
|
1,926 |
|
|
|
651 |
|
|
|
2,168 |
|
|
|
— |
|
|
|
2,819 |
|
|
|
17 |
|
|
|
09/30/08 |
|
|
|
1994 |
|
Tulsa, OK |
|
|
— |
|
|
|
192 |
|
|
|
1,935 |
|
|
|
— |
|
|
|
2,127 |
|
|
|
16 |
|
|
|
09/30/08 |
|
|
|
1993 |
|
Evansville, IN |
|
|
— |
|
|
|
1,131 |
|
|
|
2,898 |
|
|
|
— |
|
|
|
4,029 |
|
|
|
9 |
|
|
|
11/25/08 |
|
|
|
2007 |
|
Wal-Mart: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Anderson, SC |
|
|
8,160 |
|
|
|
3,265 |
|
|
|
8,442 |
|
|
|
1,271 |
|
|
|
12,978 |
|
|
|
409 |
|
|
|
05/08/07 |
|
|
|
1993 |
|
New London, WI |
|
|
1,778 |
|
|
|
658 |
|
|
|
1,938 |
|
|
|
135 |
|
|
|
2,731 |
|
|
|
41 |
|
|
|
05/09/07 |
|
|
|
1991 |
|
Spencer, IN |
|
|
1,377 |
|
|
|
612 |
|
|
|
1,427 |
|
|
|
176 |
|
|
|
2,215 |
|
|
|
70 |
|
|
|
05/23/07 |
|
|
|
1987 |
|
Bay City, TX |
|
|
— |
|
|
|
637 |
|
|
|
2,558 |
|
|
|
(6 |
) |
|
|
3,189 |
|
|
|
93 |
|
|
|
08/14/07 |
|
|
|
1990 |
|
Washington, IL |
|
|
— |
|
|
|
1,043 |
|
|
|
2,386 |
|
|
|
118 |
|
|
|
3,547 |
|
|
|
88 |
|
|
|
09/10/07 |
|
|
|
1989 |
|
Borger, TX |
|
|
— |
|
|
|
932 |
|
|
|
1,828 |
|
|
|
(11 |
) |
|
|
2,749 |
|
|
|
63 |
|
|
|
09/12/07 |
|
|
|
1991 |
|
Whiteville, NC |
|
|
— |
|
|
|
854 |
|
|
|
1,357 |
|
|
|
(8 |
) |
|
|
2,203 |
|
|
|
52 |
|
|
|
10/11/07 |
|
|
|
1988 |
|
WaWa: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hockessin, DE |
|
|
2,709 |
|
|
|
1,850 |
|
|
|
2,000 |
|
|
|
— |
|
|
|
3,850 |
|
|
|
161 |
|
|
|
03/29/06 |
|
|
|
2000 |
|
Manahawkin, NJ |
|
|
2,617 |
|
|
|
1,359 |
|
|
|
2,360 |
|
|
|
— |
|
|
|
3,719 |
|
|
|
156 |
|
|
|
03/29/06 |
|
|
|
2000 |
|
Narberth, PA |
|
|
2,422 |
|
|
|
1,659 |
|
|
|
1,782 |
|
|
|
— |
|
|
|
3,441 |
|
|
|
144 |
|
|
|
03/29/06 |
|
|
|
2000 |
|
Wehrenberg Theatre: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arnold, MO |
|
|
— |
|
|
|
2,798 |
|
|
|
4,604 |
|
|
|
— |
|
|
|
7,402 |
|
|
|
312 |
|
|
|
06/14/06 |
|
|
|
1998 |
|
Weston Shops: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weston, FL |
|
|
— |
|
|
|
6,034 |
|
|
|
9,573 |
|
|
|
— |
|
|
|
15,607 |
|
|
|
120 |
|
|
|
07/30/08 |
|
|
|
2007 |
|
Wickes Furniture: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Chicago, IL |
|
|
15,925 |
|
|
|
9,896 |
|
|
|
11,282 |
|
|
|
1 |
|
|
|
21,179 |
|
|
|
387 |
|
|
|
10/17/07 |
|
|
|
2007 |
|
S-20
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amount at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Which |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Carried at |
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
Initial Costs to Company |
|
|
Total |
|
|
December |
|
|
Accumulated |
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
Buildings and |
|
|
Adjustments |
|
|
31, 2008 (2) |
|
|
Depreciation |
|
|
Date |
|
|
Date |
|
| Description (1) |
|
Encumbrances |
|
|
Land |
|
|
Improvements |
|
|
to Basis |
|
|
(3) (5) |
|
|
(4) (6) |
|
|
Acquired |
|
|
Constructed |
|
WinCo Foods: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Eureka, CA |
|
|
11,247 |
|
|
|
4,277 |
|
|
|
10,919 |
|
|
|
380 |
|
|
|
15,576 |
|
|
|
442 |
|
|
|
06/27/07 |
|
|
|
1960 |
|
Winter Garden Village: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Winter Garden, FL |
|
|
105,700 |
|
|
|
22,862 |
|
|
|
151,385 |
|
|
|
— |
|
|
|
174,247 |
|
|
|
1,148 |
|
|
|
09/26/08 |
|
|
|
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
1,400,152 |
|
|
|
747,455 |
|
|
|
1,990,928 |
|
|
|
5,766 |
|
|
|
2,744,149 |
|
|
|
67,326 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| Real Estate Held for Investment the Company has Invested in Under Direct Financing Leases: |
Academy Sports: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Houston, TX |
|
|
3,825 |
|
|
|
3,953 |
|
|
|
1,952 |
|
|
|
1 |
|
|
|
5,906 |
|
|
|
— |
(7) |
|
|
06/27/07 |
|
|
|
1995 |
|
Baton Rouge, LA |
|
|
4,687 |
|
|
|
2,719 |
|
|
|
6,014 |
|
|
|
1,937 |
|
|
|
10,670 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1996 |
|
Houston (Breton), TX |
|
|
3,045 |
|
|
|
1,194 |
|
|
|
4,675 |
|
|
|
1 |
|
|
|
5,870 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1995 |
|
Houston
(Southwest), TX |
|
|
4,625 |
|
|
|
3,377 |
|
|
|
5,066 |
|
|
|
2,837 |
|
|
|
11,280 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1996 |
|
North Richland
Hills, TX |
|
|
4,217 |
|
|
|
2,097 |
|
|
|
5,693 |
|
|
|
— |
|
|
|
7,790 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1996 |
|
Best Buy: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Evanston, IL |
|
|
5,900 |
|
|
|
3,661 |
|
|
|
6,984 |
|
|
|
2 |
|
|
|
10,647 |
|
|
|
— |
(7) |
|
|
06/27/07 |
|
|
|
1996 |
|
Warwick , RI |
|
|
5,350 |
|
|
|
3,948 |
|
|
|
9,544 |
|
|
|
— |
|
|
|
13,492 |
|
|
|
— |
(7) |
|
|
06/27/07 |
|
|
|
1992 |
|
CVS: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amarillo, TX |
|
|
1,741 |
|
|
|
832 |
|
|
|
2,563 |
|
|
|
— |
|
|
|
3,395 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1994 |
|
Del City, OK |
|
|
2,631 |
|
|
|
1,085 |
|
|
|
4,496 |
|
|
|
— |
|
|
|
5,581 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1998 |
|
Eckerd: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mantua, NJ |
|
|
1,470 |
|
|
|
943 |
|
|
|
1,495 |
|
|
|
2 |
|
|
|
2,440 |
|
|
|
— |
(7) |
|
|
06/27/07 |
|
|
|
1993 |
|
Vineland, NJ |
|
|
3,500 |
|
|
|
2,353 |
|
|
|
4,743 |
|
|
|
— |
|
|
|
7,096 |
|
|
|
— |
(7) |
|
|
06/27/07 |
|
|
|
1997 |
|
Chattanooga, TN |
|
|
1,920 |
|
|
|
1,023 |
|
|
|
2,976 |
|
|
|
— |
|
|
|
3,999 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1997 |
|
Mableton, GA |
|
|
1,197 |
|
|
|
716 |
|
|
|
1,699 |
|
|
|
— |
|
|
|
2,415 |
|
|
|
— |
(7) |
|
|
07/19/07 |
|
|
|
1994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL |
|
|
44,108 |
|
|
|
27,901 |
|
|
|
57,900 |
|
|
|
4,780 |
|
|
|
90,581 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
S-21
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE III — REAL ESTATE ASSETS AND ACCUMULATED DEPRECIATION — (Continued)
December 31, 2008
(in thousands)
| |
|
|
| (1) |
|
As of December 31, 2008, we owned 378 single-tenant, freestanding retail properties, 274 single-tenant, freestanding
commercial properties, and 21 multi-tenant retail properties. |
| |
| (2) |
|
The aggregate cost for federal income tax purposes is approximately $3.0 billion. |
| |
| (3) |
|
The following is a reconciliation of total real estate carrying value for the years ended December 31 (in thousands): |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance at beginning of period |
|
$ |
1,606,722 |
|
|
$ |
396,523 |
|
|
$ |
81,344 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
1,218,764 |
|
|
|
1,213,047 |
|
|
|
315,179 |
|
Adjustments to real
estate assets the
Company has invested in
under operating and
direct financing leases |
|
|
13,024 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total additions |
|
|
1,231,788 |
|
|
|
1,213,047 |
|
|
|
315,179 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sold |
|
|
440 |
|
|
|
— |
|
|
|
— |
|
Other (including
provisions for
impairment of real
estate assets) |
|
|
3,340 |
|
|
|
2,848 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total Deductions |
|
|
3,780 |
|
|
|
2,848 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at close of period |
|
$ |
2,834,730 |
|
|
$ |
1,606,722 |
|
|
$ |
396,523 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (4) |
|
The following is a reconciliation of accumulated depreciation for the years ended December 31 (in thousands): |
| |
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
2008 |
|
|
2007 |
|
|
2006 |
|
Balance at beginning of period |
|
$ |
24,882 |
|
|
$ |
4,547 |
|
|
$ |
151 |
|
Additions |
|
|
|
|
|
|
|
|
|
|
|
|
Acquisitions |
|
|
42,645 |
|
|
|
20,460 |
|
|
|
4,396 |
|
Adjustments to real estate
assets the Company has invested
in under direct financing leases |
|
|
3 |
|
|
|
— |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total additions |
|
|
42,648 |
|
|
|
20,460 |
|
|
|
4,396 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deductions |
|
|
|
|
|
|
|
|
|
|
|
|
Cost of real estate sold |
|
|
— |
|
|
|
— |
|
|
|
— |
|
Other (including provisions for
impairment of real estate
assets) |
|
|
204 |
|
|
|
125 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
Total Deductions |
|
|
204 |
|
|
|
125 |
|
|
|
— |
|
|
|
|
|
|
|
|
|
|
|
| |
Balance at close of period |
|
$ |
67,326 |
|
|
$ |
24,882 |
|
|
$ |
4,547 |
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| (5) |
|
In 2008 and 2007, provisions for impairment were recorded on one property. |
| |
| (6) |
|
The Company’s assets are depreciated or amortized using the
straight-lined method over the useful lives of the assets by class.
Generally, tenant improvements and lease intangibles are amortized over
the respective lease term and buildings are depreciated over 40 years. |
| |
| (7) |
|
For financial reporting purposes, the lease has been recorded
as a direct financing lease; therefore, depreciation is not
applicable. |
S-22
COLE CREDIT PROPERTY TRUST II, INC.
SCHEDULE IV — MORTGAGE LOANS ON REAL ESTATE ASSETS
December 31, 2008
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Periodic |
|
|
|
|
|
|
|
|
|
|
Carrying |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Final |
|
|
Payment |
|
|
|
|
|
|
Face Amount |
|
|
Amount of |
|
| |
|
|
|
|
|
|
|
|
|
|
|
|
|
Maturity |
|
|
Terms |
|
|
Prior |
|
|
of Mortgages |
|
|
Mortgages (2) |
|
| Mortgage Loans * |
|
Description |
|
|
Location |
|
|
Interest Rate |
|
|
Date |
|
|
(1) |
|
|
Liens |
|
|
(in thousands) |
|
|
(in thousands) |
|
Cracker Barrel Notes |
|
Retail |
|
|
(3 |
) |
|
|
9.84 |
% |
|
|
8/1/2020 |
|
|
|
P & I |
|
|
None |
|
$ |
44,046 |
|
|
$ |
47,880 |
|
KFC Notes |
|
Retail |
|
|
(4 |
) |
|
|
10.47 |
% |
|
|
10/1/2020 |
|
|
|
P & I |
|
|
None |
|
|
20,206 |
|
|
|
22,848 |
|
O’Reilly Notes |
|
Retail |
|
|
(5 |
) |
|
|
8.60-9.35 |
% |
|
|
1/1/2021 |
|
|
|
P & I |
|
|
None |
|
|
12,555 |
|
|
|
14,266 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$ |
76,807 |
|
|
$ |
84,994 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
|
|
| * |
|
No individual mortgage loan exceeds 3 percent of the total of the carrying amount for all mortgage loans. |
| |
| (1) |
|
P & I = Principal and interest payments. |
| |
| (2) |
|
The aggregate cost for federal income tax purposes is approximately $85.0 million. |
| |
| (3) |
|
The Cracker Barrel Notes are secured by 23 restaurant properties located in 16 states. |
| |
| (4) |
|
The KFC Notes are secured by 20 restaurant properties located in nine states. |
| |
| (5) |
|
The O’Reilly Notes are secured by 26 commercial retail properties located in two states. |
The following shows changes in the carrying amounts of mortgage loans receivable during the period
(in thousands):
| |
|
|
|
|
Balance at December 31, 2007 |
|
$ |
87,100 |
|
|
|
|
|
|
Additions: |
|
|
|
|
New mortgage loans |
|
|
— |
|
Premium on new mortgage loans and capitalized loan costs |
|
|
— |
|
Acquisition costs related to investment in mortgage notes
receivable |
|
|
102 |
|
|
|
|
|
|
Deductions: |
|
|
|
|
Collections of principal |
|
|
(1,573 |
) |
Amortization of premium and capitalized loan costs |
|
|
(635 |
) |
|
|
|
|
Balance at December 31, 2008 |
|
$ |
84,994 |
|
|
|
|
|
S-23
EXHIBIT INDEX
The following exhibits are included, or incorporated by reference, in this Annual Report on
Form 10-K for the year ended December 31, 2008 (and are numbered in accordance with Item 601 of
Regulation S-K).
| |
|
|
|
|
| Exhibit No. |
|
Description |
| |
|
|
|
|
| |
3.1 |
|
|
Fifth Articles of Amendment and
Restatement, as corrected. (Incorporated
by reference to Exhibit 3.1 of the
Company’s Form 10-K (File No.
333-121094), filed on March 23, 2006). |
| |
3.2 |
|
|
Amended and Restated Bylaws.
(Incorporated by reference to Exhibit
99.1 to the Company’s Form 8-K (File No.
333-121094), filed on September 6,
2005). |
| |
3.3 |
|
|
Articles of Amendment to Fifth Articles
of Amendment and Restatement.
(Incorporated by reference to Exhibit
3.3 of the Company’s Form S-11 (File No.
333-138444), filed on November 6, 2006). |
| |
4.1 |
|
|
Form of Subscription Agreement and
Subscription Agreement Signature Page.
(Incorporated by reference to Exhibit
4.1 to the Company’s post-effective
amendment to Form S-11 (File No.
333-138444), filed on February 1, 2008). |
| |
4.2 |
|
|
Form of Additional Investment
Subscription Agreement. (Incorporated by
reference to Exhibit 4.2 to the
Company’s post-effective amendment to
Form S-11 (File No. 333-138444), filed
on February 1, 2008). |
| |
10.1 |
|
|
2004 Independent Directors’ Stock Option
Plan. (Incorporated by reference to
Exhibit 10.5 to the Company’s Form S-11
(File No. 333-121094), filed on December
9, 2004). |
| |
10.2 |
|
|
Form of Stock Option Agreement under
2004 Independent Directors’ Stock Option
Plan. (Incorporated by reference to
Exhibit 10.6 to the Company’s
pre-effective amendment to Form S-11
(File No. 333-121094), filed on April
11, 2005). |
| |
10.3 |
|
|
Amended and Restated Property Management
and Leasing Agreement, dated September
16, 2005, by and among Cole Credit
Property Trust II, Inc., Cole Operating
Partnership II, LP and Fund Realty
Advisors, Inc. (Incorporated by
reference to Exhibit 10.1 to the
Company’s Form 8-K (File No.
333-121094), filed on September 23,
2005). |
| |
10.4 |
|
|
Amended and Restated Advisory Agreement,
dated September 16, 2005, by and between
Cole Credit Property Trust II, Inc. and
Cole REIT Advisors II, LLC.
(Incorporated by reference to Exhibit
10.2 to the Company’s Form 8-K (File No.
333-121094), filed on September 23,
2005). |
| |
10.5 |
|
|
Amended and Restated Agreement of
Limited Partnership of Cole Operating
Partnership II, LP, dated September 16,
2005, by and between Cole Credit
Property Trust II, Inc. and the limited
partners thereto. (Incorporated by
reference to Exhibit 10.3 to the
Company’s Form 8-K (File No.
333-121094), filed on September 23,
2005). |
| |
10.6 |
|
|
Amended and Restated Distribution
Reinvestment Plan. (Incorporated by
reference to Exhibit 10.6 to the
Company’s pre-effective amendment to
Form S-11 (File No. 333-138444), filed
on May 10, 2007). |
| |
10.7 |
|
|
First Amendment to Amended and Restated
Advisory Agreement, dated April 17,
2006, between Cole Credit Property Trust
II, Inc. and Cole REIT Advisors II, LLC.
(Incorporated by reference to Exhibit
10.1 to the Company’s Form 10-Q (File
No. 000-51963), filed on May 12, 2006). |
| |
10.8 |
|
|
Form of Dealer Manager Agreement.
(Incorporated by reference to Exhibit
1.1 to the Company’s pre-effective
amendment to Form S-11 (File No.
333-138444), filed on April 12, 2007). |
| |
10.9 |
|
|
Purchase Agreement between Cole AS Katy
TX, LP and 44.385 Acres, Ltd. and Mason
MSG, Ltd. pursuant to an Assignment of
Agreement of Purchase and Sale Agreement
dated January 17, 2007. (Incorporated
by reference to Exhibit 10.10 to the
Company’s Form 10-K (File No.
000-51963), filed on March 20, 2007). |
| |
10.10 |
|
|
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). |
| |
10.11 |
|
|
First Amendment to Amended and Restated
Property Management and Leasing
Agreement, dated May 9, 2007, by and
among Cole Credit Property Trust II,
Inc., Cole Operating Partnership II, LP
and Cole Realty Advisors, Inc.
(Incorporated by reference to Exhibit
10.10 to the Company’s pre-effective
amendment to Form S-11 (File No.
333-138444), filed on May 10, 2007). |
| |
10.12 |
|
|
First Amendment to Amended and Restated
Agreement of Limited Partnership of Cole
Operating Partnership II, LP, dated May
9, 2007, by and between Cole Credit
Property Trust II, Inc. and the limited
partners thereto. (Incorporated by
reference to Exhibit 10.11 to the
Company’s pre-effective amendment to
Form S-11 (File No. 333-138444), filed
on May 10, 2007). |
| |
|
|
|
|
| Exhibit No. |
|
Description |
| |
|
|
|
|
| |
10.13 |
|
|
Second Amendment to Amended and Restated
Property Management and Leasing
Agreement, dated June 1, 2008, by and
among Cole Credit Property Trust II,
Inc., Cole Operating Partnership II, LP
and Cole Realty Advisors, Inc.
(Incorporated by reference to Exhibit
10.12 to the Company’s post-effective
amendment to Form S-11 (File No.
333-138444), filed on July 29, 2008). |
| |
10.14 |
|
|
Credit Agreement dated as of May 23,
2008 among Cole Operating Partnership
II, LP, as Borrower and Bank of America
N.A. as Administrative Agent, Banc of
America Securities, LLC as Sole Lead
Arranger and Sole Book Manager and JP
Morgan Chase Bank, N.A. as Syndication
Agent (Incorporated by reference to
Exhibit 10.1 to the Company’s Form 10-Q
(File No. 000-51963), filed on August
14, 2008). |
| |
10.15 |
|
|
Second Amended and Restated Distribution
Reinvestment Plan (Incorporated by
reference to Exhibit 4.1 to the
Company’s Form S-3 (File No.
333-153578), filed on September 18,
2008). |
| |
14.1 |
|
|
Cole Credit Property Trust II, Inc. Code
of Business Conduct and Ethics.
(Incorporated by reference to Exhibit
14.1 to the Company’s Form 10-K (file
No. 000-51963), filed on March 23,
2006). |
| |
21.1 |
|
|
List of Subsidiaries. (Incorporated by
reference to Exhibit 21.1 to the
Company’s POS AM (File No. 333-121094),
filed on December 20, 2006). |
| |
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. |