UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

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

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

Commission file number 000-51962

COLE CREDIT PROPERTY TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland		20-0939158
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification Number)
2555 East Camelback Road, Suite 400
Phoenix, Arizona, 85016		(602) 778-8700
(Address of principal executive offices; zip code)		(Registrant’s telephone number, including area code)

Not Applicable
(Former name, former address and former fiscal year, if changed since last report)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes þ No o

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o		Accelerated filer o		Non-accelerated filer o		Smaller reporting company þ
				(Do not check if smaller reporting company)

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

As of November 12, 2009, there were 10,090,951 shares of common stock, par value $0.01, of Cole Credit Property Trust, Inc. outstanding.

 

 

COLE CREDIT PROPERTY TRUST, INC.
INDEX

PART I — FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Unaudited Balance Sheets as of September 30, 2009 and December 31, 2008			4
Condensed Consolidated Unaudited Statements of Operations for the three months and nine months ended September 30, 2009 and 2008			5
Condensed Consolidated Unaudited Statement of Stockholders’ Equity for the nine months ended September 30, 2009			6
Condensed Consolidated Unaudited Statements of Cash Flows for the nine months ended September 30, 2009 and 2008			7
Notes to Condensed Consolidated Unaudited Financial Statements			8
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			14
Item 3. Quantitative and Qualitative Disclosures About Market Risk			21
Item 4T. Controls and Procedures			21
PART II — OTHER INFORMATION
Item 1. Legal Proceedings			22
Item 1A. Risk Factors			22
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			22
Item 3. Defaults Upon Senior Securities			22
Item 4. Submission of Matters to a Vote of Security Holders			22
Item 5. Other Information			22
Item 6. Exhibits			22
Signatures			23
Exhibit 31.1
Exhibit 31.2
Exhibit 32.1

PART I
FINANCIAL INFORMATION

The accompanying condensed consolidated unaudited interim financial statements as of and for the three and nine months ended September 30, 2009 have been prepared by Cole Credit Property Trust, Inc. (the “Company”) pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, they do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America for complete financial statements and should be read in conjunction with the audited financial statements and related notes thereto included in the Company’s annual report on Form 10-K for the year ended December 31, 2008. The financial statements herein should also be read in conjunction with the notes to the financial statements and Management’s Discussion and Analysis of Financial Condition and Results of Operations contained in this Quarterly Report on Form 10-Q. The results of operations for the three and nine months ended September 30, 2009 are not necessarily indicative of the operating results expected for the full year. The information furnished in our accompanying condensed consolidated unaudited balance sheets and condensed consolidated unaudited statements of operations, stockholders’ equity, and cash flows reflects all adjustments that are, in our opinion, necessary for a fair presentation of the aforementioned financial statements. Such adjustments are of a normal recurring nature.

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 Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results.

COLE CREDIT PROPERTY TRUST, INC.

(Dollar amounts in thousands, except share and per share amounts)

		September 30,				December 31,
		2009				2008
ASSETS
Investment in real estate assets:
Land		$	55,317			$	55,321
Buildings and improvements, less accumulated depreciation of $16,352 and $13,588, respectively			107,199				109,963
Acquired intangible lease assets, less accumulated amortization of $8,689 and $7,246, respectively			19,649				21,092
Total investment in real estate assets, net			182,165				186,376
Cash and cash equivalents			1,194				923
Rents and tenant receivables, less allowance for doubtful accounts of $178 and $167, respectively			2,556				2,084
Prepaid expenses and other assets			108				104
Deferred financing costs, less accumulated amortization of $1,713 and $1,415, respectively			857				1,155
Total assets		$	186,880			$	190,642
LIABILITIES AND STOCKHOLDERS’ EQUITY
Mortgage notes payable and line of credit		$	118,727			$	117,977
Accounts payable and accrued expenses			682				757
Due to affiliates			40				167
Acquired below market lease intangibles, less accumulated amortization of $967 and $814, respectively			1,272				1,425
Distributions payable			589				589
Deferred rent and other liabilities			192				590
Total liabilities			121,502				121,505
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding			—				—
Common stock, $0.01 par value; 90,000,000 shares authorized, 10,090,951 shares issued and outstanding			101				101
Capital in excess of par value			90,424				90,424
Accumulated distributions in excess of earnings			(25,147	)			(21,388	)
Total stockholders’ equity			65,378				69,137
Total liabilities and stockholders’ equity		$	186,880			$	190,642

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

COLE CREDIT PROPERTY TRUST, INC.

(Dollar amounts in thousands, except share and per share amounts)

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Revenues:
Rental income		$	3,944			$	3,984			$	12,001			$	11,954
Tenant reimbursement income			99				84				305				251
Total revenue			4,043				4,068				12,306				12,205
Expenses:
General and administrative			94				183				454				484
Property operating expenses			138				274				398				515
Property and asset management expenses			118				238				354				724
Depreciation			922				921				2,764				2,763
Amortization			450				450				1,351				1,351
Total operating expenses			1,722				2,066				5,321				5,837
Operating income			2,321				2,002				6,985				6,368
Other income (expense):
Interest and other income			1				4				13				19
Interest expense			(1,839	)			(1,837	)			(5,459	)			(5,470	)
Total other expense			(1,838	)			(1,833	)			(5,446	)			(5,451	)
Net income		$	483			$	169			$	1,539			$	917
Weighted average number of common shares outstanding:
Basic and diluted			10,090,951				10,090,951				10,090,951				10,090,951
Net income per common share:
Basic and diluted		$	0.05			$	0.02			$	0.15			$	0.09

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

COLE CREDIT PROPERTY TRUST, INC.

CONDENSED CONSOLIDATED UNAUDITED STATEMENT OF STOCKHOLDERS’ EQUITY
(Dollar amounts in thousands, except share amounts)

		Common Stock												Accumulated				Total
		Number of								Capital in Excess in				Distributions in				Stockholders’
		Shares				Par Value				Par Value				Excess of Earnings				Equity
Balance, December 31, 2008			10,090,951			$	101			$	90,424			$	(21,388	)		$	69,137
Distributions			—				—				—				(5,298	)			(5,298	)
Net income			—				—				—				1,539				1,539
Balance, September 30, 2009			10,090,951			$	101			$	90,424			$	(25,147	)		$	65,378

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

COLE CREDIT PROPERTY TRUST, INC.

(Dollar amounts in thousands)

		Nine Months Ended September 30,
		2009				2008
Cash flows from operating activities:
Net income		$	1,539			$	917
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation			2,764				2,763
Amortization			1,588				1,586
Gain on sale of easement			(9	)			—
Changes in assets and liabilities:
Rents and tenant receivables, net of allowance			(472	)			(311	)
Prepaid expenses and other assets			(4	)			(46	)
Accounts payable and accrued expenses			(75	)			17
Due to affiliates			(127	)			—
Deferred rent and other liabilities			(398	)			113
Net cash provided by operating activities			4,806				5,039
Cash flows from investing activities:
Investments in real estate and related assets			—				(20	)
Proceeds from sale of easement			13				—
Net cash provided by (used in) investing activities			13				(20	)
Cash flows from financing activities:
Proceeds from line of credit			750				—
Distributions to investors			(5,298	)			(5,297	)
Deferred financing costs paid			—				(48	)
Net cash used in financing activities			(4,548	)			(5,345	)
Net increase (decrease) in cash and cash equivalents			271				(326	)
Cash and cash equivalents, beginning of period			923				913
Cash and cash equivalents, end of period		$	1,194			$	587
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Dividends declared and unpaid		$	589			$	589
Supplemental Cash Flow Disclosures:
Interest paid		$	5,178			$	5,193

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

COLE CREDIT PROPERTY TRUST, INC.

NOTE 1 — ORGANIZATION AND BUSINESS

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

At September 30, 2009, the Company owned 42 properties comprising approximately 1.0 million square feet of single-tenant, retail space located in 19 states. At September 30, 2009, these properties were 100% leased.

The Company’s stock is not currently listed on a national securities exchange. The Company may seek to list its common stock for trading on a national securities exchange only if the board of directors believes listing would be in the best interest of its stockholders. The Company does not intend to list its shares at this time. The Company does not anticipate that there would be any market for its common stock until its shares are listed on a national securities exchange. In the event it does not obtain listing prior to February 1, 2016, its charter requires that it either: (1) seek stockholder approval of an extension or amendment of this listing deadline; or (2) seek stockholder approval to adopt a plan of liquidation of the corporation.

NOTE 2 — SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The condensed consolidated unaudited financial statements of the Company have been prepared in accordance with the rules and regulations of the Securities and Exchange Commission, including the instructions to Form 10-Q and Article 8 of Regulation S-X, and do not include all of the information and footnotes required by accounting principles generally accepted in the United States of America (“GAAP”) for complete financial statements. In the opinion of management, the statements for the interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for these interim periods are not necessarily indicative of full year results. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with the Company’s audited consolidated financial statements as of and for the year ended December 31, 2008, and related notes thereto set forth in the Company’s Annual Report on Form 10-K.

The accompanying condensed consolidated unaudited financial statements include the accounts of the Company and its wholly-owned subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation.

Redemptions of Common Stock

The Company will determine at the beginning of each fiscal year the maximum amount of shares that it may redeem during that year. The Company may use up to 1.0% of its annual cash flow to meet these redemption needs, including cash proceeds generated from new offerings, operating cash flow not intended for dividends, borrowings, and capital transactions such as asset sales or refinancings. On December 15, 2008, the Company’s board determined that no amounts were to be made available for redemption during the year ending December 31, 2009. The shares the Company redeems under its share redemption program will be cancelled and return to the status of authorized but unissued shares. The Company does not intend to resell such shares to the public unless they are first registered with the Securities and Exchange Commission under the Securities Act of 1933, as amended, and under appropriate state securities laws or otherwise sold in compliance with such laws. As of September 30, 2009, the Company had redeemed a total of 7,300 shares, at an average of $9.35 per share, under the share redemption program. During the three and nine months ended September 30, 2009 and 2008, the Company did not redeem any shares under the share redemption program.

COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS — (Continued)
September 30, 2009

Reportable Segments

The Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280, Segment Reporting (“ASC 280”), establishes standards for reporting financial and descriptive information about an enterprise’s reportable segments. The Company has one reportable segment, commercial properties, which consists of activities related to investing in real estate. The commercial properties are geographically diversified throughout the United States, and the Company’s chief operating decision maker evaluates operating performance on an overall portfolio level. These commercial properties have similar economic characteristics, therefore the Company’s properties have been aggregated into one reportable segment.

Investment In and Valuation of Real Estate Assets

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present, the Company assesses the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future operating cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Company will adjust the real estate and related intangible assets to their fair value and recognize an impairment loss. The Company continues to monitor several properties for which tenants have experienced financial difficulties. The undiscounted future operating cash flows expected from the use of these properties and their related intangible assets and their eventual disposition continue to exceed the carrying value of the assets as of September 30, 2009. Should the conditions of any of these properties change, the undiscounted future operating cash flows expected may change and adversely affect the recoverability of the carrying values related to these properties. No impairment losses were recorded for the three and nine months ended September 30, 2009 and 2008.

NOTE 3 — FAIR VALUE MEASUREMENTS

ASC 820, Fair Value Measurements and Disclosures (“ASC 820”), defines fair value 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 follows:

Level 1 — Inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the Company has the ability to access at the measurement date. An active market is defined as a market in which transactions for the assets or liabilities occur with sufficient frequency and volume to provide pricing information on an ongoing basis.

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

Level 3 — Unobservable inputs, only used to the extent that observable inputs are not available, reflect the Company’s assumptions about the pricing of an asset or liability.

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, rents and tenant receivables and accounts payable and accrued expenses — The Company considers the carrying values of these financial instruments to approximate fair value because of the short period of time between origination of the instruments and their expected realization. The Company’s investments in highly liquid money market funds are valued using level 1 inputs.

COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS — (Continued)
September 30, 2009

Mortgage notes payable and line of credit — The fair value is estimated using a discounted cash flow technique based on estimated borrowing rates available to the Company as of September 30, 2009. The estimated fair value of the mortgage notes payable and line of credit at September 30, 2009 was approximately $114.0 million, as compared to the carrying value of approximately $118.7 million. The estimated fair value of the mortgage notes payable at December 31, 2008 was approximately $114.7 million, as compared to the carrying value of approximately $118.0 million.

Considerable judgment is necessary to develop estimated fair values of certain financial instruments. Accordingly, the estimates presented herein are not necessarily indicative of the amounts the Company could realize on disposition of the financial instruments.

NOTE 4 — MORTGAGE NOTES PAYABLE AND LINE OF CREDIT

As of September 30, 2009, the Company had 38 mortgage notes payable totaling approximately $118.0 million, with fixed interest rates ranging from 4.62% to 6.68% and a weighted average interest rate of approximately 5.76%. The mortgage notes payable mature on various dates from November 2009 through September 2017, with a weighted average remaining term of approximately 3.6 years. Each of the mortgage notes are secured by the respective property. The mortgage notes are generally non-recourse to the Company and Cole OP I, but both are liable for customary non-recourse carve-outs. The mortgage notes are collateralized by substantially all of the Company’s real estate assets.

As of September 30, 2009, the Company had $750,000 outstanding under a $1.5 million revolving line of credit. The revolving line of credit bears interest at a variable rate equal to the one-month LIBOR plus 175 basis points and matures in March 2011. The revolving line of credit is secured by one property.

NOTE 5 — COMMITMENTS AND CONTINGENCIES

Litigation

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

Environmental Matters

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

NOTE 6 — RELATED-PARTY TRANSACTIONS AND ARRANGEMENTS

Certain affiliates of the Company received fees and compensation in connection with the Company’s private placement of shares of its common stock, and receive fees and compensation in connection with the acquisition, management and sale of the assets of the Company.

If Cole Advisors provides substantial services, as determined by the Company, in connection with the origination or refinancing of any debt financing obtained by the Company that is used to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay Cole Advisors a financing coordination fee equal to 1% of the amount available under such financing; provided, however, that Cole Advisors shall not be entitled to a financing coordination fee in connection with the refinancing of any loan secured by any particular property that was previously subject to a refinancing in which Cole Advisors received such a fee. Financing coordination fees payable from loan proceeds from permanent financing will be paid to Cole Advisors as the Company acquires such permanent financing. However, no 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 three and nine months ended September 30, 2009, the Company paid no amounts to Cole Advisors for finance coordination fees. During the three and nine months ended September 30, 2008, the Company paid Cole Advisors $0 and approximately $15,000 for finance coordination fees, respectively.

COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS — (Continued)
September 30, 2009

The Company pays, and expects to continue to pay, Cole Realty Advisors, Inc. (“Cole Realty”), its affiliated property manager, fees for the management and leasing of the Company’s properties. Property management fees are equal to 3% of gross revenues, and leasing fees are at prevailing market rates, not to exceed the greater of $4.50 per square foot or 7.5% of the total lease obligation. During the three and nine months ended September 30, 2009, the Company paid Cole Realty approximately $116,000 and $356,000 for property management fees, respectively. During the three and nine months ended September 30, 2008, the Company paid Cole Realty approximately $114,000 and $351,000 for property management fees, respectively. Cole Realty, or its affiliates, also receives acquisition and advisory fees of up to 3% of the contract purchase price of each property. During each of the three and nine months ended September 30, 2009 and 2008, the Company did not pay any acquisition fees to Cole Realty. As of September 30, 2009 and December 31, 2008, the Company had approximately $40,000 and $42,000, respectively, due to Cole Realty Advisors for property management fees incurred.

The Company is obligated to pay Cole Advisors an annualized asset management fee of up to 0.75% of the aggregate asset value of the Company’s assets. Pursuant to a waiver of the fee by Cole Advisors, no asset management fees were paid during the three and nine months ended September 30, 2009. The Company is not obligated to pay any amounts for such periods. However, Cole Advisors may elect to increase its asset management fees in future periods up to the 0.75% fee. During the three and nine months ended September 30, 2008, the Company paid Cole Advisors approximately $124,000 and $373,000 for asset management fees, respectively. As of September 30, 2009 and December 31, 2008, the Company had approximately $0 and $125,000, respectively, due to Cole Advisors for asset management fees incurred and not yet paid.

If Cole Advisors, or its affiliates, provides a substantial amount of services, as determined by the Company, in connection with the sale of one or more properties, the Company will pay Cole Advisors an amount equal to 3% of the contract price of each asset sold. In no event will the combined disposition fee paid to Cole Advisors, its affiliates and unaffiliated third parties exceed the reasonable, customary and competitive amount for such services. In addition, after investors have received a return of their net capital contributions and a 7.5% annual cumulative, non-compounded return, then Cole Advisors is entitled to receive 20% of the remaining net sale proceeds. During each of the three and nine months ended September 30, 2009 and 2008, the Company did not pay any fees or amounts to Cole Advisors relating to the sale of properties.

In the event the Company’s common stock is listed in the future on a national securities exchange, a subordinated incentive listing fee equal to 20% of the amount by which the market value of the Company’s outstanding stock plus all distributions paid by the Company prior to listing exceeds the sum of the total amount of capital raised from investors and the amount of cash flow necessary to generate an 7.5% annual cumulative, non-compounded return to investors will be paid to Cole Advisors.

The Company may reimburse Cole Advisors for expenses it incurs in connection with its provision of administrative services, including related personnel costs. The Company does not reimburse for personnel costs in connection with services for which Cole Advisors receives acquisition fees or disposition fees. During the three and nine months ended September 30, 2009 and 2008, the Company did not reimburse Cole Advisors for any such costs.

NOTE 7 — ECONOMIC DEPENDENCY

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

COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS — (Continued)
September 30, 2009

NOTE 8 — NEW ACCOUNTING PRONOUNCEMENTS

In December 2007, the FASB issued Statements of Financial Accounting Standards (“SFAS”) No. 141 (revised 2007), Business Combinations, codified primarily in ASC 805, Business Combinations (“ASC 805”). ASC 805 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 ASC 805 became effective for the Company for any business combinations occurring on or after January 1, 2009. If the Company acquires real estate properties in the future the Company expects ASC 805 will have a material impact on its condensed consolidated unaudited financial statements. The adoption of ASC 805 requires 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. There were no property acquisitions during the nine months ended September 30, 2009, therefore the adoption of ASC 805 has not had a material impact on the Company’s condensed consolidated unaudited financial statements.

In December 2007, the FASB issued SFAS No. 160, Noncontrolling Interests in Consolidated Financial Statements — an Amendment of ARB 51, codified primarily in ASC 810, Consolidation (“ASC 810”). 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. ASC 810 was effective for the Company on January 1, 2009. The provisions of this standard are applied retrospectively upon adoption. The adoption of ASC 810 has not had a material impact on the Company’s condensed consolidated unaudited financial statements.

In May 2009, the FASB issued SFAS No. 165, Subsequent Events, codified primarily in ASC 855, Subsequent Events (“ASC 855”), which provides guidance to establish general standards of accounting for and disclosures of events that occur after the balance sheet date but before financial statements are issued or are available to be issued. ASC 855 also requires entities to disclose the date through which subsequent events were evaluated as well as the rationale for why that date was selected. ASC 855 was effective for the Company beginning on April 1, 2009. The additional disclosures required by this pronouncement are included in Note 9.

In June 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification™ and the Hierarchy of Generally Accepted Accounting Principles. The FASB Accounting Standards Codification™ (the “Codification”) will become the source of authoritative GAAP. Rules and interpretive releases of the Securities and Exchange Commission under authority of federal securities laws are also sources of authoritative GAAP for Securities and Exchange Commission registrants. The Codification became effective on July 1, 2009 and superseded all then-existing non-Securities and Exchange Commission accounting and reporting standards. All other non-grandfathered non-Securities and Exchange Commission accounting literature not included in the Codification is nonauthoritative. The Company adopted the Codification beginning on July 1, 2009. Because the Codification is not intended to change GAAP, it did not have a material impact on the Company’s condensed consolidated unaudited financial statements.

In August 2009, the FASB issued Accounting Standard Update 2009-05, Fair Value Measurements and Disclosures (“ASU 2009-05”), which provides alternatives to measuring the fair value of liabilities when a quoted price for an identical liability traded in an active market does not exist. The alternatives include using either (1) a valuation technique that uses quoted prices for identical or similar liabilities or (2) another valuation technique, such as a present value technique or a technique that is based on the amount paid or received by the reporting entity to transfer an identical liability. The amended guidance will be effective for the Company beginning October 1, 2009. The Company does not expect the adoption of ASU 2009-05 to have a material impact on its condensed consolidated unaudited financial statements.

COLE CREDIT PROPERTY TRUST, INC.
NOTES TO CONDENSED CONSOLIDATED UNAUDITED FINANCIAL STATEMENTS — (Continued)
September 30, 2009

NOTE 9 — SUBSEQUENT EVENTS

The Company evaluated subsequent events through the date of filing this Quarterly Report on Form 10-Q, November 12, 2009.

Mortgage Notes Payable

On November 11, 2009, the Company elected to extend the maturity date of four mortgage loans totaling approximately $6.5 million to November 11, 2029 in accordance with the hyper-amortization provisions of the respective promissory notes. Under the hyper-amortization provisions, the maturity dates 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 operating or capital 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 promissory notes, and (3) interest accrued at the “Revised Interest Rate” but not previously paid. As used herein, Revised Interest Rate means an interest rate equal to the greater of (A) the initial fixed interest rate as stated in the respective promissory note agreement plus 2.0% per annum or (B) the then current Treasury Constant Maturity Yield Index plus 2.0% per annum. The Company expects the interest rates on the extended loans to range from 7.15% to 7.36%.

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

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our condensed consolidated unaudited financial statements, the notes thereto, and the other unaudited financial data included elsewhere in this Quarterly Report on Form 10-Q. The following discussion should also be read in conjunction with our audited consolidated financial statements, and the notes thereto, and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2008. The terms “we,” “us,” “our,” and the “Company” refer to Cole Credit Property Trust, Inc.

Forward-Looking Statements

Except for historical information, this section contains certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995, including discussion and analysis of our financial condition and our subsidiaries, our anticipated capital expenditures, amounts of anticipated cash distributions to our stockholders in the future and other matters. These forward-looking statements are not historical facts but are the intent, belief or current expectations of our management based on their knowledge and understanding of our business and industry. Words such as “may,” “will,” “anticipates,” “expects,” “intends,” “plans,” “believes,” “seeks,” “estimates,” “would,” “could,” “should” or comparable words, variations and similar expressions are intended to identify forward-looking statements. All statements not based on historical fact are forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties and other factors, some of which are beyond our control, are difficult to predict and could cause actual results to differ materially from those expressed or implied in the forward-looking statements.

Forward-looking statements that were true at the time made may ultimately prove to be incorrect or false. Investors are cautioned not to place undue reliance on forward-looking statements, which reflect our management’s view only as of the date of this Quarterly Report on Form 10-Q. We undertake no obligation to update or revise forward-looking statements to reflect changed assumptions, the occurrence of unanticipated events or changes to future operating results. Factors that could cause actual results to differ materially from any forward-looking statements made in this Quarterly Report on Form 10-Q include, among others, changes in general economic conditions, changes in real estate conditions, difficulties in refinancing existing debt, construction costs that may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration or termination of existing leases, and the potential need to fund tenant improvements or other capital expenditures out of operating cash flows.

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

Overview

We were formed on March 29, 2004, to acquire and operate commercial real estate primarily consisting of net leased, freestanding, single-tenant, income-generating retail properties located throughout the United States. We have no paid employees and are externally managed by Cole Advisors, an affiliate of ours. We currently qualify, and intend to continue to elect to 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 98% of total revenue during the three and nine months ended September 30, 2009. As all of our properties are under lease, with a weighted average remaining lease term of approximately 11.5 years, we believe our exposure to short-term changes in commercial rental rates on our portfolio is substantially mitigated.

As of September 30, 2009, the debt leverage ratio of our portfolio, which is the ratio of mortgage notes payable and borrowings outstanding under our line of credit to total gross real estate assets net of gross intangible lease liabilities, was approximately 58%. Approximately 99% of our debt is subject to fixed interest rates, ranging from 4.62% to 6.68%, with a weighted average remaining term of approximately 3.6 years. As we have little outstanding variable rate debt, our exposure to short-term changes in interest rates is limited. However, if we refinance our existing debt as it matures, we will be subject to new interest rates on the refinanced debt.

Recent Market Conditions

Although there are signs of recovery, 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 experienced significant disruptions that were brought about in large part by challenges 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 refinance our debt at maturity. Additionally, if we are able to refinance our existing debt as it matures it may be at rates and terms which are less favorable than our existing debt, which may adversely affect our results of operations and the dividend rate we are able to pay to our investors. Additionally, if we are required to sell any of our properties to meet our liquidity requirements it will result in lower rental revenue and it may be at a price less than our acquisition price for the property, each of which would adversely impact our results of operations and the dividend rate we are able to pay to our investors.

The current economic environment 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 September 30, 2009, 100% of our rentable square feet were under lease. However, if the current economic recession persists, we may experience vacancies or be required to reduce rents on occupied space. If we do experience vacancies, our advisor will actively seek to lease our vacant space; however, as retailers and other tenants have been delaying or eliminating their store expansion plans, the amount of time required to re-tenant a property has been increasing.

Results of Operations

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Revenue. Revenue remained relatively constant, decreasing approximately $25,000, or approximately 1%, to approximately $4.0 million for the three months ended September 30, 2009, compared to approximately $4.1 million for the three months ended September 30, 2008. The decrease was primarily due to a reduction in rental rates on one property during the three months ended September 30, 2009 as compared to the three months ended September 30, 2008. Our revenue primarily consists of rental income from net leased commercial properties, which accounted for approximately 98% of total revenue during each of the three months ended September 30, 2009 and 2008.

General and Administrative Expenses. General and administrative expenses decreased approximately $89,000, or approximately 49%, to approximately $94,000 for the three months ended September 30, 2009, compared to approximately $183,000 for the three months ended September 30, 2008. The decrease was primarily due to decreased tax preparation and advisory fees, state income taxes and transfer agent fees, partially offset by increased legal and audit fees. The primary general and administrative expense items are legal and accounting fees, state franchise and income taxes, transfer agent fees and other licenses and fees.

Property Operating Expenses. Property operating expenses decreased approximately $136,000, or approximately 50%, to approximately $138,000 for the three months ended September 30, 2009, compared to approximately $274,000 during the three months ended September 30, 2008. The decrease was primarily due to a decrease in bad debt expense and property repairs and maintenance, partially offset by an increase in annual property tax expense related to several properties. The primary property operating expense items consist of property taxes, insurance, bad debt expense and property repairs and maintenance.

Property and Asset Management Fees. Property and asset management fees decreased approximately $120,000, or approximately 50%, to approximately $118,000 for the three months ended September 30, 2009, compared to approximately $238,000 during the three months ended September 30, 2008. The decrease was due to our advisor waiving asset management fees for the three months ended September 30, 2009.

Depreciation and Amortization Expenses. Depreciation and amortization expenses remained constant at approximately $1.4 million during each of the three months ended September 30, 2009 and 2008.

Interest and Other Income. Interest and other income decreased approximately $3,000, or approximately 75%, to approximately $1,000 for the three months ended September 30, 2009, compared to approximately $4,000 during the three months ended September 30, 2008. The decrease was primarily due to a reduction in average interest rates being earned on uninvested cash for the three months ended September 30, 2009 as compared to the three months ended September 30, 2008.

Interest Expense. Interest expense remained constant at approximately $1.8 million during the three months ended September 30, 2009 and 2008. Substantially all of our debt bears interest at fixed rates.

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Revenue. Revenue remained relatively constant, increasing approximately $101,000, or approximately 1%, to approximately $12.3 million for the nine months ended September 30, 2009, compared to approximately $12.2 million for the nine months ended September 30, 2008. The increase was primarily due to contractual rent increases, offset by a reduction in rental rates on one property. Our revenue primarily consists of rental income from net leased commercial properties, which accounted for approximately 98% of total revenue during each of the nine months ended September 30, 2009 and 2008.

General and Administrative Expenses. General and administrative expenses decreased approximately $30,000, or approximately 6%, to approximately $454,000 for the nine months ended September 30, 2009, compared to approximately $484,000 for the nine months ended September 30, 2008. The decrease was primarily due to decreased transfer agent fees and state income taxes, offset by increased audit fees and bank service charges. The primary general and administrative expense items are legal and accounting fees, state franchise and income taxes, transfer agent fees and other licenses and fees.

Property Operating Expenses. Property operating expenses decreased approximately $117,000, or approximately 23%, to approximately $398,000 for the nine months ended September 30, 2009, compared to approximately $515,000 during the nine months ended September 30, 2008. The decrease was primarily due to a decrease in bad debt expense and property repairs and maintenance, offset by an increase in annual property tax expense related to several properties. The primary property operating expense items are property taxes, insurance, property repairs and maintenance and bad debt expense.

Property and Asset Management Fees. Property and asset management fees decreased approximately $370,000, or approximately 51%, to approximately $354,000 for the nine months ended September 30, 2009, compared to approximately $724,000 during the nine months ended September 30, 2008. The decrease was due to our advisor waiving asset management fees for the nine months ended September 30, 2009.

Depreciation and Amortization Expenses. Depreciation and amortization expenses remained constant at approximately $4.1 million during each of the nine months ended September 30, 2009 and 2008.

Interest and Other Income. Interest and other income decreased approximately $6,000, or approximately 32%, to approximately $13,000 for the nine months ended September 30, 2009, compared to approximately $19,000 during the nine months ended September 30, 2008. The decrease was primarily due to a reduction in average interest rates being earned on uninvested cash, partially offset by the gain on sale as a result of an easement condemnation during the nine months ended September 30, 2009.

Interest Expense. Interest expense remained constant at approximately $5.5 million during each of the nine months ended September 30, 2009 and 2008. Substantially all of our debt bears interest at fixed rates.

Funds From Operations

We believe that funds from operations (“FFO”) is a useful indicator of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that accounting for real estate assets in accordance with GAAP implicitly assumes that the value of real estate assets diminishes predictably over time. Since real estate values have historically risen or fallen with market conditions, 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, provides 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 periods ended as indicated (dollar amounts in thousands):

		Three Months Ended September 30,								Nine Months Ended September 30,
		2009				2008				2009				2008
Net income		$	483			$	169			$	1,539			$	917
Add:
Depreciation of real estate assets			922				921				2,764				2,763
Amortization of lease related costs			450				450				1,351				1,351
Less:
Gain on sale of easement			—				—				(9	)			—
FFO		$	1,855			$	1,540			$	5,645			$	5,031

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 $72,000 and $226,000 during the three and nine months ended September 30, 2009, respectively, and approximately $171,000 and $521,000 during the three and nine months ended September 30, 2008, respectively.
	•		Amortization of deferred financing costs totaled approximately $98,000 and $298,000 during the three and nine months ended September 30, 2009, respectively, and approximately $100,000 and $296,000 during the three and nine months ended September 30, 2008, respectively.

Liquidity and Capital Resources

Short-term Liquidity and Capital Resources

We expect to meet our short-term liquidity requirements through net cash provided by property operations. We have a total of approximately $44.0 million of fixed rate debt maturing within the next 12 months, of which approximately $9.0 million is maturing during the year ending December 31, 2009. Subsequent to September 30, 2009, we extended the maturity dates of four mortgage loans totaling approximately $6.5 million to November 11, 2029, as further described in Note 9 to our condensed consolidated unaudited financial statements. In accordance with the hyper-amortization provisions, these loans will require us to apply 100% of the rents received from the properties securing the debt to pay interest due on the loans, reserves, if any, and principal reductions until such balance is paid in full through the extended maturity dates, all of which will adversely affect our results of operations and the dividend rate that we are able to pay to our investors. We continue to evaluate the possible financing or refinancing of the $6.5 million of fixed rate debt for which the maturity dates were extended. In addition, we are currently evaluating the possible financing or refinancing of the remaining $2.5 million of fixed rate debt maturing during the year ending December 31, 2009 and the remaining $37.5 million maturing within the next 12 months. If we are unable to finance or refinance the amounts maturing we expect to pay down any remaining amounts through a combination of the use of net cash provided by property operations, available borrowings under our $1.5 million revolving line of credit, the potential sale of certain properties, from short term borrowings from an affiliate of our advisor or, as each of the loans maturing contain hyper amortization provisions, we may elect to extend the maturity dates of the mortgage notes in accordance with the hyper amortization provisions. If we are able to refinance our existing debt as it matures it may be at rates and terms that are less favorable than our existing debt or, if we elect to extend the maturity dates of the mortgage notes in accordance with the hyper-amortization provisions, the interest rates charged to us will be higher, each of which may adversely affect our results of operations and the dividend rate we are able to pay to our investors. As of September 30, 2009 we had approximately $750,000 of available borrowings under our revolving line of credit.

Long-term Liquidity and Capital Resources

We expect to meet our long-term liquidity requirements through proceeds from available borrowings under our revolving line of credit, secured or unsecured financings or refinancings from banks and other lenders, the selective and strategic sale of certain properties and net cash flows from operations. We expect that our primary uses of capital will be for the payment of operating expenses, for interest expense on and repayment of any outstanding indebtedness, for the payment of tenant improvements and repairs and maintenance, for the possible reinvestment of proceeds from the strategic sale of properties in replacement properties and for the payment of distributions or redemptions 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 than our current expectations due to lower returns on the properties, or we elect to retain cash flows from operations to reduce current debt maturities, distributions paid to our stockholders may be lower.

During the nine months ended September 30, 2009, we paid distributions of approximately $5.3 million, which were funded by cash flows from operations of approximately $4.8 million, excess cash flows from operations from previous periods of approximately $332,000 and proceeds from our line of credit of approximately $160,000. During the nine months ended September 30, 2008, we paid distributions of approximately $5.3 million, which were funded by cash flows from operations of approximately $5.0 million, excess cash flows from operations from previous periods of approximately $229,000 and net proceeds from notes payable of approximately $29,000.

We expect that substantially all net cash resulting from any debt refinancing will be used to fund repayments of outstanding debt, certain capital expenditures, possible replacement properties, or distributions to our stockholders. We did not have any material commitments for capital expenditures as of September 30, 2009.

As of September 30, 2009, we had cash and cash equivalents of approximately $1.2 million, which we expect to be used primarily to pay operating expenses and stockholder distributions.

As of September 30, 2009, we had approximately $118.7 million of debt outstanding, consisting of approximately $118.0 million of fixed rate debt, and $750,000 outstanding under our revolving line of credit. The fixed rate debt has interest rates ranging from 4.62% to 6.68%, with a weighted average interest rate of approximately 5.76%, which matures on various dates from November 2009 to September 2017. See Note 4 to our condensed consolidated unaudited financial statements herein for terms of our revolving line of credit. Additionally, our debt leverage ratio, which is the ratio of mortgage notes payable and line of credit to total gross real estate assets net of gross intangible lease liabilities, was approximately 58%, with a weighted average remaining term to maturity of approximately 3.6 years.

Our contractual obligations as of September 30, 2009, are as follows (dollar amounts in thousands):

		Payments due by period*
						Less Than 1												More Than 5
		Total				Year				1-3 Years				4-5 Years				Years
Principal payments — fixed rate debt		$	117,977			$	43,989			$	14,455			$	26,476			$	33,057
Interest payments — fixed rate debt			25,894				5,817				11,213				7,037				1,827
Principal payments — line of credit			750				—				750				—				—
Interest payments — line of credit (1)			23				15				8				—				—
Total		$	144,644			$	49,821			$	26,426			$	33,513			$	34,884

Cash Flow Analysis

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Operating Activities. Net cash provided by operating activities decreased approximately $233,000, or approximately 5%, to approximately $4.8 million for the nine months ended September 30, 2009, compared to approximately $5.0 million for the nine months ended September 30, 2008. The decrease was primarily due to increased rents and tenant receivables and a decrease in the change in deferred rents and other liabilities and due to affiliates, offset primarily by an increase in net income.

Investing Activities. Net cash provided by investing activities was approximately $13,000 for the nine months ended September 30, 2009, compared to net cash used in investing activities of approximately $20,000 for the nine months ended September 30, 2008. The change was due to proceeds from the sale of an easement during the nine months ended September 30, 2009, as well as capital expenditures incurred during the nine months ended September 30, 2008.

Financing Activities. Net cash used in financing activities decreased approximately $797,000, or approximately 15%, to approximately $4.5 million for the nine months ended September 30, 2009, compared to approximately $5.3 million for the nine months ended September 30, 2008. The decrease was primarily due to a $750,000 borrowing on our revolving line of credit during the nine months ended September 30, 2009.

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 condensed consolidated unaudited financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying financial statements.

Inflation

We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. There are provisions in certain of our tenant leases that would protect us from the impact of inflation, such as step rental increases and percentage rent provisions. 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 adequately offset the effects of inflation.

Critical Accounting Policies and Estimates

Our accounting policies have been established to conform to GAAP. The preparation of financial statements in conformity with GAAP requires us to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to the various transactions had been different, it is possible that different accounting policies would have been applied, thus, resulting in a different presentation of the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of our results of operations to those of companies in similar businesses. We consider our critical accounting policies to be the following:

	•		Investment in and Valuation of Real Estate Assets;
	•		Allocation of Purchase Price of Acquired Assets;
	•		Revenue Recognition; and
	•		Income Taxes.

A complete description of such policies and our considerations is contained in our Annual Report on Form 10-K for the year ended December 31, 2008. The information included in this Quarterly Report on Form 10-Q should be read in conjunction with our audited consolidated financial statements as of and for the year ended December 31, 2008, and related notes thereto.

Commitments and Contingencies

We are subject to certain contingencies and commitments with regard to certain transactions. Refer to Note 5 to our condensed consolidated unaudited financial statements accompanying this Quarterly Report on Form 10-Q for further explanations.

Related-Party Transactions and Agreements

We have entered into agreements with Cole Advisors and its affiliates, whereby we pay certain fees to, or reimburse certain expenses of, Cole Advisors 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 6 to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for a discussion of the various related-party transactions, agreements and fees.

Subsequent Events

Certain events occurred subsequent to September 30, 2009 through the date of this Quarterly Report on Form 10-Q. Refer to Note 9 to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for further explanation. Such events include:

•

Extension of the maturity date of certain mortgage notes payable.

New Accounting Pronouncements

Refer to Note 8 to our condensed consolidated unaudited financial statements included in this Quarterly Report on Form 10-Q for further explanation of applicable new accounting pronouncements.

Item 3.		Quantitative and Qualitative Disclosures About Market Risk

Not required for smaller reporting companies.

Item 4T.		Controls and Procedures

In accordance with Rules 13a-15(b) and 15d-15(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), our management, under the supervision and with the participation of our Chief Executive Officer and Chief Financial Officer, carried out an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) of the Exchange Act) as of the end of the period covered by this Quarterly Report on Form 10-Q. Based on that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that our disclosure controls and procedures, as of September 30, 2009, were effective for the purpose of ensuring that information required to be disclosed by us in this Quarterly Report on Form 10-Q 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 September 30, 2009 that has materially affected, or is reasonably likely to materially affect, our internal controls over financial reporting.

PART II
OTHER INFORMATION

Item 1.		Legal Proceedings

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

Item 1A.		Risk Factors

Not required for smaller reporting companies.

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

We did not sell any unregistered securities during the three months ended September 30, 2009. No shares were redeemed during the three months ended September 30, 2009.

Item 3.		Defaults Upon Senior Securities

No events occurred during the three months ended September 30, 2009 that would require a response to this item.

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

No events occurred during the three months ended September 30, 2009 that would require a response to this item.

Item 5.		Other Information

No events occurred during the three months ended September 30, 2009 that would require a response to this item.

Item 6.		Exhibits

The exhibits listed on the Exhibit Index (following the signatures section of this Quarterly Report on Form 10-Q) are included herewith, or incorporated herein by reference.

SIGNATURES

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

Date: November 12, 2009

EXHIBIT INDEX

The following exhibits are included, or incorporated by reference, in this Quarterly Report on Form 10-Q for the three months ended September 30, 2009 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit No.				Description
	3.1			Articles of Incorporation. (Incorporated by reference to the Company’s Registration Statement on Form 10-SB (File No. 000-51962) filed on May 1, 2006).
	3.2			Amended and Restated Bylaws. (Incorporated by reference to the Company’s Registration Statement on Form 10-SB (File No. 000-51962) filed on May 1, 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 (filed herewith).
	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 (filed herewith).
	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 (furnished herewith).