Filed Pursuant to Rule 424(b)(3)
Registration No. 333-138444

COLE CREDIT PROPERTY TRUST II, INC.
SUPPLEMENT NO. 1 DATED MAY 16, 2007
TO THE PROSPECTUS DATED MAY 11, 2007

     This document supplements, and should be read in conjunction with, the prospectus of Cole Credit Property Trust II, Inc. dated May 11, 2007. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.

     The purpose of this supplement is to describe the following:

     (1) the status of the offering of shares in Cole Credit Property Trust II, Inc.;

     (2) recent real property investments;

     (3) an updated Management’s Discussion and Analysis of Financial Condition and Results of Operations; and

     (4) updated financial information regarding Cole Credit Property Trust II, Inc.

Status of Our Public Offerings

     We commenced our initial public offering on June 27, 2005. We have accepted investors’ subscriptions received through May 11, 2007, and have issued an aggregate of approximately 51,600,000 shares of our common stock to stockholders, with gross proceeds of approximately $515.3 million distributed to us.

     On May 11, 2007, our follow-on offering of 150,000,000 shares of common stock was declared effective by the Securities and Exchange Commission. Of these shares, we are offering 125,000,000 shares in a primary offering and 25,000,000 shares under our distribution reinvestment plan. As of May 15, 2007, we had received no proceeds in our follow-on offering. We expect to begin accepting investors’ subscriptions in connection with our follow-on offering after we terminate our initial public offering on or about May 23, 2007.

Real Property Investments

     The section captioned “Prospectus Summary — Description of Real Estate Investments” beginning on page 7 of the prospectus is supplemented with the following information:

     The following table provides information regarding properties we acquired since May 11, 2007, the date of our prospectus. We purchased each property from an unaffiliated third party:

				Rentable Square				Purchase
Property Description		Tenant		Feet				Price
Rite Aid — Lima, OH		Rite Aid of Ohio, Inc.			14,564			$	4,745,962
Rite Aid — Allentown, PA		Rite Aid of Pennsylvania, Inc.			14,564				5,561,112
					29,128			$	10,307,074

     We expect to use substantially all of the net proceeds from this offering to acquire and operate a portfolio of commercial real estate consisting primarily of freestanding, single-tenant commercial properties net leased to investment grade tenants, which generally are companies that have a debt rating by Moody’s of Baa3 or better or a credit rating by Standard & Poor’s of BBB or better, or are guaranteed by a company with such rating, and other creditworthy tenants located throughout the United States. We also may invest in a smaller number of multi-tenant properties that compliment our overall investment objectives. In addition, we may invest in entities that make similar investments. If our advisor determines that, due to the state of the real estate market or in order to diversify our investment portfolio, it would be advantageous to us, we also may invest in mortgage loans secured by commercial properties similar to those in which we invest directly. We intend to hold each property for eight to ten years.

     Our advisor, Cole Advisors II, makes recommendations to our board of directors for our investments. All acquisitions of commercial properties are evaluated for tenant creditworthiness and the reliability and stability of their future income and capital appreciation potential. We consider the risk profile, credit quality and reputation of potential tenants and the impact of each particular acquisition as it relates to the portfolio as a whole. Our board of directors will exercise its fiduciary duties to our stockholders in

determining to approve or reject each of these investment recommendations. See the section of this prospectus captioned “Investment Objectives and Policies — Real Property Investments” for a description of our properties as of the date of this prospectus. As we acquire properties, we will supplement this prospectus to describe material changes to our portfolio.

     The following information supplements the section of our prospectus captioned “Investment Objectives and Policies — Real Property Investments” beginning on page 84 of the prospectus:

     We engage in the acquisition and ownership of commercial properties throughout the United States. We invest primarily in income-generating retail properties, net leased to investment grade and other creditworthy tenants.

     Since May 11, 2007, the date of prospectus, we, through separate wholly-owned limited liability companies, have acquired a 100% fee simple interest in two properties consisting of approximately 29,000 gross rentable square feet located in two states. We purchased each property from an unaffiliated third party through the use of mortgage notes payable and proceeds from our ongoing public offering of our common stock. The following table summarizes these properties in order of acquisition date:

																Rentable
						Year		Purchase				Fees Paid to				Square				Physical
Property		Type		Date Acquired		Built		Price				Sponsor(1)				Feet				Occupancy
Rite Aid — Lima, OH		Drugstore		5/14/07		2005		$	4,745,962			$	125,949				14,564			100%
Rite Aid — Allentown, PA		Drugstore		5/15/07		2006			5,561,112				147,372				14,564			100%
								$	10,307,074			$	273,321				29,128

     The following table sets forth the principal provisions of the lease terms for the major tenants at each property listed above:

Total

% of

Current

Base

Number

Square

Total

Annual

Rent per

of

Feet

Square

Renewal

Base

Square

Lease Term

Property

Tenants

Major Tenants*

Leased

Feet

Options**

Rent

Foot

Beginning

To

Rite Aid — Lima, OH (Bellefontaine)

1

Rite Aid of Ohio, Inc.

14,564

100

%

6/5 yr

$

370,185

25.42

5/14/07

1/31/26

Rite Aid — Allentown, PA

1

Rite Aid of Pennsylvania, Inc.

14,564

100

%

6/5 yr.

419,864

28.83

5/15/07

2/21/27

     Cole Realty Advisors has the sole and exclusive right to manage, operate, lease and supervise the overall maintenance of the properties listed above and currently will receive a property management fee of up to 2.0% of the monthly gross revenues from our single-tenant properties and up to 4.0% of the monthly gross revenues from our multi-tenant properties. We currently have no plan for any renovations, improvements or development of the properties listed above.

     In connection with the property acquisitions noted above we incurred the following fixed and variable rate mortgage notes:

		Fixed
		Rate				Fixed
		Loan				Interest		Maturity
Property		Amount				Rate		Date
Rite Aid — Lima, OH (Bellefontaine)		$	3,103,000			5.46%		6/1/17
Rite Aid — Allentown, PA			3,615,000			5.78%		6/1/17
		$	6,718,000

     The fixed rate debt mortgage notes require monthly interest-only payments with the principal balance due on various dates from May 2017 through June 2017. The variable rate debt mortgage notes bear interest at the one-month LIBOR rate plus 200 basis points and require monthly interest-only payments and generally mature within 90 days. Each of the mortgage notes are secured by the respective property. The mortgage notes are generally non-recourse to the Company and Cole Op II, but both are liable for customary non-recourse carveouts.

     The fixed rate mortgage notes generally 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.

     In the event that a mortgage note is not paid off on the respective maturity date, each mortgage note includes 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.

     For federal income tax purposes, the depreciable basis in the properties noted above is approximately $10.3 million in total. When we calculate depreciation expense for tax purposes, we will use the straight-line method. We depreciate buildings and improvements based upon estimated useful lives of 40 years, respectively. The depreciable basis in the properties noted above are detailed as follows:

		Depreciable
Property		Tax Basis
Rite Aid — Lima, OH (Bellefontaine)		$	4,745,962
Rite Aid — Allentown, PA			5,561,112
		$	10,307,074

     Tenant Lease Expirations

     For each property supplemented above no lease expirations are scheduled during the next ten years.

     Potential Property Investments

     Our advisor has identified the following properties as potential suitable investments for us. The acquisition of each such property is subject to a number of conditions. A significant condition to acquiring any one of these potential acquisitions is our ability to raise sufficient proceeds in this offering to pay a portion of the purchase price. An additional condition to acquiring these properties will be our securing debt financing to pay the balance of the purchase price. Such financing may not be available on acceptable terms or at all.

     Our evaluation of a property as a potential acquisition, including the appropriate purchase price, will include our consideration of a property condition report; unit-level store performance; property location, visibility and access; age of the property, physical condition and curb appeal; neighboring property uses; local market conditions, including vacancy rates; area demographics, including trade area population and average household income; neighborhood growth patterns and economic conditions; and the presence of demand generators.

     We will decide whether to acquire these properties generally based upon:

	•		satisfaction of the conditions to the acquisitions contained in the respective contracts;
	•		no material adverse change occurring relating to the properties, the tenants or in the local economic conditions;
	•		our receipt of sufficient net proceeds from the offering of our common stock to the public and financing proceeds to make these acquisitions; and
	•		our receipt of satisfactory due diligence information including appraisals, environmental reports and tenant and lease information.

     Other properties may be identified in the future that we may acquire before or instead of these properties. Due to the considerable conditions to the consummation of the acquisition of these properties, we cannot make any assurances that the closing of these acquisitions is probable.

										Approximate
		Expected				Approximate				Compensation to
Property		Acquisition Date		Seller(1)		Purchase Price(2)				Sponsor(3)
Staples— Warsaw, IN		May 2007		Ric Warsaw Trust		$	3,215,000			$	96,000
Kroger — La Grange, GA		May 2007		Commerce, LLC			7,300,000				219,000
						$	10,515,000			$	315,000

     Each potential property acquisition is subject to a net lease, pursuant to which the tenants are required to pay substantially all operating expenses and capital expenditures in addition to base rent. In the case of a multi-tenant commercial property the tenants are also required to pay a proportionate amount of common area maintenance charges in addition to the items listed above.

Total Square

% of Total Square

Property

Major Tenants*

Guarantor

Feet Leased

Feet Leased

Staples— Warsaw, IN

Staples the Office Superstore East, Inc.

Staples, Inc.

23,990

100

%

Kroger — La Grange, GA

The Kroger Company

N/A

61,331

100

%

85,321

     The table below provides leasing information for the major tenants at each respective property:

Renewal

Annual

Base Rent per

Lease Term

Property

Major Tenants*

Options

Base Rent

Square Foot

Beginning

To

Staples— Warsaw, IN

Staples the Office Superstore East, Inc.

4/5 yr.

261,491

$

10.90

5/1/98

5/31/13

Kroger — La Grange, GA

The Kroger Company

6/5 yr.

531,126

8.66

2/1/98

1/31/18

     The following table outlines the anticipated loan terms on debt financing to be secured in connection with the purchase of the potential property acquisitions our advisor has identified for us. Generally, we expect the loans to have a fixed rate, with interest only payments and a five to ten-year maturity.

Property

Debt Financing

Type

Rate

Maturity Date

Staples— Warsaw, IN

$

1,864,700

Interest Only

5.75

%

June 2017

Kroger — La Grange, GA

4,745,000

Interest Only

5.79

%

June 2017

     Each of our properties is adequately covered by insurance and we intend to obtain adequate insurance coverage for all future properties that we acquire.

Overview

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

     We derive a substantial portion of our revenue from our rental income. As a result, our operating results and cash flows are primarily influenced by rental income from our commercial properties and interest expense on our property acquisition indebtedness. Rental income accounted for approximately 93% and 95% of total revenue during the three months ended March 31, 2007 and 2006, respectively. As approximately 100% of the rentable square feet at our properties is under lease, with an average remaining lease term of approximately 11.8 years, we believe our exposure to changes in commercial rental rates on our portfolio is substantially mitigated. As of March 31, 2007, the debt leverage ratio of our portfolio, which is the ratio of mortgage notes payable to total real estate assets, was approximately 53%, with approximately 1% of the debt, or $4.5 million, subject to variable interest rates. We intend to manage our interest rate risk by repaying approximately $4.5 million, of which approximately $1.9 million has been paid as of May 11, 2007, or 100%, of our short-term variable rate debt as it matures during the three-month period ending June 30, 2007. We expect to fund the repayments with proceeds from the sale of our common stock. Additionally, as we continue to raise capital from the sale of our common stock and invest the proceeds in commercial real estate, we will be subject to changes in real estate prices and changes in interest rates on new indebtedness used to acquire the properties. We may manage our risk of changes in real estate prices on future property acquisitions by entering into purchase agreements and loan commitments simultaneously such that our operating yield is determinable, by contracting with developers for future delivery of properties, or by entering into sale-leaseback transactions. We expect to manage our interest rate risk by monitoring the interest rate environment in connection with our planned property acquisitions to determine the appropriate acquisition financing, which may include fixed rate loans, variable rate loans or interest rate hedges. If we are unable to acquire suitable properties or obtain suitable financing for future acquisitions, our results of operations may be adversely affected.

     Our management is not aware of any material trends or uncertainties, other than national economic conditions affecting real estate generally (such as lower capitalization rates and increasing interest rates which lead to higher interest expense), that may reasonably be expected to have a material impact, favorable or unfavorable, on revenues or income from the acquisition and operation of real properties and mortgage loans, other than those referred to in the section of this prospectus captioned “Risk Factors”.

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

Results of Operations

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

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

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

     General and Administrative Expenses. General and administrative expenses increased approximately $103,000 to approximately $314,000 for the three months ended March 31, 2007 compared to approximately $211,000 for the three

months ended March 31, 2006. The increase was primarily due to increases in state franchise and income taxes due to the increase in the number of properties owned, from 28 properties in 2006 to 115 properties in 2007. The primary general and administrative expense items are legal and accounting fees, organizational costs, state franchise and income taxes, other licenses and fees, and insurance.

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

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

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

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

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

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

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

Funds From Operations

     We believe that funds from operations (“FFO”) is a beneficial indicator of the performance of a REIT. Because FFO calculations exclude such factors as depreciation and amortization of real estate assets and gains or losses from sales of operating real estate assets (which can vary among owners of identical assets in similar conditions based on historical cost accounting and useful-life estimates), they facilitate comparisons of operating performance between periods and between other REITs. Our management believes that accounting for real estate assets in accordance with generally accepted accounting principles in the United States (“GAAP”) implicitly assumes that the value of real estate assets diminishes

predictability over time. Since real estate values have historically risen or fallen with market conditions, many industry investors and analysts have considered the presentation of operating results for real estate companies that use historical cost accounting to be insufficient by themselves. As a result, we believe that the use of FFO, together with the required GAAP presentations, provide a more complete understanding of our performance relative to our competitors and a more informed and appropriate basis on which to make decisions involving operating, financing, and investing activities. Other REITs may not define FFO in accordance with the current National Association of Real Estate Investment Trust’s (“NAREIT”) definition (as we do) or may interpret the current NAREIT definition differently than we do.

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

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

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

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

	•		In order to recognize revenues on a straight-line basis over the terms of the respective leases, we recognized additional revenue by straight-lining rental revenue of approximately $559,000 and $132,000 during the three months ended March 31, 2007 and 2006, respectively.
	•		During the three months ended March 31, 2007 and 2006 amortization of deferred financing costs totaled approximately $292,000 and $73,000, respectively.

Liquidity and Capital Resources

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

     Short-term Liquidity and Capital Resources

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

     Between March 31, 2007 and May 15, 2007, we completed the acquisition of 18 single-tenant properties, three multi-tenant properties, and a portfolio consisting of 22 single-tenant restaurants in separate transactions for an aggregate purchase price of approximately $220.4 million, exclusive of closing costs. The acquisitions were funded with proceeds from the initial public offering and approximately $161.5 million in aggregate proceeds from 25 loans.

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

     Long-term Liquidity and Capital Resources

     We expect to meet our long-term liquidity requirements through proceeds from the sale of our common stock , proceeds from secured or unsecured financings from banks and other lenders, the selective and strategic sale of properties and net cash flows from operations. We expect that our primary uses of capital will be for property acquisitions, for the payment of tenant improvements, for the payment of offering-related costs, for the payment of operating expenses, including interest expense on any outstanding indebtedness, and for the payment of distributions to our stockholders.

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

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

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

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

Cash Flow Analysis

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

     Operating Activities

     Net cash provided by operating activities increased approximately $6.8 million to approximately $7.5 million for the three months ended March 31, 2007 compared to approximately $702,000 for the three months ended March 31, 2006. The increase was primarily due to an increase in net income for the period of approximately $1.9 million, increases in depreciation and amortization expenses totaling approximately $3.6 million and an increase in deferred rent and other liabilities of approximately $1.1 million. See “— Results of Operations” for a more complete discussion of the factors impacting our operating performance.

     Investing Activities

     Net cash used in investing activities increased approximately $220.0 million to approximately $292.5 million for the

three months ended March 31, 2007 compared to approximately $72.5 million for the three months ended March 31, 2006. The increase was primarily due to the acquisition of 24 real estate properties during the 2007 period compared to the acquisition of 14 properties during the 2006 period and an approximately $6.7 million increase in restricted cash, due to an increase cash held in escrow pending the issuance of shares to investors.

      Financing Activities

      Net cash provided by financing activities increased approximately $212.8 million to approximately $285.2 million for the three months ended March 31, 2007 compared to approximately $72.3 million for the three months ended March 31, 2006. The increase was primarily due to an increase in net proceeds from the issuance of common stock in the initial public offering of approximately $82.4 million and an increase in proceeds from the issuance of mortgage and affiliate notes of approximately $154.2 million, offset by an increase in repayments of mortgage and affiliate notes payable of approximately $22.9 million. The increase in proceeds from issuance of mortgage and affiliate notes payable was due to the issuance of 21 new mortgages in the 2007 period compared to 12 new mortgages in the 2006 period and borrowing of approximately $22.2 million on its revolving mortgage notes payable. The increase in repayments of mortgage and affiliate notes payable was due to the repayment of short-term variable rate debt at its maturity during 2007 and the repayment of the approximately $22.2 million in borrowings on its revolving mortgage notes payable during the three months ended March 31, 2007.

Election as a REIT

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

Inflation

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

Critical Accounting Policies and Estimates

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

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

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

Commitments and Contingencies

     We are subject to certain contingencies and commitments with regard to certain transactions. Refer to Note 6 to our

condensed consolidated financial statements for further explanations.

Related-Party Transactions and Agreements

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

Subsequent Events

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

	•		Sale of shares of common stock;
	•		Acquisition of various properties;
	•		Mortgage notes payable incurred in connection with acquisitions;
	•		Repayments on certain mortgage notes payable;
	•		Execution of an extended rate lock agreement;
	•		On May 11, 2007, the registration statement relating to our Follow-on Offering was declared effective by the SEC; and
	•		On May 11, 2007, we amended our agreement of limited partnership; and effective May 11, 2007, we amended the fees payable pursuant to our Property Management and Leasing Agreement to (i) up to 2% of gross revenues from our single-tenant properties and (ii) up to 4% of revenues from our multi-tenant properties..

Recent Accounting Pronouncements

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

     The following financial pages supplement, and should be read in connection with, the financial pages beginning on page F-1 of the prospectus and all supplements thereto.

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

		Page
Unaudited Financial Statements of Cole Credit Property Trust II, Inc.
Condensed Consolidated Balance Sheets as of March 31, 2007 and December 31, 2006 (Unaudited)			F-2
Condensed Consolidated Statements of Operations for the three months ended March 31, 2007 and 2006 (Unaudited)			F-3
Condensed Consolidated Statements of Stockholders’ Equity for the three months ended March 31, 2007 (Unaudited)			F-4
Condensed Consolidated Statements of Cash flows for the three months ended March 31, 2007 and 2006 (Unaudited)			F-5
Notes to Condensed Consolidated Financial Statements (Unaudited)			F-6

COLE CREDIT PROPERTY TRUST II, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)

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

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

COLE CREDIT PROPERTY TRUST II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

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

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

COLE CREDIT PROPERTY TRUST II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
(Unaudited)

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

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

COLE CREDIT PROPERTY TRUST II, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)

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

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

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
March 31, 2007
(Unaudited)

Note 1 — Organization

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

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

     On June 27, 2005, the Company commenced an initial public offering on a “best efforts” basis of up to 45,000,000 shares of common stock offered at a price of $10.00 per share, subject to certain volume and other discounts, pursuant to a Registration Statement on Form S-11 filed with the Securities and Exchange Commission (the “SEC”) under the Securities Act of 1933, as amended (the “Initial Offering”). The Registration Statement also covered up to 5,000,000 shares available pursuant to a distribution reinvestment plan (the “DRIP”) under which our stockholders may elect to have their distributions reinvested in additional shares of the Company’s common stock at the greater of $9.50 per share or 95% of the estimated value of a share of common stock. On November 13, 2006, the Company increased the aggregate amount of the public offering to 49,390,000 shares for the primary offering and 5,952,000 shares pursuant to the distribution reinvestment plan, in a related registration statement on Form S-11. Subsequently, the Company reallocated the shares of common stock such that a maximum of 54,140,000 shares of common stock was available under the primary offering, for an aggregate offering price of $541,400,000, and a maximum of 1,202,000 shares was available under the distribution reinvestment plan, for an aggregate offering price of $11,419,000.

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

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

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

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

Note 2 — Summary of Significant Accounting Policies

Basis of Presentation

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

Principles of Consolidation and Basis of Presentation

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

Restricted Cash and Escrowed Investor Proceeds

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

Redeemable Common Stock

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

Reportable Segments

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

Investment in Real Estate Assets

     The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. When indicators of potential impairment are present that indicate that the carrying amounts of real estate and related intangible assets may not be recoverable, the Company assesses the recoverability of the assets by determining whether the carrying value of the assets will be recovered through the undiscounted future operating cash flows expected from the use of the assets and their eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, the Company will adjust the real estate and related intangible assets to the fair value and recognize an impairment loss. As of March 31, 2007 the undiscounted future

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

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

Note 3 — Real Estate Acquisitions

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

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

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

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

Note 4 — Notes Payable

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

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

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

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

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

Note 5 — Extended Rate Lock Agreement

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

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

Note 6 — Commitments and Contingencies

Litigation

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

Environmental Matters

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

Note 7 — Related-Party Transactions and Arrangements

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

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

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

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

     If Cole Advisors II provides substantial services, as determined by the Company’s independent directors, in connection with the origination or refinancing of any debt financing obtained by the Company that is used to acquire properties or to make other permitted investments, or that is assumed, directly or indirectly, in connection with the acquisition of properties, the Company will pay Cole Advisors II a financing coordination fee equal to 1% of the amount available under such financing; provided, however, that Cole Advisors II shall not be entitled to a financing coordination fee in connection with the refinancing of any loan secured by any particular property that was previously subject to a refinancing in which Cole Advisors II received such a fee. Financing coordination fees payable from loan proceeds from permanent financing will be paid to Cole Advisors II as the Company acquires such permanent financing. However, no fees will be paid on loan proceeds from any line of credit until such time as all net offering proceeds have been invested by the Company. During the three months ended March 31, 2007 and 2006, the Company paid Cole Advisors II approximately $1.7 million and approximately $423,000 for finance coordination fees, respectively.

     The Company pays, and expects to continue to pay, Cole Realty Advisors, Inc., (“Cole Realty”), its affiliated property manager, fees for the management and leasing of the Company’s properties. Such fees currently equal, and are expected to continue to equal 2% of gross revenues, plus leasing commissions at prevailing market rates; provided however, that the aggregate of all property management and leasing fees paid to affiliates plus all payments to third parties will not exceed the amount that other nonaffiliated management and leasing companies generally charge for similar services in the same geographic location. Cole Realty may subcontract its duties for a fee that may be less than the fee provided for in the property management agreement. During the three months ended March 31, 2007 and 2006, the Company paid Cole Realty approximately $213,000 and approximately $45,000 for property management fees, respectively.

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

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

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

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

     The Company may reimburse Cole Advisors II for all expenses it paid or incurred in connection with the services provided to the Company, subject to the limitation that the Company does not reimburse for any amount by which its operating expenses (including the asset management fee) at the end of the four preceding fiscal quarters exceeds the greater

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

of (i) 2% of average invested assets, or (ii) 25% of net income other than any additions to reserves for depreciation, bad debts or other similar non-cash reserves and excluding any gain from the sale of assets for that period unless the Company’s independent directors find that based on unusual and non-recurring factors a higher level of expense is justified for that year. The Company will not reimburse for personnel costs in connection with services for which Cole Advisors II receives acquisition fees or real estate commissions. During the three months ended March 31, 2007 and 2006, the Company did not reimburse the Advisor for any such costs.

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

Note 8 — Economic Dependency

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

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

Note 9 — New Accounting Pronouncements

     In June 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income Taxes, an interpretation of 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.

Note 10 — Independent Directors’ Stock Option Plan

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

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

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

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

Note 11 — Subsequent Events

Sale of Shares of Common Stock

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

Real Estate Acquisitions

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

Property		Location		Acquisition Date				Square Feet				Purchase Price
Tractor Supply specialty retail		Greenfield, MN		April 2, 2007					22,512			$	4,050,000
Eckerd drugstore		Lincolnton, NC		April 3, 2007					10,908				2,262,000
Lincoln Place shopping center		Fairview Heights, IL		April 5, 2007					185,416				44,000,000
Ashley Furniture home furnishings		Amarillo, TX		April 6, 2007					74,797				5,920,000
Pocatello Square shopping center		Pocatello, ID		April 6, 2007					125,554				23,000,000
Tractor Supply specialty retail		Paw Paw, MI		April 9, 2007					22,670				3,095,000
Tractor Supply specialty retail		Marinette, WI		April 9, 2007					19,097				2,950,000
Staples office supply		Greenville, SC		April 11, 2007					20,388				4,545,000
Big 5 Center retail center		Aurora, CO		April 11, 2007					13,500				4,290,000
Rite Aid drugstore		Plains, PA		April 16, 2007					14,564				5,200,000
Tractor Supply specialty retail		Navasota, TX		April 18, 2007					22,670				3,015,000
Sportsman’s Warehouse sporting goods		DePere, WI		April 20, 2007					48,453				6,010,000
Eckerd drugstore		Easton, PA		April 24, 2007					13,813				5,970,000
Applebee’s Portfolio		Various		April 28, 2007					120,246				65,000,000
Walgreens drugstore		Bridgetown, OH		April 30, 2007					13,905				4,475,000
Rite Aid drugstore		Fredericksburg, VA		May 2, 2007					14,564				5,415,000
Sam’s Club warehouse club		Anderson, SC		May 8, 2007					134,664				12,000,000
Tractor Supply specialty retail		Fredericksburg, TX		May 7, 2007					22,670				3,125,000
Walgreens drugstore		Dallas, TX		May 9, 2007					13,905				3,150,000
Wal-Mart discount retailer		New London, WI		May 9, 2007					51,985				2,614,000
Rite Aid drugstore		Lima, OH		May 14, 2007					14,564				4,745,962
Rite Aid drugstore		Allentown, PA		May 15, 2007					14,564				5,561,112
Total									995,409			$	220,392,774

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

Mortgage Notes Payable

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

								Fixed								Variable Rate
				Fixed Rate				Interest								Loan Amount
Property		Location		Loan Amount				Rate				Maturity Date				(1)				Maturity Date		Total Loan
Tractor Supply specialty retail		Greenfield, MN		$	2,227,500				5.57	%		July 1, 2017				$	—			N/A		$	2,227,500
Eckerd drugstore		Lincolnton, NC			1,538,000				5.80	%		April 11, 2017					271,000			July 3, 2007			1,809,000
Lincoln Place shopping center		Fairview Heights, IL			35,432,000				5.70	%		May 1, 2017					—			N/A			35,432,000
Ashley Furniture		Amarillo, TX			4,026,000				5.59	%		April 11, 2017					710,000			July 5, 2007			4,736,000
Pocatello Square		Pocatello, ID			17,250,000				5.53	%		April 11, 2017					1,150,000			August 6, 2007			18,400,000
Tractor Supply specialty retail		Paw Paw, MI			2,048,000				5.65	%		May 1, 2017					—			N/A			2,048,000
Tractor Supply specialty retail		Marinette, WI			1,918,000				5.65	%		May 1, 2017					—			N/A			1,918,000
Tractor Supply specialty retail		Ankeny, IA			1,950,500				5.65	%		May 1, 2017					—			N/A			1,950,500
Staples office supply		Greenville, SC			2,955,000				5.51	%		June 1, 2017					—			N/A			2,955,000
Big 5 Center retail center		Aurora, CO			2,804,000				5.57	%		May 1, 2017					—			N/A			2,804,000
Rite Aid drug store		Plains, PA			3,380,000				5.60	%		June 1, 2017					—			N/A			3,380,000
Tractor Supply specialty retail		Navasota, TX			2,050,000				5.80	%		May 11, 2017					362,000			July 18, 2007			2,412,000
Sportsman’s Warehouse sporting goods		DePere, WI			3,906,500				5.52	%		May 1, 2017					—			N/A			3,906,500
Eckerd drugstore		Easton, PA			4,060,000				5.80	%		April 11, 2017					716,000			July 4, 2007			4,776,000
Walgreens drugstore		Bridgetown, OH			3,043,000				5.80	%		May 11, 2017					537,000			August 27, 2007			3,580,000
Applebee’s Portfolio		Various			42,250,000	(1)			5.68	%		May 11, 2017					—			N/A			42,250,000
Rite Aid drug store		Fredericksburg, VA			2,979,000				5.92	%		May 11, 2017					1,353,000			August 2, 2007			4,332,000
Sam’s Club warehouse club		Anderson, SC			8,160,000				5.80	%		May 11, 2017					1,440,000			August 4, 2007			9,600,000
Tractor Supply specialty retail		Fredericksburg, TX			2,031,250				5.57	%		June 1, 2017					—			N/A			2,031,250
Walgreens drugstore		Dallas, TX			2,175,000				5.76	%		June 1, 2017					—			N/A			2,175,000
Wal-Mart discount retailer		New London, WI			1,778,000				5.80	%		May 11, 2017					313,000			August 9, 2007			2,091,000
Rite Aid drugstore		Lima, OH			3,103,000				5.46	%		June 1, 2017					—			N/A			3,103,000
Rite Aid drugstore		Allentown, PA			3,615,000				5.78	%		June 1, 2017					—			N/A			3,615,000
Total indebtedness				$	154,679,750											$	6,852,000					$	161,531,750

COLE CREDIT PROPERTY TRUST II, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)
March 31, 2007
(Unaudited)

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

Extended Rate Lock Agreement

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

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