Cole Credit Property Trust 10-K 2007 FY Annual report

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
x	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2007
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period fromto

Commission file number 000-51962

COLE CREDIT PROPERTY TRUST, INC.

(Exact name of registrant as specified in its charter)

Maryland	20-1676382
(State or other jurisdiction of incorporation or organization)	(I.R.S. EmployerIdentification Number)
2555 East Camelback Road, Suite400 Phoenix, Arizona, 85016 (Address of principal executive offices; zip code)	(602) 778-8700 (Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Name of Exchange on Which Registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Title of Each Class

Common Stock, par value $0.01 per share

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes o   No x

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.  Yes o   No x

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

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this annual report on Form 10-K or any amendment to this annual report on Form 10-K.    x

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

Large accelerated filer o   Accelerated filer o   Non-accelerated filer o   Smaller reporting company x

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  Yes o  No x

The aggregate market value of the voting stock held by non-affiliates as of June 30, 2007: approximately $100.9 million assuming a market value of $10.00 per share.

The number of shares of common stock outstanding as of March 24, 2008 was 10,090,951.

Documents Incorporated by Reference:

The Registrant incorporates by reference portions of the Cole Credit Property Trust, Inc. Definitive Proxy Statement for the 2008 Annual Meeting of Stockholders (into Items 10, 11, 12, 13 and 14 of Part III).

TABLE OF CONTENTS

CAUTIONARY NOTE REGARDING FORWARD LOOKING STATEMENTS			2
PART I
	ITEM 1.	BUSINESS	3
	ITEM 1A.	RISK FACTORS	11
	ITEM 1B.	UNRESOLVED STAFF COMMENTS	11
	ITEM 2.	PROPERTIES	11
	ITEM 3.	LEGAL PROCEEDINGS	15
	ITEM 4.	SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS	15
PART II
	ITEM 5.	MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES	16
	ITEM 6.	SELECTED FINANCIAL DATA	18
	ITEM 7.	MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS	19
	ITEM 7A.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS	26
	ITEM 8.	FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA	26
	ITEM 9.	CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE	26
	ITEM 9A.	CONTROLS AND PROCEDURES	26
	ITEM 9B.	OTHER INFORMATION	27
PART III
	ITEM 10.	DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE	28
	ITEM 11.	EXECUTIVE COMPENSATION	28
	ITEM 12.	SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS	28
	ITEM 13.	CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR INDEPENDENCE	28
	ITEM 14.	PRINCIPAL ACCOUNTING FEES AND SERVICES	28
PART IV
	ITEM 15.	EXHIBITS AND FINANCIAL STATEMENT SCHEDULES	29
SIGNATURES			30
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM			F-2
	CONSOLIDATED BALANCE SHEETS		F-3
	CONSOLIDATED STATEMENTS OF OPERATIONS		F-4
	CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY		F-5
	CONSOLIDATED STATEMENTS OF CASH FLOWS		F-6
	NOTES TO CONSOLIDATED FINANCIAL STATEMENTS		F-7
EX-31.1 SECTION 302, CERTIFICATION OF THE CEO
EX-31.2 SECTION 302, CERTIFICATION OF THE CFO
EX-32.1 SECTION 906, CERTIFICATION OF THE CEO AND CFO

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CAUTIONARY NOTEREGARDING FORWARD LOOKING STATEMENTS

Certain statements contained in this Annual Report on Form 10-K of Cole Credit Property Trust, Inc. other than historical facts may be considered forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). We intend for all such forward-looking statements to be covered by the safe harbor provisions for forward-looking statements contained in Section 27A of the Securities Act and Section 21E of the Exchange Act, as applicable by law. Such statements include, in particular, statements about our plans, strategies, and prospects and are subject to certain risks and uncertainties, as well as known and unknown risks, which could cause actual results to differ materially from those projected or anticipated. Therefore, such statements are not intended to be a guarantee of our performance in future periods. Such forward-looking statements can generally be identified by our use of forward-looking terminology such as “may,” “will,” “would,” “could,” “should,” “expect,” “intend,” “anticipate,” “estimate,” “believe,” “continue,” or other similar words. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date this Annual Report is filed with the Securities and Exchange Commission (“SEC”). We make no representation or warranty (express or implied) about the accuracy of any such forward-looking statements contained in this Annual Report on Form 10-K, and we do not undertake to publicly update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise.

Any forward-looking statements are subject to unknown risks, uncertainties, and other factors and are based on a number of assumptions involving judgments with respect to, among other things, future economic, competitive, and market conditions, all of which are difficult or impossible to predict accurately. To the extent that our assumptions differ from actual results, our ability to meet such forward-looking statements, including our ability to generate positive cash flow from operations, provide distributions to stockholders, and maintain the value of our real estate properties, may be significantly hindered.

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PART I

ITEM 1. BUSINESS

Formation

Cole Credit Property Trust, Inc. (the “Company,” “we,” “our,” or “us”) is a Maryland corporation formed on March 29, 2004, that elected to be taxed, and currently qualifies, as a real estate investment trust (“REIT”). We were organized to acquire and operate commercial real estate primarily consisting of high quality, freestanding, single-tenant , retail properties net leased to investment grade and other creditworthy tenants located throughout the United States. As of December 31, 2007, we owned 42 properties located in 19 states, comprising approximately 1.0 million rentable square feet. At December 31, 2007, these properties were approximately 100% leased.

Substantially all of our business is conducted through our operating partnership, Cole Operating Partnership I, LP, a Delaware limited partnership organized in 2004 (“Cole OP I”). We own a 99.99% interest in Cole OP I as its general partner. The remaining 0.01% of Cole OP I is held as a limited partner’s interest by Cole REIT Advisors, LLC (“Cole Advisors”), which is our affiliated advisor.

Cole Advisors acts as our advisor pursuant to an advisory agreement. Cole Advisors is responsible for managing our affairs on a day-to-day basis, identifying and making acquisitions and investments on our behalf and making recommendations as to dispositions of assets. Our board of directors exercises its fiduciary duties in reviewing these recommendations and determining to approve or reject proposed transactions. Our advisor also provides asset management, marketing, investor relations and other administrative services on our behalf. Our agreement with Cole Advisors is for a one-year term and is reconsidered on an annual basis by our board of directors. We have no employees and rely upon our advisor to provide substantially all of our services.

On April 6, 2004, we commenced a private placement of shares of common stock offered at a price of $10.00 per share, subject to certain volume and other discounts (the “Offering”). We completed the Offering on September 16, 2005, after having raised aggregate gross proceeds of $100,331,320 through the sale of an aggregate of 10,097,251 shares of our common stock. As of March 24, 2008, 10,090,951 shares of our common stock were issued and outstanding and held by 1,466 stockholders of record.

We issued our common stock in the Offering in reliance upon exemptions from the registration requirements of the Securities Act and state securities laws. As a result, our stockholders may not transfer the shares of common stock except pursuant to an effective registration statement or pursuant to an exemption from registration. Our common stock is not currently listed on a securities exchange and there currently is no market for our common stock. We do not intend to list our shares at this time. We do not anticipate that there will be any market for our common stock until our shares are listed. However, once a stockholder has held our shares for at least one year, he or she may be able to have the shares repurchased by us pursuant to our share redemption program.

As of December 31, 2006, we owned 41 freestanding, single-tenant, retail properties with an aggregate purchase price of approximately $195.5 million, exclusive of closing costs. During 2007, we acquired one additional freestanding, single-tenant property for a purchase price of approximately $3.1 million, exclusive of closing costs. The acquisition was funded with available cash and an approximately $1.7 million loan secured by the property. We do not anticipate acquiring any additional properties, unless we were to dispose of any of our properties in the ordinary course of business, in which case we would expect to reinvest the sales proceeds in additional properties. We currently have no plans to dispose of any of our properties.

We expect to hold our properties for approximately six to eight years, and return to our stockholders all or a portion of their capital contributions in connection with the sale of our properties or our company.

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Alternatively, our board of directors may determine to list our shares of common stock on a national securities exchange. Pursuant to our charter, if we do not list our shares of common stock on a national securities exchange on or before February 1, 2016, we will be required to either:

• seek stockholder approval of an extension or amendment to this listing deadline; or

• seek stockholder approval to adopt a plan of liquidation.

If we do not list the shares by such date, and do not obtain stockholder approval of an extension or amendment to the listing deadline, we then would be required to seek stockholder approval of our plan of liquidation. If we seek and fail to obtain stockholder approval of our plan of liquidation, our charter would not require us to list or liquidate and we could continue to operate as before. If we seek and obtain stockholder approval of our plan of liquidation, we would begin an orderly sale of our properties and distribute our net proceeds from liquidation to our stockholders.

Our principal executive offices are located at 2555 East Camelback Road, Suite 400, Phoenix, Arizona 85016. Our telephone number is (602) 778-8700.

Investment Objectives and Policies

General

Our primary investment objectives are:

• to provide current income for our stockholders through the payment of cash distributions;

• to preserve and return our stockholders’ capital contributions; and

• to realize growth in the value of our properties upon the ultimate sale of such properties.

Our board of directors may revise our investment policies, which we describe in more detail below, without the concurrence of our stockholders. Our board reviews our investment policies at least annually to determine that our policies are in the best interest of our stockholders.

Primary Investment Focus

We primarily own and invest in net leased, freestanding, single-tenant, income-generating retail properties located throughout the United States. Our current investments are indirect investments in such properties through wholly-owned subsidiaries of Cole OP I. We may also invest in other entities that own or invest in, directly or indirectly, interests in such properties. We seek to own and maintain a portfolio of real estate that is diversified by geographical location and by type and size of retail centers. Our properties consist of real estate primarily improved for use as retail establishments and principally are freestanding, single-tenant retail properties. However, we are not limited to investments in single-tenant retail properties. Many of our properties are leased to tenants in the chain or franchise retail industry, including but not limited to convenience stores, drug stores, home improvement stores, automobile dealerships and sporting goods properties. Our advisor monitors industry trends and invests in properties that we believe to provide the most favorable return balanced with risk. Our management targets primarily retail businesses with established track records.

We believe that our focus on the acquisition of net leased, freestanding, single-tenant, income-generating retail properties located throughout the United States presents lower investment risks and greater stability than other sectors of today’s commercial real estate market. Unlike funds that invest in a limited number of large investments in large, multi-tenant properties, our portfolio is diversified into a larger number of assets, with the result that lower than expected results of operations from one or a few investments will not preclude our ability to realize our investment objectives of cash flow, preservation of capital and capital appreciation from our overall portfolio. Our management believes that freestanding retail properties, as opposed to investments in shopping centers, malls or other large retail complexes as a whole, offer a distinct investment advantage since these properties generally offer superior locations that are less dependent on the financial stability of adjoining tenants. In addition, since we acquired properties that are geographically diverse, we will reduce the potential adverse impact of economic downturns in local markets.

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We apply credit underwriting criteria to the tenants of existing properties and when re-leasing properties in our portfolio. Tenants of our properties typically are large national or super-regional retail chains that have significant net worth and operating income. Generally these tenants and/or the lease guarantors are experienced multi-unit operators with a history of success as measured by profitable unit-level store performance and positive cash from operations.

Our tenants include investment grade tenants, non-investment grade tenants and non-rated tenants. Our policy does not limit the percentage of our assets that may consist of properties rented to non-investment grade and non-rated tenants. A tenant is considered “investment grade” when the tenant has a debt rating by Moody’s Investor Services of Baa3 or better or a credit rating by Standard & Poor’s of BBB- or better, or its payments are guaranteed by a company with such a debt rating. As of March 24, 2008, approximately 29% of all scheduled lease payments were projected to be derived from tenants that maintain an investment grade credit rating, while approximately 24% and 47% of scheduled lease payments are projected to be derived from non-investment grade tenants and non-rated tenants, respectively. Changes in tenant credit ratings, coupled with future acquisition and disposition activity, may increase or decrease our concentration of investment grade tenants in the future.

A tenant is considered "non-investment grade" when the tenant has a debt rating by either Moody's or Standard & Poor's that is below investment grade. A tenant is considered "non-rated" if it has not been rated by a credit rating agency. Generally, our non-investment grade tenants have significant net worth and operating income and financial profiles that our advisor believes meet our investment objectives of cash flow, preservation of capital and capital appreciation. In evaluating the credit worthiness of a tenant or prospective tenant, our advisor does not use specific quantifiable standards, but does consider many factors, including the proposed terms of the acquisition. The factors that our advisor considers include the financial condition of the tenant and/or guarantor, credit agency reports (if any), the operating history of the property with such tenant, the trade area demographics surrounding the property, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment, and the lease length and terms at the time of the acquisition.

Other Possible Investments

Although most of our property acquisitions are of the type described above, we have made, and may continue to make, other investments. For example, we are not limited to investments in single-tenant retail properties or properties leased to investment grade tenants. Our policy does not limit the percentage of our assets that may consist of properties rented to non-investment grade and non-rated tenants. We have invested, or may in the future invest, in other commercial properties, such as shopping centers, business and industrial parks, manufacturing facilities, office buildings and warehouse and distribution facilities in order to reduce overall portfolio risks or enhance overall portfolio returns. We made such investments only after our advisor determined that it would be advantageous to do so. It is our policy to limit our investments in non-freestanding, single-tenant retail properties and mortgage loans to 20% of the aggregate value of our investment portfolio at the time of the investment in such property or mortgage. We may exceed this policy limit with the approval of the board of directors.

We have not made, and do not intend to make, loans to other persons, to underwrite securities of other issuers or to engage in the purchase and sale of any types of investments other than interests in real estate.

Investment Decisions

Cole Advisors has substantial discretion with respect to the selection of specific investments and the purchase and sale of our properties, subject to the approval of our board of directors. In pursuing our investment objectives and making investment decisions for us, Cole Advisors evaluates the proposed terms of the purchase against all aspects of the transaction, including the condition and financial performance of the property, the terms of existing leases and the creditworthiness of the tenant and/or lease guarantor, and property and location characteristics. Because the factors considered, including the specific weight we place on each factor, vary for each investment, we do not, and are not able to, assign a specific weight or level of importance to any particular factor.

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In addition to procuring and reviewing an independent valuation estimate and property condition report, our advisor also considers the following:

•  unit level store performance;

•  property location, visibility and access;

•  age of the property, physical condition and curb appeal;

• the prospects for long-range appreciation and liquidity;

• suitability of the property for any development contemplated or in progress;

• the property’s income producing capacity;

• tax considerations;

•  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;

•  presence of nearby properties that may positively impact store sales at the subject property; and

•  lease terms including length of lease term, scope of landlord responsibilities, presence and frequency of contractual rental increases, renewal option provisions, exclusive and permitted use provisions, co-tenancy requirements and termination options.

Our advisor considers properties leased and/or guaranteed by companies that maintain an investment grade rating by either Standard & Poor’s or Moody’s Investor Services. Our advisor also considers non-rated and non-investment grade rated tenants that we believe have significant net worth and operating income.

Conditions to Closing Our Acquisitions

Generally, we condition our obligation to close the purchase of any investment on the delivery and verification of certain documents from the seller or developer, including, where appropriate:

• plans and specifications;

• surveys;

• evidence of marketable title, subject to such liens and encumbrances as are acceptable to Cole Advisors;

• financial statements covering recent operations of properties having operating histories;

• title and liability insurance policies; and

• tenant estoppel certificates.

We generally will not purchase, and have not purchased, any property unless and until we obtain what is generally referred to as a “Phase I” environmental site assessment and are generally satisfied with the environmental status of the property. However, we may purchase a property without obtaining such an assessment if our advisor determines it is not warranted. A Phase I environmental site assessment basically consists of a visual survey of the building and the property in an attempt to identify areas of potential environmental concerns, visually observing neighboring properties to assess surface conditions or activities that may have an adverse environmental impact on the property, and contacting local governmental agency personnel who perform a regulatory agency file search in an attempt to determine any known environmental concerns in the immediate identity of the property. A Phase I environmental site assessment does not generally include any sampling or testing of soil, ground water or building materials from the property and may not reveal all environmental hazards on the property. We currently do not own any properties that are in development and do not intend to acquire any properties that are in development.

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Ownership Structure

Our investment in real estate generally takes the form of holding fee title or a long-term leasehold estate. We acquire such interests either directly through our operating partnership or indirectly through limited liability companies that are wholly-owned by our operating partnership. In addition, in certain cases we purchased properties and leased them back to the sellers of such properties and we may engage in these types of sale-leaseback transactions in the future. While we use our best efforts to structure any such sale-leaseback transaction such that the lease is characterized as a “true lease” so that we will be treated as the owner of the property for federal income tax purposes, the Internal Revenue Service could challenge such characterization. In the event that any such sale-leaseback transaction is re-characterized as a financing transaction for federal income tax purposes, deductions for depreciation and cost recovery relating to such property would be disallowed.

Borrowing Policies

We believe that utilizing borrowing is consistent with our investment objective of maximizing the return to investors. The number of different properties that we acquired has been affected by the amount of funds available to us. Accordingly, utilizing borrowings allowed us to increase the number of our acquisitions and our diversification. There is no limitation on the amount we can borrow for the purchase of any property or other investment. However, we intend to limit our borrowings so that we generally will not borrow in the aggregate in excess of 60% of the value of our real estate related assets. As of December 31, 2007, we had approximately $118.0 million in aggregate principle amount of borrowings outstanding, which represented approximately 57% of the aggregate value of our real estate related assets (based on the purchase price of the assets). See “Item 2. Properties – Mortgage Information” below.

Disposition Policies

We intend to hold each property we acquire for an extended period of time, generally six to eight years. However, circumstances might arise that could result in the early sale of some properties. We may sell a property before the end of the expected holding period if we believe the sale of the property would be in the best interests of our company and our stockholders. As of December 31, 2007, we had not sold any properties.

The determination of whether a particular property should be sold or otherwise disposed of will be made after consideration of relevant factors, including prevailing economic conditions and current tenant creditworthiness, with a view to achieving maximum capital appreciation. We cannot assure you that this objective will be realized. The selling price of a property that is net leased will be determined in large part by the amount of rent payable remaining under the lease. In connection with our sales of properties we may lend the purchaser all or a portion of the purchase price. In these instances, our taxable income may exceed the cash received in the sale. The terms of payment will be affected by custom in the area in which the property being sold is located and the then-prevailing economic conditions.

Conflicts of Interest

We are subject to various conflicts of interest arising out of our relationship with Cole Advisors, our advisor, and its affiliates, including conflicts related to the arrangements pursuant to which Cole Advisors and its affiliates will be compensated by us. Additionally, each of our directors is an affiliate of Cole Advisors as well as other Cole-sponsored real estate programs.

The agreements and compensation arrangements between us and our advisor and its affiliates were not determined by arm’s-length negotiations. Some of the conflicts of interest in our transactions with our advisor and its affiliates, and the limitations on our advisor adopted to address these conflicts, are described below.

Our advisor and its key personnel and affiliates try to balance our interests with their duties to other Cole-sponsored programs. However, to the extent that our advisor or its key personnel and affiliates take actions that are more favorable to other entities than to us, these actions could have a negative impact on our financial performance and, consequently, on distributions to our stockholders and the value of our stock. In addition, our directors, officers and certain of our stockholders may engage for their own account in business activities of the types conducted or to be conducted by our subsidiaries and us.

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Interests in Other Real Estate Programs

An affiliate of our directors and our advisor acts as an advisor to, and our officers and a director act as officers and a director of, Cole Credit Property Trust II, Inc., which is a real estate investment trust that has similar investment objectives to us. Affiliates of our directors and officers and entities owned or managed by such affiliates also may acquire or develop real estate for their own accounts, and have done so in the past. Furthermore, affiliates of our directors and officers and entities owned or managed by such affiliates intend to form additional real estate investment entities in the future, whether public or private, which can be expected to have the same or similar investment objectives and policies as we do and which may be involved in the same geographic area. Our advisor, its affiliates and affiliates of our directors and officers are not obligated to present to us any particular investment opportunity that comes to their attention, even if such opportunity is of a character that might be suitable for investment by us. Our advisor and its affiliates, as well as our officers and directors, likely will experience conflicts of interest as they simultaneously perform services for us and other affiliated real estate programs. Any affiliated entity, whether or not currently existing, could compete with us in the sale or operation of the properties. We will seek to achieve any operating efficiency or similar savings that may result from affiliated management of competitive properties. However, to the extent that affiliates own or acquire property that is adjacent, or in close proximity, to a property we own, our property may compete with the affiliate’s property for tenants or purchasers.

Every transaction that we enter into with our advisor or its affiliates is subject to an inherent conflict of interest. Our board of directors may encounter conflicts of interest in enforcing our rights against any affiliate in the event of a default by or disagreement with an affiliate or in invoking powers, rights or options pursuant to any agreement between us and our advisor or any of its affiliates.

Other Activities of Cole Advisors and its Affiliates

We rely on Cole Advisors for the day-to-day operation of our business pursuant to an advisory agreement. As a result of the interests of members of its management, as well as the interests of our directors and officers, in other Cole-sponsored programs and the fact that they have also engaged and will continue to engage in other business activities, Cole Advisors and its key personnel and affiliates, as well as our directors and officers, have conflicts of interest in allocating their time between us and other Cole-sponsored programs and other activities in which they are involved. However, Cole Advisors believes that it and its affiliates have sufficient personnel to discharge fully their responsibilities to all of the Cole-sponsored programs and other ventures in which they are involved.

Each of our directors and executive officers, including Christopher H. Cole, who also serves as the chairman of our board of directors, also serves as an officer of our advisor, our property manager, our dealer manager and other affiliated entities. As a result, these individuals owe duties to these other entities that may conflict with the duties that they owe to us and our stockholders.

We have purchased, and in the future may purchase properties or interests in properties from affiliates of Cole Advisors. The prices we pay to affiliates of our advisor for these properties will not be the subject of arm’s-length negotiations, which could mean that the acquisitions may be on terms less favorable to us than those negotiated with unaffiliated parties.

Competition in Acquiring, Leasing and Operating of Properties

Conflicts of interest will exist to the extent that we have acquired, and in the future may acquire, properties in the same geographic areas where properties owned by other Cole-sponsored programs are located. In such a case, a conflict could arise in the leasing of properties in the event that we and another Cole-sponsored program were to compete for the same tenants in negotiating leases, or a conflict could arise in connection with the resale of properties in the event that we and another Cole-sponsored program were to attempt to sell similar properties at the same time. Conflicts of interest may also exist at such time as we or our affiliates managing property on our behalf seek to employ developers, contractors or building managers, as well as under other circumstances. Cole Advisors seeks to reduce conflicts relating to the employment of developers, contractors or building managers by making prospective employees aware of all such properties seeking to employ such persons. In addition, Cole Advisors seeks to reduce conflicts that may arise with respect to properties available for sale or rent by making prospective purchasers or tenants aware of all such properties. However, these conflicts cannot be fully avoided in that there may be established differing compensation arrangements for employees at different properties or differing terms for resale or leasing of the various properties.

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Affiliated Dealer Manager

Cole Capital Corporation (“Cole Capital”), an affiliate of Cole Advisors, acted as the dealer manager in our Offering. As a result, we did not have the benefit of an independent due diligence review and investigation of the type normally performed by an unaffiliated, independent underwriter in connection with our Offering. During the period from inception (March 29, 2004) to September 16, 2005, when we completed our Offering, we paid an aggregate of approximately $6,427,000 in commissions and approximately $2,527,000 in dealer manager fees in connection with our Offering. Cole Capital reallowed all of the commissions and approximately $597,000 of the dealer manager fees to non-affiliated third party broker-dealers in connection with the sale of shares in the Offering.

Affiliated Property Manager

Our properties are, and we anticipate that properties we acquire in the future, if any, will be, managed and leased by our affiliated property manager, Cole Realty Advisors, Inc. (“Cole Realty”), pursuant to a property management and leasing agreement. Cole Realty also serves as property manager for properties owned by Cole affiliated real estate programs, some of which may be in competition with our properties. Management fees to be paid to our property manager are based on a percentage of the rental income received by the managed properties.

Lack of Separate Representation

Morris, Manning & Martin, LLP acts, and may in the future act, as counsel to us, Cole Advisors, and certain of our respective affiliates. There is a possibility that in the future the interests of the various parties may become adverse, and under the Code of Professional Responsibility of the legal profession, Morris, Manning & Martin, LLP may be precluded from representing any one or all of such parties. In the event that a dispute were to arise between us, Cole Advisors, or any of our respective affiliates, separate counsel for such matters will be retained as and when appropriate.

Receipt of Fees and Other Compensation by Cole Advisors and Its Affiliates

We paid, and will continue to pay, fees to Cole Advisors and its affiliates in connection with our operation, purchases and sales of properties, commissions, fees and other compensation, including acquisition and advisory fees, the dealer manager fee, property management and leasing fees, real estate brokerage commissions and participation in nonliquidating net sale proceeds. However, the fees and compensation payable to Cole Advisors and its affiliates relating to the net sale proceeds from the sale of properties will only be payable after the return to the stockholders of their capital contributions plus cumulative returns on such capital. Subject to oversight by our board of directors, Cole Advisors will have considerable discretion with respect to all decisions relating to the terms and timing of all transactions. Therefore, Cole Advisors may have conflicts of interest concerning certain actions taken on our behalf, particularly due to the fact that such fees will generally be payable to Cole Advisors and its affiliates regardless of the quality of the properties acquired or the services provided to us.

Policies With Respect to Conflicts of Interest

In order to reduce or eliminate certain potential conflicts of interest, we adopted certain policies relating to transactions we enter into with our affiliates and allocation of investment opportunities among affiliated entities.

Transactions with Affiliates. Our policy is that the terms on which our relationships are conducted with our advisor or any of its affiliates will be fair to us and on terms and conditions no less favorable to us than can be obtained from independent third parties for comparable services in the same location.

Conflict Resolution Procedures with Respect to Acquisition of Properties. We and our advisor and its affiliates have agreed on certain steps to eliminate potential conflicts in connection with selecting properties for purchase when the property is suitable, under all of the factors considered by our advisor, for us and one or more other entities affiliated with our advisor. The affiliated parties will first consider which programs have funds for investment and will offer the property first to the program that has had the largest period of time elapse since it was offered an investment opportunity. In determining suitability, the factors that will be considered include cash requirements of each program, the effect of the acquisition on diversification by type of property, geographic area and type of tenant, anticipated cash flow, purchase price, and size of the investment. We and our advisor reserve the right to make adjustments in such determinations if delays occur and an acquisition does not close when anticipated.

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Employees

We have no direct employees. The employees of Cole Advisors and other affiliates of our advisor provide services for us related to acquisition, property management, asset management, accounting, investor relations, and all other administrative services.

We are dependent on our advisor and its affiliates for services that are essential to us, including asset acquisition and disposition decisions, property management and other general administrative responsibilities. In the event that these companies were unable to provide these services to us, we would be required to obtain such services from other sources.

We may reimburse Cole Advisors and its affiliates for expenses incurred in connection with its provision of administrative services to us, including personnel costs, subject to certain limitations. During the years ended December 31, 2007 and 2006, no amounts were reimbursed to Cole Advisors and its affiliates for such services.

Insurance

Generally, our leases require each tenant to procure, at its own expense, commercial general liability insurance, as well as property insurance covering the building for the full replacement value and naming the ownership entity and the lender, if applicable, as the additional insured on the policy. As a precautionary measure, our advisor may obtain, to the extent available, secondary liability insurance, as well as loss of rents insurance that covers one year of annual rent in the event of a rental loss. The secondary insurance coverage names the ownership entity as the named insured on the policy.

Some leases require that we procure the insurance for both commercial general liability and property damage insurance; however, the premiums are fully reimbursable from the tenant. In the event we procure such insurance, the policy lists us as the named insured on the policy and the tenant as the additional insured.

Tenants are required to provide proof of insurance by furnishing a certificate of insurance to our advisor on an annual basis. The insurance certificates are tracked and reviewed for compliance by our property manager.

Competition

As we purchase properties for our portfolio, we are in competition with other potential buyers for the same properties, and may have to pay more to purchase the property then we would if there were no other potential acquirers or will have to locate another property that meets our investment criteria. Although our properties currently are 100% leased and we have acquired, and intend to continue to acquire, properties subject to existing leases, the leasing of real estate is highly competitive in the current market, and we may experience competition for tenants from owners and managers of competing projects. As a result, we may have to provide free rent, incur charges for tenant improvements, or offer other inducements, or we might not be able to timely lease the space, all of which may have an adverse impact on our results of operations. At the time we elect to dispose of our properties, we will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.

Concentration of Credit Risk

At December 31, 2007, we had cash on deposit in two financial institutions, which were approximately $229,000 and $442,000 in excess of federally insured levels, respectively; however, we have not experienced any losses in such accounts. We limit investment of cash investments to financial institutions with high credit standing; therefore, we believe we are not exposed to any significant credit risk on cash.

As of December 31, 2007, three tenants in the drugstore industry, one tenant in the auto sales industry and one tenant in the home improvement industry accounted for approximately 36%, 10%, and 10%, respectively, of our 2007 gross annualized base rental revenues. Additionally we have certain geographic concentration in our property holdings. In particular, as of December 31, 2007, eight of our properties were located in Texas and five of our properties were located in Kansas, accounting for approximately 24% and 17%, respectively, of our 2007 gross annualized base rental revenues.

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Litigation

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

Environmental Matters

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

Available Information

We electronically file an annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports with the SEC. We have also filed a registration statement on Form 10-SB, as amended. Copies of our filings with the SEC may be obtained from the SEC’s website, at http://www.sec.gov. Access to these filings is free of charge.

Requirements for Qualification as a REIT

We qualified as a REIT commencing with the taxable year ended December 31, 2004. To continue to qualify as a REIT, we must meet, and we must continue to meet, certain requirements relating to our organization, sources of income, nature of assets, distributions of income to our stockholders and recordkeeping. Accordingly, to the extent we continue to meet the REIT qualifications, we generally will not be subject to federal corporate income tax so long as we distribute at least 90% of our REIT taxable income to our stockholders.

If we fail to qualify as a REIT for any reason in a taxable year and applicable relief provisions do not apply, we will be subject to tax, including any applicable alternative minimum tax, on our taxable income at regular corporate rates. We will not be able to deduct distributions paid to our stockholders in any year in which we fail to qualify as a REIT. We also will be disqualified for the four taxable years following the year during which qualification was lost unless we are entitled to relief under specific statutory provisions.

ITEM 1A. RISK FACTORS

Not required for a smaller reporting company.

ITEM 1B. UNRESOLVED STAFF COMMENTS

Not required for a smaller reporting company.

ITEM 2. PROPERTIES

Overview

As of December 31, 2007, we owned 42 freestanding, single-tenant, retail properties with an aggregate purchase price of approximately $198.5 million, exclusive of closing costs. During 2007, we purchased one investment property for a purchase price of approximately $3.1 million, exclusive of closing costs. We do not anticipate acquiring any additional properties, unless we were to dispose of any of our properties in the ordinary course of business, in which case we would expect to reinvest the sales proceeds in additional properties. We currently have no plans to dispose of any of our properties.

We have included a description of the types of real estate in which we may invest, and our investment policies and limitations on investment and the competitive conditions in which we operate under “Item 1. Business” above. We believe our properties are suitable for their intended use and are adequately insured. We have no plans for renovation or improvement of such properties.

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As of December 31, 2007, through separate wholly-owned subsidiaries of our operating partnership, we owned a 100% fee simple interest in the following properties, each of which is 100% leased to single tenants with an average remaining lease term of approximately 12 years:

Property	Acquisition Date	Location	Square Feet	Purchase Price		2007 Annualized Gross Base Rent		2007 Rent Per Square Foot		Percentage of Total 2007 Annualized Gross Base Rent
Wawa convenience store	July 2004	Vineland, NJ	5,603	$	4,499,389	$	361,262	$	64.48	2.28	%
Wawa convenience store	July 2004	Newark, DE	5,600		4,496,177		399,513		71.34	2.52	%
Wawa convenience store	July 2004	Clifton Heights, PA	4,694		3,769,433		361,262		76.96	2.28	%
Walgreens drugstore	August 2004	Houston, TX	12,851		2,195,000		177,804		13.84	1.12	%
Walgreens drugstore	September 2004	Lawrence, KS	12,885		2,721,000		217,750		16.90	1.37	%
Rite Aid drugstore	October 2004	Memphis, TN	11,064		3,400,000		329,691		29.80	2.08	%
Rite Aid drugstore	October 2004	Warren, OH	11,267		3,255,000		300,208		26.64	1.89	%
CarMax auto dealership	November 2004	Merriam, KS	55,466		18,350,000		1,630,094		29.39	10.28	%
Walgreens drugstore	November 2004	Cahokia, IL	13,422		2,373,500		192,890		14.37	1.22	%
Walgreens drugstore	November 2004	Cleveland, OH	13,500		2,225,000		178,600		13.23	1.13	%
Lowe's home improvement	December 2004	Texas City, TX	130,497		11,000,000		862,585		6.61	5.44	%
Lowe's home improvement	January 2005	Jonesboro, AR	126,405		10,400,000		754,637		5.97	4.76	%
CVS drugstore	March 2005	Whiteville, NC	10,055		2,670,000		186,150		18.51	1.17	%
Rite Aid drugstore	April 2005	Bangor, ME	13,100		4,250,000		354,715		27.08	2.24	%
Tractor Supply specialty	April 2005	Woodstock, VA	22,670		3,015,000		232,398		10.25	1.47	%
Sherwin Williams specialty	May 2005	Angola, IN	5,010		1,091,500		86,129		17.19	0.54	%
Sherwin Williams specialty	May 2005	Ashtabula, OH	5,400		758,560		60,177		11.14	0.38	%
Sherwin Williams specialty	May 2005	Boardman, OH	6,000		915,140		72,391		12.07	0.46	%
Apria Healthcare medical	May 2005	Indianapolis, IN	82,750		7,100,000		547,773		6.62	3.46	%
Gander Mountain sporting	May 2005	Houston, TX	88,492		12,886,000		1,147,486		12.97	7.24	%
CVS drugstore	June 2005	Lago Vista, TX	13,813		4,847,860		378,133		27.38	2.39	%
CVS drugstore	June 2005	Duncanville, TX	10,908		3,287,000		240,162		22.02	1.52	%
CVS drugstore	June 2005	Independence, MO	10,908		3,878,000		282,975		25.94	1.79	%
Rite Aid drugstore	June 2005	Murfreesboro, TN	11,200		3,538,000		274,584		24.52	1.73	%
CineMagic movie theatre	June 2005	Rochester, MN	45,455		7,400,000		677,721		14.91	4.28	%
Rite Aid drugstore	June 2005	Spartanburg, SC	13,824		5,239,773		392,983		28.43	2.48	%
Rite Aid drugstore	June 2005	Wheelersburg, OH	10,650		2,123,000		178,896		16.80	1.13	%
Rite Aid drugstore	June 2005	Philadelphia, PA	11,361		4,140,000		315,459		27.77	1.99	%
Rite Aid drugstore	July 2005	Hayes, VA	13,813		4,266,000		319,950		23.16	2.02	%
Rite Aid drugstore	July 2005	Travelers Rest, SC	13,813		4,826,493		361,978		26.21	2.28	%
Tractor Supply specialty	July 2005	Paducah, KY	21,688		2,158,600		173,406		8.00	1.09	%
Rite Aid drugstore	July 2005	St. Marys, OH	14,564		3,050,000		247,690		17.01	1.56	%
Walgreens drugstore	August 2005	Hutchinson, KS	14,395		5,325,600		346,164		24.05	2.18	%
Walgreens drugstore	August 2005	Newton, KS	14,444		4,447,015		289,056		20.01	1.82	%
Tractor Supply specialty	August 2005	Glasgow, KY	21,688		2,524,000		202,421		9.33	1.28	%
Best Buy electronics	August 2005	Tupelo, MS	20,000		4,164,000		297,800		14.89	1.88	%
Conns appliance retailer	August 2005	Austin, TX	24,960		4,800,000		379,325		15.20	2.39	%
Conns appliance retailer	August 2005	Pecan Park, TX	24,960		4,675,000		367,684		14.73	2.32	%
Conns appliance retailer	August 2005	Hurst, TX	25,230		2,625,000		206,850		8.20	1.31	%
Vanguard car rental	September 2005	College Park, GA	23,360		14,375,000		1,030,590		44.12	6.5	%
Rite Aid drugstore	September 2005	Buxton, ME	11,180		2,402,000		204,147		18.26	1.29	%
Tractor Supply specialty	August 2007	Topeka, KS	24,727		3,050,000		228,589		9.24	1.44	%
			1,033,672	$	198,513,040	$	15,850,078			100	%

12

Mortgage Information

At December 31, 2007, each of our properties was encumbered by a mortgage note obligation and we had a total of approximately $118.0 million of fixed rate debt outstanding. The fixed rate mortgage notes require monthly interest-only payments with the principal balance due on various dates from November 2009 through September 2017. The weighted average interest rate relating to the fixed rate mortgage notes at each of December 31, 2007 and 2006 was approximately 5.76% and 5.51%, respectively. 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.

Generally, the mortgage notes may not be prepaid, in whole or in part, except under the following circumstances: (i) full prepayment may be made on any of the three monthly payment dates occurring immediately prior to the maturity date, and (ii) partial prepayments resulting from the application of insurance or condemnation proceeds to reduce the outstanding principal balance of the mortgage notes. Notwithstanding the prepayment limitations, 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, most of our mortgage notes include hyper-amortization provisions. Under the hyper-amortization provisions, the individual mortgage note maturity date would be extended by 20 years. During such period, the lender would apply 100% of the rents collected to the following items in the order indicated: (i) payment of accrued interest at the original fixed interest rate, (ii) all payments for escrow or reserve accounts, (iii) any operating expenses of the property pursuant to an approved annual budget, (iv) any extraordinary expenses and (v) the balance of the rents collected will be applied to the following in such order as the lender may determine: (1) any other amounts due in accordance with the loan documents, (2) the reduction of the principal balance of the mortgage note, and (3) capitalized interest at an interest rate equal to the greater of (A) the initial fixed interest rate as stated on the respective mortgage note agreement plus 2.0% per annum or (B) the then current Treasury Constant Maturity Yield Index plus 2.0% per annum.

Property Statistics

The following table shows the geographic diversification of our portfolio as of December 31, 2007:

Location	Total Number of Properties	Rentable Square Feet	2007 Annualized Gross Base Rent		Percentage of Total 2007 Annualized Gross Base Rent
Texas	8	331,711	$	3,760,029	24	%
Kansas	5	121,917		2,711,653	17	%
Ohio	6	61,381		1,037,962	7	%
Georgia	1	23,360		1,030,590	7	%
South Carolina	2	27,637		754,961	5	%
Arkansas	1	126,405		754,637	5	%
Minnesota	1	45,455		677,721	4	%
Pennsylvania	2	16,055		676,721	4	%
Indiana	2	87,760		633,902	4	%
Tennessee	2	22,264		604,275	4	%
Maine	2	24,280		558,862	3	%
Virginia	2	36,483		552,348	3	%
Delaware	1	5,600		399,513	3	%
Kentucky	2	43,376		375,827	2	%
New Jersey	1	5,603		361,262	2	%
Mississippi	1	20,000		297,800	2	%
Missouri	1	10,908		282,975	2	%
Illinois	1	13,422		192,890	1	%
North Carolina	1	10,055		186,150	1	%
	42	1,033,672	$	15,850,078	100	%

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The following table shows the tenant industry diversification of our portfolio as of December 31, 2007:

Industry	Total Number of Leases	Rentable Square Feet	2007 Annualized Gross Base Rent		Percentage of Total 2007 Annualized Gross Base Rent
Drugstore	21	263,017	$	5,769,985	36	%
Auto sales	1	55,466		1,630,094	10	%
Home improvement	2	256,902		1,617,222	10	%
Sporting goods	1	88,492		1,147,486	7	%
Convenience store	3	15,897		1,122,037	7	%
Specialty retail	7	107,183		1,055,511	7	%
Car rental	1	23,360		1,030,590	7	%
Appliance store	3	75,150		953,859	6	%
Theatre	1	45,455		677,721	4	%
Healthcare	1	82,750		547,773	4	%
Electronics	1	20,000		297,800	2	%
	42	1,033,672	$	15,850,078	100	%

The following table shows the tenant diversification of our portfolio as of December 31, 2007:

Tenant	Total Number of Leases	Rentable Square Feet	2007 Annualized Gross Base Rent		Percentage of Total 2007 Annualized Gross Base Rent
Rite Aid drugstore	11	135,836	$	3,280,301	21	%
CarMax auto dealership	1	55,466		1,630,094	10	%
Lowe’s home improvement	2	256,902		1,617,222	10	%
Walgreens drugstore	6	81,497		1,402,264	9	%
Gander Mountain sporting goods	1	88,492		1,147,486	7	%
Wawa convenience store	3	15,897		1,122,037	7	%
CVS drugstore	4	45,684		1,087,420	7	%
Vanguard car rental	1	23,360		1,030,590	7	%
Conns appliance retailer	3	75,150		953,859	6	%
Tractor Supply specialty retailer	4	90,773		836,814	5	%
CineMagic movie theater	1	45,455		677,721	4	%
Apria medical	1	82,750		547,773	4	%
Best Buy electronics retailer	1	20,000		297,800	2	%
Sherwin Williams specialty retailer	3	16,410		218,697	1	%
	42	1,033,672	$	15,850,078	100	%

The following table shows lease expirations of our portfolio as of December 31, 2007, during each of the next ten years and thereafter, assuming no exercise of renewal options or termination rights:

Year of Lease Expiration	Total Number of Leases	Rentable Square Feet Expiring	2007 Annualized Gross Base Rent		Percentage of Total 2007 Annualized Gross Base Rent
2008 – 2012	0	–	$	–	0	%
2013	1	12,885		217,750	1	%
2014	6	177,578		1,436,499	9	%
2015	3	218,257		1,496,487	9	%
2016	1	20,000		297,800	2	%
2017	2	49,920		747,009	5	%
Thereafter	29	555,032		11,654,533	74	%
	42	1,033,672	$	15,850,078	100	%

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Leases

Although there are variations in the specific terms of the leases of our properties, the following is a summary of the general structure of our leases. Generally, the leases of our properties provide for initial terms of ten to 20 years. As of December 31, 2007, the average remaining lease term was approximately 12 years. The properties are generally leased under net leases pursuant to which the tenant bears responsibility for substantially all property costs and expenses associated with ongoing maintenance and operation, including utilities, property taxes and insurance. The leases of our properties provide for annual base rental payments (payable in monthly installments) ranging from approximately $60,000 to approximately $1.6 million, with an average of approximately $377,000. Certain leases provide for limited increases in rent as a result of fixed increases, increases in the consumer price index, and/or increases in the tenant’s sales volume.

Generally, the property leases provide the tenant with one or more multi-year renewal options, subject to generally the same terms and conditions as the initial lease term. Certain leases also provide that in the event we wish to sell the property subject to that lease, we first must offer the lessee the right to purchase the property on the same terms and conditions as any offer which we intend to accept for the sale of the property.

ITEM 3. LEGAL PROCEEDINGS

In the ordinary course of business, we may become subject to litigation or claims. There are no material pending legal proceedings or proceedings known to be contemplated against us or any of our subsidiaries, or which any of our properties is the subject.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

We did not submit any matters to a vote of our stockholders, through the solicitation of proxies or otherwise, during the fourth quarter of the year ended December 31, 2007.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Market Information

On April 26, 2004, we commenced the Offering. We completed the Offering on September 16, 2005, which raised aggregate gross proceeds of $100,331,320 through the sale of an aggregate of 10,097,251 shares of our common stock. As of March 24, 2008, 10,090,951 shares of our common stock were issued and outstanding, and were held by 1,466 stockholders of record. The number of stockholders is based on the records of Phoenix American Financial Services, Inc., who serves as our registrar and transfer agent.

There is no established trading market for our common stock. Therefore, there is a risk that a stockholder may not be able to sell our stock at a time or price acceptable to the stockholder, or at all. Pursuant to the Offering, we sold shares of our common stock to our stockholders generally at a price of $10.00 per share. Additionally, we provided discounts in our Offering for certain categories of purchasers, including discounts based on the volume of purchases by single purchasers and certain of their affiliates. Under our charter, certain restrictions are imposed on the ownership and transfer of shares. The shares, which are “restricted securities” as defined in Rule 144 promulgated by the Securities and Exchange Commission under the Securities Act, must be held indefinitely unless they are subsequently registered under the Securities Act and any applicable state securities laws or unless, upon the advice of counsel satisfactory to us, the shares are sold in a transaction that is exempt from the registration requirements of such laws. Currently, no shares of our common stock are eligible for sale under Rule 144.

We may seek to list our shares of common stock on a securities exchange or inter-dealer quotation system if our board of directors believes listing would be in the best interest of our stockholders. In making the decision to apply for listing of our shares or providing other forms of liquidity, such as selling our properties and other assets, either on a portfolio basis or individually, or engaging in a business combination transaction approved by our board of directors, our board of directors will evaluate whether listing the shares or liquidating would result in greater value for our stockholders. It cannot be determined at this time the circumstances, if any, under which the board of directors would determine to list the shares. If we do not list our shares of common stock on a national securities exchange by February 1, 2016, our charter requires that we either:

• seek stockholder approval of an extension or amendment of this listing deadline; or

• seek stockholder approval to adopt a plan of liquidation of the corporation.

If we sought and did not obtain stockholder approval of an extension or amendment to the listing deadline, we would then be required to seek stockholder approval of our plan of liquidation. If we sought and failed to obtain stockholder approval of our plan of liquidation, our charter would not require us to list or liquidate, and we would continue to operate as before. If we sought and obtained stockholder approval of our plan of liquidation, we would begin an orderly sale of our properties and distribute our net proceeds to our investors.

Unless and until our shares are listed on a national securities exchange, it is not expected that a public market for our shares will develop. To assist fiduciaries of plans subject to the annual reporting requirements of ERISA and IRA trustees or custodians to prepare reports relating to an investment in our shares, we intend to provide reports of our quarterly and annual determinations of the current value of our net assets per outstanding share to those fiduciaries (including IRA trustees and custodians) who identify themselves to us and request the reports. Until two years after the Offering and, if we subsequently offer our shares in another offering, until two years after any subsequent offering of our shares, we intend to use the offering price of shares in our most recent offering as the per share net asset value. Beginning two years after the last offering of our shares, the value of our properties and other assets for plan purposes will be based on valuations of our properties or of our enterprise as a whole as our board determines appropriate. Such valuations have been performed by our advisor.

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There can be no assurance, however, with respect to any estimate of value that we prepare, that:

• the estimated value per share would actually be realized by our stockholders upon liquidation, because these estimates do not necessarily indicate the price at which properties can be sold;

• our stockholders would be able to realize estimated net asset values if they were to attempt to sell their shares, because no public market for our shares exists or is likely to develop; or

• that the value, or method used to establish value, would comply with ERISA or Internal Revenue Code requirements described above.

There are no outstanding options or warrants to purchase, or securities convertible into, shares of our common stock. The limited partners of our operating partnership have the right to cause their limited partnership units to be redeemed by the operating partnership or purchased by us for cash. In either event, the cash amount to be paid will be equal to the cash value of the number of our shares of common stock that would be issuable if the limited partnership units were exchanged for our shares of common stock on a one-for-one basis. Alternatively, we may elect to purchase the limited partnership units by issuing one share of our common stock for each limited partnership unit exchanged. These exchange rights may not be exercised, however, if and to the extent that the delivery of shares upon exercise would (1) result in any person owning shares in excess of our ownership limits, (2) result in shares being owned by fewer than 100 persons, (3) cause us to be “closely held” within the meaning of Section 856(h) of the Internal Revenue Code, (4) cause us to own 10.0% or more of the ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of the Internal Revenue Code, or (5) cause the acquisition of shares by a redeemed limited partner to be “integrated” with any other distribution of our shares for purposes of complying with the Securities Act. As of March 24, 2008, an aggregate of 9 limited partnership units in our operating partnership were issued and outstanding, all of which are held by our advisor. We are the sole general partner of the operating partnership and, as of March 24, 2008, we owned an approximately 99.99% equity percentage interest in the operating partnership. Our advisor is the only limited partner and the owner of the other approximately 0.01% equity percentage interest in the operating partnership.

Share Redemption Program

In order to provide stockholders with the possibility of liquidity, stockholders who have held their shares of common stock for at least one year may receive the benefit of limited interim liquidity by presenting for redemption all or a minimum portion of their shares to us at any time in accordance with the procedures outlined below. At that time, we may, subject to the conditions and limitations described below, redeem the shares presented for redemption for cash to the extent that we have sufficient funds available to us to fund such redemption.

We determine at the beginning of each fiscal year the maximum amount of shares that we may redeem during that year. For the year ending December 31, 2008, our board determined that we may use up to 0.5% of our 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. We do not anticipate any amounts will be available for redemption during 2008. For the year ended December 31, 2007, our board authorized an amount equal to 0.5% of our 2007 cash flow to meet these redemption requests of our stockholders. The board reserved the right to reject any requests for redemption and to amend the terms of the redemption plan. During the year ended December 31, 2007, we redeemed 1,300 shares at $9.25 per share and 3,500 shares at $10.00 per share under the share redemption program, none of which occurred during the fourth quarter of the year ended December 31, 2007. During the year ended December 31, 2006, we redeemed 2,500 shares at $8.50 per share under the share redemption program.

Except as described below for redemptions upon the death of a stockholder, the purchase price for the redeemed shares will equal the lesser of (1) the price actually paid for those shares or (2) either (i) $8.50 per share or (ii) 90.0% of the net asset value per share, as determined by our advisor or another firm we might choose for that purpose. Our board of directors reserves the right in its sole discretion at any time and from time to time to (1) waive the one-year holding period in the event of the death or bankruptcy of a stockholder or other exigent circumstances, (2) reject any request for redemption, (3) change the purchase price for redemption, or (4) otherwise amend the terms of our share redemption program.

The purchase price for shares redeemed upon the death of a stockholder generally will be equal to the price the stockholder actually paid for the shares. If, at the time of redemption, our advisor or another firm we might choose for that purpose, has made a determination of our net asset value per share, the purchase price for shares redeemed upon the death of a stockholder will be the net asset value of the shares as so determined. We will redeem shares upon the death of a stockholder only to the extent that we have sufficient funds available to us to fund such redemption.

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Redemption of shares, when requested, may generally be made quarterly on a first-come, first-served basis. We cannot guarantee that we will have sufficient available cash flow to accommodate any or all requests made in any quarter. If we do not have such sufficient funds available, at the time when redemption is requested, our stockholders can (1) withdraw its request for redemption or (2) ask that we honor the request at such time, if any, when sufficient funds become available. Such pending requests will generally be honored on a first-come, first-served basis.

Stockholders may present to us fewer than all of their shares for redemption, except that (1) a stockholder must present for redemption at least 2,500 shares and (2) if the stockholder retains any shares, it must retain at least 2,500 shares. The shares we redeem under our share redemption program will be cancelled and return to the status of unauthorized but unissued shares.

Our board of directors may amend, suspend or terminate our share redemption program upon 30 days notice at any time.

Distributions

We qualified as a REIT for federal income tax purposes commencing with our taxable year ended December 31, 2004. As a REIT, we have made, and intend to make, distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of our taxable income. One of our primary goals is to pay regular (monthly) distributions to our stockholders.

For income tax purposes, distributions to common stockholders are characterized as ordinary income, capital gains, or as a return of a stockholder’s invested capital. To the extent that we make a distribution in excess of our current or accumulated earnings and profits, the distribution will be treated as a tax-free return of capital, reducing the tax basis in each U.S. stockholder’s shares, and the amount of each distribution of a U.S. stockholder’s tax basis in its shares will be taxable as gain realized from the sales of its shares.

The following table reflects the aggregate distributions we declared during the years ended December 31, 2007 and 2006:

Year	Total Distributions Declared		Weighted Average Distributions Declared per Common Share		Return of Capital		Ordinary Income		Capital Gain Income
2007	$	7,065,548	$	0.70	$	0.42	$	0.27	$	0.01
2006		7,070,300		0.70		0.48		0.22		-

Securities Authorized for Issuance Under Equity Compensation Plans

The Company does not have any compensation plans under which we are authorized to issue equity securities

ITEM 6. SELECTED FINANCIAL DATA

Not required for a smaller reporting company.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the accompanying consolidated financial statements and notes thereto. See also “Cautionary Note Regarding Forward Looking Statements” preceding Part I.

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 advised and managed by Cole Advisors, an affiliate of ours. We qualify as a real estate investment trust for federal income tax purposes. We commenced our principal operations on July 1, 2004, when we issued the initial 264,200 shares of our common stock in the Offering. Prior to such date, we were considered a development stage company. We acquired our first real estate properties on July 30, 2004.

During 2007, we acquired a 100% fee simple interest in one property, located in Topeka, Kansas, with approximately 25,000 rentable square feet for an aggregate purchase price of approximately $3.1 million. At December 31, 2007, this property was 100% leased to a single tenant. To purchase this asset, we used available cash and a mortgage note payable of approximately $1.7 million.

As of December 31, 2007, we owned 42 properties, which were 100% leased, comprising approximately 1.0 million square feet of single-tenant, retail space located in 19 states. We do not anticipate acquiring any additional properties, unless we were to dispose of any of our properties in the ordinary course of business, in which case we would expect to reinvest the sales proceeds in additional properties. We currently have no plans to dispose of any of our properties.

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 each of the years ended December 31, 2007 and 2006. As approximately 100% of our properties are under lease, with an average remaining lease term of approximately 12 years and the shortest remaining lease term of a single property of approximately six years, our exposure to changes in commercial rental rates and contractual lease expirations is substantially mitigated. Our advisor regularly monitors the creditworthiness of our tenants by reviewing the tenant’s financial results, credit rating agency reports (if any) on the tenant or guarantor, the operating history of the property with such tenant, the tenant’s market share and track record within its industry segment, the general health and outlook of the tenant’s industry segment, and other information for changes and possible trends. If our advisor identifies significant changes or trends that may adversely affect the creditworthiness of a tenant, it will gather a more in-depth knowledge of the tenant’s financial condition and, if necessary, attempt to mitigate the tenant credit risk by evaluating the possible sale of the property, or identifying a possible replacement tenant should the current tenant fail to perform on the lease.

As of December 31, 2007, we had a total of approximately $118.0 million of fixed rate mortgage notes outstanding with a weighted average fixed interest rate of 5.76%, which mature on various dates from November 2009 through September 2017. As of December 31, 2007, the debt leverage ratio, which is the ratio of mortgage notes payable to total gross real estate assets, of our portfolio was approximately 57%. As we have no outstanding variable rate debt, our exposure to short-term changes in interest rates is limited. Additionally, as we have fully invested the proceeds from our Offering in commercial real estate, and we do not expect to dispose of any of the properties in the near future, our results of operations are not exposed to short-term changes in real estate prices, nor are we exposed to changes in interest rates on future acquisitions.

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Application of Critical Accounting Policies

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

Investment In and Valuation of Real Estate Assets

We are required to make subjective assessments as to the useful lives of our depreciable assets. We consider the period of future benefit of the asset to determine the appropriate useful lives. These assessments, which are based on estimates, have a direct impact on net income. The estimated useful lives of our assets by class are generally as follows:

Building	40 years
Tenant improvements	Lesser of useful life or lease term
Intangible lease assets	Lesser of useful life or lease term

We continually monitor events and changes in circumstances that could indicate that the carrying amounts of our 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, we assess 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, we will adjust the real estate and related intangible assets to the fair value and recognize an impairment loss.

Projections of expected future cash flows require us to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses, discount rates, the number of months it takes to release the property and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis would result in an incorrect assessment of the property’s future cash flow and fair value and could result in the overstatement of the carrying value of our real estate and related intangible assets and net income. We have identified one property under an operating lease with impairment indicators. The undiscounted future operating cash flow scenarios expected from the use of the property and related intangible assets and its eventual disposition exceeded the carrying value of the assets as of December 31, 2007.

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, we allocate the purchase price of such properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases, and the value of in-place leases, based in each case on their fair values. We utilize independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building).

The fair values of above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities and are amortized as an adjustment of rental income over the remaining terms of the respective leases.

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The fair values of in-place leases include direct costs associated with obtaining a new tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated in part by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These intangibles are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining term of the respective leases.

The determination of the fair values of the assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of our purchase price allocations, which could impact the amount of our reported net income.

Revenue Recognition

Upon the acquisition of real estate, certain properties have leases where minimum rent payments increase during the term of the lease. We record rental revenue for the full term of each lease on a straight-line basis. When we acquire a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. We defer the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating expenses are included in rental income in the period the related costs are incurred.

Income Taxes

We generally will not be subject to federal corporate income tax to the extent we distribute our taxable income to its stockholders, and so long as we distribute at least 90% of our 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.

Results of Operations

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006:

Revenue - Revenue increased approximately $38,000, or less than 1%, to approximately $16.1 million for the year ended December 31, 2007, compared to approximately $16.1 million for the year ended December 31, 2006. The increase was primarily due to the purchase of one additional property on August 9, 2007, from which rental income was earned during the year ended December 31, 2007. Our revenue primarily consists of rental income from net leased commercial properties, which accounted for approximately 98% of total revenues during each of the years ended December 31, 2007 and 2006.

General and Administrative Expenses - General and administrative expenses decreased approximately $85,000, or approximately 14%, to approximately $534,000 for the year ended December 31, 2007, compared to approximately $618,000 for the year ended December 31, 2006. The decrease was primarily due to lower accounting and legal fees during the year ended December 31, 2007, as compared to the year ended December 31, 2006. Accounting and legal fees were higher during the year ended December 31, 2006 primarily due to expenses and fees associated with the preparation of our registration statement and subsequent filings with the Securities and Exchange Commission. Similar legal and accounting services were not provided during the year ended December 31, 2007. Our primary general and administrative expense items are legal and accounting fees, organizational costs, state franchise and income taxes, and other licenses and fees.

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Property Operating Expenses - Property operating expenses decreased approximately $15,000, or approximately 3%, to approximately $452,000 for the year ended December 31, 2007, compared to approximately $467,000 for the year ended December 31, 2006. The decrease was primarily due to a decrease in property tax expense partially offset by the acquisition of one additional property during the year ended December 31, 2007. The primary property operating expenses items are repairs and maintenance, property taxes, and insurance.

Property and Asset Management Fees - Property and asset management fees increased approximately $15,000, or approximately 2%, to approximately $960,000 for the year ended December 31, 2007, compared to approximately $945,000 for the year ended December 31, 2006. The increase is primarily due to rent increases during the year ended December 31, 2007, compared to the year ended December 31, 2006, and the acquisition of one additional property during the year ended December 31, 2007.

Depreciation and Amortization Expenses - Depreciation and amortization expenses increased approximately $86,000, or approximately 2%, to approximately $5.5 million for the year ended December 31, 2007, compared to approximately $5.4 million for the year ended December 31, 2006. The increase was primarily due to the acquisition of one additional property during the year ended December 31, 2007.

Interest Income - Interest income increased approximately $3,000, or approximately 4%, to approximately $81,000 for the year ended December 31, 2007, compared to approximately $78,000 for the year ended December 31, 2006. The increase was primarily due to earning a higher interest rate on uninvested cash during the year ended 2007 as compared to the year ended 2006.

Interest Expense - Interest expense decreased approximately $481,000, or approximately 6%, to approximately $7.2 million for the year ended December 31, 2007, compared to approximately $7.7 million for the year ended December 31, 2006. The decrease was primarily due to approximately $448,000 of expense incurred to refinance three variable rate loans during the year ended December 31, 2006.

Portfolio Information

As of December 31, 2007, we owned 42 properties located in 19 states, all of which were 100% leased to single tenants with an average lease term remaining of approximately 12 years.

As of December 31, 2007, our five highest geographic concentrations were as follows:

Location	Total Number of Properties	Rentable Square Feet	2007 Annualized Gross Base Rent		Percentage of Total 2007 Annualized Gross Base Rent
Texas	8	331,711	$	3,760,029	24	%
Kansas	5	121,917		2,711,653	17	%
Ohio	6	61,381		1,037,962	7	%
Georgia	1	23,360		1,030,590	7	%
South Carolina	2	27,637		754,961	5	%
	22	566,006	$	9,295,195	60	%

As of December 31, 2007, our five highest tenant industry concentrations were as follows:

Industry	Total Number of Properties	Rentable Square Feet	2007 Annualized Gross Base Rent		Percentage of Total 2007 Annualized Gross Base Rent
Drugstore	21	263,017	$	5,769,985	36	%
Auto sales	1	55,466		1,630,094	10	%
Home improvement	2	256,902		1,617,222	10	%
Sporting goods	1	88,492		1,147,486	7	%
Convenience store	3	15,897		1,122,037	7	%
	28	679,774	$	11,286,824	70	%

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As of December 31, 2007, our five highest tenant concentrations were as follows:

Tenant	Total Number of Properties	Rentable Square Feet	2007 Annualized Gross Base Rent		Percentage of Total 2007 Annualized Gross Base Rent
Rite Aid drugstore	11	135,836	$	3,280,301	21	%
CarMax auto dealership	1	55,466		1,630,094	10	%
Lowe’s home improvement	2	256,902		1,617,222	10	%
Walgreens drugstore	6	81,497		1,402,264	9	%
Gander Mountain sporting goods	1	88,492		1,147,486	7	%
	21	618,193	$	9,077,367	57	%

For more information on our portfolio diversification and statistics, see “Item 2. Properties” above.

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

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

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

	Year Ended December 31,
		2007		2006
Net income	$	1,548,710	$	1,026,984
Add:
Depreciation of real estate assets		3,670,526		3,616,743
Amortization of lease related costs		1,809,147		1,777,329
FFO	$	7,028,383	$	6,421,056

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 $459,000 and approximately $470,000 during the years ended December 31, 2007 and 2006, respectively.

• Amortization of deferred financing costs totaled approximately $384,000 and approximately $490,000 during the years ended December 31, 2007 and 2006, respectively.

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Liquidity and Capital Resources

We expect to meet our short-term liquidity requirements through net cash provided by property operations during the year ending December 31, 2008. We currently do not have any variable rate debt, nor do we expect to assume any variable rate debt. Therefore, we are not subject to direct risk relating to rising interest rates.

We expect to meet our long-term liquidity requirements through 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 the payment of operating expenses, including interest expense on 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 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, distributions paid to our stockholders may be lower. We expect that substantially all net cash resulting from debt financing will be used to fund certain capital expenditures, repayments of outstanding debt, possible replacement properties, or distributions to our stockholders. We did not have any material commitments for capital expenditures as of December 31, 2007.

As of December 31, 2007, we had cash and cash equivalents of approximately $913,000, which we expect to be used primarily to pay operating expenses and stockholder distributions.

As of December 31, 2007, we had approximately $118.0 million of debt outstanding, all of which was pursuant to fixed rate term mortgage loans, with a weighted average interest rate of approximately 5.76%. Additionally, the debt leverage ratio, which is the ratio of mortgage notes payable to total gross real estate assets, was approximately 57%, with a weighted average remaining term to maturity of approximately 5.3 years.

Our contractual obligations as of December 31, 2007 were as follows:

	Payments due by period
		Less than 1 year		1-3 years		4-5 years		More than 5 years		Total
Principal payments – fixed rate debt	$	—	$	58,443,500	$	—	$	59,533,500	$	117,977,000
Interest payments – fixed rate debt		6,892,989		15,983,045		7,314,138		7,714,009		37,904,181
Total	$	6,892,989	$	74,426,545	$	7,314,138	$	67,247,509	$	155,881,181

Cash Flow Analysis

Year Ended December 31, 2007 Compared to the Year Ended December 31, 2006:

Net cash provided by operating activities increased approximately $206,000, or approximately 3%, to approximately $6.9 million for the year ended December 31, 2007, compared to net cash provided by operating activities of approximately $6.7 million for the year ended December 31, 2006. The increase was primarily due to an increase in net income of approximately $522,000, offset by a decrease in deferred financing costs, during the year ended December 31, 2007. See “Results of Operations” for a more complete discussion of the factors impacting our operating performance.

Net cash used in investing activities increased approximately $3.1 million, to approximately $3.1 million for the year ended December 31, 2007, compared to net cash used by investing activities of approximately $52,000 for the year ended December 31, 2006. The increase was primarily due to the acquisition of one property during the year ended December 31, 2007, compared to no acquisitions during the year ended December 31, 2006.

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Net cash used in financing activities increased approximately $507,000, or approximately 10%, to approximately $5.5 million for the year ended December 31, 2007, compared to net cash used in financing activities of approximately $5.0 million for the year ended December 31, 2006. The increase was primarily due to a decrease in proceeds from the issuance of mortgage notes of approximately $4.7 million, as we only issued one new mortgage note payable during the year ended December 31, 2007, compared to our refinancing of four mortgage notes payable during the year ended December 31, 2006. The decrease of approximately $4.7 million was partially offset by a decrease of repayments of mortgage notes payable of approximately $4.1 million, as we did not repay any mortgage notes payable during the year ended December 31, 2007, compared to the repayment of five mortgage notes during the year ended December 31, 2006.

During each of the years ended December 31, 2007 and 2006, we declared and paid distributions of approximately $7.1 million.

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 would then be subject to federal income taxes on our taxable income for four years following the year during which qualification is lost, unless the Internal Revenue Service grants us relief under certain statutory provisions. Such an event could materially adversely affect our net income and net cash available for distribution to stockholders. However, we believe that we are organized and operate in such a manner as to qualify for treatment as a REIT for federal income tax purposes. No provision for federal income taxes has been made in our accompanying consolidated financial statements. We are subject to certain state and local taxes related to the operations of properties in certain locations, which have been provided for in our accompanying financial statements.

Inflation

We are exposed to inflation risk as income from long-term leases is the primary source of our cash flows from operations. There are provisions in certain of our tenant leases that would protect us from the impact of inflation, such as step rental increases and percentage rent provisions. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to adequately offset the effects of inflation on our operation.

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 8 to our consolidated financial statements included in this annual report on Form 10-K for a discussion of the various related-party transactions, agreements and fees.

Conflicts of Interest

Affiliates of Cole Advisors act as sponsor, general partner or advisor to various private real estate limited partnerships and Cole Credit Property Trust II, Inc., a publicly offered, non-listed REIT. As such, there are conflicts of interest where Cole Advisors or its affiliates, while serving in the capacity as sponsor, general partner or advisor for another Cole-sponsored program, may be in competition with us in connection with property acquisitions, property dispositions, and property management. The compensation arrangements between affiliates of Cole Advisors and these other Cole real estate funds could influence its advice to us. See “Item 1. – Business - Conflicts of Interest” in this annual report on Form 10-K.

Subsequent Events

Certain events subsequent to December 31, 2007 through March 24, 2008, are discussed in Note 13 to the consolidated financial statements included in this annual report on Form 10-K.

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Impact of Recent Accounting Pronouncements

Reference is made to Note 2 to the consolidated financial statements included in this annual report on Form 10-K regarding the impact of recent accounting pronouncements.

Off Balance Sheet Arrangements

We had no off balance sheet arrangements as of December 31, 2007.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

Not required for a smaller reporting company.

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data filed as part of this report are set forth beginning on page F-1 of this report.

ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no changes in or disagreements with our independent registered public accountants during the year ended December 31, 2007.

ITEM 9A. CONTROLS AND PROCEDURES

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

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

Management’s Report on Internal Controls over Financial Reporting

Cole Credit Property Trust, Inc.’s management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Internal control over financial reporting is a process to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of financial statements for external purposes in accordance with accounting principles generally accepted in the United States. Because of its inherent limitations, internal control over financial reporting is not intended to provide absolute assurance that a misstatement of our financial statements would be prevented or detected. Also, projections of any evaluation of internal control effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

Under the supervision and with the participation of our management, including our CEO and CFO, we conducted an evaluation of the effectiveness of Cole Credit Property Trust, Inc.’s internal control over financial reporting based on the framework in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission.

Based on this evaluation, management has concluded that Cole Credit Property Trust, Inc.’s internal control over financial reporting was effective as of December 31, 2007.

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This annual report does not include an attestation report of the company’s registered public accounting firm regarding internal control over financial reporting. Management’s report was not subject to attestation by the company's registered public accounting firm pursuant to temporary rules of the Securities and Exchange Commission that permit the company to provide only management’s report in this annual report.

ITEM 9B. OTHER INFORMATION

None

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS, AND CORPORATE GOVERNANCE

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2008 annual meeting of stockholders.

ITEM 11. EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2008 annual meeting of stockholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2008 annual meeting of stockholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS AND DIRECTOR

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2008 annual meeting of stockholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

The information required by this Item is incorporated by reference to our definitive proxy statement to be filed with respect to our 2008 annual meeting of stockholders.

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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

The following exhibits are filed as a part of this Form 10-K Registration Statement and numbered in accordance with Part III of Form 10-K.

Exhibit Number	Description
3.1	Articles of Incorporation (Incorporated by reference to Exhibit 2.1 to the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
3.2	Amended and Restated Bylaws (Incorporated by reference to Exhibit 2.2 to the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
10.1	Agreement of Limited Partnership of Cole Operating Partnership I, LP, dated April 6, 2004, between Cole Credit Property Trust, Inc. and the limited partners thereto (Incorporated by reference to Exhibit 6.1 to the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
10.2	Property Management and Leasing Agreement, dated April 6, 2004, among Cole Credit Property Trust, Inc., Cole Operating Partnership I, LP and Cole Realty Advisors, Inc. (Incorporated by reference to Exhibit 6.2 to the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
10.3	Advisory Agreement, dated April 6, 2004, as amended, between Cole Credit Property Trust, Inc. and Cole REIT Advisors, LLC (Incorporated by reference to Exhibit 6.3 to the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
10.4	Dealer Manager Agreement, dated April 6, 2004, between Cole Credit Property Trust, Inc. and Cole Capital Corporation (Incorporated by reference to Exhibit 6.4 to the Company’s Form 10-SB (File No. 000-51962), filed on May 1, 2006).
21.1*	List of Subsidiaries.
31.1*	Certification of the Chief Executive Officer of the Company pursuant to Securities Exchange Act Rule 13a-14 (a) or 15d-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
31.2*	Certification of the Chief Financial Officer of the Company pursuant to Securities Exchange Act Rule 13a-14 (a) or 15d-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
32.1*	Certification of the Chief Executive Officer and Chief Financial Officer of the Company pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

______________________

* Filed herewith.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15 of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

	Cole Credit Property Trust, Inc.
Date: March 27, 2008	By:	/s/ CHRISTOPHER H. COLE
	Name:	Christopher H. Cole
	Title:	Chief Executive Officer and President

In accordance with the Exchange Act, this Report has been signed by the following persons on behalf of the Registrant in the capacities and on the dates indicated.

Signature	Title	Date
/s/ CHRISTOPHER H. COLE	Chief Executive Officer, President, and Director (Principal Executive Officer)	March 27, 2008
Christopher H. Cole
/s/ D. KIRK MCALLASTER, JR.	Executive Vice President and Chief Financial Officer (Principal Financial Officer and Accounting Officer)	March 27, 2008
D. Kirk McAllaster, Jr.
/s/ JOHN M. PONS	Secretary and Director	March 27, 2008
John M. Pons

30

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

Financial Statements	Page
Report of Independent Registered Public Accounting Firm on the Consolidated Financial Statements		F-2
Consolidated Balance Sheets as of December 31, 2007 and 2006		F-3
Consolidated Statements of Operations for the Years Ended December 31, 2007 and 2006		F-4
Consolidated Statements of Stockholders’ Equity for the Years Ended December 31, 2007 and 2006		F-5
Consolidated Statements of Cash Flows for the Years Ended December 31, 2007 and 2006		F-6
Notes to Consolidated Financial Statements		F-7

F-1

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Stockholders of

Cole Credit Property Trust, Inc.

Phoenix, Arizona

We have audited the accompanying consolidated balance sheet of Cole Credit Property Trust, Inc. and subsidiaries (the “Company”) as of December 31, 2007 and 2006, and the related consolidated statements of operations, stockholders’ equity, and cash flows for the years then ended. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements presents fairly, in all material respects, the financial position of Cole Credit Property Trust, Inc. and subsidiaries as of December 31, 2007 and 2006 and the results of their operations and their cash flows for the years then ended, in conformity with accounting principles generally accepted in the United States of America.

/s/ DELOITTE & TOUCHE LLP

Phoenix, Arizona

March 26, 2008

F-2

COLE CREDIT PROPERTY TRUST, INC.

CONSOLIDATED BALANCE SHEETS

	December 31, 2007			December 31, 2006
ASSETS:
Investment in real estate assets:
Land	$	55,320,895		$	54,952,528
Buildings and improvements, less accumulated depreciation of $9,903,730 and $6,233,204 at December 31, 2007 and 2006, respectively		113,602,209			114,799,639
Acquired intangible lease assets, less accumulated amortization of $5,322,109 and $3,386,008 at December 31, 2007 and 2006, respectively		23,015,500			24,631,586
Total investment in real estate assets		191,938,604			194,383,753
Cash and cash equivalents		913,356			2,686,279
Rents and tenant receivables, less allowance for doubtful accounts of $41,573 and $0 at December 31, 2007 and 2006, respectively		1,623,446			1,159,572
Other assets		65,951			75,398
Deferred financing costs, less accumulated amortization of $1,019,793 and $1,040,640 at December 31, 2007 and 2006, respectively		1,501,562			1,810,941
Total assets	$	196,042,919		$	200,115,943
LIABILITIES AND STOCKHOLDERS’ EQUITY:
Mortgage notes payable	$	117,977,000		$	116,299,500
Accounts payable and accrued expenses		737,260			728,511
Acquired below market lease intangibles, less accumulated amortization of $609,870 and $404,794 at December 31, 2007 and 2006, respectively		1,629,003			1,819,963
Distributions payable		588,638			589,043
Deferred rent and other liabilities		129,814			133,859
Total liabilities		121,061,715			119,570,876
STOCKHOLDERS’ EQUITY:
Preferred stock, $0.01 par value; 10,000,000 shares authorized, none issued and outstanding at December 31, 2007 and 2006		—			—
Common stock, $0.01 par value; 90,000,000 shares authorized, 10,090,951 and 10,095,751 shares issued and outstanding at December 31, 2007 and 2006, respectively		100,910			100,958
Capital in excess of par value		90,423,989			90,470,966
Accumulated distributions in excess of earnings		(15,543,695	)		(10,026,857	)
Total stockholders’ equity		74,981,204			80,545,067
Total liabilities and stockholders’ equity	$	196,042,919		$	200,115,943

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

F-3

COLE CREDIT PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

	Year Ended December 31,
	2007			2006
Revenues:
Rental and other income	$	15,839,230		$	15,706,537
Tenant reimbursement income		270,700			365,107
Total revenue		16,109,930			16,071,644
Expenses:
General and administrative		533,554			618,463
Property operating expenses		452,496			467,134
Property and asset management fees		959,785			944,814
Depreciation		3,670,526			3,616,743
Amortization		1,809,147			1,777,329
Total operating expenses		7,425,508			7,424,483
Real estate operating income		8,684,422			8,647,161
Other income (expense):
Interest income		81,311			77,882
Interest expense		(7,217,023	)		(7,698,059	)
Total other expense		(7,135,712	)		(7,620,177	)
Net income	$	1,548,710		$	1,026,984
Weighted average number of common shares outstanding:
Basic and diluted		10,091,972			10,096,361
Net income per common share:
Basic and diluted	$	0.15		$	0.10

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

F-4

COLE CREDIT PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY

	Common Stock					Capital in Excess in Par Value			Accumulated Distributions in Excess of Earnings			Total Stockholders’ Equity
	Number of Shares		Par Value
Balance, December 31, 2005	10,098,251		$	100,983		$	90,492,191		$	(3,983,541	)	$	86,609,633
Common stock redemption	(2,500	)		(25	)		(21,225	)		—			(21,250	)
Distributions	—			—			—			(7,070,300	)		(7,070,300	)
Net income	—			—			—			1,026,984			1,026,984
Balance, December 31, 2006	10,095,751			100,958			90,470,966			(10,026,857	)		80,545,067
Common stock redemption	(4,800	)		(48	)		(46,977	)		—			(47,025	)
Distributions	—			—			—			(7,065,548	)		(7,065,548	)
Net income	—			—			—			1,548,710			1,548,710
Balance, December 31, 2007	10,090,951		$	100,910		$	90,423,989		$	(15,543,695	)	$	74,981,204

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

F-5

COLE CREDIT PROPERTY TRUST, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

	Year Ended December 31,
	2007			2006
Cash flows from operating activities:
Net income	$	1,548,710		$	1,026,984
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation		3,670,526			3,616,743
Amortization		1,809,147			1,777,329
Amortization of deferred financing costs		384,353			490,426
Amortization of above and below market leases		(78,122	)		(79,667	)
Changes in assets and liabilities:
Rents and tenant receivables, net of allowance		(463,874	)		(489,422	)
Other assets		9,447			438,225
Accounts payable and accrued expenses		8,749			(10,659	)
Deferred rent and other liabilities		(4,045	)		(72,844	)
Due to affiliates		—			(18,479	)
Total adjustments		5,336,181			5,651,652
Net cash provided by operating activities		6,884,891			6,678,636
Cash flows from investing activities:
Investment in real estate and property improvements		(2,841,464	)		(51,592	)
Acquired intangible lease assets		(320,015	)		—
Acquired below market lease intangibles		14,116			—
Net cash used in investing activities		(3,147,363	)		(51,592	)
Cash flows from financing activities:
Common stock redemptions		(47,025	)		(21,250	)
Proceeds from mortgage notes payable		1,677,500			6,385,152
Repayments on mortgage notes payable		—			(4,070,000	)
Distributions to investors		(7,065,952	)		(7,070,390	)
Deferred financing costs paid		(74,974	)		(227,369	)
Net cash used in financing activities		(5,510,451	)		(5,003,857	)
Net (decrease) increase in cash and cash equivalents		(1,772,923	)		1,623,187
Cash and cash equivalents, beginning of year		2,686,279			1,063,092
Cash and cash equivalents, end of year	$	913,356		$	2,686,279
Supplemental Disclosures of Non-Cash Investing and Financing Activities:
Dividends declared and unpaid	$	588,638		$	589,043
Supplemental Cash Flow Disclosures:
Interest paid	$	6,824,170		$	6,734,714

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

F-6

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

NOTE 1 — ORGANIZATION AND BUSINESS

Cole Credit Property Trust, Inc. (the “Company”) is a Maryland corporation formed on March 29, 2004 that is organized and operates as a real estate investment trust (“REIT”) for federal income tax purposes. The Company commenced active operations on July 1, 2004, when the minimum required offering proceeds was received and funds were released from escrow pursuant to a private placement of shares of its common stock (the “Offering”). 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 0.01% (minority interest) of the partnership interests of Cole OP I.

At December 31, 2007, the Company owned 42 properties comprising approximately 1.0 million square feet of single-tenant, retail space located in 19 states. At December 31, 2007, these properties were approximately 100% leased.

The Company’s stock is not currently listed on a national exchange. The Company may seek to list its stock for trading on a national securities exchange only if the board of directors determines that 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 or quoted. 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

The summary of significant accounting policies presented below is designed to assist in understanding the Company’s consolidated financial statements. Such financial statements and accompanying notes are the representations of its management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles in the United States (“GAAP”), in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.

Principles of Consolidation and Basis of Presentation

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

Use of Estimates

The preparation of financial statements in conformity with GAAP necessarily requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the consolidated financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

Investment In and Valuation of Real Estate Assets

Real estate assets are stated at cost, less accumulated depreciation. Amounts capitalized to real estate assets consist of the cost of acquisition or construction and any tenant improvements or major improvements and betterments that extend the useful life of the related asset. All repair and maintenance costs are expensed as incurred.

	All assets are depreciated on a straight line basis. The estimated useful lives of our assets by class are as follows:
Building		40 years
Tenant improvements		Lesser of useful life or lease term
Intangible lease assets		Lesser of useful life or lease term

F-7

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The Company continually monitors events and changes in circumstances that could indicate that the carrying amounts of its real estate and related intangible assets may not be recoverable. 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. The Company identified one property under an operating lease with impairment indicators. The undiscounted future operating cash flow scenarios expected from the use of the property and related intangible assets and its eventual disposition exceeded the carrying value of the assets as of December 31, 2007.

Allocation of Purchase Price of Acquired Assets

Upon the acquisition of real properties, the Company allocates the purchase price of such properties to acquired tangible assets, consisting of land and building, and identified intangible assets and liabilities, consisting of the value of above-market and below-market leases and the value of in-place leases, based in each case on their fair values. The Company utilizes independent appraisals to assist in the determination of the fair values of the tangible assets of an acquired property (which includes land and building).

The fair values of above-market and below-market in-place lease values are recorded based on the present value (using an interest rate which reflects the risks associated with the leases acquired) of the difference between (i) the contractual amounts to be paid pursuant to the in-place leases and (ii) an estimate of fair market lease rates for the corresponding in-place leases, which is generally obtained from independent appraisals, measured over a period equal to the remaining non-cancelable term of the lease. The above-market and below-market lease values are capitalized as intangible lease assets or liabilities and amortized as an adjustment of rental income over the lesser of the useful life or the remaining terms of the respective leases.

The fair values of in-place leases include direct costs associated with obtaining a new tenant, and opportunity costs associated with lost rentals which are avoided by acquiring an in-place lease. Direct costs associated with obtaining a new tenant include commissions, tenant improvements, and other direct costs and are estimated in part by utilizing information obtained from independent appraisals and management’s consideration of current market costs to execute a similar lease. These direct costs are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining terms of the respective leases. The value of opportunity costs is calculated using the contractual amounts to be paid pursuant to the in-place leases over a market absorption period for a similar lease. These intangibles are included in intangible lease assets in the accompanying consolidated balance sheet and are amortized to expense over the lesser of the useful life or the remaining term of the respective leases.

The determination of the fair values of the assets and liabilities acquired requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. The use of inappropriate estimates would result in an incorrect assessment of the Company’s purchase price allocations, which could impact the amount of its reported net income.

Cash and Cash Equivalents

The Company considers all highly liquid instruments with maturities when purchased of three months or less to be cash equivalents.

F-8

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Rents and Tenant Receivables

Rents and tenant receivables primarily includes amounts to be collected in future periods related to the recognition of rental income on a straight-line basis over the lease term and cost recoveries from tenants. See “Revenue Recognition” below. The Company makes estimates of the uncollectability of its accounts receivable related to base rents, expense reimbursements and other revenues. The Company analyzes accounts receivable and historical bad debt levels, customer credit worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. In addition, tenants in bankruptcy are analyzed and estimates are made in connection with the expected recovery of pre-petition and post-petition claims. The Company’s reported net income is directly affected by management’s estimate of the collectability of accounts receivable. The Company records allowances for those balances that the Company deems to be uncollectible, including any amounts relating to straight-line rent receivables.

Other Assets

Other assets consists primarily of prepaid expenses as of the balance sheet date that relate to future periods and will be expensed or reclassified to another account during the period to which the costs relate. Any amounts with no future economic benefit are charged to earnings when identified.

Deferred Financing Costs

Deferred financing costs are capitalized and amortized on a straight-line basis over the term of the related financing arrangement, which approximates the effective interest method. Amortization of deferred financing costs for the years ended December 31, 2007 and 2006 were approximately $384,000 and approximately $490,000, respectively, and was recorded in interest expense in the consolidated statements of operations.

Revenue Recognition

Upon the acquisition of real estate, certain properties have leases where minimum rent payments increase during the term of the lease. The Company records rental revenue for the full term of each lease on a straight-line basis. When the Company acquires a property, the term of existing leases is considered to commence as of the acquisition date for the purposes of this calculation. The Company defers the recognition of contingent rental income, such as percentage rents, until the specific target that triggers the contingent rental income is achieved. Expected reimbursements from tenants for recoverable real estate taxes and operating expenses are included in tenant reimbursement income in the period the related costs are incurred.

Income Taxes

The Company generally will not be subject to federal corporate income tax to the extent it distributes its REIT taxable income to its stockholders, and so long as it distributes at least 90% of its REIT taxable income. REITs are subject to a number of other organizational and operational requirements. Even if the Company qualifies for taxation as a REIT, it may be subject to certain state and local taxes on its income and property, and federal income and excise taxes on its undistributed income.

Concentration of Credit Risk

As of December 31, 2007, the Company had cash on deposit in two financial institutions which was approximately $229,000 and $442,000, respectively, in excess of federally insured levels, however, the Company has not experienced any losses in such account. The Company limits investment of cash investments to financial institutions with high credit standing; therefore, the Company believes it is not exposed to any significant credit risk on cash.

As of December 31, 2007, three tenants in the drugstore industry, one tenant in the auto sales industry and one tenant in the home improvement industry accounted for approximately 36%, 10%, and 10% of the Company’s 2007 gross annualized base rental revenues, respectively. Additionally, as of December 31, 2007, eight of our properties were located in Texas and five of our properties were located in Kansas, accounting for approximately 24% and 17% of our 2007 gross annualized base rental revenues, respectively.

F-9

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Stockholders’ Equity

As of December 31, 2007 and December 31, 2006, the Company was authorized to issue 90,000,000 shares of common stock and 10,000,000 shares of preferred stock. All shares of such stock have a par value of $0.01 per share. The Company’s board of directors may authorize additional shares of capital stock and amend their terms without obtaining stockholder approval.

The par value of investor proceeds raised from the Offering was classified as common stock, with the remainder allocated to capital in excess of par value. As the Company’s share redemption program allows the Company’s board of directors to reject any request for redemption, the Company accounts for the common stock issued in the Offering as permanent equity, in accordance with Accounting Series Release No. 268,“Presentation in Financial Statements of Redeemable Preferred Stock.” During the year ended December 31, 2007, the Company redeemed 1,300 shares at $9.25 per share and 3,500 shares at $10.00 per share under the share redemption program. During the year ended December 31, 2006, the Company redeemed 2,500 shares at $8.50 per share under the share redemption program.

Earnings Per Share

Earnings per share are calculated based on the weighted average number of common shares outstanding during each period. The weighted average number of common shares outstanding is identical for basic and fully diluted earnings per share. The Company has no stock options issued or outstanding.

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 we have 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 years ended December 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.

Interest

Interest is charged to interest expense as it accrues. No interest costs were capitalized during the years ended December 31, 2007 and 2006.

Distributions Payable and Distribution Policy

In order to maintain its status as a REIT, the Company is required to make distributions each taxable year equal to at least 90% of its REIT taxable income excluding capital gains. To the extent funds are available, the Company intends to pay regular monthly distributions to stockholders. Distributions are paid to those stockholders who are stockholders of record as of applicable record dates.

On December 13, 2007, the Company’s board of directors declared a distribution of $0.001918 per share for stockholders of record as of the close of business on each day of the period commencing on January 1, 2008 ending on March 31, 2008. The monthly distributions were calculated to be equivalent to the annualized distribution of seven percent (7.00%) per share, assuming a purchase price of $10.00 per share. As of December 31, 2007, the Company had distributions payable of approximately $589,000. The distributions were paid in January 2008.

F-10

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Fair Value of Financial Instruments

SFAS No. 107,“Disclosures About Fair Value of Financial Instruments” (“SFAS No. 107”), requires disclosure of fair value of financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. SFAS No. 107 defines fair value as the quoted market prices for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques such as discounted cash flow analysis. The fair value estimates are made at the end of each year based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows.

Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider that tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

Our consolidated balance sheet includes the following financial instruments: cash and cash equivalents, tenant rent and other receivables, accounts payable and accrued expenses and notes payable. We consider the carrying values of cash and cash equivalents, tenant rent and other receivables and accounts payable and accrued expenses to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected realization. Based on borrowing rates available to us as of December 31, 2007, the fair value of the mortgage loans payable was approximately $122.2 million.

Recent Accounting Pronouncements

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

In September 2006, the FASB issued SFAS No. 157,“Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 defines fair value, establishes a framework for measuring fair value in GAAP and expands disclosures about fair value measurements. SFAS No. 157 is effective for financial statements issued for fiscal years beginning after November 15, 2007, and interim periods within those fiscal years. In February 2008, the FASB issued a staff position delaying the effective date of certain non-financial assets and liabilities to fiscal periods beginning after November 15, 2008. The Company has not determined what impact, if any, the adoption of SFAS No. 157 will have on its consolidated financial statements.

In February 2007, the FASB issued SFAS No. 159,“The Fair Value Option for Financial Assets and Financial Liabilities” (“SFAS No. 159”). SFAS No. 159 allows entities to choose to measure eligible financial instruments at fair value with changes in fair value recognized in earnings of each subsequent reporting date. The fair value election is available for most financial assets and liabilities on an instrument-by-instrument basis and is to be elected on the date of the financial instrument is initially recognized. SFAS 159 is effective for all entities as of the beginning of a reporting entity’s first fiscal year that begins after November 15, 2007 (with earlier application permitted under certain circumstances). The Company did not choose to take the fair value election allowed by the standard.

F-11

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

In June 2007, the American Institute of Certified Public Accountants (“AICPA”) issued Statement of Position 07-1, “Clarification of the Scope of the Audit and Accounting Guide for Investment Companies and Accounting by Parent Companies and Equity Method Investors for Investments in Investment Companies” (“SOP 07-1”). SOP 07-1 provides guidance for determining whether an entity is within the scope of the AICPA Audit and Accounting Guide Investment Companies (the “Guide”). Entities that are within the scope of the Guide are required, among other things, to carry their investments at fair value, with changes in fair value include in earnings. In October 2007, the FASB indefinitely deferred the provisions of SOP 07-1. The Company has not determined what impact, if any, the adoption of SOP 07-1 will have on its consolidated financial statements.

In December 2007, the FASB issued SFAS No. 160, “Noncontrolling Interests in Consolidated Financial Statements – an Amendment of ARB 51” (“SFAS No. 160”). This statement amends ARB 51 and revises accounting and reporting requirements for noncontrolling interest (formerly minority interest) in a subsidiary and for the deconsolidation of a subsidiary. Upon its adoption, January 1, 2009 for the Company, noncontrolling interest will be classified as equity, and income attributed to the noncontrolling interest will be included in the Company’s income. The provisions of this standard are applied retrospectively upon adoption. The Company is currently evaluating the impact of adopting SFAS No. 160 on the consolidated financial statements; however, the Company does not expect it to have a material impact on the consolidated results.

In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141(R)”). SFAS No. 141(R) clarifies and amends the accounting guidance for how an acquirer in a business combination recognizes and measurers the assets acquired, liabilities assumed, and any noncontrolling interest in the acquiree. The provisions of SFAS No. 141(R) are effective for the Company for any business combinations occurring on or after January 1, 2009. The Company has not determined what impact, if any, the adoption of SFAS No. 141 (R) will have on its consolidated financial statements.

NOTE 3 — REAL ESTATE ACQUISITIONS

On August 9, 2007, the Company acquired a single-tenant retail property in Topeka, Kansas, consisting of 24,727 rentable square feet, net leased to Tractor Supply Company, for approximately $3.1 million. The Company financed the acquisition with a mortgage loan of approximately $1.7 million secured by the property. The Company allocated the purchase price of this property, including acquisition costs of approximately $95,000 to the fair market value of the assets acquired and liabilities assumed. The Company allocated approximately $368,000 to land, approximately $2.5 million to building and improvements, approximately $320,000 to acquired in-place leases, and approximately $14,000 to acquired below-market leases during the year ended December 31, 2007.

NOTE 4 — INTANGIBLE LEASE ASSETS

Identified intangible assets consisted of the following:

	December31,
	2007		2006
Acquired in place leases, net of accumulated amortization of $4,906,657 and $3,097,510 at December 31, 2007 and 2006, respectively (with a weighted average life of 140 and 155 months for in-place leases, respectively).	$	21,338,021	$	22,827,153
Acquired above market leases, net of accumulated amortization of $415,452 and $288,498 at December 31, 2007 and 2006, respectively (with a weighted average life of 158 and 170 months for acquired above market leases, respectively).		1,677,479		1,804,433
	$	23,015,500	$	24,631,586

Amortization expense recorded on the identified intangible assets, for each of fiscal years ended December 31, 2007 and 2006 was approximately $1,936,000 and approximately $1,899,000 respectively.

F-12

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Estimated amortization expense of the respective intangible lease assets as of December��31, 2007 for each of the five succeeding fiscal years is as follows:

	Amount
Year		Lease In-Place		Above Market Lease
2008	$	1,801,769	$	122,028
2009		1,801,769		122,028
2010		1,801,769		122,028
2011		1,801,769		122,028
2012		1,801,769		122,028

NOTE 5 — MORTGAGE NOTESPAYABLE

As of December 31, 2007, the Company had the following indebtedness outstanding:

Property	Location	Amount		Fixed Interest Rate		Maturity Date
Wawa	Vineland, NJ	$	2,860,000	6.56	%	June 11, 2016
Wawa	Newark, DE		2,860,000	6.56	%	June 11, 2016
Wawa	Clifton Heights, PA		2,860,000	6.56	%	June 11, 2016
Walgreens	Houston, TX		1,207,000	5.15	%	November 11, 2009
Walgreens	Lawrence, KS		1,526,000	5.15	%	November 11, 2009
Rite Aid	Memphis, TN		1,924,800	5.36	%	November 11, 2009
Rite Aid	Warren, OH		1,842,700	5.36	%	November 11, 2009
CarMax	Merriam, KS		14,175,000	6.48	%	June 11, 2016
Walgreens	Cahokia, IL		1,305,000	4.62	%	December 11, 2009
Walgreens	Cleveland, OH		1,224,000	4.62	%	December 11, 2009
Lowe’s	Texas City, TX		6,187,500	4.91	%	January 11, 2010
Lowe’s	Jonesboro, AR		5,857,500	4.87	%	April 11, 2010
CVS	Whiteville, NC		1,736,000	5.27	%	March 11, 2015
Rite Aid	Bangor, ME		2,763,000	5.40	%	July 11, 2010
Tractor Supply	Woodstock, VA		1,658,000	5.45	%	May 11, 2015
Sherwin Williams	Angola, IN		709,000	5.40	%	July 11, 2010
Sherwin Williams	Ashtabula, OH		493,000	5.40	%	July 11, 2010
Sherwin Williams	Boardman, OH		595,000	5.40	%	July 11, 2010
Apria	Indianapolis, IN		4,615,000	5.40	%	July 11, 2010
Gander Mountain	Houston, TX		7,800,000	6.68	%	June 11, 2011
CVS	Lago Vista, TX		3,151,000	5.42	%	July 11, 2015
CVS	Duncanville, TX		2,137,000	5.40	%	July 11, 2010
CVS	Independence, MO		2,521,000	5.40	%	July 11, 2010
Eckerd	Murfreesboro, TN		2,303,000	5.40	%	July 11, 2010
Eckerd	Spartanburg, SC		3,406,000	5.55	%	July 11, 2015
Rite Aid	Wheelersburg, OH		1,380,000	5.40	%	July 11, 2010
Eckerd	Philadelphia, PA		2,691,000	5.40	%	July 11, 2010
Eckerd	Hayes, VA		2,773,000	5.55	%	July 11, 2015

F-13

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

Property	Location	Amount		Fixed Interest Rate		Maturity Date
Eckerd	Travelers Rest, SC	$	3,137,000	5.63	%	August 11, 2015
Tractor Supply	Paducah, KY		1,187,000	5.64	%	August 11, 2015
Rite Aid	St. Mary’s, OH		1,687,000	5.64	%	August 11, 2015
Walgreens	Hutchinson, KS		3,462,000	5.51	%	August 11, 2015
Walgreens	Newton, KS		2,891,000	5.51	%	August 11, 2015
Tractor Supply	Glasgow, KY		1,388,000	5.53	%	September 11, 2015
Best Buy	Tupelo, MS		2,707,000	5.57	%	September 11, 2010
Conns	Austin, TX		2,640,000	5.71	%	October 11, 2010
Conns	Pecan Park, TX		2,571,000	5.71	%	October 11, 2010
Conns	Hurst, TX		1,444,000	5.71	%	October 11, 2010
Vanguard	College Park, GA		8,625,000	6.56	%	June 11, 2016
Tractor Supply	Topeka, KS		1,677,500	5.88	%	September 1, 2017
		$	117,977,000

The mortgage notes require monthly interest-only payments with the principal balance due on various dates from November 2009 through September 2017. 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.

Generally, the mortgage notes may not be prepaid, in whole or in part, except under the following circumstances: (i) full prepayment may be made on any of the three monthly payment dates occurring immediately prior to the maturity date, and (ii) partial prepayments resulting from the application of insurance or condemnation proceeds to reduce the outstanding principal balance of the mortgage notes. Notwithstanding the prepayment limitations, 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.

Generally, in the event that a mortgage note is not paid off on the respective maturity date, most mortgage notes include hyper-amortization provisions. Under the hyper-amortization provisions, the individual mortgage note maturity date will be extended by 20 years. During such period, the lender will apply 100% of the rents collected to the following items in the order indicated: (i) payment of accrued interest at the original fixed interest rate, (ii) all payments for escrow or reserve accounts, (iii) any operating expenses of the property pursuant to an approved annual budget, (iv) any extraordinary expenses, and (v) the balance of the rents collected will be applied to the following in such order as the lender may determine: (1) any other amounts due in accordance with the loan documents, (2) the reduction of the principal balance of the mortgage note, and (3) capitalized interest at an interest rate equal to the greater of (A) the initial fixed interest rate as stated on the respective mortgage note agreement plus 2.0% per annum or (B) the then current Treasury Constant Maturity Yield Index plus 2.0% per annum.

The Company’s weighted average interest rate relating to the fixed rate mortgage notes at December 31, 2007 was approximately 5.76%.

F-14

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

The following table summarizes the scheduled aggregate principal repayments for the five years subsequent to December 31, 2007:

For the Year Ending December 31:	Principal Repayments
2008	$	—
2009		9,029,500
2010		41,614,000
2011		7,800,000
2012		—
Thereafter		59,533,500
Total	$	117,977,000

The fair value of our fixed rate mortgage notes payable at December 31, 2007 is approximately $122.2 million.

NOTE6— INTANGIBLE LEASE LIABILITY

Identified intangible liability consisted of the following:

	December31,
	2007		2006
Acquired below–market leases, net of accumulated amortization of $609,870 and $404,794 at December 31, 2007 and 2006, respectively
(with a weighted average life of 140 and 150 months, respectively).	$	1,629,003	$	1,819,963

Amortization income recorded on the identified intangible liability, for each of fiscal years ended December 31, 2007 and 2006 was approximately $205,000 and approximately $202,000 respectively.

Estimated amortization income of the respective intangible lease liability as of December 31, 2007 for each of the five succeeding fiscal years is as follows:

Year	Below Market Leases
2008	$	203,936
2009		203,936
2010		201,713
2011		200,379
2012		200,379

NOTE 7 — COMMITMENTS AND CONTINGENCIES

Litigation

In the ordinary course of business, the Company may become subject to litigation or claims. There are no material pending legal proceedings, or 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 the consolidated results of operations.

F-15

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE 8 — RELATED PARTY TRANSACTIONS AND ARRANGEMENTS

Certain affiliates of the Company received fees and compensation in connection with the Offering, and receive fees and compensation in connection with the acquisition, management and sale of the assets of the Company.

Cole Advisors receives a finance coordination fee of up to 1% of the gross proceeds of any loan obtained in connection with an investment. The Company paid finance coordination fees to Cole Advisors of approximately $17,000 and approximately $392,000 during the years ended December 31, 2007 and 2006, respectively.

The Company pays Cole Realty, its affiliated property manager, fees for the management and leasing of the Company’s properties. Such fees are equal to 3% of gross revenues, plus leasing commissions at prevailing market rates, not to exceed the greater of $4.50 per square foot or 7.5% of the total lease obligation. Cole Realty or its affiliates also receive acquisition and advisory fees of up to 3% of the contract purchase price of each property. The Company paid property management fees to Cole Realty of approximately $467,000 and approximately $455,000 during the years ended December 31, 2007 and 2006, respectively. The Company paid acquisition fees to Cole Realty of $61,000 during the year ended December 31, 2007. During the year ended December 31, 2006 the Company paid no acquisition fees to Cole Realty.

The Company pays Cole Advisors a monthly asset management fee of up to 0.75% of the aggregate asset value of the Company’s assets. The fee is payable monthly. During the years ended December 31, 2007 and 2006, pursuant to a waiver of part of the fee, the Company paid Cole Advisors an asset management fee of 0.50% of the aggregate asset value of the Company’s assets, respectively. The Company is not obligated to pay any additional amounts for such periods. However, Cole Advisors may elect to increase its asset management fees in future periods up to the 0.75% fee. The Company paid asset management fees to Cole Advisors of approximately $493,000 and approximately $490,000 during the years ended December 31, 2007 and 2006, respectively.

If Cole Advisors, or its affiliates, provides substantial assistance 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 the years ended December 31, 2007 and 2006, the Company did not pay any fees or amounts to Cole Advisors relating to the sale of properties.

Upon listing of the Company’s common stock on a national securities exchange, a fee will be paid to Cole Advisors 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.

The Company reimburses 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 years ended December 31, 2007 and 2006, the Company did not reimburse Cole Advisors for any such costs.

NOTE9— 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.

F-16

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE10— STOCKHOLDERS EQUITY

Share Redemption Program

The Company’s common stock is currently not listed on a national securities exchange, and the Company currently does not intend to list its common stock. In order to provide stockholders with the possibility of liquidity, stockholders who have held their shares for at least one year may receive the benefit of limited interim liquidity by presenting for redemption all or a minimum portion of their shares to the Company at any time in accordance with the procedures outlined below. At that time, the Company may, subject to the conditions and limitations described below, redeem the shares presented for redemption for cash to the extent that the Company has sufficient funds available to it to fund such redemption. The Company will not pay its advisor or its affiliates any fees to complete any transactions under the share redemption program.

The Company determines 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 0.5% 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. During the year ended December 31, 2007, the Company redeemed 1,300 shares at $9.25 per share and 3,500 shares at $10.00 per share under the share redemption program. During the year ended December 31, 2006, the Company redeemed 2,500 shares at $8.50 per share under the share redemption program.

Except as described below for redemptions upon the death of a stockholder, the purchase price for the redeemed shares will equal the lesser of (1) the price actually paid for those shares or (2) either (i) $8.50 per share or (ii) 90.0% of the net asset value per share, as determined by the Company’s advisor or another firm it might choose for that purpose. The Company’s board of directors reserves the right in its sole discretion at any time and from time to time to (1) waive the one-year holding period in the event of the death or bankruptcy of a stockholder or other exigent circumstances, (2) reject any request for redemption, (3) change the purchase price for redemption, or (4) otherwise amend the terms of the share redemption program.

The purchase price for shares redeemed upon the death of a stockholder generally will be equal to the price the stockholder actually paid for the shares. If, at the time of redemption, the Company’s advisor or another firm it might choose for that purpose has made a determination of the net asset value per share, the purchase price for shares redeemed upon the death of a stockholder will be the net asset value of the shares as so determined. The Company will redeem shares upon the death of a stockholder only to the extent that it has sufficient funds available to the Company to fund such redemption.

Redemption of shares, when requested, generally are made quarterly on a first-come, first-served basis. The Company cannot guarantee that it will have sufficient available cash flow to accommodate any or all requests made in any quarter. If the Company does not have such sufficient funds available, at the time when redemption is requested, a stockholder can (1) withdraw his or her request for redemption or (2) ask that the Company honor such stockholder request at such time, if any, when sufficient funds become available. Such pending requests will generally be honored on a first-come, first-served basis.

Stockholders may present to the Company fewer than all of their shares for redemption, except that (1) any participating stockholder must present for redemption at least 2,500 shares and (2) if any participating stockholder retains any shares, such stockholder must retain at least 2,500 shares.

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 and under appropriate state securities laws or otherwise sold in compliance with such laws.

F-17

COLE CREDIT PROPERTY TRUST, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS – (Continued)

NOTE11— INCOME TAXES

For income tax purposes, distributions to common stockholders are characterized as ordinary income, capital gains, or as a return of a stockholder’s invested capital. The following table represents the character of distributions to stockholders for the years ended December 31, 2007 and 2006:

Character of Distributions:	2007			2006
Ordinary income		39	%		31	%
Capital gain		1	%		—	%
Return of capital		60	%		69	%
		100	%		100	%

At December 31, 2007, the tax basis carrying value of the Company’s total assets was approximately $194.8 million. During the years ended December 31, 2007 and 2006, the Company incurred state income taxes of approximately $44,000 and approximately $15,000, respectively, which has been recorded in general and administrative expenses in the consolidated statements of operations.

NOTE 12 — OPERATING LEASES

All of the Company’s real estate assets are leased to tenants under operating leases, for which the terms and expirations vary. The leases frequently have provisions to extend the lease agreement and other terms and conditions as negotiated. The Company retains substantially all of the risks and benefits of ownership of the real estate assets leased to tenants.

The future minimum rental income from the Company’s investment in real estate assets under non-cancelable operating leases, at December 31, 2007 is as follows:

Year Ending December 31:	Amount
2008	$	15,864,367
2009		15,864,367
2010		15,864,367
2011		15,864,367
2012		15,864,367
Thereafter		123,468,145
Total	$	202,789,980

F-18