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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
[Fee Required]
For the fiscal year ended December 31,
1995
or
[ ] Transition report pursuant to Section 13 or 15 (d) of
the
Securities Exchange Act of 1934
[No Fee Required]
For the transition period from to
Commission file number 0-16518
Wells Real Estate Fund II
(Exact name of registrant as specified
in its
charter)
Georgia 58-1678709
(State or other jurisdiction of
(I.R.S.
Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road Norcross, Georgia 30092
(Address of principal executive offices)
(Zip
Code)
Registrant's telephone number, including area code
(770)
449-7800
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:
CLASS A UNITS
(Title of Class)
CLASS B UNITS
(Title of Class)
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
Aggregate market value of the voting stock held by
non-
affiliates: Not Applicable
PART I
ITEM 1. BUSINESS
Wells Real Estate Fund II (the "Partnership") is a
Georgia
public limited partnership having Leo F. Wells, III and
Wells
Capital, Inc., as General Partners. The Partnership was
formed
on June 23, 1986, for the purpose of acquiring,
developing,
constructing, owning, operating, improving, leasing and
otherwise
managing for investment purposes income-producing
commercial or
industrial properties.
On September 8, 1986, the Partnership commenced a public
offering
of its limited partnership units pursuant to a
Registration
Statement filed on Form S-11 under the Securities Act of
1933.
The Partnership terminated its offering on September 7,
1988, and
received gross proceeds of $34,948,250 representing
subscriptions
from 4,440 Limited Partners, composed of two classes of
limited
partnership interests, Class A and Class B limited
partnership
units.
As of December 31, 1995, the Partnership owned interests in
the
following properties: (i) a retail shopping and commercial
office
complex located in Tucker, Georgia, (ii) a shopping
center
located in Cherokee County, Georgia, (iii) a two-story
office
building located in Charlotte, North Carolina, (iv) a four-
story
office building located in metropolitan Houston, Texas,
(v) a
restaurant located in Fulton County, Georgia, and (vi) a
retail
shopping center currently being developed in Fulton
County,
Georgia. All of the foregoing properties were acquired on
an all
cash basis and are described in more detail in Item 2 below.
The
lease on the Atrium Building in Houston, which
contributes a
significant proportion to the revenue of the Partnership,
will
expire in June, 1996. If the Partnership is unable to
obtain a
new tenant, the income generated to the Partnership may
decrease
significantly. See the detailed discussion in Item
2,
Properties.
Employees
The Partnership has no direct employees. The employees of
Wells
Capital, Inc., a General Partner of the Partnership,
perform a
full range of real estate services including leasing and
property
management, accounting, asset management and investor
relations
for the Partnership. See Item 11 - Compensation of
General
Partner and Affiliates - for a summary of the fees paid to
the
General Partners and their affiliates during the fiscal
year
ended December 31, 1995.
Insurance
Wells Management Company, Inc., an affiliate of the
General
Partner, carries comprehensive liability and extended
coverage
with respect to all the properties owned directly or
indirectly
by the Partnership. In the opinion of management of
the
registrant, the properties are adequately insured.
Competition
The Partnership will experience competition for tenants
from
owners and managers of competing projects which may include
the
General Partners and their affiliates. As a result,
the
Partnership may be required to provide free rent, reduced
charges
for tenant improvements and other inducements, all of which
may
have an adverse impact on results of operations. At the
time the
Partnership elects to dispose of its properties, the
Partnership
will also be in competition with sellers of similar
properties to
locate suitable purchasers for its properties.
ITEM 2. PROPERTIES.
The Partnership owns all of its properties through a
joint
venture (the "Fund II-Fund II-OW Joint Venture") formed on
March
1, 1988, between the Partnership and Wells Real Estate Fund
II-OW
("Wells Fund II-OW"). Wells Fund II-OW is a Georgia
public
limited partnership affiliated with the Partnership
through
common general partners. The investment objectives of Wells
Fund
II-OW are substantially identical to those of the
Partnership.
As of December 31, 1995, the Partnership's equity
interest in
the Fund II-Fund II-OW Joint Venture was approximately 95%,
and
the equity interest of Wells Fund II-OW was approximately
5%.
The Partnership does not have control over the operations
of the
joint venture; however, it does exercise significant
influence.
Accordingly, investment in joint venture is recorded on
the
equity method.
The Partnership does not have control over the operation of
the
joint venture; however, it does exercise significant
influence.
Accordingly, investment in the joint venture is recorded on
the
equity method.
Of the six properties owned by the joint venture, three
are
retail shopping centers, two are office buildings and one
is a
restaurant. As of December 31, 1995, these properties
were
95.87% occupied, down from 97.34% at December 31, 1994,
and up
from 66.90% at December 31, 1993, 93.76% at December 31,
1992 and
93.57% at December 31, 1991.
The following table shows lease expirations during each of
the
next ten years for all leases as of December 31, 1995,
assuming
no exercise of renewal options or termination rights:
Partnership
Share
Year of Number of Square Annualized of
Annualized
Percentage of Percentage of
Lease Leases Feet Gross Base Gross Base
Total
Square Total Annualized
Expiration Expiring Expiring Rent (1) Rent(1)
Feet
Expiring Gross Base Rent
1996(2) 12 141,922 $2,296,663 $1,376,505
52.20%
61.37%
1997 12 25,528 319,709 144,436 9.39% 8.54%
1998 4 7,750 92,134 44,145 2.85% 2.46%
1999 6 9,619 152,313 67,264 3.54%
4.07%
2000 2 5,314 81,438 37,387 1.95%
2.18%
2001(3) 2 78,192 749,373 622,411
28.76%
20.02%
2002 1 3,531 50,821 21,609
1.30%
1.36%
2003 0 0 0 0 0.00%
0.00%
2004 0 0 0 0 0.00%
0.00%
2005 0 0 0 0 0.00% 0.00%
39 271,856 $3,742,451 $2,313,757
100.0%
100.0%
(1) Average monthly gross rent over the life of the
lease,
annualized.
(2) Expiration of Lockheed Engineering and Science Company,
Inc.
at The Atrium.
(3) Expiration of the Brookwood Grill with 7,440 square
feet and
the First Union Bank with 70,752 square feet at the
Charlotte
Project.
The following describes the properties in which the
Partnership
owns an interest as of December 31, 1995:
The Charlotte Property
On May 9, 1988, the Fund II-Fund II-OW Joint Venture
acquired a
two-story building containing approximately 70,752 net
leasable
square feet, located on a 9.54 acre tract of land
located in
Charlotte, Mecklenburg County, North Carolina (the
"Charlotte
Property") for a purchase price of $8,550,000.
While the entire project was originally leased under a net
lease
to IBM, IBM elected not to exercise its second three year
option
to extend its lease and vacated the building effective
September
30, 1993, after paying a $425,000 lease termination fee.
On May 1, 1994, First Union Bank assumed occupancy of
the
Charlotte property under a lease which expires April 30,
2001.
The principal terms of the lease provide for First Union's
sole
tenancy of the project as a regional operations center for
the
initial term of seven years. Because First Union Bank
invested
approximately $1 million on tenant improvements at the
Charlotte
property, a lower rental rate was accepted for the first
five
years. There are presently no plans for improvement or
further
development of the project.
The annual base rent during the initial term is $412,705
payable
in equal monthly installments of $34,392.08 during the
first two
years, annual base rent of $454,651 payable in equal
monthly
installments of $37,887.58 during the third year, annual
base
rent of $489,650 payable in equal monthly
installments of
$40,804.17 during the fourth year and annual base
rent of
$524,625 payable in equal monthly installments of
$43,718.75
during the fifth year. Rental rates during the remaining
two
years of the lease term will be determined by market rates.
The occupancy rates at the Charlotte Property as of
December 31
were 100% in 1995, 100% in 1994, 0% in 1993, 100% in 1992
and
1991.
The average effective annual rental per square foot at
the
Charlotte Property was $5.83 for 1995, $3.88 1994, $28.12
for
1993 and $15.69 for 1992, and 1991. The higher effective
annual
rental rate for 1993 is due to the payment of $425,000 in
lease
termination fees by IBM.
The Atrium
On April 3, 1989, the Fund II-Fund II-OW Joint Venture
formed a
joint venture (the "Fund II-Fund III Joint Venture") with
Wells
Real Estate Fund III, L.P. ("Wells Fund III"), a public
Georgia
limited partnership affiliated with the Partnership
through
common general partners. The investment objectives of Wells
Fund
III are substantially identical to those of the Partnership.
In April 1989, the Fund II-Fund III Joint Venture acquired a
four-
story office building located on a 5.6 acre tract of
land
adjacent to the Johnson Space Center in metropolitan
Houston, in
the City of Nassau Bay, Harris County, Texas, know as "The
Atrium
at Nassau Bay", (the "Atrium").
The funds used by the Fund II-Fund III Joint Venture to
acquire
the Atrium were derived from capital contributions made to
the
Fund II-Fund III Joint Venture by the Fund II-Fund II-OW
Joint
Venture and Wells Fund III in the amounts of $8,327,856
and
$2,538,000, respectively, for total initial capital
contributions
of $10,865,856. As of December 31, 1995, the Fund II-Fund
II-OW
Joint Venture and Wells Fund III had made total
capital
contributions to the Fund II-Fund III Joint Venture
of
approximately $8,330,000 and $4,448,000, respectively, for
the
acquisition and development of the Atrium. The Fund II -
Fund II-
OW Joint Venture holds approximately 66% equity interest in
the
Fund II - Fund III Joint Venture, and Wells Funds III
holds
approximately 34% equity interest in the Fund II - Fund III
Joint
Venture.
The Atrium was first occupied in 1987 and contains
approximately
119,000 net leasable square feet. Each floor of the
Atrium is
currently under a separate lease to Lockheed Engineering
and
Science Company, Inc., a wholly-owned subsidiary of the
Lockheed
Company, each of which leases have terms of approximately
eight
years and expire June 30, 1996. The leases do not contain
any
provisions for extension. The Fund II-Fund III Joint
Venture is
responsible for operating expenses of up to $4.50 per square
foot
for the first four years and $4.75 per square foot for
the
remaining term. The tenant under each lease is required to
pay
certain operating expenses including expenses relating to
its
share of the building in excess of $4.50 per square foot for
the
first four lease years and $4.75 per square foot for
the
remaining term. Under the terms of each of the leases,
the
tenant is responsible for all maintenance and repair
work, as
well as all utilities, taxes, insurance and similar expenses
with
respect to the Atrium in excess of the amounts specified
above.
The leases for each of the four floors of the building
are
identical, except as to their base monthly rentals. The
leases
for the Atrium currently provide for base rent of $185,298
per
month until expiration of said leases in June 1996.
The occupancy rate at the Atrium Property was 100%, and
the
average effective annual rental square foot at the
Atrium
Property was $17.47 for each of the five years from 1991
through
1995.
The lease with Lockheed will expire June 30, 1996, and
renewal is
not anticipated at this time. The Partnership has
responded to
various potential tenants regarding leasing portions of
the
Atrium, should Lockheed not renew. In the event that
Lockheed
does not renew its lease and the Partnership is unable to
lease a
substantial portion of the Atrium Property at rates at
least
comparable to the lease rates currently being paid under
the
Lockheed lease, the income generated from the Atrium
Property
could decrease significantly following the expiration of
the
Lockheed lease on June 30, 1996. In addition, even if
the
Partnership is able to obtain leases with new tenants for
the
Lockheed Project, such leases are likely to require
substantial
tenant finish and refurbishment expenditures by the
Partnership,
which could have the effect of substantially reducing future
cash
distributions to Limited Partners.
The Brookwood Grill Property
On January 31, 1990, the Fund II-Fund II-OW Joint
Venture
acquired a 5.8 acre tract of undeveloped real property at
the
intersection of Warsaw Road and Holcomb Bridge Road in
Roswell,
Fulton County, Georgia (the "Brookwood Grill Property").
The
Brookwood Grill Property is located about two miles
west of
Georgia Highway 400 and approximately 20 radial miles
north of
the Atlanta Central Business District. The Fund II - Fund
II-OW
Joint Venture paid $1,848,561, including acquisition
expenses,
for the 5.8 acre tract of undeveloped property.
On September 20, 1991, the Fund II-Fund II-OW Joint
Venture
contributed the Brookwood Grill, along with its
interest as
landlord under the lease agreement referred to below,
as a
capital contribution to the Fund II-Fund III Joint Venture.
As
of September 20, 1991, the Fund II-Fund II-OW Joint Venture
had
expended approximately $2,128,000 for the land acquisition
and
development of the Brookwood Grill Property.
As of September 20, 1991, a lease agreement was entered into
with
the Brookwood Grill of Roswell, Inc. for the
development of
approximately 1.5 acres and the construction of a 7,440
square
foot restaurant. This Roswell site, which opened early
March
1992, is the second location in the Atlanta area for
what is
anticipated as a southeastern chain of restaurants
similar in
concept to Houston's, Ruby Tuesday, and Friday's. This
chain is
principally owned by David Rowe, an Atlanta real estate
developer
of Kroger shopping centers, and several operating
partners
formerly with Houston's. The terms of the lease call
for an
initial term of 9 years and 11 months, with two additional
10-
year option periods. The agreement calls for a base
rental of
$217,006 per year for Years 1 through 5, with a 15% increase
over
the remainder of the initial term. Rental rates for all
option
periods will be based on the prevailing market values and
rates
for those periods. Under the terms of the lease, the Fund
II-
Fund III Joint Venture was required to make certain
improvements
for the development and construction of the restaurant
building
together with parking areas, driveways, landscaping and
other
improvements described in the plans and specifications. The
Fund
II-Fund III Joint Venture has expended approximately
$1,100,000
for such improvements. In addition to the base rent
described
above, the tenant is required to pay "additional rent" in
amounts
equal to a 12% per annum return on all amounts expended for
such
improvements.
The occupancy rate for the Brookwood Grill, a sole tenant,
was
100% for 1995, 1994, 1993 and 1992. The average effective
rental
per square foot at the Brookwood Grill is $30.21 for 1995,
1994
and 1993, and $24.60 for 1992, the first year of occupancy.
As of December 31, 1995, the Fund II-Fund II-OW Joint
Venture and
Wells Fund III had made total contributions to the Fund II-
Fund
III Joint Venture of approximately $2,128,000 and
$1,330,000,
respectively, for the acquisition and development of
the
Brookwood Grill. The Fund II-Fund II-OW Joint Venture
holds an
approximately 62% equity interest in the Brookwood
Grill
property, and Wells Fund III holds an approximately 38%
equity
interest in the project.
On January 10, 1995, the remaining 4.3 undeveloped acres of
land
comprising the 880 Property was contributed to a new
joint
venture, Fund II, III, VI, and VII Associates by Fund II-
Fund III
Joint Venture. This property is described below.
Fund II, III, VI and VII Joint Venture/Holcomb Bridge
Road
Project
On January 10, 1995, Fund II-Fund III Joint Venture; Wells
Real
Estate Fund VI, L.P. ("Wells Fund VI"), a Georgia public
limited
partnership having Leo F. Wells, III and Wells Partners,
L.P., a
Georgia limited partnership, as general partners, and Wells
Real
Estate Fund VII, L. P.("Wells Fund VII"), a Georgia
public
limited partnership having Leo F. Wells, III and Wells
Partners,
L.P., a Georgia limited partnership, as general partners,
entered
into a Joint Venture Agreement known as Fund II, III, VI and
VII
Associates ("Fund II, III, VI and VII Joint Venture").
Wells
Partners, L.P. is a private limited partnership having
Wells
Capital, Inc., a General Partner of the Partnership, as its
sole
general partner. The investment objectives of Wells Fund VI
and
Wells Fund VII are substantially identical to those of
the
Partnership.
The Fund II-Fund III Joint Venture contributed
approximately 4.3
acres of land at the intersection of Warsaw Road and
Holcomb
Bridge Road in Roswell, Fulton County, Georgia including
land
improvements with a book value of $1,729,116 to the Fund II,
III,
VI and VII Joint Venture. Development is underway on
two
buildings containing a total of approximately 48,000 square
feet;
26,000 square feet to be developed as office space and
22,000
square feet to be developed as retail space. As of December
31,
1995, leases have been signed with Bertucci's
Restaurant
Corporation for 5,935 square feet, Air Touch Cellular for
3,046
square feet and Townsend Tax for 1,389 square feet.
Initial
occupancy occurred February, 1996.
As of December 31, 1995, Fund II and Fund III Joint Venture
had
contributed $1,729,116 in land and improvements for
an
approximate 33% equity interest, Wells Fund VI had
contributed
$982,691 toward the construction for an approximate 19%
equity
interest, and Wells Fund VII had contributed $2,500,000
for a
approximate 48% equity interest. As of December 31, 1995,
the
Partnership held an approximate 19% equity interest through
the
Fund II-II-OW Joint Venture in the Fund II, III, VI and VII
Joint
Venture. The total cost to develop the Holcomb Bridge
Road
Project excluding land, is currently estimated to
be
approximately $4,000,000, and it is anticipated that
the
remaining approximate $517,000 will be contributed
$260,000 by
Wells Fund VI and $257,000 by Wells Fund VII.
Tucker Property
The Tucker Property consists of a retail shopping center
and a
commercial office building complex located in Tucker,
DeKalb
County, Georgia (the "Tucker Property"). The retail
shopping
center at the Tucker Project contains approximately 29,858
net
leasable square feet. The commercial office space at the
Tucker
Project, which divided into seven separate buildings,
contains
approximately 67,465 net leasable square feet.
On January 9, 1987, the Partnership acquired an interest in
the
Tucker Property which was acquired by a joint venture
(the
"Tucker Joint Venture") originally between the Partnership
and
Wells Real Estate Fund I (`Wells Fund I"). Wells Fund I
is a
Georgia public limited partnership affiliated with
the
Partnership through common general partners. The
investment
objectives of Wells Fund I are substantially identical to
those
of the Partnership. Upon the formation of the Fund II-Fund
II-OW
Joint Venture in March 1988, the Partnership contributed
its
joint venture interest in the Tucker Joint Venture to the
Fund II-
Fund II-OW Joint Venture as a part of its capital
contribution.
On January 1, 1991, the Cherokee Joint Venture, which is
defined
below, was merged into the Tucker Joint Venture forming a
new
joint venture (the "Tucker-Cherokee Joint Venture").
As
described below, the Cherokee Joint Venture was also a
joint
venture between the Fund II-Fund II-OW Joint Venture and
Wells
Fund I. Under the terms of the Amended and Restated
Joint
Venture Agreement of Fund I and Fund II Tucker-Cherokee,
the
percentage interest of the Fund II - Fund II-OW Joint
Venture in
the Tucker Project remained unchanged as a result of the
merger
of the Tucker Joint Venture into the Tucker-Cherokee
Joint
Venture.
On August 1, 1995, Wells Fund I and the Fund II-Fund-II-OW
Joint
Venture entered into another amendment to effect the
contribution
of the Cherokee Project to the Fund I, II, II-OW, VI, VII
Joint
Venture, as described below. As a result, the name of the
joint
venture was changed back to "Fund I and Fund II Tucker",
and is
therefore no longer merged with the Cherokee Joint Venture.
The
Partnership's percentage interest in the Tucker Project
remained
unchanged as a result of the transaction.
Both Wells Fund I and the Fund II-Fund II-OW Joint Venture
have
funded the cost of completing the Tucker Property through
capital
contributions which have been paid as progressive
stages of
construction were completed. As of December 31, 1995, Wells
Fund
I had contributed a total of $6,399,854, and the Fund II-
Fund II-
OW Joint Venture had contributed a total of $4,826,015 to
the
Tucker Project and the Fund II-Fund II-OW Joint Venture
had an
approximately 45% equity interest in the Tucker Project.
As of
December 31, 1995, Wells Fund I had an approximately 55%
equity
interest in the Tucker Project and the Fund II-Fund II-OW
Joint
Venture had an approximately 45% equity interest in the
Tucker
Project. As of December 31, 1995, the Tucker Project was
83%
occupied by 34 tenants.
There are no tenants in the project occupying ten percent or
more
of the rentable square footage. The principal
businesses,
occupations, and professions carried on in the building
are
typical retail shopping/commercial office services.
The occupancy rate at the Tucker Property was 83% in 1995,
96% in
1994, 89% in 1993, 80% in 1992 and 83% in 1991.
The average effective annual rental per square foot at the
Tucker
Property was $12.61 for 1995, $12.63 for 1994, $11.37 for
1993,
$11.37 for 1992, and $9.77 for 1991.
Cherokee Property
The Cherokee Property consists of a retail shopping center
known
as "Cherokee Commons Shopping Center" located in
metropolitan
Atlanta, Cherokee County, Georgia (the "Cherokee Project").
The
Cherokee Project consists of approximately 103,755 net
leasable
square feet.
On June 30, 1987, the Partnership acquired an interest in
the
Cherokee Project through a joint venture (the "Cherokee
Joint
Venture") between the Partnership and Wells Fund II-Fund
II-OW.
On January 1, 1991, the Cherokee Joint Venture merged with
the
Tucker Joint Venture to form the Tucker-Cherokee Joint
Venture.
As described above, the Tucker Joint Venture was also a
joint
venture between the Partnership and the Fund II-Fund II-OW
Joint
Venture. Under the terms of the Amended and Restated
Joint
Venture Agreement of Fund I and Fund II Tucker-Cherokee,
the
Partnership's percentage interest in the Cherokee
Project
remained unchanged as a result of the merger of the
Cherokee
Joint Venture into the Tucker-Cherokee Joint Venture.
On August 1, 1995, the Partnership, the Fund II - Fund
II-OW
Joint Venture, Wells Real Estate Fund VI, L.P. ("Wells Fund
VI"),
a Georgia public limited partnership having Leo F. Wells,
III and
Wells Partners, L.P., a Georgia limited partnership, as
general
partners and Wells Real Estate Fund VII, L.P. ("Wells Fund
VII"),
a Georgia public limited partnership having Leo F. Wells,
III and
Wells Partners, L.P., a Georgia limited partnership, as
general
partners entered into a joint venture agreement known as
Fund I,
II, II-OW, VI, and VII Associates (the "Fund I, II, II-OW,
VI,
VII Joint Venture"), which was formed to own and operate
the
Cherokee Project. Wells Partners, L. P. is a private
limited
partnership having Wells Capital, Inc., a General
Partnership, as
its sole general partner. The investment objectives of
Wells
Fund I, Wells Fund II-Fund II-OW, Wells Fund VI and Wells
Fund
VII are substantially identical to those of the Partnership.
As of December 31, 1995, Wells Fund I had contributed
property
with a book value of $2,139,900, the Fund II-Fund II-OW
Joint
Venture had contributed property with a book value of
$4,860,100,
Wells Fund VI had contributed cash in the amount of $953,718
and
Wells Fund VII had contributed cash in the amount of
$953,798 to
the Cherokee Project. As of December 31, 1995, the
equity
interests in the Cherokee Project were as follows: Wells
Fund I
23%, Fund II-Fund II-OW Joint Venture 55%, Wells Fund VI 11%
and
Wells Fund VII 11%.
The Cherokee Project is anchored by a 67,115 square foot
lease
with Kroger Food/Drug which expires in 2011. Kroger's
original
lease was for 45,528 square feet. In 1994, Kroger
expanded to
the current 67,115 square feet which is approximately 65%
of the
total rentable square feet in the property. As of December
31,
1995, the Cherokee Project was approximately 94% occupied
by 19
tenants, including Kroger.
Kroger is the only tenant occupying ten percent or more of
the
rentable square footage. Kroger is a retail grocery chain.
The
other tenants in the shopping center provide typical
retail
shopping services.
The Kroger lease calls for an annual rent of $392,915
which
increased to $589,102 on August 16, 1995 due to the
expansion
from 45,528 square feet to 67,115 square feet. The lease
expires
March 31, 2011 with Kroger entitled to five successive
renewals
each for a term of five years.
The occupancy rate at the Cherokee Property was 94% in
1995, 91%
in 1994, 89% in 1993, 88% in 1992 and 85% in 1991.
The average effective annual rental per square foot at
the
Cherokee Property was $7.50 for 1995, $5.33 for 1994, $6.47
for
1993, $6.46 for 1992 and $6.52 for 1991.
ITEM 3. LEGAL PROCEEDINGS
There were no material pending legal proceedings or
proceedings
known to be contemplated by governmental authorities
involving
the Partnership during 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
HOLDERS.
No matters were submitted to a vote of the Limited
Partners
during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED
SECURITY
HOLDER MATTERS.
As of February 28, 1996, the Partnership had 108,572
outstanding
Class A Units held by a total of 3,546 Limited Partners
and
30,221 outstanding Class B Units held by a total of 700
Limited
Partners. The total number of Limited Partners has
decreased due
to repurchase of units since the termination of the
offering in
1988. The capital contribution per unit is $250. There
is no
established public trading market for the Partnership's
limited
partnership units, and it is not anticipated that a
public
trading market for the units will develop. Under the
Partnership
Agreement, the General Partners have the right to
prohibit
transfers of units.
Class A Unit holders are entitled to an annual 8% non-
cumulative
distribution preference over Class B Unit holders as to
cash
distributions from Net Cash From Operations, defined in
the
Partnership Agreement as Cash Flow, less adequate cash
reserves
for other obligations of the Partnership for which there
is no
provision, but are initially allocated none of the
depreciation,
amortization, cost recovery and interest expense. These
items
are allocated to Class B Unit holders until their capital
account
balances have been reduced to zero.
Cash Available for Distribution to the Limited
Partners is
distributed on a quarterly basis unless Limited Partners
select
to have their cash distributions paid monthly.
Cash
distributions made to the Limited Partners for the two
most
recent fiscal years were as follows:
Amount Amount
Per Class A Unit Per Class B
Unit
Distribution for Total Amount Investment Return
of
Return of General
Quarter Ended Distributed Income
Capital
Capital Partner
March 31, 1994 $274,611 $2.53 $0.00
$0.00
$0.00
June 30, 1994 $357,090 $3.29 $0.00
$0.00
$0.00
September 30, 1994 $443,699 $4.09 $0.00
$0.00
$0.00
December 31, 1994 $447,937 $4.13 $0.00
$0.00
$0.00
March 31, 1995 $437,508 $4.03 $0.00
$0.00
$0.00
June 30, 1995 $472,259 $4.35 $0.00
$0.00
$0.00
September 30, 1995 $493,535 $4.55 $0.00
$0.00
$0.00
December 31, 1995 $479,001 $4.41 $0.00
$0.00
$0.00
The fourth quarter distributions were accrued for
accounting
purposes in 1995 and were not actually paid until February,
1996.
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth a summary of the selected financial
data
for the fiscal years ended December 31, 1995, 1994, 1993,
1992,
and 1991.
1995 1994
1993 1992 1991
Total assets $26,078,445 $27,004,981
$27,906,164
$28,196,307 $ 28,775,024
Total revenues 1,011,995 505,921 1,983,268 1,573,182
1,522,467
Net Income 1,011,745 505,921 1,983,268 1,569,736
1,518,290
Net income
allocated to General
Partners -- -- --
- -- --
Net income allocated
to Class A Limited
Partners 1,922,246 1,275,951 2,586,,995
2,197,866
2,191,933
Net loss allocated
to Class B Limited
Partners (910,501) (770,030) (603,727) (628,130)
(673,703)
Net income per
Class A Limited
Partner Unit 17.71 11.75 23.83 20.24 20.19
Net loss per
Class B Limited
Partner Unit (30.13) (25.48) (19.98) (20.78)
(22.27)
Cash distribution
per Class A
Limited Partner Unit 17.34 14.03 18.82
20.00
20.00
Cash distribution per
Class B Limited
Partner Unit -- -- -- 3.11 .76
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL
CONDITIONS AND RESULTS OF OPERATION.
The following discussion and analysis should be read
in
conjunction with the selected financial data and the
accompanying
financial statements of the Partnership and notes thereto.
This Report contains forward-looking statements, within
the
meaning of Section 27A of the Securities Act of 1933 and
21E of
the Securities Exchange Act of 1934, including discussion
and
analysis of the financial condition of the
Partnership,
anticipated capital expenditures required to complete
certain
projects, amounts of cash distributions anticipated to
be
distributed to Limited Partners in the future and certain
other
matters. Readers of this Report should be aware that there
are
various factors that could cause actual results to
differ
materially from any forward-looking statement made in the
Report,
which include construction costs which may exceed
estimates,
construction delays, lease-up risks, inability to obtain
new
tenants upon the expiration of existing leases, and the
potential
need to fund tenant improvements or other capital
expenditures
out of operating cash flow.
Results of Operations and Changes in Financial Conditions
General
As of December 31, 1995, the developed properties owned by
the
Fund II-Fund II-OW Joint Venture, excluding the Holcomb
Bridge
Road Property which is not yet fully developed, were 96%
leased,
as compared to 1994, and 1993 when the properties were 98%
and
66% leased respectively. The increase in the leased
percentages
for 1994 and 1995 is due to the occupancy of the
Charlotte
Property for the last eight months of 1994 and all of 1995.
Gross revenues of the Partnership were $1,011,995 for the
fiscal
year ended December 31, 1995, as compared to $505,921 for
the
fiscal year ended December 31, 1994 and $1,983,268 for the
fiscal
year ended December 31, 1993. The increase in gross
revenues for
fiscal year 1995 from fiscal year 1994 was due primarily to
the
full year occupancy at the Charlotte Project. The
decrease in
gross revenues for 1994 over 1993 was primarily due to
the
vacancy and decreased rental rate at the Charlotte
Property. A
fourth quarter loss at the Cherokee Property was due to a
loss on
the retirement of tenant improvements which were
necessary to
complete the Kroger expansion.
Administrative expenses of the Partnership are incurred at
the
joint venture level. Depreciation expense increased from
1994 to
1995 due to change in the estimated useful lives of
buildings and
improvements from 40 years to 25 years. For further
discussion
of depreciation expense, please refer to the notes to
the
accompanying financial statements.
Partnership distributions paid during the fiscal year
ended
December 31, 1995, totaled $1,882,302, as compared to
$1,523,337
during the fiscal year ended December 31, 1994 and
$2,043,272
during the fiscal year ended December 31, 1993. This
increase in
partnership distributions paid for fiscal year 1995 as
compared
to fiscal years 1994 and 1993 was primarily caused by an
increase
in net cash provided by operating activities which was
caused by
occupancy fluctuations.
The Partnership made cash distributions to Limited
Partners
holding Class A units of $17.34 per Unit for fiscal year
ended
December 31, 1995 and $14.02 per Unit for fiscal year
ended
December 31, 1994, and $18.82 per unit for 1993. The
Partnership
made no cash distributions to Limited Partners holding
Class B
Units for fiscal year ended 1995, 1994 or 1993.
In March 1995, the Financial Accounting Standards Board
issued
Statement of Financial Accounting Standards ("SFAS") No.
121,
"Accounting for the impairment of Long-Lived Assets and for
Long-
Lived Assets to Be Disposed of", which is effective for
fiscal
years beginning after December 15, 1995. SFAS No.
121
establishes standards for determining when impairment
losses on
long-lived assets have occurred and how impairment losses
should
be measured. The joint ventures adopted SFAS No. 121,
effective
January 1, 1995. The impact of adopting SFAS No. 121 was
not
material to the financial statements of the joint ventures.
Property Operations
As of December 31, 1995, the Partnership owned interests in
the
following properties through the Fund II - Fund II-OW
Joint
Venture:
Tucker Property
For the Year Ended December 31
1995 1994
1993
Revenues:
Rental income $1,227,116 $1,228,960 $1,106,676
Interest income 2,599 3,269
3,151
1,229,715 1,232,229 1,109,827
Expenses:
Depreciation 277,862 238,238 236,288
Management and
leasing expenses 135,517 133,650 126,853
Other operating expenses 563,049 500,494 617,726
976,428 872,382 980,867
Net income $253,287 $359,847 $128,960
Occupied % 83% 96% 89%
Partnership Ownership % 42.5% 42.5% 42.5%
Cash distributed to
the Fund II-Fund II-OW
Joint Venture * $250,278 $202,642 $124,189
Net income allocated
to Fund II - Fund II-OW
Joint Venture * $113,752 $161,608 $57,817
* The Partnership holds a 95% ownership in the Fund II-
Fund II-
OW Joint Venture. For allocations to the Partnership
see
footnotes in the audited financial statements.
Rental income remained relatively stable from 1994 to 1995
and
increased from $1,106,676 in 1993 to $1,228,960 in 1994
due
primarily to increased tenant occupancy. Operating
expenses
increased in 1995 over 1994 due to an increase in property
taxes,
utilities, and other repairs and maintenance. Operating
expenses
decreased in 1994 as compared to 1993 due chiefly to a
decrease
in retirement of tenant improvements of $88,000 and a
decrease of
$20,000 for general and administrative expenses. The
increase in
depreciation expense for 1995 as compared to 1994 and 1993
is a
result of the change in the estimated useful lives of
buildings
and improvements as previously discussed under the
"General"
section of "Results of Operations and Changes in
Financial
Conditions". Net income of the property decreased to
$253,286 in
1995 from $359,847 in 1994 due to increased depreciation
and
operating expenses as discussed above and increased in
1994 to
$359,847 from $128,960 in 1993 due to increased tenant
occupancy
and decrease in operating expenses as discussed above.
The property was 83% leased as of December 31, 1995, as
compared
to 96% as of December 31, 1994, and 89% as of December 31,
1993.
Rental income for 1995 decreased only slightly over the
1994
level due to the decrease in occupancy occurring near the
end of
1995.
Real estate taxes were $127,484 for 1995, $105,042 for 1994
and
$132,780 for 1993.
For comments on the general conditions to which the
property may
be subject, see Item 1, Business, Page 2. For
additional
information on the property, tenants, etc., see Item
2,
Properties, page 3.
Cherokee Commons Shopping Center
For the Year Ended December 31
1995
1994
1993
Revenues:
Rental income $778,204 $ 552,823 $585,195
Interest income 180 50 343
778,384 552,873 585,538
Expenses:
Depreciation 277,099 172,583 178,269
Management and
leasing expenses 36,303 22,410 20,453
Other operating expenses 115,885 569,830 605,465
429,287 764,823 804,187
Net income $349,097 $(211.950) $(218,649)
Occupied % 94% 91% 89%
Partnership Ownership % 51.7% 65.7% 65.3%
Cash distributed to
the Fund II-Fund II-OW
Joint Venture * $269,900 $213,478 $173,665
Net income allocated
to the Fund II - Fund II-OW
Joint Venture * $216,845 ($148,827) ($147,982)
* The Partnership holds a 95% ownership in the Fund II-
Fund II-
OW Joint Venture. For allocations to the Partnership,
see
footnotes in the audited financial statements.
Rental income increased in 1995 over 1994 due to the
Kroger
expansion which was completed in November, 1994. Rental
income
for the year ended December 31, 1994 decreased
approximately
$32,000 from the rental income for the year ended December
31,
1993. This decrease is due to concessions given to
existing
tenants and to a decrease in occupancy for nine months of
the
year. Concessions were given to new tenants because the
market
in the area called for free rent in order to meet
the
competition. The decrease in occupancy was due to the
vacancy
created by the Kroger expansion while under
construction.
Operating expenses of the property decreased to $115,886 in
1995
from $569,830 in 1994, and $605,465 in 1993. The decrease
is due
primarily to the retirement of tenant improvements that
occurred
in 1994 and 1993 due to the Kroger expansion which elevated
the
expenses for those two years. The increase in
depreciation
expense for 1995 as compared to 1994 and 1993 is a result of
the
change in the estimated useful lives of the buildings
and
improvements as previously discussed under the "General"
section
of "Results of Operations and Changes in Financial
Conditions".
Net income of the property increased to $349,097 in 1995
from a
loss of ($211,950) in 1994 and ($218,649) in 1995 due to
the
increase in revenue and the decrease in operating
expenses as
discussed above.
A lease amendment has been executed with Kroger expanding
its
existing store at the Cherokee Commons Shopping Center
from
45,528 square feet to 66,918 square feet. In November,
1994
construction was completed on the Kroger expansion and
remodeling
of the center. The total cost for both the Kroger
expansion and
remodeling of the Center was $2,807,367. The costs of
this
expansion were funded in the following amounts. Wells
Fund I
$94,679, the Fund II-Fund II-OW Joint Venture $805,092,
as of
December 31, 1994 and Wells Fund VI, $953,798 and Wells Fund
VII,
$953,798 as of December 31, 1995. Due to these
additional
investments, the Partnership's ownership percentage in
the
Cherokee Commons Shopping Center decreased, through
its
investment in the Fund II-Fund II-OW Joint Venture, from
65.7% in
1994 to 51.7% as of December 31, 1995. The Statements are
for a
twelve month period; however, Wells Fund VI and Wells Fund
VII
did not contribute their portion until August 1995.
Real estate taxes were $63,694 for 1995 and $56,080 for 1994
and
1993.
For comments on the general conditions to which the
property may
be subject, see Item 1, Business, Page 2. For
additonal
information on the property, tenants, etc., see Item
2,
Properties, page 3.
Charlotte Property
For the Year Ended December 31
1995 1994 1993
Revenue:
Rental income $458,867 $275,137 $1,989,690
Expenses:
Depreciation 235,794 194,278 194,278
Management and
leasing expenses 27,532 18,355 119,381
Other operating expenses 39,203 142,231 85,848
302,529 354,864 399,507
Net income (loss) $156,338 $(79,727) $1,590,183
Occupied % 100% 100% 100%
Partnership Ownership % 94.7% 94.7% 94.7%
Cash generated to
the Fund II-Fund II-OW
Joint Venture * $369,325 $96,013 $799,600
Net income (loss) allocated
to the Fund II-Fund II-OW
Joint Venture *
$156,338
$(79,727) $1,590,183
* The Partnership holds a 95% ownership in the Fund II-
Fund II-
OW Joint Venture. For allocations to the Partnership,
see
footnotes in the audited financial statements.
Rental income increased to $458,867 for 1995 as
compared to
$275,137 in 1994 due to the occupancy of the building by
First
Union Bank for a full year. The decrease in rental income
for
1994 as compared to 1993 is due to the lower rental rate
being
paid by First Union Bank and the vacancy of the building
during
the first four months of 1994. Annual rent being paid by
IBM was
$1,110,000 as compared to $458,000 now being paid by First
Union.
Because First Union Bank invested approximately $1
million on
tenant improvements at the Charlotte property, a lower
rental
rate was accepted for the first five years. There are
presently
no plans for improvement or further development of the
project.
In 1993 rental income increased due to the one-time
lease
termination fee of $425,000 and the acceleration of
$595,597 of
deferred rental income resulting from the earlier than
expected
termination date. Depreciation expense was stable for
1994
compared to 1993 but increased from $194,278 in 1994 to
$235,794
in 1995 as a result of the change in the estimated useful
lives
of buildings and improvements as previously discussed under
the
"General" section of "Results of Operations and
Change in
Financial Conditions". Management and leasing expenses
are
stable for the years ended 1995, 1994, 1993 in
proportion to
rental revenues. Other operating expenses have
decreased to
$39,203 in 1995 compared to $142,231 expended in 1994 due
mainly
to marketing and administrative expenses incurred in
efforts to
lease the property. For the same reason operating
expenses
increased in 1994 when compared to 1993. Net income
increased to
$156,338 in 1995 compared to the loss of $79,727 in 1994 for
the
reasons stated above. Net income decreased in 1994 over
1993 due
to the termination of the IBM lease and the lower rental
rate
being paid by First Union Bank. (Note: Expenses, income
and
cash generated to the joint venture have been restated for
1994.
The 1994 statement included expenses paid by the joint
venture
for the Partnership.)
The Charlotte Project lease agreement is one in which the
tenant
is directly responsible for primarily all operational
expenses
including real estate taxes. Both IBM and First Union
Bank
leases provide for the tenant to pay for primarily all
operating
expenses. Fluctuations in expenses during the period of the
IBM
lease as compared to the period of the First Union lease
have no
impact on liquidity.
For comments on the general conditions to which the
property may
be subject, see Item 1, Business, page 2. For
additional
information on the property, tenants, etc., see Item
2,
Properties, page 3.
The Atrium
For the Year Ended December 31
1995
1994
1993
Revenues:
Rental income $2,079,345 $2,079,345 $2,079,345
Interest income 29,965 24,636
16,563
2,109,310 2,103,981 2,095,908
Expenses:
Depreciation 517,507 475,928 481,196
Management and
leasing expenses 142,761 142,735 141,362
Other operating expenses 451,362 504,609 493,449
1,111,630 1,123,272 1,116,007
Net income $ 997,680 $ 980,709 $ 979,901
Occupied % 100% 100% 100%
Partnership Ownership % 62.1% 62.1% 62.1%
Cash distributed to
the Fund II-Fund II-OW
Joint Venture * $1,123,602 $1,095,388 $1,054,437
Net income allocated
to Fund II - Fund II-OW
Joint Venture * $654,478 $643,344 $642,815
* The Partnership holds a 95% ownership in the Fund II-
Fund II-
OW Joint Venture. For allocations to the Partnership,
see
footnotes in the audited financial statements.
Revenues, expenses and net income have remained relatively
stable
for the years ended December 31, 1995, 1994, and 1993. In
1995,
the increase in depreciation expense due to the change in
the
estimated useful lives of buildings and improvements
as
previously discussed under the "General" section of
"Results of
Operations and Change in Financial Conditions" was offset
by a
decrease in other operating expenses with no significant
decrease
in any specific area.
The real estate taxes were $182,687 for 1995, $186,273 for
1994
and $232,609 for 1993.
The lease with Lockheed Company will expire on June 30,
1996, and
renewal is not anticipated at this time. The Partnership
has
responded to various potential tenants regarding leasing
portions
of the Atrium should Lockheed not renew. In the event
that
Lockheed does not renew its lease and the Partnership is
unable
to lease a substantial portion of the Atrium Property at
rates at
least comparable to the lease rates currently being paid
under
the Lockheed lease, the income generated from the Atrium
Property
could decrease significantly following the expiration of
the
Lockheed lease on June 30, 1996. In addition, even if
the
Partnership is able to obtain leases with new tenants for
the
Lockheed Project, such leases are likely to require
substantial
tenant finish and refurbishment expenditures by the
Partnership,
which could have the effect of substantially reducing future
cash
distributions to Limited Partners.
For comments on the general condition to which the property
may
be subject, see Item 1, Business, page 2. For
additional
information on the property, tenants, etc., see Item
2,
Properties, page 3.
The Brookwood Grill Property
For the Year Ended December 31
1995
1994
1993
Revenues:
Rental income $230,316 $224,750 $224,750
Expenses:
Depreciation 63,446 58,659 58,659
Management and
leasing expenses 29,351 30,217 30,768
Other operating expenses 45,175 44,553 43,442
137,972 133,429 132,869
Net income $ 92,344 $ 91,321 $ 91,881
Occupied % 100% 100% 100%
Partnership Ownership % 59.0% 59.0% 59.0%
Cash distributed to
the Fund II-Fund II-OW
Joint Venture * $96,065 $92,446 $85,940
Net income allocated
to Fund II - Fund II-OW
Joint Venture* $57,577 $56,941 $57,290
*The Partnership holds a 95% ownership in the Fund II - Fund
II-
OW Joint Venture. For allocations to the Partnership,
see
footnotes in the audited financial statements.
Rental income, expenses and net income have remained
relatively
stable for the years ended December 31, 1995, 1994, and
1993. In
1995, the increase in depreciation expense due to the
change in
the estimated useful lives of buildings and
improvements as
previously discussed under the "General" section of
"Results of
Operations and Change in Financial Conditions" was offset
by a
decrease in other operating expenses, primarily an
increase in
expense reimbursements which are netted against
operating
expenses.
Real estate taxes were $39,668 for 1995, $38,091 for 1994,
and
$44,970 for 1993.
For comments on the general competitive conditions to which
the
property may be subject, see Item 1, Business, page 2.
For
additional information on the property, tenants, etc., see
Item
2, Properties, page 3.
Liquidity and Capital Resources
During its offering, which terminated on September 7, 1988,
the
Partnership raised a total of $34,948,250 through the
sale of
139,793 units. No additional units will be sold by
the
Partnership. As of December 31, 1995, the
Partnership
contributed an aggregate of $28,187,574 in capital
contributions
to the Fund II - Fund II-OW Joint Venture. after
incurring
approximately $6,700,000 in offering costs.
Since the Partnership is an investment partnership formed
for the
purpose of acquiring, owning and operating income-producing
real
property and has invested all of its funds available
for
investment, it is highly unlikely that the Partnership
will
acquire interests in any additional properties, and
the
Partnership's capital resources are anticipated to
remain
relatively stable over the holding period of its
investments.
The Partnership's net cash provided by operating
activities
increased to $9,968 in 1995 as compared to net cash
used in
operating activities of $138,870 in 1994 due
primarily to
distribution to the partners of prior year tenant
improvement
revenue of approximately $138,000. Net cash provided
by
operating activities of $189,552 in 1993 decreased to net
cash
used in operating activities of $138,870 in 1994 due to the
Fund
II-Fund II-OW Joint Venture reserving approximately
$368,000 as
of December 31, 1993 from the IBM lease termination fee.
Net cash used in investing activities remained relatively
stable
from 1994 to 1995. The increase in cash used in
investing
activities from $0 in 1993 to $78,863 in 1994 and to
$84,504 in
1995 was due to the additional investment in the Fund II-and
II-
OW Joint Venture for the Cherokee Commons Property,
specifically
the Kroger expansion. These investments were funded from
the
working capital reserves which were primarily reserved from
the
Partners' initial contributions to the Partnership. Cash
and
cash equivalents decreased from $330,269 in 1993 to
$112,536 in
1994 to $38,000 in 1995 primarily due to the
aforementioned
investments.
Partnership distributions paid to limited partners increased
from
$1,491,607 in 1994 to $1,851,243 in 1995 due to
increased
distributions from the Fund II-Fund II-OW Joint
Venture.
Partnership distributions paid to limited partners decreased
from
$2,179,324 in 1993 to $1,491,607 in 1994 due to
decreased
distributions from the Fund II-Fund II-OW Joint Venture and
the
Joint Venture's reserving a portion of the lease termination
fees
paid by IBM.
The Partnership's cash distribution to Class A Unit holders
paid
and payable through the fourth quarter of 1995 have been
paid
from Net Cash from Operations and the Partnership
anticipates
that distributions will continue to be paid on a quarterly
basis
from Net Cash from Operations. No cash distributions were
paid
to Class B Unit holders for 1995.
The Partnership expects to meet liquidity requirements and
budget
demands through cash flow from operations. The
Partnership is
unaware of any known demands, commitments, events or
capital
expenditures other than that which is required for the
normal
operation of its properties that will result in the
Partnership's
liquidity increasing or decreasing in any material way.
The
Partnership is not obligated to fund any additional costs
for the
Holcomb Bridge Road project. Additional funding for the
Holcomb
Bridge Road Project is anticipated to be provided by
capital
contributions from Wells Fund VI and Wells Fund VII, which
have
reserved sufficient capital for this purpose.
Inflation
Real estate has not been affected significantly by
inflation in
the past three years due to the relatively low inflation
rate.
There are provisions in the majority of the tenant
leases to
protect the Partnership from the impact of inflation.
These
leases contain common area maintenance charges (CAM
charges),
real estate tax and insurance reimbursements on a per square
foot
bases, or in some cases, annual reimbursement of
operating
expenses above a certain per square foot allowance.
These
provisions reduce the Partnership's exposure to
increases in
costs and operating expenses resulting from inflation.
In
addition, a number of the Partnership's leases are for
terms of
less than five years which may permit the Partnership to
replace
existing leases with new leases at higher base rental
rates if
the existing leases are below market rate. There is
no
assurance, however, that the Partnership would be able to
replace
existing leases with new leases at higher base rentals.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Registrant and supplementary
data
are detailed under Item 14(a) and filed as part of the
report on
the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Partnership's change in accountants during 1995
was
previously reported in the Partnership's Form 8-K dated
September
11, 1995. There were no disagreements with the
Partnership's
accountants or other reportable events during 1995.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP.
Wells Capital, Inc. Wells Capital, Inc. ("Capital")
is a
Georgia corporation formed in April 1984. The executive
offices
of Capital are located at 3885 Holcomb Bridge Road,
Norcross,
Georgia 30092. Leo F. Wells, III is the sole shareholder,
sole
Director and the President of Capital.
Leo F. Wells, III. Mr. Wells is a resident of
Atlanta,
Georgia, is 52 years of age and holds a Bachelor of
Business
Administration Degree in Economics from the University
of
Georgia. Mr. Wells is the President and sole
Director of
Capital. Mr. Wells is the President of Wells & Associates,
Inc.,
a real estate brokerage and investment company formed in
1976 and
incorporated in 1978, for which he serves as principal
broker.
Mr. Wells is also currently the sole Director and
President of
Wells Management Company, Inc., a property management
company he
founded in 1983. In addition, Mr. Wells is the President
and
Chairman of the Board of Wells Investment Securities, Inc.,
Wells
& Associates, Inc., and Wells Management Company, Inc.,
which are
affiliates of the General Partners. From 1980 to February
1985,
Mr. Wells served as Vice-President of Hill-Johnson,
Inc., a
Georgia corporation engaged in the construction business.
From
1973 to 1976, he was associated with Sax Gaskin Real
Estate
Company and from 1970 to 1973, he was a real estate salesman
and
property manager for Roy D. Warren & Company, an Atlanta
real
estate company.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES.
The following table summarizes the compensation and fees
paid to
the General Partners and their affiliates during the year
ended
December 31, 1995.
CASH COMPENSATION TABLE
(A)
(B)
(C)
Name of individual or Capacities in which
served
Cash Compensation
number in group Form of Compensation
Wells Management Property Manager- $196,801
(1)
Company, Inc. Management and Leasing
Fees
Wells Capital, Inc. General Partner -0-
Leo F. Wells, III General Partner -0-
(1) The majority of these fees are not paid directly by
the
Partnership but are paid by the joint venture entities which
own
properties for which the property management and leasing
services
relate and include management and leasing fees which were
accrued
for accounting purposes in 1995 but not actually paid
until
January, 1996.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND
MANAGEMENT.
No Limited Partner is known by the Partnership to
own
beneficially more than 5% of the outstanding units of
the
Partnership.
Set forth below is the security ownership of
management as
of February 29, 1996.
(1) (2)
(3)
(4)
Title of Class Name and Address of Amount and
Nature
Percent of Class
Beneficial Owner of Beneficial
Ownership
Class A Units Leo F. Wells, III 40 units
(IRA,
less than 1%
401(k) and Profit
Sharing)
Class B Units Leo F. Wells, III 80 units
(401(k))
less than 1%
Class A Units Leo F. Wells, III 15 units
(outright)
less than 1%
The General Partner did not receive any distribution from
cash
flows or sale proceeds in 1995.
No arrangements exist which would, upon operation, result
in a
change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The compensation and fees paid or to be paid by the
Partnership
to the General Partners and their affiliates in connection
with
the operation of the Partnership are as follows:
Interest in Partnership Cash Flow and Net Sale
Proceeds.
The General Partners will receive a subordinated
participation in
distributions from cash available for distribution equal to
10%
of the total distributions for such year payable only after
the
Limited Partners receive distributions from cash available
for
distribution equal to 8% of their adjusted capital
accounts in
each fiscal year. In addition, after Limited Partners
receive
their distributions equal to 8% of their adjusted
capital
contributions and the General Partners receive
their
distributions equal to 10% of the total distributions for
such
year, the General Partners will receive a participation of
10% of
the additional distributions from cash available
for a
distribution, 9% of which shall be paid to the General
Partners
as a Partnership Management Fee. The General Partners will
also
receive a return of their adjusted capital contributions
plus a
12% cumulative return on their adjusted capital
contributions.
The General Partners did not receive any distributions from
net
cash flow from operations or net sale proceeds for the year
ended
December 31, 1995.
Property Management and Leasing Fees. Wells
Management
Company, Inc., an affiliate of the General Partners, will
receive
compensation for supervising the management of the
Partnership
properties equal to 6%(3% management and 3% leasing) of
rental
income. In no event will such fees exceed the sum of (i)
6% of
the gross receipts of each property, plus (ii) a separate
one-
time fee for initial rent-up or leasing-up of
development
properties in an amount not to exceed the fee customarily
charged
in arm's-length transactions by others rendering similar
services
in the same geographic area for similar properties. With
respect
to properties leased on a net basis for a period of ten
years or
longer, property management fees will not exceed 1% of
gross
revenues from such leases, plus a one-time initial leasing
fee of
3% of the gross revenues which are payable over the first
five
years of the term of such net leases. Management and
leasing
fees are not paid directly by the Partnership but by the
joint
venture entities which own the properties. The
Partnership's
share of these fees which were paid to Wells Management
Company,
Inc. totalled $196,801 for the year ended December 31, 1995.
Real Estate Commissions. In connection with the
sale of
Partnership properties, the General Partners or their
affiliates
may receive commissions not exceeding the lesser of (A)
50% of
the commissions customarily charged by other brokers in
arm's-
length transactions involving comparable properties in the
same
geographic area or (B) 3% of the gross sales price of
the
property, and provided that payments of such commissions
will be
made only after Limited Partners have received
prior
distributions totaling 100% of their capital contributions
plus a
6% cumulative return on their adjusted capital
contributions. No
real estate commissions were paid to the General
Partners or
affiliates for the year ended December 31, 1995.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND
REPORTS ON
FORM 8-K.
(a)1. Financial Statements
Information with respect to this item is contained on
Pages
F-1 to F-38 of this Annual
Report on Form 10-K. See Index to Financial
Statements on
Page F-1.
(a)2. Financial Statement Schedule III
Information with respect to this item begins on Page S-
1 of
this Annual Report on
Form 10-K. See Index to Financial Statements on Page F-
1.
(a)3. The Exhibits filed in response to Item 601
of
Regulation S-K are listed on the Exhibit
Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission
during
the fourth quarter of
1995.
(c) The Exhibits filed in response to Item 601 of
Regulation S-K
are listed on the Exhibit
Index attached hereto.
(d) See (a)2 above.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d)
of the
Securities Exchange Act of 1934, the Registrant has duly
caused
this report to be signed on its behalf by the
undersigned,
thereunto duly authorized this 28th day of March, 1996
Wells Real Estate Fund II
(Registrant)
By: /s/ Leo. F. Wells,
III
Leo F. Wells, III
Leo F. Wells, III
Individual General
Partner and
as President of Wells Capital, Inc., the Corporate
General
Partner
Pursuant to the requirements of the Securities
Exchange Act
of 1934, this report has been signed below by the
following
person on behalf of the registrant and in the capacity as
and on
the date indicated.
Signature Title
/s/ Leo F. Wells, III
Individual
General Partner, March 28, 1996
Leo F. Wells, III President
and
Sole Director
of
Wells Capital, Inc., the
Corporate General Partner
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS
FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRARS WHICH
HAVE NOT
BEEN REGISTERED PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material relating to an
annual or
other meeting of security holders has been sent to
security
holders.
INDEX TO FINANCIAL STATEMENTS
Financial
Statements
Page
Independent Auditors' Reports
F-2,
F-3
Balance Sheets as of December 31, 1995 and
1994
F-4
Statements of Income for the Years ended
December 31, 1995, 1994 and
1993
F-5
Statements of Partners' Capital for the Years Ended
December 31, 1995, 1994 and
1993
F-6
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994 and
1993
F-7
Notes to Financial Statements for December 31, 1995,
1994 and 1993
F-8-
F38
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
DECEMBER 31, 1995 AND 1994
ASSETS
1995 1994
INVESTMENT IN JOINT VENTURE (Notes 1 and 4)$25,561,588
$26,432,145
CASH AND CASH EQUIVALENTS (Note 1) 38,000
112,536
DUE FROM AFFILIATE (Note 2) 478,857
446,796
DUE FROM LIMITED PARTNERS (Note 3) 0
13,504
Total assets $26,078,445
$27,004,981
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Withholdings and accounts payable (Note 3)$ 4,558 $ 7,092
Partnership distributions payable 487,104
456,045
Due to affiliate 0
84,504
Total liabilities 491,662
547,641
COMMITMENTS AND CONTINGENCIES (Note 8)
PARTNERS' CAPITAL:
Limited partners:
Class A 24,200,488
24,160,544
Class B 1,386,295
2,296,796
Total partners' capital 25,586,783
26,457,340
Total liabilities and partners' capital$26,078,445
$27,004,981
The accompanying notes are an integral part of these balance
sheets.
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
REVENUES:
Equity in income of joint venture (Note 4)$1,011,096 $ 499,229
$1,974,191
Interest income 899 6,692 9,077
1,011,995 505,921 1,983,268
EXPENSES:
Partnership administration (Note 2) 250 0 0
NET INCOME $1,011,745 $ 505,921
$1,983,268
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS
$1,922,246
$1,275,951
$2,586,995
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS
$ (910,501)
$ (770,030)
$ (603,727)
NET INCOME PER CLASS A LIMITED PARTNER UNIT$ 17.70 $ 11.75 $ 23.83
NET LOSS PER CLASS B LIMITED PARTNER UNIT $(30.13) $(25.48) $(19.98)
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT
$ 17.34
$ 14.03
$ 18.82
The accompanying notes are an integral part of these statements.
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
Limited Partners Total
Class A Class B Partners'
Units Amount Units Amount Capital
100,000 10,000
BALANCE, December 31, 1992108,572 $23,864,207 30,221 $3,670,553
$27,534,760
Net income (loss) 0 2,586,995 0 (603,727) 1,983,268
Partnership distributions 0 (2,043,272) 0 0
(2,043,272)
BALANCE, December 31, 1993108,572 24,407,930 30,221 3,066,826 27,474,756
Net income (loss) 0 1,275,951 0 (770,030) 505,921
Partnership distributions 0 (1,523,337) 0 0
(1,523,337)
BALANCE, December 31, 1994108,572 24,160,544 30,221 2,296,796 26,457,340
Net income (loss) 0 1,922,246 0 (910,501) 1,011,745
Partnership distributions 0 (1,882,302) 0 0
(1,882,302)
BALANCE, December 31, 1995108,572 $24,200,488 30,221 $1,386,295
$25,586,783
The accompanying notes are an integral part of these statements.
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1995, 1994, AND 1993
1995 1994 1993
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $1,011,745 $
505,921 $1,983,268
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in income of joint venture (1,011,096)
(499,229) (1,974,191)
Distributions received from joint venture1,849,592
1,334,005 2,350,965
Distributions to partners from accumulated earnings
(1,851,243) (1,491,607)
(2,179,324)
Changes in assets and liabilities:
Withholdings and accounts payable (2,534) 0 0
Due from limited partners 13,504
12,040 8,834
Total adjustments (1,001,777)
(644,791) (1,793,716)
Net cash provided by (used in) operating activities
9,968 (138,870)
189,552
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture (84,504)
(78,863) 0
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated earnings 0 0
(94,087)
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(74,536)
(217,733)
95,465
CASH AND CASH EQUIVALENTS, beginning of year112,536
330,269 234,804
CASH AND CASH EQUIVALENTS, end of year$ 38,000 $
112,536 $ 330,269
The accompanying notes are an integral part of these
statements.