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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, 1999 or
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[_] 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 _______________ to ____________________
Commission file number 0-16518
WELLS REAL ESTATE FUND II
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(Exact name of registrant as specified in its charter)
Georgia 58-1678709
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
6200 The Corners Parkway,
Norcross, Georgia 30092
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(Address of principal executive (Zip Code)
offices)
Registrant's telephone number, including (770) 449-7800
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area code Securities registered pursuant
to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
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NONE NONE
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Securities registered pursuant to Section 12 (g) of the Act:
CLASS A UNITS
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(Title of Class)
CLASS B UNITS
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(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 ____
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Aggregate market value of the voting stock held by nonaffiliates: Not Applicable
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PART I
ITEM 1. BUSINESS
General
Wells Real Estate Fund II (the "Partnership") is a Georgia public limited
partnership having Leo F. Wells, III and Wells Capital, Inc., a nonpublic
Georgia limited partnership, 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.
The Partnership owns equity interests in properties through its ownership in the
following joint ventures: (i) Fund II-Fund II-OW Joint Venture, a joint venture
between the Partnership and Wells Real Estate Fund II-OW (the "Fund II-Fund II-
OW Joint Venture"); (ii) Fund II-Fund III Joint Venture, a joint venture between
the Fund II-Fund II-OW Joint Venture and Wells Real Estate Fund III, L.P. (the
"Fund II-Fund III Joint Venture"); (iii) Fund II-III-VI-VII Associates, a joint
venture among the Fund II-Fund III Joint Venture, Wells Real Estate Fund VI,
L.P., and Wells Real Estate Fund VII, L.P. (the "Fund II, III, VI, VII Joint
Venture"); (iv) Fund I-Fund II Joint Venture, a joint venture between the Fund
II-Fund II-OW Joint Venture and Wells Real Estate Fund I ("the Tucker Joint
Venture"); and (v) Fund I, II, II-OW, VI, VII Associates, a joint venture among
Wells Real Estate Fund I, the Fund II-Fund II-OW Joint Venture, Wells Real
Estate Fund VI, L.P., and Wells Real Estate Fund VII, L.P. (the "Fund I, II, II-
OW, VI, VII Joint Venture").
As of December 31, 1999, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a two-
story office building located in Charlotte, North Carolina ("First Union at
Charlotte"); (ii) a four-story office building located in metropolitan Houston,
Texas (the "Atrium"); (iii) a restaurant located in Fulton County, Georgia ("the
Brookwood Grill"); (iv) an office/retail center currently being developed in
Fulton County, Georgia ("Holcomb Bridge Road"); (v) a retail shopping and
commercial office complex located in Tucker, Georgia ("Heritage Place at
Tucker"); and (vi) a shopping center located in Cherokee County, Georgia
("Cherokee Commons"). All of the foregoing properties were acquired on an all
cash basis.
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, 1999.
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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, 1999,
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.
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,
1999, these properties were 97% occupied. As of December 31, 1998, these
properties were 95% occupied. As of December 31, 1997 these properties were 96%
occupied.
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The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1999, assuming no exercise of renewal options
or termination rights:
Partnership Percentage Percentage
Number Annualized Share of of Total of Total
Year of of Square Gross Base Annualized Square Annualized
Lease Leases Feet Rent (1) Gross Base Feet Gross Base
Expiration Expiring Expiring Expiring Rent (1) Expiring Expiring Rent
- ------------ ------------ ------------ ------------ ----------------- ------------- -------------
2000 14 32,827 $ 484,268 $ 204,388 9.2% 9.8%
2001(2) 20 114,193 1,549,428 1,032,429 32.0 31.5
2002(3) 18 173,725 2,460,987 1,199,308 48.8 50.0
2003 1 5,478 32,938 14,009 1.5 0.7
2004 7 18,213 190,873 65,728 5.1 3.9
2005 0 0 0 0 0.0 0.0
2006 1 5,935 127,575 18,065 1.7 2.6
2007 1 3,600 44,250 22,860 1.0 0.9
2008 1 2,400 27,384 11,646 0.7 0.6
2009 0 0 0 0 0.0 0.0
------------ ------------ ------------ ----------------- ------------- -------------
63 356,371 $4,917,703 $2,568,433 100.0% 100.0%
============ ============ ============ ================= ============= =============
(1) Average monthly gross rent over the life of the lease, annualized.
(2) Expiration of First Union Bank with 70,752 square feet at the First
Union project.
(3) Expiration of Boeing company lease with 119,040 square feet at the
Atrium.
The following describes the properties in which the Partnership owns an interest
as of December 31, 1999:
The First Union Property/Fund II-Fund II-OW Joint Venture
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.
On May 1, 1994, First Union Bank assumed occupancy of the First Union
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 First Union Property, a lower rental rate was accepted for the first
five years of the lease term.
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 which is $844,071 payable in equal
monthly installments of $70,339 for the last two years.
The occupancy rates at the First Union Property as of December 31 were 100%
in 1999, 1998, and 1997.
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The average effective annual rental per square foot at the First Union
Property was $10.14 for 1999, $6.49 for 1998 and 1997, $6.51 for 1996, and
$5.83 for 1995.
The Atrium/Fund II--Fund III Joint Venture
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, 1999, 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 Atrium was first occupied in 1987 and contains approximately 119,000
net leasable square feet. Each floor of the Atrium was originally under a
separate lease to Lockheed Engineering and Science Company, Inc., a wholly
owned subsidiary of the Lockheed Company, each of which leases had terms of
approximately eight years and expired June 30, 1996, and upon which date
Lockheed vacated the property.
On March 3, 1997, a lease was signed with The Boeing Company for the entire
Atrium building. The lease is for a period of five years with an option to
renew for an additional five year term. The rental rate for the first
three years of the lease term is $12.25 per square foot and $12.50 per
square foot for the final two years of initial lease term. The rate for
the optional five year term will be determined based upon then current
market rates. Upon 150 day prior written notice, Boeing has the right to
cancel its lease in the event that NASA or another prime contractor were to
cancel or substantially reduce its contract. In addition, there is a no-
cause cancellation provision at the end of the first three year period. If
this no-cause cancellation is exercised, Boeing would be required to pay
unamortized, up-front tenant improvement costs. The lease also provides
that tenant will pay certain operating expenses in excess of $5.50 per
square foot on an annual basis.
Boeing began the move-in phase of its occupancy on April 15, 1997, and
occupied the Atrium and began paying rent on May 15, 1997. The total cost
of completing the required tenant improvements and outside broker
commissions of approximately $1.4 million was funded out of reserves and
cash flows of the Partnership, Wells Fund II-OW and Wells Fund III. As of
December 31, 1999, the Partnership had contributed approximately $387,752,
Wells Fund II-OW had contributed approximately $21,744, Wells Fund III had
contributed approximately $659,810, and Fund II--Fund III Joint Venture had
contributed $330,694 to fund the tenant improvements and outside broker
commissions required. As of December 31, 1999, the Fund II--Fund II-OW
Joint Venture holds approximately 61%, and Wells Fund III holds
approximately 39%.
-5-
The occupancy rate at the Atrium property was 100% as of December 31, 1999,
1998, and 1997. The average effective rental per square foot at the Atrium
is $12.35 for 1999 and 1998, $7.77 for 1997, $8.81 for 1996, and $15.89 for
1995.
The Brookwood Grill Property/Fund II--Fund III Joint Venture
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 "Holcomb
Bridge Road Property"). 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
approximately 1.5 acres of the Holcomb Bridge Road Property (the "Brookwood
Grill Property"), 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
restaurant, which opened early in March 1992, is similar in concept to
Houston's, Ruby Tuesday, and Friday's. It 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. The Fund II-Fund III
Joint Venture has expended approximately $1,100,000 for the development and
construction of the restaurant building together with parking areas,
driveways, landscaping and other 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% as of
December 31, 1999, 1998, and 1997. The average effective rental per square
foot at the Brookwood Grill is $30.22 for 1999, $30.26 for 1998 and 1997,
$30.29 for 1996, and $30.21 for 1995.
As of December 31, 1999, 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 Holcomb Bridge Road 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.
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Holcomb Bridge Road Property/Fund II, III, VI and VII Associates
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.
In January 1995, the Fund II-Fund III Joint Venture contributed to the Fund
II-III-VI-VII Joint Venture approximately 4.3 acres of land at the
intersection of Warsaw Road and Holcomb Bridge Road in Roswell, Fulton
County, Georgia (the "Holcomb Bridge Road Property") including land
improvements for the development and construction on two buildings with a
total of 49,534 square feet. Fifteen tenants occupied the Holcomb Bridge
Road Property as of December 31, 1999 for an occupancy rate of 100% in
1999, and 94% in 1998 and 1997. The average effective annual rental was
$19.26 for 1999, $17.63 for 1998, $13.71 for 1997, and $9.87 for 1996.
As of December 31, 1999, Fund II and Fund III Joint Venture had contributed
$1,729,116 in land and improvements for an equity interest of approximately
24.1%, Wells Fund VI had contributed $1,929,541 for an equity interest of
approximately 26.9%, and Wells Fund VII had contributed $3,525,041 for an
equity interest of approximately 49.0%. The total cost to develop the
Holcomb Bridge Road Property was $5,454,582, excluding land.
Tucker Property/Fund I--Fund II Joint Venture
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 Property
contains approximately 29,858 net leasable square feet. The commercial
office space at the Tucker Property, which is 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.
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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 owning the Tucker
Property 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, 1999, Wells Fund I had contributed a total of $6,194,634, and
the Fund II-Fund II-OW Joint Venture had contributed a total of $4,764,585
for the acquisition and development of the Tucker Property. As of December
31, 1999, Wells Fund I had an approximately 55% equity interest in the
Tucker Property and the Fund II-Fund II-OW Joint Venture had an
approximately 45% equity interest in the Tucker Property. As of December
31, 1999, the Tucker Property was 87% occupied by 35 tenants.
There are no tenants in the project occupying 10% 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 87% in 1999, 94% in 1998, and
85% in 1997.
The average effective annual rental per square foot at the Tucker Property
was $14.11 for 1999, $12,76 for 1998, $11.08 for 1997, $13.78 for 1996, and
$12.61 for 1995.
Cherokee Property/Fund I, II, II-OW, VI, VII Joint Venture
The Cherokee Property consists of a retail shopping center known as
"Cherokee Commons Shopping Center" located in metropolitan Atlanta,
Cherokee County, Georgia (the "Cherokee Property"). The Cherokee Property
consists of approximately 103,755 net leasable square feet.
On June 30, 1987, the Partnership acquired an interest in the Cherokee
Property through a joint venture (the "Cherokee Joint Venture") between the
Wells Fund I and Wells Fund II-Fund II-OW Joint Venture. 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 Wells Fund I 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
Fund II-Fund II-OW Joint Venture's percentage interest in the Cherokee
Property remained unchanged as a result of the merger of the Cherokee Joint
Venture into the Tucker-Cherokee Joint Venture.
On August 1, 1995, the Fund II-Fund II-OW Joint Venture, Wells Fund I,
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, 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 Partner, as its sole general partner. The investment objectives
of Wells Fund I, Wells Fund VI, and Wells Fund VII are substantially
identical to those of the Partnership.
-8-
As of December 31, 1999, 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 $953,798 and Wells Fund VII had contributed cash in
the amount of $953,798 to the Fund I, II, II-OW, VI, VII Joint Venture. As
of December 31, 1999, the equity interests in the Fund I, II, II-OW, VI,
VII Joint Venture were approximately as follows: Wells Fund I--24%, Fund
II-Fund II-OW Joint Venture--54%, Wells Fund VI--11%, and Wells Fund VII--
11%.
The Cherokee Property 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. Kroger, a retail grocery chain, is the only tenant occupying 10%
or more of the rentable square footage. The other tenants in the shopping
center provide typical retail shopping services.
The Kroger lease provides 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 at the same
rental rate as the original lease.
The occupancy rate at the Cherokee Property was 97% in 1999, 91% in 1998,
and 94% in 1997.
The average effective annual rental per square foot at the Cherokee
Property was $9.11 for 1999, $8.78 for 1998, $8.49 for 1997, $8.59 for
1996, and $7.50 for 1995.
ITEM 3. LEGAL PROCEEDINGS
There were not material pending legal proceedings or proceedings know to be
contemplated by governmental authorities involving the Partnership during 1999.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of the Limited Partners during 1999.
-9-
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS
As of February 29, 2000, the Partnership had 108,572 outstanding Class A units
held by a total of 3,461 Limited Partners and 30,221 outstanding Class B units
held by a total of 691 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.
The General Partners estimated the investment value of properties held by the
Partnership as of December 31, 1999 to be $169.37 per Class A unit and $353.41
per Class B unit based on market conditions existing in early December 1999.
This value was confirmed as reasonable by an independent MAI appraiser, David L.
Beal Company, although no actual MAI appraisal was performed due to the
inordinate expense involved with such an undertaking. The valuation does not
include any fractional interest valuation.
Class A unit holders are entitled to an annual 8% noncumulative 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 distributions from net cash from operations to the Limited Partners is
distributed on a quarterly basis unless Limited Partners elect to have their
cash distributions paid monthly. Cash distributions made to the Limited
Partners for the two most recent fiscal years were as follows:
Per Class A Per Class A Per Class B Per Class B
Distribution Total Unit Unit Unit Unit
for Quarter Cash Investment Return of Return of General
Ended Distributed Income Capital Capital Partner
- ------------------ ---------------- ---------------- -------------- --------------- ---------------
March 31, 1998 $383,141 $0.41 $3.12 $0.00 $0.00
June 30, 1998 403,529 0.45 3.27 $0.00 $0.00
September 30, 1998 385,969 0.37 3.19 $0.00 $0.00
December 31, 1998 336,715 0.00 3.09 $0.00 $0.00
March 31, 1999 404,182 0.58 3.14 $0.00 $0.00
June 30, 1999 372,778 0.66 2.77 $0.00 $0.00
September 30, 1999 441,063 1.36 2.70 $0.00 $0.00
December 31, 1999 475,030 0.82 3.56 $0.00 $0.00
The fourth quarter distributions were accrued for accounting purposes in 1999
and were not actually paid until February 2000.
-10-
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth a summary of the selected financial data for the fiscal
years ended December 31, 1999, 1998, 1997, 1996, and 1995:
1999 1998 1997 1996 1995
----------- ----------- ----------- ----------- -----------
Total assets $21,208,935 $22,382,691 $23,795,430 $24,608,842 $26,078,445
Total revenues 371,178 93,162 (331,376) 112,454 1,011,995
Net income (loss) 371,178 93,162 (331,376) 112,354 1,011,745
Net income (loss) allocated to Class
A Limited Partners 371,178 93,162 (168,693) 1,335,976 1,922,246
Net loss allocated to Class B Limited
Partners 0 0 (162,683) (1,223,612) (910,501)
Net income (loss) per Class A Limited
Partner unit $ 3.42 $ 0.86 $ (1.55) $ 12.30 $ 17.71
Net loss per Class B Limited Partner
unit 0.00 0.00 (5.38) (40.49) (30.13)
Cash distribution per Class A Limited
Partner unit 15.59 13.90 6.01 11.56 17.34
Cash distribution per Class B Limited
Partner unit 0.00 0.00 0.00 0.00 0.00
Cash distributions per unit were comprised of $3.42 paid from net cash from
operations and $12.17 paid from capital in 1999.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL AND CONDITIONS
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, 1999, the properties owned by the Fund II-Fund II-OW Joint
Venture were 97% occupied compared to 95% in 1998 and 96% in 1997.
Gross revenues of the Partnership were $371,178 for the year ended December 31,
1999 as compared to $93,162 for the year ended December 31, 1998, and $(331,376)
for the fiscal year ended December 31, 1997. The increase in gross revenues is
primarily due to Boeing moving into the Atrium building in May 1997 and
increased rental renewal rates in 1999 for First Union at Charlotte.
-11-
Administrative expenses of the Partnership are incurred at the joint venture
level.
The Partnership made cash distributions to Limited Partners holding Class A
units of $15.59 per unit for fiscal year ended December 31, 1999, $13.90 per
unit for fiscal year ended December 31, 1998, and $6.01 per unit for fiscal year
ended December 31, 1997. The Partnership made no cash distributions to Limited
Partners holding Class B units for fiscal year ended 1999, 1998, or 1997.
Property Operations
As of December 31, 1999, the Partnership's percentage ownership in properties
was as follows: 94.7% in the First Union Property, 58.03% in the Atrium, 59% in
the Brookwood Grill Property, 14.2% in the Holcomb Bridge Property, 42.5% in the
Tucker Property, and 51.7% in the Cherokee Property.
As of December 31, 1999, the Partnership owned interests in the following
properties through the Fund II--Fund II-OW Joint Venture:
First Union at Charlotte Property/Fund II and II-OW Joint Venture
For the Year Ended December 31
------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues:
Rental income $717,676 $458,867 $460,920
----------- ----------- ----------
Expenses:
Depreciation 367,667 367,667 367,667
Management and leasing expenses 61,295 45,887 45,887
Other operating expenses 17,797 14,932 12,281
----------- ----------- ----------
446,759 428,486 425,835
----------- ----------- ----------
Net income $270,917 $ 30,381 $ 33,032
=========== =========== ==========
Occupied percentage 100% 100% 100%
=========== =========== ==========
Partnership ownership percentage 94.7% 94.7% 94.7%
=========== =========== ==========
Cash generated to the Fund II-Fund II-OW Joint
Venture* $677,542 $467,262 $437,023
=========== =========== ==========
Net income generated to the Fund II-Fund II-OW
Joint Venture* $270,917 $ 30,381 $ 33,032
=========== =========== ==========
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Real estate taxes and all operational expenses for the building are the
responsibility of the tenant.
Rental income and net income increased, as compared to 1998 and 1997, due
primarily to increased rental renewal rates this year. Management and leasing
expenses increased due primarily to increased management fees which are charges
based on rental income.
Cash generated to the Joint Venture increased for the year ended 1999 due to the
increase in rental income billed to the tenant.
-12-
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 1. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
The Atrium/Fund II-Fund III Joint Venture
For the Year Ended December 31
----------------------------------------
1999 1998 1997
----------- ----------- -----------
Revenues:
Rental income $1,470,144 $1,470,144 $ 924,769
Interest income 0 0 2,617
Other income 4,000 13,280 8,638
----------- ----------- -----------
1,474,144 1,483,424 936,024
----------- ----------- -----------
Expenses:
Depreciation 867,720 866,778 795,829
Management and leasing expenses 179,762 186,102 111,576
Other operating expenses 720,594 713,955 841,456
----------- ----------- -----------
1,768,076 1,766,835 1,748,861
----------- ----------- -----------
Net loss $ (293,932) $ (283,411) $ (812,837)
=========== =========== ===========
Occupied percentage 100% 100% 100%
=========== =========== ===========
Partnership Ownership percentage 58.0% 58.0% 58.0%
=========== =========== ===========
Cash distributed to the Fund II-Fund II-OW Joint Venture* $ 385,541 $ 405,758 $ 124,481
=========== =========== ===========
Net loss allocated to the Fund II-Fund II-OW Joint Venture* $ (180,180) $ (173,731) $ (509,625)
=========== =========== ===========
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income remained stable for 1999 and 1998. The lower rental income and
management and leasing expenses in 1997 is due primarily to the Atrium vacancy
until the Boeing lease began in May 1997. Management and leasing expenses
decreased, as compared to 1998, due to an over accrual of fees in 1998.
Operating expenses increased in 1999, as compared to 1998, due to an increase in
property tax in 1999. Other operating expense were higher in 1997 due primarily
to the vacancy of Lockheed.
The real estate taxes were $175,360 for 1999, $148,006 for 1998, and $140,366
for 1997.
For comments on the general conditions to which the property may be subject, see
Item 1, Business, page 1. For additional information on the property, tenants,
etc., see Item 2, Properties, page 3.
-13-
The Brookwood Grill Property/Fund II-Fund III Joint Venture
For the Year Ended December 31
--------------------------------------
1999 1998 1997
----------- ---------- -----------
Revenues:
Rental income $ 224,801 $ 225,100 $ 225,106
Equity in income of joint venture 81,669 78,791 27,213
----------- ---------- -----------
306,470 303,891 252,319
Expenses: ----------- ---------- -----------
Depreciation 54,014 54,012 54,014
Management and leasing expenses 30,096 23,349 28,464
Other operating expenses (460) (24,632) 23,887
----------- ---------- -----------
83,650 52,729 106,365
----------- ---------- -----------
Net income $ 222,820 $ 251,162 $ 145,954
=========== ========== ===========
Occupied percentage 100% 100% 100%
=========== ========== ===========
Partnership Ownership percentage in the Fund II--Fund III Joint Venture 59.0% 59.0% 59.0%
=========== ========== ===========
Cash distributed to the Fund II-Fund II-OW Joint Venture* $ 253,723 $ 270,886 $ 190,653
=========== ========== ===========
Income allocated to the Fund II-Fund II-OW Joint Venture* $ 138,928 $ 156,599 $ 91,002
=========== ========== ===========
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Although rental income remained relatively stable in 1999, 1998, and 1997, total
revenues increased in 1998 and 1999 due to the increase equity in income from
the Fund II, III, VI, VII Joint Venture, as the Holcomb Bridge Property
increased its occupancy rate.
Management and leasing expenses increased in 1999 as compared to 1998 due to an
under accrual of management fees in 1998. Other operating expenses decreased in
1998 as compared to 1997 due primarily to a change in the rental agreement of
billing water reimbursements to the tenant in 1998. However, these
reimbursements were over estimated in 1998 thus 1999 operating expenses
increased as compared to 1998.
Real estate taxes were $18,055 for 1999, $16,270 for 1998, $25,771 for 1997, and
$33,494 for 1996.
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.
-14-
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
For the Year Ended December 31
1999 1998 1997
------------ ---------- -----------
Revenues:
Rental income $ 953,952 $ 872,978 $ 679,268
Other income 23,843 36,000 0
----------- ---------- -----------
977,795 908,978 679,268
Expenses: ----------- ---------- -----------
Depreciation 415,165 376,290 325,974
Management and leasing expenses 129,798 97,701 48,962
Other operating expenses 93,534 107,418 195,567
----------- ---------- -----------
638,497 581,409 570,503
----------- ---------- -----------
Net income $ 339,298 $ 327,569 $ 108,765
=========== ========== ===========
Occupied percentage 100% 94% 94%
=========== ========== ===========
Partnership's ownership percentage in the Fund II, III, VI, VII Joint Venture 14.2% 14.2% 14.3%
=========== ========== ===========
Cash distribution to the Fund II-Fund III Joint Venture* $ 182,886 $ 179,198 $ 109,242
=========== ========== ===========
Net income allocated to the Fund II-Fund III Joint Venture* $ 81,669 $ 78,791 $ 27,213
=========== ========== ===========
*The Partnership holds a 59.1% ownership in the Fund II-Fund III Joint Venture.
Rental income increased in 1999 as compared to 1998 due primarily to increased
tenant occupancy. The lower rental income in 1997 is due to the 94% occupancy
starting in late 1997. Depreciation expense increased as occupancy rate
increased due to tenant improvements taking place when tenants moved in.
Management and leasing expenses increased due primarily to increased management
fees that are charged based on rental income. Other operating expenses decreased
in 1999 as compared to 1998 due primarily to an over accrual of property tax in
1998. Other operating expenses were higher in 1997 due primarily to water/sewer
reimbursement paid by Fulton County Water which did not begin until 1998.
Real estate taxes were $53,896 for 1999, $52,162 for 1998, and $85,230 for 1997.
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.
-15-
Tucker Property/Fund I--Fund II Joint Venture
For the Year Ended December 31
------------------------------------------
1999 1998 1997
------------ ----------- ------------
Revenues:
Rental income $ 1,373,213 $ 1,242,332 $ 1,077,916
Interest income 447 0 1,159
------------ ----------- ------------
1,373,660 1,242,332 1,079,075
------------ ----------- ------------
Expenses:
Depreciation 491,385 440,099 419,928
Gain on real estate assets 0 0 (45,943)
Management and leasing expenses 158,270 164,378 122,452
Other operating expenses 498,849 532,985 532,859
------------ ----------- ------------
1,148,504 1,137,462 1,029,296
------------ ----------- ------------
Net income $ 225,156 $ 104,870 $ 49,799
============ =========== ============
Occupied percentage 87% 94% 85%
============ =========== ============
Partnership ownership percentage 42.5% 44.3% 44.3%
============ =========== ============
Cash distribution to the Fund II-Fund II-OW Joint Venture* $ 199,737 $ 170,937 $ 123,264
============ =========== ============
Net income allocated to the Fund II-Fund II-OW Joint Venture* $ 101,117 $ 47,097 $ 22,356
============ =========== ============
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1999 compared to 1998 even though occupancy decreased
due to increased rental renewal rates and the decrease in occupancy moving
slowly downward throughout the year. The increased rental income for 1998 as
compared to 1997 was due to increased tenant occupancy at the property. The
increase in depreciation expense for 1999 was due to capitalized building
repairs. Other operating expenses decreased for 1999 as compared to both 1998
and 1997 due to significant variable expenses for those years. Expenses were
higher in 1998 due to sewer and main water line repairs and were higher in 1997
due to HVAC repairs and painting expense.
Real estate taxes were $91,970 in 1999, $93,697 in 1998, and $108,836 in 1997.
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.
-16-
Cherokee Commons Shopping Center/Fund I, II, II-OW, VI, VII Joint Venture
For the Year Ended December 31
---------------------------------------
1999 1998 1997
----------- ---------- ---------
Revenues:
Rental income $ 945,222 $ 909,831 $ 880,652
Interest income 68 84 67
---------- ----------- -----------
945,290 909,915 880,719
---------- ----------- -----------
Expenses:
Depreciation 447,969 444,660 440,882
Management and leasing expenses 94,149 82,517 78,046
Other operating expenses 68,089 84,676 138,294
---------- ----------- -----------
610,207 611,853 657,222
---------- ----------- -----------
Net income $ 335,083 $ 298,062 $ 223,497
========== =========== ===========
Occupied percentage 97% 91% 94%
========== =========== ===========
Partnership ownership percentage 51.7% 51.7% 51.7%
========== =========== ===========
Cash distributed to the Fund II-Fund II-OW Joint Venture* $ 425,382 $ 403,744 $ 331,435
========== =========== ===========
Net income allocated to the Fund II-Fund II-OW Joint Venture* $ 182,825 $ 162,626 $ 121,942
========== =========== ===========
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased from $909,821 in 1998 to $945,222 in 1999 due to an
increase in occupancy from 91% in 1998 to 97% in 1999. Rental income increase in
1998 over 1997 due primarily to a one time adjustment made to the straight-line
rent schedule in 1997. Management and leasing expenses increased from $82,517 in
1998 to $94,149 in 1999 due to an increase in occupancy and rental renewal
rates. Operating expenses of the property decreased to $68,090 in 1999 from
$84,676 in 1998 due to increased CAM billings to tenants that were under-accrued
in 1998 offset by increased expenditures for tenant improvements, HVAC repairs,
and a partial demolition of a tenant suite in 1999, and decreased from $138,294
in 1997, to $84,676 in 1998, due to decreased expenditures for tenant
improvements, common area expenses and legal fees. Tenants are billed an
estimate amount for the current year common area maintenance which is then
reconciled next year and the difference billed to the tenant. Net income of the
property increased to $335,082 in 1999, from $298,062 in 1998 and $223,497 in
1997, due to the reasons discussed above.
Real estate taxes were $87,411 for 1999, $77,311 for 1998, and $67,259 for 1997.
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.
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
-17-
December 31, 1999, the Partnership contributed an aggregate of $28,107,150 in
capital contributions to the Fund II--Fund II-OW Joint Venture, after incurring
approximately $6,841,100 in offering costs, commissions and acquisition and
advisory fees.
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 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.
Net cash provided by investing activities increased from $1,495,069 to
$1,608,013 in 1999, and net cash used in financing activities increased from
$1,504,142 to $1,547,064 in 1999 due to the increase in distributions from joint
ventures as occupancy increased.
The Partnership's cash distribution to Class A unit holders paid and payable
through the fourth quarter of 1999 have been paid from Net Cash from Operations
and a Return of Capital. The Partnership anticipates that distributions will
continue to be paid on a quarterly basis from such sources. No cash
distributions were paid to Class B unit holders for 1999.
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 has recently made the decision to begin selling its properties.
At this time, two properties have been identified that will be offered for sale
within the next several months. The Partnership's goal is to have all Fund II
properties sold by the end of 2002. As the properties are sold, all proceeds
will be returned to limited partners in accordance with the Partnership's
prospectus. Management estimates that the net realizable value of each of the
properties exceeds the carrying value of the corresponding real estate assets;
consequently, no impairment loss has been recorded. In the event that the net
sales proceeds are less than the carrying value of the property sold, the
Partnership would recognize a loss on the sale. Management is not contractually
or financially obligated to sell any of its properties, and it is management's
current intent to fully realize the Partnership's investment in real estate. The
success of the partnership's future operations and the ability to realize the
investment in its assets will be dependent on the Partnership's ability to
maintain rental rates, occupancy and an appropriate level of operating expenses
in future years. Management believes that the steps that it is taking will
enable the Partnership to realize its investment in its assets.
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. Most leases contain common area maintenance charges (CAM charges),
real estate tax and insurance reimbursements on a per square foot basis, or in
some cases, annual reimbursement of operating expenses above a certain per
square foot allowance. These provisions should 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.
-18-
Year 2000
The Partnership made the transaction into the year 2000 without any information
systems, business operations or facilities related system problems. Management
believes that there are no other Y2K related issues that may require disclosure.
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
There were no disagreements with the Partnership's accountants or other
reportable events during 1999.
-19-
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 6200 The Corners Parkway,
Norcross, Georgia 30092. Leo F. Wells, III is the sole Director and the
President of Capital.
Leo F. Wells, III.
Mr. Wells is a resident of Atlanta, Georgia, is 56 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 Wells 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.
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, 1999:
(A) (B) (C)
Name of Individual Capacities in Which Served Cash
or Number in Group Form of Compensation Compensation
- -------------------------------------- ---------------------------------------- ------------
Wells Management Company, Inc. Property Manager-Management and Leasing $214,325 (1)
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 to which
the property management and leasing services relate and include
management and leasing fees.
-20-
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 28, 2000.
(1) (2) (3) (4)
Name and Address of Amount and Nature of
Title of Class Beneficial Owner Beneficial Ownership Percent of Class
- -------------------- ------------------------- ----------------------------- ----------------
Class A units Leo F. Wells, III 61 units (IRA, 401 (k), and Less than 1%
Profit Sharing)
Class B units Leo F. Wells, III 114 units (401 (k)) Less than 1%
The General Partner did not receive any distribution from cash flows or sale
proceeds in 1999.
No arrangements exist which would, upon operation, result in a change in control
of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The following are 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.
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,
1999.
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
-21-
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. totaled $214,325 for the year ended December 31,
1999.
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, 1999.
-22-
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a)1. The financial statements are contained on pages F-2 through F-51 of this
Annual Report on Form 10-K, and the list of the financial statements
contained herein is set forth on page F-1, which is hereby incorporated by
reference.
(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.
(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 year of
1999.
(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.
-23-
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 27th day of March
2000.
Wells Real Estate Fund II
(Registrant)
By: /s/Leo F. Wells, III
----------------------------
Leo F. Wells, III
Individual General Partner and as
President and Chief Financial
Officer 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 Date
- ------------------------- ------------------------------- ---------------
/s/Leo F. Wells, III
- -------------------------
Leo F. Wells, III Individual General Partner, March 27, 2000
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.
-24-
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
- -------------------------------------------------------------------------------------- ------
Independent Auditors' Report F2
Balance Sheets as of December 31, 1999 and 1998 F3
Statements of Income (Loss) for the Years ended December 31, 1999, 1998, and 1997 F4
Statements of Partners' Capital for the Years Ended December 31, 1999, 1998, and 1997 F5
Statements of Cash Flows for the Years Ended December 31, 1999, 1998, and 1997 F6
Notes to Financial Statements for December 31, 1999, 1998, and 1997 F7
F-1
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund II:
We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND II (a
Georgia public limited partnership) as of December 31, 1999 and 1998 and the
related statements of income (loss), partners' capital, and cash flows for each
of the three years in the period ended December 31, 1999. These financial
statements and the schedule referred to below are the responsibility of the
Partnership's management. Our responsibility is to express an opinion on these
financial statements and schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes 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, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Fund II as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1999 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 20, 2000
F-2
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
----------- -----------
INVESTMENT IN JOINT VENTURE $20,666,589 $22,019,064
CASH AND CASH EQUIVALENTS 90,558 27,011
DUE FROM AFFILIATE 451,788 336,616
----------- -----------
Total assets $21,208,935 $22,382,691
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable $ 3,385 $ 1,255
Partnership distributions payable 483,167 337,178
----------- -----------
Total liabilities 486,552 338,433
----------- -----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Limited partners:
Class A--108,572 units 20,722,383 22,044,258
Class B--30,221 units 0 0
----------- -----------
Total partners' capital 20,722,383 22,044,258
----------- -----------
Total liabilities and partners' capital $21,208,935 $22,382,691
=========== ===========
The accompanying notes are an integral part of these balance sheets.
F-3
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME (LOSS)
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
-------- -------- --------
REVENUES:
Equity in income (loss) of joint venture $370,710 $92,568 $(331,856)
Interest income 468 594 480
-------- ------- ---------
NET INCOME (LOSS) $371,178 93,162 (331,376)
======== ======= =========
NET INCOME (LOSS) ALLOCATED TO CLASS A LIMITED PARTNERS $371,178 $93,162 $(168,693)
======== ======= =========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $ 0 $(162,683)
======== ======= =========
NET INCOME (LOSS) PER CLASS A LIMITED PARTNER UNIT $ 3.42 $ 0.86 $ (1.55)
======== ======= =========
NET LOSS PER CLASS B LIMITED PARTNER UNIT $ 0.00 $ 0.00 $ (5.38)
======== ======= =========
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 15.59 $ 13.90 $ 6.01
======== ======= =========
The accompanying notes are an integral part of these statements.
F-4
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Limited Partners
--------------------------------------------
Class A Class B Total
----------------------- ---------------------- Partners'
Units Amount Units Amount Capital
---------- ----------- ---------- ---------- -----------
BALANCE, December 31, 1996 108,572 $24,281,269 30,221 $ 162,683 $24,443,952
Net loss 0 (168,693) 0 (162,683) (331,376)
Partnership distributions 0 (652,125) 0 0 (652,125)
--------- ----------- --------- ----------- ------------
BALANCE, December 31, 1997 108,572 23,460,451 30,221 0 23,460,451
Net income 0 93,162 0 0 93,162
Partnership distributions 0 (1,509,355) 0 0 (1,509,355)
--------- ----------- --------- ----------- ------------
BALANCE, December 31, 1998 108,572 22,044,258 30,221 0 22,044,258
Net income 0 371,178 0 0 371,178
Partnership distributions 0 (1,693,053) 0 0 (1,693,053)
--------- ----------- --------- ----------- ------------
BALANCE, December 31, 1999 108,572 $20,722,383 30,221 $ 0 $20,722,383
========= =========== ========= =========== ============
F-5
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
----------- ----------- ---------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss) $ 371,178 $ 93,162 $(331,376)
----------- ----------- ---------
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in (income) loss of joint venture (370,710) (92,568) 331,856
Changes in accounts payable 2,130 (1,759) (2,394)
----------- ----------- ---------
Total adjustments (368,580) (94,327) 329,462
----------- ----------- ---------
Net cash provided by (used in) operating activities 2,598 (1,165) (1,914)
----------- ----------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in joint venture 0 0 (387,751)
Distributions received from joint venture 1,608,013 1,495,069 843,815
----------- ----------- ---------
Net cash provided by investing activities 1,608,013 1,495,069 456,064
----------- ----------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners in excess of accumulated earnings (1,304,675) (1,370,685) 0
Distributions to partners from accumulated earnings (242,389) (133,457) (479,642)
----------- ----------- ---------
Net cash used in financing activities (1,547,064) (1,504,142) (479,642)
----------- ----------- ---------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 63,457 (10,238) (25,492)
CASH AND CASH EQUIVALENTS, beginning of year 27,011 37,249 62,741
----------- ----------- ---------
CASH AND CASH EQUIVALENTS, end of year $ 90,558 $ 27,011 $ 37,249
=========== =========== =========
The accompanying notes are an integral part of these statements.
F-6
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
Wells Real Estate Fund II (the "Partnership") is a public limited
partnership organized on June 23, 1986 under the laws of the state of
Georgia. The public general partners are Leo F. Wells III and Wells
Capital, Inc. (the "Company"). The Partnership has two classes of limited
partnership interests, Class A and Class B units. Limited partners may vote
to, among other things, (a) amend the partnership agreement, subject to
certain limitations, (b) change the business purpose or investment
objectives of the Partnership, and (c) remove a general partner. A majority
vote on any of the above described matters will bind the Partnership,
without the concurrence of the general partners. Each limited partnership
unit has equal voting rights, regardless of class.
The Partnership was formed to acquire and operate commercial real
properties, including properties which are either to be developed,
currently under development or construction, newly constructed, or have
operating histories. The Partnership owns an interest in several properties
through a joint venture between the Partnership and Wells Real Estate Fund
II-OW ("Wells Fund II-OW"), referred to as "Fund II and II-OW."
Through its investment in Fund II and II-OW, the Partnership owns interests
in the following properties: (i) a retail shopping and commercial office
complex located in Tucker, Georgia, Heritage Place at Tucker ("Tucker");
(ii) a shopping center located in Cherokee County, Georgia, the Cherokee
Commons Shopping Center ("Cherokee Commons"); (iii) a four-story office
building located in metropolitan Houston, Texas, the Atrium at Nassau Bay
("The Atrium"); (iv) a restaurant located in Fulton County, Georgia; and
(v) two retail and office buildings in Fulton County, Georgia. Fund II and
II-OW joint venture owns 100% of the First Union Property. All remaining
properties are owned by Fund II and II-OW through investments in joint
ventures with other Wells Real Estate Funds.
Use of Estimates and Factors Affecting the Partnership
The preparation of financial statements in conformity with generally
accepted accounting principles 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
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The Partnership has recently begun considering selling its properties.
Management estimates that the net realizable value of each of the
properties exceeds the carrying value of the corresponding real estate
assets; consequently, no impairment loss has been recorded. In the event
that the net sales proceeds are
F-7
less than the carrying value of the property sold, the Partnership would
recognize a loss on the sale. Management is not contractually or
financially obligated to sell any of its properties, and it is management's
current intent to fully realize the Partnership's investment in real
estate. The success of the Partnership's future operations and the ability
to realize the investment in its assets will be dependent on the
Partnership's ability to maintain rental rates, occupancy, and an
appropriate level of operating expenses in future years. Management
believes that the steps that it is taking will enable the Partnership to
realize its investment in its assets.
Income Taxes
The Partnership is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners are required to include their respective shares of
profits and losses in their individual income tax returns.
Distributions of Net Cash From Operations
Cash available for distribution is distributed on a cumulative
noncompounded basis to limited partners quarterly. In accordance with the
partnership agreement, distributions are paid first to limited partners
holding Class A units until they have received an 8% per annum return on
their adjusted capital contributions, as defined. Cash available for
distribution is then distributed to limited partners holding Class B units
until they have received an 8% per annum return on their adjusted capital
contributions, as defined. Excess cash available for distribution will be
distributed to the general partners until each has received 10% of total
distributions to limited partners for the year. Thereafter, cash available
for distribution is distributed 90% to the limited partners and 10% to the
general partners.
Distribution of Sales Proceeds
Upon sales of properties, the net sales proceeds are distributed in the
following order:
. To limited partners until all limited partners have received 100%
of their adjusted capital contributions, as defined
. To limited partners holding Class B units until they receive an
amount equal to the net cash available for distribution received by
the limited partners holding Class A units
. To all limited partners until they receive a cumulative 12% per
annum return on their adjusted capital contributions, as defined
. To all limited partners until they receive an amount equal to their
respective cumulative distributions, as defined
. To all general partners until they have received 100% of their
capital contributions, as defined
. Thereafter, 85% to the limited partners and 15% to the general
partners
Allocation of Net Income, Net Loss, and Gain on Sale
Net income is defined as net income recognized by the Partnership,
excluding deductions for depreciation and amortization. Net income, as
defined, of the Partnership will be allocated each year in the same
proportions that net cash from operations is distributed to the partners.
To the extent the
F-8
Partnership's net income in any year exceeds net cash from operations, it
will be allocated 99% to the limited partners and 1% to the general
partners.
Net loss, depreciation, and amortization deductions for each fiscal year
will be allocated as follows: (a) 99% to the limited partners holding Class
B units and 1% to the general partners until their capital accounts are
reduced to zero, (b) then to any partner having a positive balance in his
capital account in an amount not to exceed such positive balance, and (c)
thereafter to the general partners.
Gain on the sale or exchange of the Partnership's properties will be
allocated generally in the same manner that the net proceeds from such sale
are distributed to partners after the following allocations are made, if
applicable: (a) allocations made pursuant to a qualified income offset
provision in the partnership agreement, (b) allocations to partners having
negative capital accounts until all negative capital accounts have been
restored to zero, and (c) allocations to Class B limited partners in
amounts equal to deductions for depreciation and amortization previously
allocated to them with respect to the specific Partnership property sold,
but not in excess of the amount of gain on sale recognized by the
Partnership with respect to the sale of such property.
Investment in Joint Venture
Basis of Presentation. The Partnership does not have control over the
operations of the joint venture; however, it does exercise significant
influence. Accordingly, the Partnership's investment in the joint venture
is recorded using the equity method of accounting. The joint ventures in
which Fund II and II-OW hold an ownership interest follow the same
accounting policies as the Partnership.
Real Estate Assets. Real estate assets held by Fund II and II-OW are stated
at cost less accumulated depreciation. Major improvements and betterments
are capitalized when they extend the useful life of the related asset. All
repairs and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the
asset and its eventual disposition. Management has determined that there
has been no impairment in the carrying value of real estate assets held by
Fund II and II-OW or its affiliated joint ventures as of December 31, 1999.
Depreciation is calculated using the straight-line method over 25 years.
Revenue Recognition. All leases on real estate assets held by the joint
venture are classified as operating leases, and the related rental income
is recognized on a straight-line basis over the terms of the respective
leases.
Partners' Distributions and Allocations of Profit and Loss. Cash available
for distribution and allocations of profit and loss to the Partnership by
Fund II and II-OW are made in accordance with the terms of the individual
joint venture agreement. Generally, these items are allocated in proportion
to the partners' respective ownership interests. Cash is paid from the
joint venture to the Partnership on a quarterly basis.
Deferred Lease Acquisition Costs. Costs incurred to procure operating
leases are capitalized and amortized on a straight-line basis over the
terms of the related leases.
F-9
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Partnership considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
Per Unit Data
Net income (loss) per unit with respect to the Partnership for the years
ended December 31, 1999, 1998, and 1997 is computed based on the average
number of units outstanding during the period.
2. RELATED-PARTY TRANSACTIONS
Due from affiliate at December 31, 1999 and 1998 represents the
Partnership's share of cash to be distributed from Fund II and II-OW for
the fourth quarters of 1999 and 1998.
The Partnership entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the general
partners. In consideration for supervising the management of the
Partnership's properties, the Partnership will generally pay Wells
Management management and leasing fees equal to (a) 3% of the gross
revenues for management and 3% of the gross revenues for leasing (aggregate
maximum of 6%) plus a separate fee for the one-time initial lease-up of
newly constructed 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 or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
The Partnership incurred management and leasing fees and lease acquisition
costs, at the joint venture level, of $214,325, $183,033, and $192,312 for
the years ended December 31, 1999, 1998, and 1997, respectively, which were
paid to Wells Management.
The Company performs certain administrative services for the Partnership,
such as accounting and other Partnership administration, and incurs the
related expenses. Such expenses are allocated among the various Wells Real
Estate Funds based on time spent on each fund by individual administrative
personnel. In the opinion of management, such allocation is a reasonable
estimation of such expenses.
The general partners are also general partners of other Wells Real Estate
Funds. As such, there may exist conflicts of interest where the general
partners in the capacity as general partners of other Wells Real Estate
Funds may be in competition with the Partnership for tenants in similar
geographic markets.
3. INVESTMENT IN JOINT VENTURE
On March 1, 1988, the Partnership entered into a joint venture agreement
with Wells Fund II-OW. The joint venture, Fund II and II-OW, was formed for
the purpose of investing in commercial real properties. Fund II and II-OW
owns the First Union Property directly and has investments in several other
joint ventures. The Partnership's ownership percentage interest in Fund II
and II-OW was approximately 95% at December 31, 1999 and 1998.
F-10
The following is a rollforward of the Partnership's investment in joint venture
for the years ended December 31, 1999 and 1998:
1999 1998
----------- -----------
Investment in joint venture, beginning of year $22,019,064 $23,435,256
Equity in income of joint venture 370,710 92,568
Distributions from joint venture (1,723,185) (1,508,760)
----------- -----------
Investment in joint venture, end of year $20,666,589 $22,019,064
=========== ===========
Following are the financial statements for Fund II and II-OW:
Fund II and II-OW
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
----------- -----------
Real estate assets, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated depreciation of
$2,991,452 in 1999 and $2,623,785 in 1998 4,779,666 5,147,333
----------- -----------
Total real estate assets 6,147,522 6,515,189
Investment in joint ventures 15,654,420 16,676,111
Cash and cash equivalents 162,241 94,367
Due from affiliates 312,901 267,581
Accounts receivable 2,149 23,184
Prepaid expenses and other assets 24,473 42,828
----------- -----------
Total assets $22,303,706 $23,619,260
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Partnership distributions payable $ 477,122 $ 355,370
Due to affiliates 0 8,988
----------- -----------
Total liabilities 477,122 364,358
----------- -----------
Partners' capital:
Wells Real Estate Fund II 20,666,589 22,019,064
Wells Real Estate Fund II-OW 1,159,995 1,235,838
----------- -----------
Total partners' capital 21,826,584 23,254,902
----------- -----------
Total liabilities and partners' capital $22,303,706 $23,619,260
=========== ===========
F-11
Fund II and II-OW
(A Georgia Joint Venture)
Statements of Income (Loss)
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
-------- -------- ---------
Revenues:
Rental income $717,676 $458,867 $ 458,867
Equity in income (loss) of joint ventures 242,690 192,591 (274,325)
Interest income 367 481 443
-------- -------- ---------
960,733 651,939 184,985
-------- -------- ---------
Expenses:
Depreciation 367,667 367,667 367,667
Partnership administration 88,859 88,632 56,296
Legal and accounting 42,899 43,175 49,649
Management and leasing fees 61,295 45,887 45,887
Operating costs 366 2,914 6,575
Computer costs 8,148 5,906 9,377
-------- -------- ---------
569,234 554,181 535,451
-------- -------- ---------
Net income (loss) $391,499 $ 97,758 $(350,466)
======== ======== =========
Net income (loss) allocated to Wells Real Estate Fund II $370,710 $ 92,568 $(331,856)
======== ======== =========
Net income (loss) allocated to Wells Real Estate Fund II-OW $ 20,789 $ 5,190 $ (18,610)
======== ======== =========
F-12
Fund II and II-OW
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Wells Real Total
Estate Estate Partners'
Fund II Fund II-OW Capital
----------- ------------ ------------
Balance, December 31, 1996 $24,418,757 $1,370,408 $25,789,165
Net loss (331,856) (18,610) (350,466)
Partnership contributions 387,751 21,744 409,495
Partnership distributions (1,039,396) (58,287) (1,097,683)
----------- ---------- -----------
Balance, December 31, 1997 23,435,256 1,315,255 24,750,511
Net income 92,568 5,190 97,758
Partnership distributions (1,508,760) (84,607) (1,593,367)
----------- ---------- -----------
Balance, December 31, 1998 22,019,064 1,235,838 23,254,902
Net income 370,710 20,789 391,499
Partnership distributions (1,723,185) (96,632) (1,819,817)
----------- ---------- -----------
Balance, December 31, 1999 $20,666,589 $1,159,995 $21,826,584
=========== ========== ===========
F-13
Fund II and II-OW
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---------- ----------- ----------
Cash flows from operating activities:
Net income (loss) $ 391,499 $ 97,758 $(350,466)
----------- ----------- ----------
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 367,667 367,667 367,667
Equity in (income) loss of joint ventures (242,690) (192,591) 274,325
Changes in assets and liabilities:
Accounts receivable 21,035 61,023 30,353
Prepaid expenses and other assets 18,355 18,355 18,355
Due to affiliates (8,988) 4,427 (1,147)
----------- ----------- ----------
Total adjustments 155,379 258,881 689,553
----------- ----------- ----------
Net cash provided by operating activities 546,878 356,639 339,087
----------- ----------- ----------
Cash flows from investing activities:
Distributions received from joint ventures 1,219,061 1,232,367 601,045
Investment in joint venture 0 0 (409,495)
----------- ----------- ----------
Net cash provided by investing activities 1,219,061 1,232,367 191,550
----------- ----------- ----------
Cash flows from financing activities:
Contributions received from partners 0 0 409,495
Distributions to joint venture partners (1,698,065) (1,579,031) (891,134)
----------- ----------- ----------
Net cash used in financing activities (1,698,065) (1,579,031) (481,639)
----------- ----------- ----------
Net increase in cash and cash equivalents 67,874 9,975 48,998
Cash and cash equivalents, beginning of year 94,367 84,392 35,394
----------- ----------- ----------
Cash and cash equivalents, end of year $ 162,241 $ 94,367 $ 84,392
=========== =========== ==========
The following is a rollforward of Fund II and II-OW's investment in joint
venture for the years ended December 31, 1999 and 1998:
1999 1998
---------- -----------
Investment in joint venture, beginning of year $16,676,111 $17,734,845
Equity in income of joint venture 242,690 192,591
Distributions from joint venture (1,264,381) (1,251,325)
----------- -----------
Investment in joint venture, end of year $15,654,420 $16,676,111
=========== ===========
F-14
Fund II and II-OW's investment and percentage ownership in other joint ventures
at December 31, 1999 and 1998 are summarized as follows:
1999 1998
----------------------- -----------------------
Amount Percent Amount Percent
--------- --------- --------- ---------
Fund I and II Tucker $ 4,058,192 45% $ 4,156,811 45%
Fund I, II, II-OW, VI, and VII
Associates--Cherokee 4,053,105 54 4,295,663 54
Fund II and III Associates-- The Atrium 5,615,740 61 6,181,461 61
Fund II and III Associates-- Brookwood Grill 1,927,383 62 2,042,176 62
----------- -----------
$15,654,420 $16,676,111
=========== ===========
The following are descriptions of the joint ventures in which Fund II and II-OW
has investments.
Fund I and II Tucker
Tucker and Cherokee Commons were previously held in joint ventures between Wells
Real Estate Fund I ("Fund I") and Fund II and II-OW. The joint ventures were
formed for the purpose of owning, developing, and operating Cherokee Commons and
Tucker. In 1991, the Tucker and Cherokee Commons joint ventures were merged into
a new joint venture, the Fund I and II Tucker-Cherokee Joint Venture. Under the
terms of the joint venture agreement, the ownership interests of Fund I and Fund
II and II-OW in each individual property remained unchanged.
On August 1, 1995, the Fund I and II Tucker--Cherokee joint venture assigned its
ownership in Cherokee Commons to the Fund I, II, II-OW, VI, and VII Associates--
Cherokee joint venture. Upon the assignment of Cherokee Commons, the joint
venture was renamed Fund I and II Tucker. Tucker is a retail shopping center
containing approximately 29,858 square feet and a commercial office building
complex containing approximately 67,465 square feet in Tucker, DeKalb County,
Georgia.
In 1996, one of the tenants in Tucker experienced a fire. In 1996, Fund I and II
Tucker received an initial insurance settlement of $143,944 for damages to the
building. In 1997, an additional $104,895 was received as a final insurance
settlement for the fire damages discussed above and storm damages that occurred
in 1997. In addition, a loss from the retirement of real estate assets of
$58,952 was incurred. The resulting net gain on real estate assets of $45,943 is
included in the following statement of income. Additional insurance proceeds of
$27,319 related to these damages were received in 1998 and are reflected as a
gain on real estate assets in the following statement of income.
F-15
Following are the financial statements for Fund I and II Tucker:
Fund I and II Tucker
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
----------- ----------
Real estate assets, at cost:
Land $3,260,887 $3,260,887
Building and improvements, less accumulated depreciation of 5,835,882 6,040,015
$3,405,038 in 1999 and $2,913,652 in 1998
Construction in progress 0 26,731
----------- ----------
Total real estate assets 9,096,769 9,327,633
Cash and cash equivalents 123,617 49,380
Accounts receivable 125,772 96,362
Prepaid expenses and other assets 115,865 122,181
----------- ----------
Total assets $9,462,023 $9,595,556
=========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 67,797 $ 64,964
Partnership distributions payable 165,750 66,558
Due to affiliates 588,344 548,632
----------- ----------
Total liabilities 821,891 680,154
----------- ----------
Partners' capital:
Wells Real Estate Fund I 4,581,940 4,758,591
Fund II and II-OW 4,058,192 4,156,811
----------- ----------
Total partners' capital 8,640,132 8,915,402
----------- ----------
Total liabilities and partners' capital $9,462,023 $9,595,556
=========== ==========
F-16
Fund I and II Tucker
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
--------- ---------- ---------
Revenues:
Rental income $1,373,660 $1,242,332 $1,077,916
Interest income 0 0 1,159
---------- ---------- ----------
1,373,660 1,242,332 1,079,075
---------- ---------- ----------
Expenses:
Operating costs, net of reimbursements 464,001 515,791 496,258
Depreciation 491,386 440,099 419,928
Management and leasing fees 158,269 164,378 122,452
Loss on real estate assets 0 (27,319) (45,943)
Partnership administration 29,109 32,420 28,665
Legal and accounting 5,739 12,093 7,936
---------- ---------- ----------
1,148,504 1,137,462 1,029,296
---------- ---------- ----------
Net income $ 225,156 $ 104,870 $ 49,779
========== ========== ==========
Net income allocated to Wells Real Estate Fund I $ 124,039 $ 57,773 $ 27,423
========== ========== ==========
Net income allocated to Fund II and II-OW $ 101,117 $ 47,097 $ 22,356
========== ========== ==========
Fund I and II Tucker
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Fund II Total
Estate and Partners'
Fund I II-OW Capital
-------------- ------------- -------------
Balance, December 31, 1996 $5,147,557 $4,381,559 $9,529,116
Net income 27,423 22,356 49,779
Partnership distributions (205,024) (123,264) (328,288)
------------ ------------ ------------
Balance, December 31, 1997 4,969,956 4,280,651 9,250,607
Net income 57,773 47,097 104,870
Partnership distributions (269,138) (170,937) (440,075)
------------ ------------ ------------
Balance, December 31, 1998 4,758,591 4,156,811 8,915,402
Net income 124,039 101,117 225,156
Partnership distributions (300,690) (199,736) (500,426)
------------ ------------ ------------
Balance, December 31, 1999 $4,581,940 $4,058,192 $8,640,132
============ ============ ============
F-17
Funds I and II Tucker
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 225,156 $ 104,870 $ 49,779
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 491,386 440,099 419,928
Gain on real estate assets 0 (27,319) (45,943)
Changes in assets and liabilities:
Accounts receivable (29,410) (16,647) (5,244)
Prepaid expenses and other assets 6,316 (17,585) (54,616)
Accounts payable and accrued expenses 2,833 (9,054) 31,831
Due to affiliates 39,712 67,404 58,435
---------- ---------- ----------
Total adjustments 510,837 436,898 404,391
---------- ---------- ----------
Net cash provided by operating activities 735,993 541,768 454,170
---------- ---------- ----------
Cash flows from investing activities:
Investment in real estate (260,522) (142,814) (346,550)
Insurance proceeds 0 27,319 104,895
---------- ---------- ----------
Net cash used in investing activities (260,522) (115,495) (241,655)
---------- ---------- ----------
Cash flows from financing activities:
Distributions to joint venture partners (401,234) (389,577) (423,108)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 74,237 36,696 (210,593)
Cash and cash equivalents, beginning of year 49,380 12,684 223,277
---------- ---------- ----------
Cash and cash equivalents, end of year $ 123,617 $ 49,380 $ 12,684
========== ========== ==========
Fund I, II, II-OW, VI, and VII Associates--Cherokee
In August 1995, Cherokee Commons was transferred to a new joint venture between
Fund I, Fund II and II-OW, Wells Real Estate Fund VI, L.P. ("Fund VI"), and
Wells Real Estate Fund VII, L.P. ("Fund VII"). The joint venture, Fund I, II,
II-OW, VI, and VII Associates--Cherokee, was formed for the purpose of owning
and operating Cherokee Commons, a retail shopping center containing
approximately 103,755 square feet located in Cherokee County, Georgia.
Percentage ownership interests in Fund I, II, II-OW, VI, and VII Associates--
Cherokee were determined at the time of formation based on contributions. Under
the terms of the joint venture agreement, Fund VI and Fund VII each contributed
approximately $1 million to the new joint venture in return for a 10.7%
ownership interest. Fund I's ownership interest in the Cherokee joint venture
changed from 30.6% to 24%, and Fund II and II-OW joint venture's ownership
interest changed from 69.4% to 54.6%. The $2 million in cash contributed to
Cherokee was used to fund an expansion of the property for an existing tenant.
F-18
Following are the financial statements for Fund I, II, II-OW, VI, and VII
Associates--Cherokee:
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
---------- ----------
Real estate assets, at cost:
Land $1,219,704 $1,219,704
Building and improvements, less accumulated depreciation of
$3,165,778 in 1999 and $2,717,809 in 1998 6,067,174 6,500,995
---------- ----------
Total real estate assets 7,286,878 7,720,699
Cash and cash equivalents 206,540 222,814
Accounts receivable 27,703 35,517
Prepaid expenses and other assets 89,846 90,979
---------- ----------
Total assets $7,610,967 $8,070,009
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 34,857 $ 107,129
Partnership distributions payable 192,184 130,838
Due to affiliates 122,272 109,267
---------- ----------
Total liabilities 349,313 347,234
---------- ----------
Partners' capital:
Wells Real Estate Fund I 1,618,133 1,741,492
Fund II and II-OW 4,053,105 4,295,663
Wells Real Estate Fund VI 796,558 844,160
Wells Real Estate Fund VII 793,858 841,460
Total partners' capital 7,261,654 7,722,775
---------- ----------
Total liabilities and partners' capital $7,610,967 $8,070,009
========== ==========
F-19
Fund I, II, II-OW, VI and VII Associates--Cherokee
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
-------- -------- --------
Revenues:
Rental income $945,222 $909,831 $880,652
Interest income 68 84 67
-------- -------- --------
945,290 909,915 880,719
-------- -------- --------
Expenses:
Depreciation 447,969 444,660 440,882
Operating costs, net of reimbursements 37,583 35,715 70,017
Partnership administration 24,882 22,934 26,260
Management and leasing fees 94,149 82,517 78,046
Legal and accounting 5,624 7,363 9,385
Bad debt expense 0 18,664 0
Loss on real estate assets 0 0 32,632
610,207 611,853 657,222
-------- -------- --------
Net income $335,083 $298,062 $223,497
======== ======== ========
Net income allocated to Wells Real Estate Fund I $ 80,496 $ 71,604 $ 53,691
======== ======== ========
Net income allocated to Fund II and II-OW $182,825 $162,626 $121,942
======== ======== ========
Net income allocated to Wells Real Estate Fund VI $ 35,881 $ 31,916 $ 23,932
======== ======== ========
Net income allocated to Wells Real Estate Fund VII $ 35,881 $ 31,916 $ 23,932
======== ======== ========
Fund I, II, II-OW, VI and VII Associates--Cherokee
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Fund II Wells Real Wells Real Total
Estate and Estate Estate Partners'
Fund I II-OW Fund VI Fund VII Capital
----------- ----------- ------------ ----------- -----------
Balance, December 31, 1996 $1,970,363 $4,746,274 $932,597 $929,897 $8,579,131
Net income 53,691 121,942 23,932 23,932 223,497
Partnership distributions (160,881) (331,435) (65,047) (65,047) (622,410)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1997 1,863,173 4,536,781 891,482 888,782 8,180,218
Net income 71,604 162,626 31,916 31,916 298,062
Partnership distributions (193,285) (403,744) (79,238) (79,238) (755,505)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1998 1,741,492 4,295,663 844,160 841,460 7,722,775
Net income 80,496 182,825 35,881 35,881 335,083
Partnership distributions (203,855) (425,383) (83,483) (83,483) (796,204)
---------- ---------- ---------- ---------- ----------
Balance, December 31, 1999 $1,618,133 $4,053,105 $796,558 $793,858 $7,261,654
========== ========== ========== ========== ==========
F-20
Fund I, II, II-OW, VI, and VII Associates--Cherokee
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
-------- -------- --------
Cash flows from operating activities:
Net income $ 335,083 $ 298,062 $ 223,497
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 447,969 444,660 440,882
Loss on real estate assets 0 0 32,632
Changes in assets and liabilities:
Accounts receivable 7,814 56,999 1,386
Prepaid expenses and other assets 1,133 8,890 (21,342)
Accounts payable and accrued expenses (72,272) 70,278 13,721
Due to affiliates 13,005 15,327 15,565
--------- --------- ---------
Total adjustments 397,649 596,154 482,844
--------- --------- ---------
Net cash provided by operating activities 732,732 894,216 706,341
--------- --------- ---------
Cash flows from investing activities:
Investment in real estate (14,148) (5,771) (83,424)
--------- --------- ---------
Cash flows from financing activities:
Distributions to joint venture partners (734,858) (818,790) (541,104)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (16,274) 69,655 81,813
Cash and cash equivalents, beginning of year 222,814 153,159 71,346
--------- --------- ---------
Cash and cash equivalents, end of year $ 206,540 $ 222,814 $ 153,159
========= ========= =========
F-21
Fund II and III Associates
On April 3, 1989, Fund II and II-OW entered into a joint venture agreement with
Wells Real Estate Fund III, L.P. ("Fund III"). The new joint venture, Fund II
and III Associates, was formed for the purpose of investing in commercial and
industrial real properties. In April 1989, Fund II and III Associates acquired
The Atrium. In 1991, Fund II and II-OW contributed its interest in a parcel of
land known as the 880 Property located in Roswell, Georgia, to Fund II and III
Associates. The property is a 5.8-acre tract of land. A restaurant was
developed on 1.5 acres of the 880 Property and is currently operating as the
Brookwood Grill restaurant ("Fund II and III Associates--Brookwood Grill"). The
remaining 4.3 acres of the 880 Property was transferred at cost to the Fund II,
III, VI, and VII Associates joint venture during 1995. Fund II and III
Associates' investment in this transferred parcel of the 880 Property was
$1,406,591 and $1,507,807 at December 31, 1999 and 1998, respectively, which
represented a 24% interest for each year.
The Atrium was fully occupied from inception through June 1996, at which time
the previous tenant's lease expired. In March 1997, a lease was signed with a
new tenant for the entire building and the new tenant began paying rent in May
1997. The lease term is for five years with an option to renew for an
additional five years. There is a no-cause cancellation provision at the end of
the first three-year period. If this no-cause cancellation is exercised, the
tenant would be required to pay unamortized, up-front tenant improvement costs.
The cost of completing the required tenant improvements and outside broker
commissions was funded out of reserves and contributions by Fund II and II-OW
and Fund III.
F-22
Following are the financial statements for Fund II and III Associates--The
Atrium:
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
---------- ----------
Real estate assets, at cost:
Land $1,504,743 $1,504,743
Building and improvements, less accumulated depreciation of
$6,301,682 in 1999 and $5,433,962 in 1998 7,093,742 7,938,061
---------- ----------
Total real estate assets 8,598,485 9,442,804
Cash and cash equivalents 89,170 128,882
Accounts receivable 30,018 18,114
Prepaid expenses and other assets 213,143 302,888
---------- ----------
Total assets $8,930,816 $9,892,688
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 1,801 $ 4,587
Partnership distributions payable 101,012 137,224
---------- ----------
Total liabilities 102,813 141,811
---------- ----------
Partners' capital:
Fund II and II-OW 5,615,740 6,181,461
Wells Real Estate Fund III 3,212,263 3,569,416
---------- ----------
Total partners' capital 8,828,003 9,750,877
---------- ----------
Total liabilities and partners' capital $8,930,816 $9,892,688
========== ==========
F-23
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Loss
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---------- ---------- ----------
Revenues:
Rental income $1,470,144 $1,470,144 $ 924,769
Interest income 0 0 2,617
Other income 4,000 13,280 8,638
---------- ---------- ----------
1,474,144 1,483,424 936,024
---------- ---------- ----------
Expenses:
Depreciation 867,720 866,778 795,829
Operating costs, net of reimbursements 692,066 699,550 614,932
Management and leasing fees 179,762 186,102 111,576
Partnership administration 23,278 11,095 27,325
Legal and accounting 5,250 3,310 17,408
Computer costs 0 0 107
Loss on real estate assets 0 0 181,684
1,768,076 1,766,835 1,748,861
---------- ---------- ----------
Net loss $ (293,932) $ (283,411) $ (812,837)
========== ========== ==========
Net loss allocated to Fund II and II-OW $ (180,180) $ (173,731) $ (509,625)
========== ========== ==========
Net loss allocated to Wells Real Estate Fund III $ (113,752) $ (109,680) $ (303,212)
========== ========== ==========
F-24
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 1997
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
----------- ------------ ------------
Balance, December 31, 1996 $6,985,561 $3,663,946 $10,649,507
Net loss (509,625) (303,212) (812,837)
Partnership contributions 409,495 659,810 1,069,305
Partnership distributions (124,481) (85,283) (209,764)
----------- ----------- ------------
Balance, December 31, 1997 6,760,950 3,935,261 10,696,211
Net loss (173,731) (109,680) (283,411)
Partnership distributions (405,758) (256,165) (661,923)
----------- ----------- ------------
Balance, December 31, 1998 6,181,461 3,569,416 9,750,877
Net loss (180,180) (113,752) (293,932)
Partnership distributions (385,541) (243,401) (628,942)
----------- ----------- ------------
Balance, December 31, 1999 $5,615,740 $3,212,263 $ 8,828,003
=========== =========== ============
F-25
Fund II and III Associates--The Atrium
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
-------- -------- ---------
Cash flows from operating activities:
Net loss $(293,932) $(283,411) $ (812,837)
--------- --------- ----------
Adjustments to reconcile net loss to net cash provided by (used
in) operating activities:
Depreciation 867,720 866,778 795,829
Loss on real estate assets 0 0 181,684
Changes in assets and liabilities:
Accounts receivable (11,904) 836 (18,950)
Prepaid expenses and other assets 89,745 89,745 (357,417)
Accounts payable (2,786) (146,779) (37,394)
Due to affiliates 0 (3,829) 3,829
--------- --------- ----------
Total adjustments 942,775 806,751 567,581
--------- --------- ----------
Net cash provided by (used in) operating activities 648,843 523,340 (245,256)
--------- --------- ----------
Cash flows from investing activities:
Investment in real estate assets (23,401) 0 (932,156)
--------- --------- ----------
Cash flows from financing activities:
Contributions from joint venture partners 0 0 1,069,305
Distributions to joint venture partners (665,154) (675,743) (58,720)
--------- --------- ----------
Net cash (used in) provided by financing activities (665,154) (675,743) 1,010,585
--------- --------- ----------
Net decrease in cash and cash equivalents (39,712) (152,403) (166,827)
Cash and cash equivalents, beginning of year 128,882 281,285 448,112
--------- --------- ----------
Cash and cash equivalents, end of year $ 89,170 $ 128,882 $ 281,285
========= ========= ==========
F-26
Following are the financial statements for Fund II and III Associates--Brookwood
Grill:
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
---------- ----------
Real estate assets, at cost:
Land $ 745,223 $ 745,223
Building and improvements, less accumulated depreciation of
$383,745 in 1999 and $329,731 in 1998 889,068 943,082
---------- ----------
Total real estate assets 1,634,291 1,688,305
Investment in joint venture 1,406,591 1,507,807
Cash and cash equivalents 65,627 73,956
Due from affiliate 60,193 50,479
Accounts receivable 41,060 67,018
Prepaid expenses and other assets 11,912 17,480
---------- ----------
Total assets $3,219,674 $3,405,045
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 0 $ 1,200
Due to affiliate 2,405 3,894
Partnership distributions payable 126,201 124,772
---------- ----------
Total liabilities 128,606 129,866
---------- ----------
Partners' capital:
Fund II and II-OW 1,927,383 2,042,176
Wells Real Estate Fund III 1,163,685 1,233,003
---------- ----------
Total partners' capital 3,091,068 3,275,179
---------- ----------
Total liabilities and partners' capital $3,219,674 $3,405,045
========== ==========
F-27
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---------- ---------- ----------
Revenues:
Rental income $224,801 $225,100 $225,106
Equity in income of joint venture 81,669 78,791 27,213
--------- --------- ---------
306,470 303,891 252,319
--------- --------- ---------
Expenses:
Operating costs, net of reimbursements (11,565) (31,540) 15,233
Depreciation 54,014 54,014 54,014
Management and leasing fees 30,096 23,348 28,464
Partnership administration 5,853 3,708 3,875
Legal and accounting 5,252 3,200 4,672
Computer costs 0 0 107
--------- --------- ---------
83,650 52,730 106,365
--------- --------- ---------
Net income $222,820 $251,161 $145,954
========= ========= =========
Net income allocated to Fund II and II-OW $138,928 $156,599 $ 91,002
========= ========= =========
Net income allocated to Wells Real Estate Fund III $ 83,892 $ 94,562 $ 54,952
========= ========= =========
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 1997
Fund II Wells Real Total
and Estate Partners'
II-OW Fund III Capital
------------ ------------ ------------
Balance, December 31, 1996 $2,256,114 $1,362,190 $3,618,304
Net income 91,002 54,952 145,954
Partnership distributions (190,653) (115,125) (305,778)
------------ ------------ -----------
Balance, December 31, 1997 2,156,463 1,302,017 3,458,480
Net income 156,599 94,562 251,161
Partnership distributions (270,886) (163,576) (434,462)
------------ ------------ -----------
Balance, December 31, 1998 2,042,176 1,233,003 3,275,179
Net income 138,928 83,892 222,820
Partnership distributions (253,721) (153,210) (406,931)
------------ ------------ -----------
Balance, December 31, 1999 $1,927,383 $1,163,685 $3,091,068
============ ============ ===========
F-28
Fund II and III Associates--Brookwood Grill
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net income $ 222,820 $ 251,161 $ 145,954
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 54,014 54,014 54,014
Equity in income of joint venture (81,669) (78,791) (27,213)
Changes in assets and liabilities:
Accounts receivable 25,958 22,739 24,229
Prepaid expenses and other assets 5,568 5,568 5,568
Accounts payable (1,200) (2,679) (16,161)
Due to affiliates (1,489) (1,487) (1,163)
---------- ---------- ----------
Total adjustments 1,182 (636) 39,274
---------- ---------- ----------
Net cash provided by operating activities 224,002 250,525 185,228
---------- ---------- ----------
Cash flows from investing activities:
Distributions received from joint venture 173,171 160,812 89,622
---------- ---------- ----------
Cash flows from financing activities:
Distributions to joint venture partners (405,502) (391,702) (229,631)
---------- ---------- ----------
Net (decrease) increase in cash and cash equivalents (8,329) 19,635 45,219
Cash and cash equivalents, beginning of year 73,956 54,321 9,102
---------- ---------- ----------
Cash and cash equivalents, end of year $ 65,627 $ 73,956 $ 54,321
========== ========== ==========
Fund II, III, VI, and VII Associates
On January 1, 1995, the Fund II and III Associates joint venture entered into a
joint venture agreement with Fund VI and Fund VII. The joint venture, Fund II,
III, VI, and VII Associates, was formed for the purpose of acquiring,
developing, operating, and selling real properties. During 1995, Fund II and
III Associates contributed a 4.3-acre tract of land from its 880 Property to the
Fund II, III, VI, and VII Associates joint venture. During 1998, 1997, and
1996, Fund VI and Fund VII made contributions to the joint venture. Ownership
percentage interests were recomputed accordingly. Development was substantially
completed in 1996 on two retail and office buildings containing a total of
approximately 49,500 square feet.
F-29
The following are the financial statements for Fund II, III, VI, and VII
Associates:
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
Assets
1999 1998
---------- -----------
Real estate assets, at cost:
Land $1,325,242 $1,325,242
Building and improvements, less accumulated depreciation of
$1,299,227 in 1999 and $884,062 in 1998 4,418,932 4,773,062
Construction in progress 0 41,263
----------- -----------
Total real estate assets 5,744,174 6,139,567
Cash and cash equivalents 189,404 308,788
Accounts receivable 162,464 111,460
Prepaid expenses and other assets 213,443 233,965
----------- -----------
Total assets $6,309,485 $6,793,780
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses $ 87,926 $ 192,072
Partnership distributions payable 250,075 209,716
----------- -----------
338,001 401,788
----------- -----------
Partners' capital:
Fund II and III Associates 1,406,591 1,507,807
Wells Real Estate Fund VI 1,569,430 1,682,380
Wells Real Estate Fund VII 2,995,463 3,201,805
----------- -----------
Total partners' capital 5,971,484 6,391,992
----------- -----------
Total liabilities and partners' capital $6,309,485 $6,793,780
=========== ===========
F-30
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
-------- -------- --------
Revenues:
Rental income $953,952 $872,978 $679,268
Other income 23,843 36,000 0
-------- -------- --------
977,795 908,978 679,268
-------- -------- --------
Expenses:
Depreciation 415,165 376,290 325,974
Operating costs, net of reimbursements 68,691 85,983 122,261
Management and leasing fees 129,798 97,701 99,834
Legal and accounting 4,952 6,509 4,885
Partnership administration 19,891 14,926 17,321
Computer costs 0 0 228
-------- -------- --------
638,497 581,409 570,503
-------- -------- --------
Net income $339,298 $327,569 $108,765
======== ======== ========
Net income allocated to Fund II and III Associates $ 81,669 $ 78,791 $ 27,213
======== ======== ========
Net income allocated to Wells Real Estate Fund VI $ 91,135 $ 87,914 $ 28,409
======== ======== ========
Net income allocated to Wells Real Estate Fund VII $166,494 $160,864 $ 53,143
======== ======== ========
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 1997
Fund II Wells Wells Real Total
and III Real Estate Estate Partners'
Associates Fund VI Fund VII Capital
------------ -------------- ------------ ------------
Balance, December 31, 1996 $1,690,244 $1,759,947 $3,292,551 $6,742,742
Partnership contributions 0 116,675 121,576 238,251
Partnership distributions (109,242) (115,220) (214,414) (438,876)
Net income 27,213 28,409 53,143 108,765
------------ ----------- ----------- -----------
Balance, December 31, 1997 1,608,215 1,789,811 3,252,856 6,650,882
Partnership contributions 0 4,600 154,049 158,649
Partnership distributions (179,199) (199,945) (365,964) (745,108)
Net income 78,791 87,914 160,864 327,569
------------ ----------- ----------- -----------
Balance, December 31, 1998 1,507,807 1,682,380 3,201,805 6,391,992
Partnership distributions (182,885) (204,085) (372,836) (759,806)
Net income 81,669 91,135 166,494 339,298
------------ ----------- ----------- -----------
Balance, December 31, 1999 $1,406,591 $1,569,430 $2,995,463 $5,971,484
============ =========== =========== ===========
F-31
Fund II, III, VI, and VII Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
--------- --------- ---------
Cash flows from operating activities:
Net income $ 339,298 $ 327,569 $ 108,765
--------- --------- ---------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 415,165 376,290 325,974
Changes in assets and liabilities:
Accounts receivable (51,004) (56,936) 12,810
Prepaid expenses and other assets 20,522 35,603 (123,748)
Accounts payable and accrued expenses (104,146) 21,296 (34,194)
--------- --------- ---------
Total adjustments 280,537 376,253 180,842
--------- --------- ---------
Net cash provided by operating activities 619,835 703,822 289,607
--------- --------- ---------
Cash flows from investing activities:
Investment in real estate (19,772) (102,122) (620,059)
--------- --------- ---------
Cash flows from financing activities:
Contributions from joint venture partners 0 154,996 230,699
Distributions to joint venture partners (719,447) (667,299) (356,559)
--------- --------- ---------
Net cash used in financing activities (719,447) (512,303) (125,860)
--------- --------- ---------
Net (decrease) increase in cash and cash equivalents (119,384) 89,397 (456,312)
Cash and cash equivalents, beginning of year 308,788 219,391 675,703
--------- --------- ---------
Cash and cash equivalents, end of year $ 189,404 $ 308,788 $ 219,391
========= ========= =========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 3,653 $ 7,552
========= ========= =========
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Partnership's income tax basis net income for the years ended December
31, 1999, 1998, and 1997 is calculated as follows:
1999 1998 1997
---------- --------- ---------
Financial statement net income (loss) $ 371,178 $ 93,162 $(331,376)
Increase (decrease) in net income (loss) resulting from:
Depreciation expense for financial reporting purposes in excess
of amounts for income tax purposes 625,223 627,502 558,365
Expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 20,482 30,541 27,667
Rental income recognized for income tax purposes (less than) in excess of (6,205) 26,495 38,033
amounts for financial reporting purposes
Loss on retirement of fixed assets for income tax purposes 0 0 (13,835)
Involuntary conversion of fixed assets for income tax purposes 0 0 (13,560)
Meals and entertainment 935 83 827
----------- --------- ----------
Income tax basis net income $1,011,613 $777,783 $ 266,121
=========== ========= ==========
F-32
The Partnership's income tax basis partners' capital at December 31, 1999,
1998, and 1997 is computed as follows:
1999 1998 1997
----------- ----------- ----------
Financial statement partners' capital $20,722,383 $22,044,258 $23,460,451
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 2,420,407 1,795,184 1,167,682
Joint venture change in ownership (28,326) (28,326) (28,326)
Accumulated expenses deductible when paid for income tax purposes, 528,685 508,203 477,662
accrued for financial reporting purposes
Accumulated rental income accrued for financial reporting purposes in (104,707) (98,502) (124,997)
excess of amounts for income tax purposes
Partnership distributions payable 483,167 337,178 331,965
Other (40,808) (41,743) (42,026)
----------- ----------- -----------
Income tax basis partners' capital $23,980,801 $24,516,252 $25,242,411
=========== =========== ===========
5. RENTAL INCOME
The future minimum rental income due from the Partnership's respective
ownership interest in the joint ventures under noncancelable operating
leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $2,942,681
2001 2,226,407
2002 1,051,850
2003 524,077
2004 474,418
Thereafter 2,099,070
------------
$9,318,503
============
Three tenants contributed approximately 30%, 21%, and 11% of rental income,
which is included in equity in income of joint ventures for the year ended
December 31, 1999. In addition, four tenants will contribute approximately
38%, 23%, 11% and 14% of future minimum rental income.
The future minimum rental income due Fund II and II-OW for the First Union
Property under noncancelable operating leases at December 31, 1999 is as
follows:
Year ended December 31:
2000 $ 844,071
2001 281,357
----------
$1,125,428
==========
One tenant at the First Union Property contributed 100% of rental income
for the year ended December 31, 1999 and will contribute 100% of future
minimum rental income.
F-33
The future minimum rental income due Fund I and II Tucker under
noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $1,119,619
2001 810,590
2002 531,737
2003 293,464
2004 95,633
Thereafter 101,200
----------
$2,952,243
==========
One tenant contributed 10% of rental income for the year ended December 31,
1999 and will contribute approximately 15% of future minimum rental income.
The future minimum rental income due Fund I, II, II-OW, VI, and VII
Associates--Cherokee under noncancelable operating leases at December 31,
1999 is as follows:
Year ended December 31:
2000 $ 914,317
2001 828,960
2002 762,564
2003 692,708
2004 771,053
Thereafter 3,847,339
----------
$7,816,941
==========
One tenant contributed approximately 62% of rental income for the year
ended December 31, 1999 and will contribute approximately 85% of future
minimum rental income.
The future minimum rental income due Fund II and III Associates--The Atrium
under noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $1,476,960
2001 1,488,000
2002 550,721
----------
$3,515,681
==========
One tenant at The Atrium contributed 100% of rental income for the year ended
December 31, 1999 and will contribute 100% of future minimum rental income.
F-34
The future minimum rental income due Fund II and III Associates--Brookwood Grill
under noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $249,550
2001 249,550
2002 25,995
--------
$525,095
========
One tenant contributed 100% of rental income for the year ended December
31, 1999 and will contribute 100% of future minimum rental income.
The future minimum rental income due Fund II, III, VI, and VII Associates
under noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 901,595
2001 847,296
2002 469,628
2003 197,540
2004 175,331
Thereafter 149,157
----------
$2,740,547
==========
Three tenants contributed approximately 13%, 13%, and 11% of rental income
for the year ended December 31, 1999. In addition, four tenants will
contribute approximately 29%, 14%, 14%, and 11% of future minimum rental
income.
6. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 1999 and 1998:
1999 Quarters Ended
---------------------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -------------
Revenues $63,383 $72,086 $147,215 $88,494
Net income 63,383 72,086 147,215 88,494
Net income allocated to Class A limited partners 63,383 72,086 147,215 88,494
Net income per weighted average Class A limited
partner unit outstanding $ 0.58 $ 0.67 $ 1.35 $ 0.82
Cash distribution per weighted average Class A
limited partner unit outstanding 3.72 3.43 4.06 4.38
F-35
1999 Quarters Ended
---------------------------------------------------------------
March 31 June 30 September 30 December 31
--------- --------- ------------ -------------
Revenues $44,927 $48,966 $39,643 $(40,374)
Net income 44,927 48,966 39,643 (40,374)
Net income allocated to Class A limited partners 44,927 48,966 39,643 (40,374)
Net income per weighted average Class A limited
partner unit $ 0.41 $ 0.46 $ 0.36 $ (0.37)
Cash distribution per weighted average Class A
limited partner unit 3.53 3.72 3.64 3.01
7. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Partnership or the Company. In
the normal course of business, the Partnership or the Company may become
subject to such litigation or claims.
F-36
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund II,
Wells Real Estate Fund II-OW, and
Wells Real Estate Fund III, L.P.:
We have audited the accompanying balance sheets of THE ATRIUM BUILDING as of
December 31, 1999 and 1998 and the related statements of loss, partners'
capital, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the building's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes 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, the financial statements referred to above present fairly, in
all material respects, the financial position of The Atrium Building as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
Atlanta, Georgia
January 20, 2000
F-37
THE ATRIUM BUILDING
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
----------- -----------
REAL ESTATE ASSETS:
Land $1,504,743 $1,504,743
Building and improvements, less accumulated depreciation of
$6,301,681 in 1999 and $5,433,962 in 1998 7,070,342 7,938,061
Construction in progress 23,400 0
---------- ----------
Total real estate assets 8,598,485 9,442,804
CASH AND CASH EQUIVALENTS 89,170 128,882
ACCOUNTS RECEIVABLE 30,018 18,114
PREPAID AND OTHER ASSETS 213,143 302,888
---------- ----------
Total assets $8,930,816 $9,892,688
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Distributions payable to partners $ 101,012 $ 137,224
Accounts payable 1,801 4,587
---------- ----------
Total liabilities 102,813 141,811
---------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' CAPITAL:
Wells Real Estate Fund II 5,162,262 5,697,944
Wells Real Estate Fund II-OW 453,477 483,517
Wells Real Estate Fund III, L.P. 3,212,264 3,569,416
---------- ----------
Total partners' capital 8,828,003 9,750,877
---------- ----------
Total liabilities and partners' capital $8,930,816 $9,892,688
========== ==========
The accompanying notes are an integral part of these balance sheets.
F-38
THE ATRIUM BUILDING
STATEMENTS OF LOSS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
---------- ----------- ----------
REVENUES:
Rental income $1,470,144 $1,470,144 $ 924,769
---------- ---------- ----------
EXPENSES:
Depreciation 867,719 866,778 795,829
Operating costs, net of reimbursements 801,090 697,365 812,686
Management and leasing fees 90,018 186,102 111,576
Legal and accounting 5,250 3,310 17,408
Computer costs 0 0 107
---------- ---------- ----------
1,764,077 1,753,555 1,737,606
---------- ---------- ----------
NET LOSS $ (293,933) $ (283,411) $ (812,837)
========== ========== ==========
NET LOSS ALLOCATED TO WELLS REAL ESTATE FUND II $ (170,613) $ (164,506) $ (482,564)
========== ========== ==========
NET LOSS ALLOCATED TO WELLS REAL ESTATE FUND II-OW $ (9,568) $ (9,225) $ (27,061)
========== ========== ==========
NET LOSS ALLOCATED TO WELLS REAL ESTATE FUND III, L.P. $ (113,752) $ (109,680) $ (303,212)
========== ========== ==========
The accompanying notes are an integral part of these statements.
F-39
THE ATRIUM BUILDING
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Wells Real Wells Real Wells Real Total
Estate Estate Estate Partners'
Fund II Fund II-OW Fund III, L.P. Capital
------------- ------------- -------------- -------------
BALANCE, December 31, 1996 $6,459,347 $526,214 $3,663,945 $10,649,506
Net loss (482,564) (27,061) (303,212) (812,837)
Contributions 387,750 21,745 659,810 1,069,305
Distributions (117,871) (6,610) (85,283) (209,764)
----------- ----------- ----------- -----------
BALANCE, December 31, 1997 6,246,662 514,288 3,935,260 10,696,210
Net loss (164,506) (9,225) (109,680) (283,411)
Distributions (384,212) (21,546) (256,164) (661,922)
----------- ----------- ----------- -----------
BALANCE, December 31, 1998 5,697,944 483,517 3,569,416 9,750,877
Net loss (170,613) (9,568) (113,752) (293,933)
Distributions (365,069) (20,472) (243,400) (628,941)
----------- ----------- ----------- -----------
BALANCE, December 31, 1999 $5,162,262 $453,477 $3,212,264 $ 8,828,003
=========== =========== =========== ===========
The accompanying notes are an integral part of these statements.
F-40
THE ATRIUM BUILDING
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
---------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(293,933) $(283,411) $ (812,837)
---------- ---------- -----------
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation 867,719 866,778 795,829
Loss on real estate assets 0 0 181,684
Changes in assets and liabilities:
Accounts receivable (11,904) 836 (18,950)
Prepaid expenses and other assets 89,745 89,745 (357,417)
Accounts payable (2,786) (146,779) (37,394)
Due to affiliates 0 (3,829) 3,829
---------- ---------- -----------
Total adjustments 942,774 806,751 567,581
---------- ---------- -----------
Net cash provided by (used in) operating activities 648,841 523,340 (245,256)
---------- ---------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate assets (23,400) 0 (932,156)
---------- ---------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions from partners 0 0 1,069,305
Distributions paid to partners (665,153) (675,743) (58,720)
---------- ---------- -----------
Net cash (used in) provided by financing activities (665,153) (675,743) 1,010,585
---------- ---------- -----------
NET DECREASE IN CASH AND CASH EQUIVALENTS (39,712) (152,403) (166,827)
CASH AND CASH EQUIVALENTS, beginning of year 128,882 281,285 448,112
---------- ---------- -----------
CASH AND CASH EQUIVALENTS, end of year $ 89,170 $ 128,882 $ 281,285
========== ========== ===========
The accompanying notes are an integral part of these statements.
F-41
THE ATRIUM BUILDING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The Atrium Building ("Atrium") is a four-story office building located in
Houston, Harris County, Texas. The building is owned by Fund II and III
Associates, a joint venture between Wells Real Estate Fund II ("Fund II"),
Wells Real Estate Fund II-OW ("Fund II-OW"), and Wells Real Estate Fund
III, L.P. ("Fund III). Fund II owns 59% of Atrium, Fund II-OW owns 3% of
Atrium, and Fund III owns 38% of Atrium at December 31, 1999. Allocation of
net loss and distributions are made in accordance with ownership
percentages.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
Atrium is not deemed to be a taxable entity for federal income tax
purposes.
Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation. Major
improvements and betterments are capitalized when they extend the useful
life of the related asset. All repairs and maintenance are expensed as
incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the
asset and its eventual disposition. Management has determined that there
has been no impairment in the carrying value of Atrium as of December 31,
1999.
Depreciation is calculated using the straight-line method over 25 years.
F-42
Revenue Recognition
The lease on Atrium is classified as an operating lease, and the related
rental income is recognized on a straight-line basis over the term of the
lease.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on
a straight-line basis over the terms of the related leases.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, Atrium considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
2. RENTAL INCOME
The future minimum rental income due to Atrium under noncancelable
operating leases at December 31, 1999 is as follows:
Year ending December 31:
2000 $1,476,960
2001 1,408,000
2002 550,722
----------
$3,435,682
==========
One tenant contributed 100% of rental income for the year ended December
31, 1999 and represents 100% of the future minimum rental income above.
3. RELATED-PARTY TRANSACTIONS
Fund II and II-OW and Fund III entered into a property management agreement
with Wells Management Company, Inc. ("Wells Management"), an affiliate of
Fund II and II-OW and Fund III. In consideration for supervising the
management of Atrium, Fund II and II-OW and Fund III will generally pay
Wells Management management and leasing fees equal to (a) 3% of the gross
revenues for management and 3% of the gross revenues for leasing (aggregate
maximum of 6%) plus a separate fee for the one-time initial lease-up of
newly constructed 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 or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
Atrium incurred management and leasing fees of $90,018, $186,102, and
$111,576 for the years ended December 31, 1999, 1998, and 1997,
respectively, which were paid to Wells Management.
F-43
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against Atrium or its partners. In the
normal course of business, Atrium or its partners may become subject to
such litigation or claims.
F-44
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund II
and Wells Real Estate Fund II-OW:
We have audited the accompanying balance sheets of THE FIRST UNION PROPERTY as
of December 31, 1999 and 1998 and the related statements of income, partners'
capital, and cash flows for each of the three years in the period ended December
31, 1999. These financial statements are the responsibility of the property's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the 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. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. An
audit also includes 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, the financial statements referred to above present fairly, in
all material respects, the financial position of The First Union Property as of
December 31, 1999 and 1998 and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with accounting principles generally accepted in the United States.
Atlanta, Georgia
January 20, 2000
F-45
THE FIRST UNION PROPERTY
BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---------- ----------
REAL ESTATE ASSETS:
Land $1,367,856 $1,367,856
Building and improvements, less accumulated depreciation of
$2,991,452 in 1999 and $2,623,785 in 1998 4,779,666 5,147,333
----------- ----------
Total real estate assets 6,147,522 6,515,189
CASH AND CASH EQUIVALENTS 193,979 116,860
ACCOUNTS RECEIVABLE 2,149 23,184
PREPAID EXPENSES AND OTHER ASSETS 24,473 42,828
----------- ----------
Total assets $6,368,123 $6,698,061
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Distributions payable to partners $ 196,127 $ 118,125
Due to affiliate 0 1,315
----------- ----------
Total liabilities 196,127 119,440
----------- ----------
COMMITMENTS AND CONTINGENCIES (Note 4)
PARTNERS' CAPITAL:
Wells Real Estate Fund II 5,859,102 6,244,136
Wells Real Estate Fund II-OW 312,894 334,485
----------- ----------
Total partners' capital 6,171,996 6,578,621
----------- ----------
Total liabilities and partners' capital $6,368,123 $6,698,061
=========== ==========
The accompanying notes are an integral part of these balance sheets.
F-46
THE FIRST UNION PROPERTY
STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
--------- --------- ---------
REVENUES:
Rental income $717,676 $458,867 $458,867
-------- -------- --------
EXPENSES:
Depreciation 367,667 367,667 367,667
Legal and accounting 3,375 4,050 5,600
Management and leasing fees 61,295 45,887 45,887
Operating costs 13,797 10,878 6,574
Computer costs 625 0 107
-------- -------- --------
446,759 428,482 425,835
-------- -------- --------
NET INCOME $270,917 $ 30,385 $ 33,032
======== ======== ========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND II $256,531 $ 28,772 $ 31,278
======== ======== ========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND II-OW $ 14,386 $ 1,613 $ 1,754
======== ======== ========
The accompanying notes are an integral part of these balance sheets.
F-47
THE FIRST UNION PROPERTY
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
Wells Real Wells Real Total
Estate Estate Partners'
Fund II Fund II-OW Capital
---------- ---------- -----------
BALANCE, December 31, 1996 $7,040,352 $ 379,136 $ 7,419,488
Net income 31,278 1,754 33,032
Distributions (413,817) (23,206) (437,023)
---------- ---------- -----------
BALANCE, December 31, 1997 6,657,813 357,684 7,015,497
Net income 28,772 1,613 30,385
Distributions (442,449) (24,812) (467,261)
---------- ---------- -----------
BALANCE, December 31, 1998 6,244,136 334,485 6,578,621
Net income 256,531 14,386 270,917
Distributions (641,565) (35,977) (677,542)
---------- ---------- -----------
BALANCE, December 31, 1999 $5,859,102 $ 312,894 $ 6,171,996
========== ========== ===========
The accompanying notes are an integral part of these statements.
F-48
THE FIRST UNION PROPERTY
STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999, 1998, AND 1997
1999 1998 1997
----------- ---------- ----------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 270,917 $ 30,385 $ 33,032
----------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 367,667 367,667 367,667
Changes in assets and liabilities:
Accounts receivable 21,035 61,024 30,352
Prepaid expenses and other assets 18,355 18,355 18,355
Due to affiliate (1,315) (3,246) (1,147)
----------- ---------- ----------
Total adjustments 405,742 443,800 415,227
----------- ---------- ----------
Net cash provided by operating activities 676,659 474,185 448,259
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions paid to partners (599,540) (460,563) (433,059)
----------- ---------- ----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 77,119 13,622 15,200
CASH AND CASH EQUIVALENTS, beginning of year 116,860 103,238 88,038
----------- ---------- ----------
CASH AND CASH EQUIVALENTS, end of year $ 193,979 $ 116,860 $ 103,238
=========== ========== ==========
The accompanying notes are an integral part of these statements.
F-49
THE FIRST UNION PROPERTY
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1999, 1998, AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The First Union Property ("First Union") is a two-story office building
located in Charlotte, North Carolina. The property is owned by Fund II and
Fund II-OW, a joint venture between Wells Real Estate Fund II ("Fund II")
and Wells Real Estate Fund II-OW ("Fund II-OW"). Fund II owns 95% of Fund
II and Fund II-OW and Fund II-OW owns 5% of Fund II and Fund II-OW at
December 31, 1999 and 1998. Allocation of net income and distributions are
made in accordance with ownership percentages.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles 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
financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
Income Taxes
First Union is not deemed to be a taxable entity for federal income tax
purposes.
Real Estate Assets
Real estate assets held by First Union are stated at cost, less accumulated
depreciation. Major improvements and betterments are capitalized when they
extend the useful life of the related asset. All repairs and maintenance
are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the
asset and its eventual disposition. Management has determined that there
has been no impairment in the carrying value of First Union as of December
31, 1999.
Depreciation is calculated using the straight-line method over 25 years.
Revenue Recognition
The lease on First Union is classified as an operating lease, and the
related rental income is recognized on a straight-line basis over the term
of the lease.
F-50
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on
a straight-line basis over the terms of the related leases.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, First Union considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
2. RENTAL INCOME
The future minimum rental income due to First Union under noncancelable
operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 844,071
2001 281,357
----------
$1,125,428
==========
One tenant at First Union contributed 100% of rental income for the year
ended December 31, 1999 and represents 100% of the future minimum rental
income above.
3. RELATED-PARTY TRANSACTIONS
Fund II and Fund II-OW entered into a property management agreement with
Wells Management Company, Inc. ("Wells Management"), an affiliate of Fund
II and Fund II-OW. In consideration for supervising the management of First
Union, Fund II and Fund II-OW will generally pay Wells Management
management and leasing fees equal to (a) 3% of the gross revenues for
management and 3% of the gross revenues for leasing (aggregate maximum of
6%) plus a separate fee for the one-time initial lease-up of newly
constructed 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 or (b) in the case of
commercial properties which are leased on a long-term net basis (ten or
more years), 1% of the gross revenues except for initial leasing fees equal
to 3% of the gross revenues over the first five years of the lease term.
First Union incurred management and leasing fees and lease acquisition
costs of $61,295, $45,887, and $45,887, respectively, for the years ended
December 31, 1999, 1998, and 1997, respectively, which were paid to Wells
Management.
4. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against First Union and its partners. In
the normal course of business, First Union and its partners may become
subject to such litigation or claims.
F-51
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Initial Cost Costs of
--------------------------
Buildings and Capitalized
Description OWNERSHIP Encumbrances Land Improvements Improvements
- -------------------------------------- --------- ------------ ---------- ------------- ------------
THE CHARLOTTE PROPERTY (a) 95% None $1,282,500 $ 7,267,500 $ 588,974
880 PROPERTY (b) 14 None 1,325,242 0 5,718,159
THE ATRIUM AT NASSAU BAY (c) 58 None 1,367,000 10,983,000 2,484,733
CHEROKEE COMMONS (d) 52 None 1,142,663 6,462,837 2,847,156
HERITAGE PLACE AT TUCKER (e) 43 None 2,756,378 0 9,745,429
880 PROPERTY--BROOKWOOD GRILL (f) 59 None 523,319 0 1,494,717
---------- ----------- -----------
Total $8,397,102 $24,713,337 $22,879,168
========== =========== ===========
Gross Amount at Which Carried at December 31, 1999
------------------------------------------------------
Buildings and Construction Accumulated Date of
Description Land Improvements in Progress Total Depreciation Construction
- -------------------------------------- ---------- ------------- ------------ ----------- ------------ ------------
THE CHARLOTTE PROPERTY (a) $1,367,856 $ 7,771,118 $ 0 $ 9,138,974 $ 2,991,452 1987
880 PROPERTY (b) 1,325,242 5,718,159 0 7,043,401 1,299,227 1996
THE ATRIUM AT NASSAU BAY (c) 1,504,743 13,306,590 23,400 14,834,733 6,236,248 1988
CHEROKEE COMMONS (d) 1,219,704 9,232,952 0 10,452,656 3,165,778 1986
HERITAGE PLACE AT TUCKER (e) 3,260,887 9,240,920 0 12,501,807 3,405,038 1987
880 PROPERTY--BROOKWOOD GRILL (f) 745,223 1,272,813 0 2,018,036 383,745 1991
---------- ----------- ------- ----------- -----------
Total $9,423,655 $46,542,552 $23,400 $55,989,607 $17,481,488
========== =========== ======= =========== ===========
Life on Which
Date Depreciation Is
Description Acquired Computed (g)
- -------------------------------------- -------- ---------------
THE CHARLOTTE PROPERTY (a) 5/09/89 20 to 25 years
880 PROPERTY (b) 1/31/90 20 to 25 years
THE ATRIUM AT NASSAU BAY (c) 4/03/89 12 to 25 years
CHEROKEE COMMONS (d) 6/09/87 20 to 25 years
HERITAGE PLACE AT TUCKER (e) 9/04/86 20 to 25 years
880 PROPERTY--BROOKWOOD GRILL (f) 3/27/91 20 to 25 years
Total
(a) The Charlotte Property is a two-story office building located
in Charlotte, North Carolina. It is owned by Fund II and II-
OW. The Partnership owned a 95% interest in Fund II and II-OW
at December 31, 1999.
(b) The 880 Property is an office-retail shopping center located
in Roswell, Georgia. It is owned by Fund II, III, VI, and VII
Associates.
(c) The Atrium at Nassau Bay is a four-story office building
located in Houston, Texas. It is owned by Fund II and III
Associates--The Atrium.
(d) Cherokee Commons is a retail shopping center located in
Cherokee County, Georgia. It is owned by Fund I, II, II-OW,
VI, and VII Associates--Cherokee.
(e) Heritage Place at Tucker is a center offering retail,
shopping, and commercial office space located in Tucker,
Georgia. It is owned by Fund I and II--Tucker.
(f) The 880 Property--Brookwood Grill is a 7,440-square-foot
restaurant located in Fulton County, Georgia. It is owned by
Fund II and III Associates.
(g) Depreciation lives used for buildings were 40 years through
September 1995, changed to 25 years thereafter. Depreciation
lives used for land improvements are 12 to 20 years.
S-1
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 1999
Accumulated
Cost Depreciation
----------- ------------
BALANCE AT DECEMBER 31, 1996 $53,875,834 $10,058,938
1997 additions 1,989,779 2,404,063
1997 deductions (382,775) (109,508)
----------- ------------
BALANCE AT DECEMBER 31, 1997 55,482,838 12,353,493
1998 additions 254,357 2,549,499
----------- ------------
BALANCE AT DECEMBER 31, 1998 55,737,195 14,902,992
1999 additions 252,412 2,578,496
----------- ------------
BALANCE AT DECEMBER 31, 1999 $55,989,607 $17,481,488
=========== ============
S-2
EXHIBIT INDEX
-------------
(Wells Real Estate Fund II)
The following documents are filed as exhibits to this report. Those exhibits
previously filed and incorporated herein by reference are identified below by an
asterisk. For each such asterisked exhibit, there is shown below the
description of the previous filing. Exhibits which are not required for this
report are omitted.
Exhibit Sequential
Number Description of Document Page Number
- --------- ----------------------- -----------
*4 First Restated and Amended Certificate N/A
and Agreement of Limited Partnership of
Wells Real Estate Fund II (Registration
Statement of Wells Real Estate Fund II,
Exhibit B to the Prospectus, File No.
33-7395)
*10(a) Management Agreement between Registrant N/A
and Wells Management Company, Inc. (Exhibit
to Form 10-K of Wells Real Estate Fund II
for the fiscal year ended December 31, 1990,
File No. 0-16518)
*10(b) Leasing and Tenant Coordination Agreement N/A
between Registrant and Wells Management
Company, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund II for the fiscal
year ended December 31, 1990, File No.
0-16518)
*10(c) Purchase Agreement for the acquisition N/A
of Heritage Place at Tucker dated
April 25, 1986 (Exhibit 10(f) to Form 10-K
of Wells Real Estate Fund I for the
fiscal year ended December 31, 1990,
File No. 0-14463)
Exhibit Sequential
Number Description of Document Page Number
- --------- ----------------------- -----------
*10(d) Joint Venture Agreement of Fund I and N/A
Fund II Tucker dated January 9, 1987
(Exhibit 10(g) to Form 10-K of Wells Real
Estate Fund I for the fiscal year ended
December 31, 1990, File No. 0-14463)
*10(e) Purchase Agreement for the acquisition N/A
of the Cherokee Commons Shopping Center
dated December 31, 1986 (Exhibit 10(h) to
Form 10-K of Wells Real Estate Fund I
for the fiscal year ended December 31,
1990, File No. 0-14463)
*10(f) Joint Venture Agreement of Fund I and N/A
Fund II Cherokee dated June 27, 1987
(Exhibit 10(i) to Form 10-K of Wells Real
Estate Fund I for the fiscal year ended
December 31, 1990, File No. 0-14463)
*10(g) Fund II - Fund II-OW Joint Venture N/A
Agreement dated March 1, 1988 (Exhibit to
Form 10-K of Wells Real Estate Fund II for
the fiscal year ended December 31, 1990,
File No. 0-16518)
*10(h) Lease with IBM dated March 17, 1987 N/A
(Exhibit to Form 10-K of Wells Real
Estate Fund II for the fiscal year ended
December 31, 1990, File No. 0-16518)
*10(i) Purchase Agreement for the Acquisition N/A
of the Atrium at Nassau Bay dated
March 1, 1989 (Exhibit to Form 10-K of
Wells Real Estate Fund II for the fiscal
year ended December 31, 1990, File
No. 0-16518)
Exhibit Sequential
Number Description of Document Page Number
- --------- ----------------------- -----------
*10(j) Joint Venture Agreement of Fund II and N/A
Fund III Associates dated March 1, 1989
(Exhibit to Post-Effective Amendment
No. 2 to Registration Statement of
Wells Real Estate Fund III, L.P.,
File No. 33-24063)
*10(k) First Amendment to Joint Venture Agreement N/A
of Fund II and Fund III Associates dated
April 1, 1989 (Exhibit to Form 10-K of
Wells Real Estate Fund II for the fiscal
year ended December 31, 1990, File
No. 0-16518)
*10(l) Leases with Lockheed Engineering and N/A
Sciences Company, Inc. (Exhibit to Form
10-K of Wells Real Estate Fund II for
the fiscal year ended December 31, 1990,
File No. 0-16518)
*10(m) Cost Sharing Agreement between Registrant, N/A
Wells Fund II-OW and the Fund II - Fund
II-OW Joint Venture dated January 1,
1990 (Exhibit to Form 10-K of Wells Real
Estate Fund II for the fiscal year ended
December 31, 1990, File No. 0-16518)
*10(n) Amended and Restated Joint Venture Agreement N/A
of Fund I and Fund II Tucker-Cherokee dated
January 1, 1991 (Exhibit 10(j) to Form 10-K
of Wells Real Estate Fund I for the fiscal
year ended December 31, 1991, File No. 0-14463)
*10(o) Amended and Restated Joint Venture Agreement N/A
of Fund II and Fund III Associates (Exhibit
to Form 10-K of Wells Real Estate Fund II
for the fiscal year ended December 31, 1991,
File No. 0-16518)
Exhibit Sequential
Number Description of Document Page Number
- --------- ----------------------- -----------
*10(p) Land and Building Lease Agreement between N/A
Fund II and Fund II-OW and Brookwood Grill
of Roswell, Inc. (Exhibit to Form 10-K of
Wells Real Estate Fund II for the fiscal
year ended December 31, 1991, File No. 0-16518)
*10(q) Assignment and Assumption of Lease dated N/A
September 20, 1991 between Fund II and Fund
II-OW and Fund II and Fund III Associates
(Exhibit to Form 10-K of Wells Real Estate
Fund II for the fiscal year ended December 31,
1991, File No. 0-16518)
*10(r) Lease Modification Agreement No. 3 with N/A
The Kroger Co. dated December 21, 1993
(Exhibit 10(k) to Form 10-K of Wells
Real Estate Fund I for the fiscal year
ended December 31, 1993, File No. 0-14463)
*10(s) Lease Agreement with First Union National N/A
Bank of N.C. dated March 31, 1994, and
First Amendment to Lease Agreement dated
April 14, 1994 (Exhibit to Form 10-K of
Wells Real Estate Fund II for the fiscal
year ended December 31, 1994, File
No. 0-16518)
*10(t) Joint Venture Agreement of Fund II, III, N/A
VI and VII Associates dated January 10,
1995 (Exhibit to Form 10-K of Wells Real
Estate Fund VI, L.P. for the fiscal year
ended December 31, 1995, File No. 0-23656)
*10(u) Joint Venture Agreement of Fund I, II, N/A
II-OW, VI and VII Associates dated
August 1, 1995 (Exhibit to Form 10-K of
Wells Real Estate Fund VI, L.P. for the
fiscal year ended December 31, 1995,
File No. 0-23656)
Exhibit Sequential
Number Description of Document Page Number
- --------- ----------------------- -----------
*10(v) First Amendment to Amended and Restated N/A
Joint Venture Agreement of Fund I and
Fund II Tucker (formerly Fund I and
Fund II Tucker-Cherokee) dated August 1,
1995 (Exhibit 10(m) to Form 10-K of
Wells Real Estate Fund I for the fiscal
year ended December 31, 1995, File
No. 0-14463)
*10(w) Custodial Agency Agreement between Wells N/A
Real Estate Fund II and NationsBank of
Georgia, N.A. dated January 10, 1995
(Exhibit to Form 10-K of Wells Real
Estate Fund II for the fiscal year ended
December 31, 1995, File No. 0-16518)
*10(x) Amended and Restated Custodial Agency N/A
Agreement between Wells Real Estate
Fund II and NationsBank of Georgia, N.A.
dated August 1, 1995 (Exhibit to Form
10-K of Wells Real Estate Fund II for
the fiscal year ended December 31, 1995,
File No. 0-16518)