<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) September 1, 1998
-------------------------------
Wells Real Estate Fund XI, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
333-7979-01 58-2250094
- ------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- --------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
-----------------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
ITEM 2. ACQUISITION OF ASSETS.
On September 1, 1998, a joint venture (the "Fund X-XI Joint Venture") between
Wells Real Estate Fund XI, L.P. (the "Registrant") and Wells Real Estate Fund X,
L.P. ("Wells Fund X") acquired an interest in another joint venture called
Wells/Orange County Associates (the "Cort Joint Venture") from Wells Development
Corporation ("Wells Development"), an affiliate of the Registrant. The Cort
Joint Venture owns and operates an office building with 52,000 rentable square
feet comprised of an 18,000 square foot office and open showroom area and a
34,000 square foot warehouse area (the "Cort Furniture Building"). Descriptions
of the Fund X-XI Joint Venture, the Cort Joint Venture, the acquisition of the
Cort Furniture Building by the Cort Joint Venture, the leasing of the Cort
Furniture Building and the contract between the Fund X-XI Joint Venture and
Wells Development to acquire Wells Development's interest in the Cort Joint
Venture are described in Supplement No. 3 dated August 12, 1998 ("Supplement No.
3") to the Prospectus of the Registrant dated December 31, 1997, contained in
Post-Effective Amendment No. 7 of Wells Fund X and the Registrant (Commission
File No. 333-7979), filed with the Securities and Exchange Commission on August
14, 1998, which is incorporated herein by reference and hereby made a part
hereof.
As of September 1, 1998, the Registrant had contributed $1,398,767 to the Fund
X-XI Joint Venture and held an approximately 38% equity percentage interest in
the Fund X-XI Joint Venture, while Wells Fund X had contributed $2,296,223 to
the Fund X-XI Joint Venture and held an approximately 62% equity percentage
interest in the Fund X-XI Joint Venture. As of September 1, 1998, the Fund X-XI
Joint Venture had made an aggregate $3,695,000 capital contribution to the Cort
Joint Venture and owned an approximately 56% equity percentage interest in the
Cort Joint Venture, while Wells Operating Partnership, L.P. had contributed
$2,861,874 and held an approximately 44% equity percentage interest in the Cort
Joint Venture.
2
<PAGE>
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Audited Financial Statements. The following audited financial
----------------------------
statements relating to the acquisition of an ownership interest in the Cort
Joint Venture by the Fund X-XI Joint Venture are submitted at the end of this
Current Report and are filed herewith and incorporated herein by reference:
Wells/Orange County Associates
------------------------------
Page
----
Report of Independent Public Accountants F-1
Balance Sheet as of September 1, 1998 F-2
Statement of Income for the period from Inception F-3
(July 31, 1998) through September 1, 1998
Statement of Partners' Capital for the period from F-4
Inception (July 31, 1998) through September 1, 1998
Statements of Cash Flows for the period from Inception F-5
(July 31, 1998) through September 1, 1998
Notes to Financial Statements - September 1, 1998 F-6
Cort Furniture Building
-----------------------
Page
----
Report of Independent Public Accountants F-10
Statement of Revenues Over Certain Operating Expenses F-11
for the year ended December 31, 1997 and for the six
months ended June 30, 1998 (Unaudited)
Notes to Statement of Revenues Over Certain Operating F-12
Expenses for the year ended December 31, 1997 and for
the six months ended June 30, 1998 (Unaudited)
(b) Pro Forma Financial Information. The following unaudited pro forma
-------------------------------
financial statements of the Registrant relating to the real property interest
acquired are submitted at the end of this Current Report and are filed herewith
and incorporated herein by reference:
Page
----
Summary of Unaudited Pro Forma Financial Statements F-14
Pro Forma Balance Sheet as of June 30, 1998 F-15
Pro Forma Statement of Income for the year ended F-16
December 31, 1997
Pro Forma Statement of Income for the six months
ended June 30, 1998 F-17
After reasonable inquiry, the Registrant is not aware of any material
factors relating to the real property described in this current Report on Form
8-K that would cause the financial information reported herein not to be
necessarily indicative of future operating results.
3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Current Report to be signed on its behalf by the
undersigned hereunto duly authorized.
WELLS REAL ESTATE FUND XI, L.P.
Registrant
By: /s/ Leo F. Wells, III
---------------------------------------
Leo F. Wells, III, as General
Partner and as President and
sole Director of Wells Capital,
Inc., the General Partner of
Wells Partners, L.P., General
Partner
Date: September 11, 1998
4
<PAGE>
EXHIBIT INDEX
The following document is incorporated by reference in this Current
Report and, accordingly, is filed as an exhibit to this Current Report:
Description of Document Exhibit No.
- ----------------------- -----------
Supplement No. 3 dated August 12, 1998 to the 99.1
Prospectus of Wells Real Estate Fund XI, L.P.
dated December 31, 1997, contained in Post-
Effective Amendment No. 7 to Form S-11
Registration Statement of Wells Real Estate
Fund X, L.P. and Wells Real Estate Fund XI, L.P.
filed with the Commission on August 14, 1998
(Commission File No. 333-7979)
5
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells/Orange County Associates:
We have audited the accompanying balance sheet of WELLS/ORANGE COUNTY ASSOCIATES
(a Georgia joint venture) as of September 1, 1998 and the related statements of
income, partners' capital, and cash flows for the period from inception (July
31, 1998) through September 1, 1998. These financial statements are the
responsibility of the Cort Joint Venture's management. Our responsibility is to
express an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
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 audit provides 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/Orange County Associates
as of September 1, 1998 and the results of its operations and its cash flows for
the period from inception (July 31, 1998) through September 1, 1998 in
conformity with generally accepted accounting principles.
Arthur Andersen LLP
/s/ Arthur Andersen LLP
- -----------------------
Atlanta, Georgia
September 4, 1998
F-1
<PAGE>
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
BALANCE SHEET
SEPTEMBER 1, 1998
ASSETS
<TABLE>
<CAPTION>
REAL ESTATE ASSETS, at cost:
<S> <C>
Land $2,187,501
Building, less accumulated depreciation of $29,688 4,623,434
----------
Total real estate assets 6,810,935
CASH AND CASH EQUIVALENTS 79,528
OTHER ASSETS 2,625
----------
Total assets $6,893,088
==========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Partnership distribution payable $ 33,719
Accrued expenses 32,086
----------
Total liabilities 65,805
----------
COMMITMENTS AND CONTINGENCIES (Note 5)
PARTNERS' CAPITAL:
Wells Operating Partnership, L.P. 2,972,910
Fund X and XI Associates 3,854,373
----------
Total partners' capital 6,827,283
----------
Total liabilities and partners' capital $6,893,088
==========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-2
<PAGE>
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION (JULY 31, 1998)
THROUGH SEPTEMBER 1, 1998
<TABLE>
<CAPTION>
REVENUES:
<S> <C>
Rental $67,982
EXPENSES: -------
Depreciation 29,688
Interest 29,024
Management fees 2,614
-------
61,326
-------
NET INCOME $ 6,656
=======
NET INCOME ALLOCATED TO WELLS OPERATING PARTNERSHIP, L.P. $ 2,929
=======
NET INCOME ALLOCATED TO WELLS DEVELOPMENT CORPORATION $ 3,727
=======
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION (JULY 31, 1998)
THROUGH SEPTEMBER 1, 1998
<TABLE>
<CAPTION>
WELLS WELLS TOTAL
DEVELOPMENT OPERATING FUND X AND PARTNERS'
CORPORATION PARTNERSHIP, L.P. XI ASSOCIATES CAPITAL
----------- ----------------- ------------- ----------
<S> <C> <C> <C> <C>
BALANCE, JULY 31, 1998 $ 0 $ 0 $ 0 $ 0
Partner contributions 1,500,000 2,991,074 2,363,272 6,854,346
Partnership distributions (12,626) (21,093) 0 (33,719)
Net income 3,727 2,929 0 6,656
Transfer of joint venture interest (1,491,101) 0 1,491,101 0
----------- ---------- ---------- ----------
BALANCE, SEPTEMBER 1, 1998 $ 0 $2,972,910 $3,854,373 $6,827,283
=========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-4
<PAGE>
WELLS/ORANGE COUNTY ASSOCIATES
(A GEORGIA JOINT VENTURE)
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JULY 31, 1998)
THROUGH SEPTEMBER 1, 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 6,656
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 29,688
Changes in assets and liabilities:
Other assets (2,625)
Accrued expenses 32,086
-----------
Total adjustments 59,149
-----------
Net cash provided by operating activities 65,805
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate assets (6,552,259)
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Issuance of note payable 4,875,000
Payment of note payable (4,875,000)
Contributions received from partners 6,565,982
-----------
Net cash provided by financing activities 6,565,982
-----------
NET INCREASE IN CASH AND CASH EQUIVALENTS 79,528
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
-----------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 79,528
===========
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied by partners $ 288,364
===========
Transfer of joint venture interest $ 1,491,101
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-5
<PAGE>
WELLS/ORANGE COUNTY ASSOCIATES
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 1, 1998
1. ORGANIZATION AND DESCRIPTION OF REAL ESTATE PROPERTY
DESCRIPTION OF REAL ESTATE PROPERTY ACQUIRED
The Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized to own and operate properties on behalf of the Wells
Real Estate Investment Trust, Inc., entered into a joint venture agreement
known as Wells/Orange County Associates ("Cort Joint Venture") with Wells
Development Corporation ("Wells Development"). On July 31, 1998, the Cort
Joint Venture acquired the Cort Furniture Building for a purchase price of
$6,400,000 plus acquisition expenses of approximately $150,000. The Cort
Joint Venture used the $1,668,000 aggregate capital contributions described
below to partially fund the purchase of the Cort Furniture Building. The
Cort Joint Venture obtained a loan in the amount of $4,875,000 from
NationsBank, N.A., the proceeds of which were used to fund the remainder of
the cost of the Cort Furniture Building (the "Cort Loan"). On September 1,
1998, Fund X and XI Associates, a joint venture between Wells Real Estate
Fund X, L.P. ("Wells Fund X") and Wells Real Estate Fund XI, L.P. ("Wells
Fund XI"), acquired an interest in the Cort Joint Venture from Wells
Development (see "Acquisition of the Cort Joint Venture Interest").
The Cort Furniture Building is a 52,000-square-foot warehouse and office
building located in Fountain Valley, California. The building is 100%
occupied by one tenant with a 15-year lease term that commenced on November
1, 1988 and expires on October 31, 2003. The monthly base rent payable under
the lease is $63,247 through April 30, 2001, at which time the monthly base
rent will be increased 10% to $69,574 for the remainder of the lease term.
The lease is a triple net lease, whereby the terms require the tenant to
reimburse the Cort Joint Venture for certain operating expenses, as defined
in the lease, related to the building.
ACQUISITION OF THE CORT JOINT VENTURE INTEREST
Wells Fund XI entered into a Joint Venture Agreement with Wells Fund X known
as Fund X and XI Associates ("Fund X-XI Joint Venture") for the purpose of
the acquisition, ownership, leasing, operation, sale, and management of real
properties and interests in real properties, including but not limited to,
the acquisition of equity interests in the Cort Joint Venture.
On July 30, 1998, the Fund X-XI Joint Venture entered into the Agreement for
the Purchase and Sale of Joint Venture Interest (the "Cort JV Contract") with
Wells Development. Pursuant to the Cort JV Contract, the Fund X-XI Joint
Venture contracted to acquire Wells
F-6
<PAGE>
Development's interest in the Cort Joint Venture. On September 1, 1998, the
Fund X-XI Joint Venture exercised its rights under the Cort JV Contract and
purchased Wells Development's interest in the Cort Joint Venture and became a
joint venture partner with Wells OP in the ownership of the Cort Furniture
Building. Wells Fund X, Wells OP, and Wells Development are all affiliates of
Wells Fund XI.
At the time of entering into the Cort JV Contract, the Fund X-XI Joint
Venture paid $1,500,000 to Wells Development as an earnest money deposit (the
"Cort Earnest Money"). Wells Fund X and Wells Fund XI each contributed
$750,000 of the Cort Earnest Money as a capital contribution to the Fund X-XI
Joint Venture. Wells Development contributed the Cort Earnest Money it
received from the Fund X-XI Joint Venture to the Cort Joint Venture as its
initial capital contribution, and Wells OP simultaneously contributed
$168,000 to the Cort Joint Venture as its initial capital contribution.
On September 1, 1998, Wells Fund X and Wells Fund XI contributed an
additional $1,546,233 and $648,767, respectively, to the Fund X-XI Joint
Venture, and these aggregate proceeds of $2,195,000 were contributed to the
Cort Joint Venture. Wells OP contributed an additional $2,702,982. These
proceeds were used to pay off the Cort Loan. Upon the transfer of Wells
Development's interest in the Cort Joint Venture to the Fund X-XI Joint
Venture, the Fund X-XI Joint Venture was credited with making $1,500,000 in
capital contributions to the Cort Joint Venture. As of September 1, 1998,
the Fund X-XI Joint Venture and Wells OP own 56% and 44%, respectively, of
the Cort Joint Venture, and Wells Fund X and Wells Fund XI hold a 62% and
38%, respectively, equity interest in the Fund X-XI Joint Venture.
Cash flow distributions payable by the Cort Joint Venture to Wells
Development totaled $12,626. These distributions will subsequently be paid
to the Fund X-XI Joint Venture.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
For the purposes of the statement of cash flows, the Cort Joint Venture
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.
USE OF ESTIMATES AND FACTORS AFFECTING THE JOINT VENTURE
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 carrying values of the real estate assets are based on management's
current intent to hold the real estate assets as long-term investments. The
success of the Cort Joint
F-7
<PAGE>
Venture's future operations and the ability to realize the investment in its
assets will be dependent on the Cort Joint Venture's ability to maintain an
appropriate level of rental rates, occupancy, and operating expenses in
future years. Management believes that the steps it is taking will enable the
Cort Joint Venture to realize its investment in its assets.
INCOME TAXES
The Cort Joint Venture is not subject to federal or state income taxes, and
therefore, none have been provided for in the accompanying financial
statements. The partners of Wells Fund X, Wells Fund XI, and Wells OP are
required to include their respective shares of profits and losses in their
individual income tax returns.
REAL ESTATE ASSETS
Real estate assets held by the Cort Joint Venture are stated at cost, less
accumulated depreciation. Major improvements and betterments are capitalized
when they extend the useful life of the related asset. All ordinary repairs
and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that the carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present that
indicate the carrying amounts of real estate assets may not be recoverable,
management assesses the recoverability of real estate assets under Statement
of Financial Accounting Standards No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed of," 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 believes that there has been no
impairment in the carrying value of real estate assets held by the Cort Joint
Venture.
Depreciation of buildings is calculated using the straight-line method over
25 years.
REVENUE RECOGNITION
The lease on real estate assets held by the Cort Joint Venture is classified
as an operating lease, and the related rental income is recognized on a
straight-line basis over the term of the lease.
PARTNERS' DISTRIBUTIONS AND ALLOCATIONS OF PROFIT AND LOSS
Cash available for distribution and allocations of profit and loss to Fund X-
XI Joint Venture and Wells OP by the Cort Joint Venture are made in
accordance with the terms of the joint venture agreement. Generally, these
items are allocated in proportion to the partners' respective ownership
interests. Cash distributions are generally paid by the Cort Joint Venture
to the partners quarterly.
F-8
<PAGE>
3. DEFERRED PROJECT COSTS
The Wells Funds and Wells OP pay a percentage of limited partner
contributions to Wells Capital, Inc., an affiliate of the Cort Joint Venture,
for acquisition and advisory services. These payments, as stipulated by the
partnership agreement, can be up to 3.5% of the limited partner
contributions, subject to certain overall limitations contained in the
partnership agreement. These fees are allocated to specific properties as
they are purchased or developed and are included in real estate assets of the
Cort Joint Venture.
4. FUTURE MINIMUM RENTAL INCOME
The future minimum rental income due the Cort Joint Venture under the
noncancelable operating lease pertaining to the Cort Furniture Building is
as follows:
<TABLE>
<S> <C>
For the four month period ended December 31, 1998 $ 252,988
Year ending December 31:
1999 758,964
2000 758,964
2001 809,580
2002 834,888
Thereafter 695,740
----------
$4,111,124
==========
</TABLE>
5. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Cort Joint Venture or its
partners. In the normal course of business, the Cort Joint Venture or its
partners may become subject to such litigation or claims.
F-9
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XI, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses of the CORT FURNITURE BUILDING for the year ended December 31, 1997.
This financial statement is the responsibility of management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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
audit provides a reasonable basis for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Cort
Furniture Building after acquisition by the Cort Joint Venture (a joint venture
between Fund X-XI Joint Venture and Wells Operating Partnership, L.P., which was
formerly a joint venture between Wells Operating Partnership, L.P. and Wells
Development Corporation). The accompanying statement of revenues over certain
operating expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission and is not intended to be
a complete presentation of the Cort Furniture Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Cort Furniture Building for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP /s/ Arthur Andersen LLP
Atlanta, Georgia
September 4, 1998
F-10
<PAGE>
CORT FURNITURE BUILDING
STATEMENTS OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1997 1998
-------- --------
(Unaudited)
RENTAL REVENUES $771,618 $385,809
OPERATING EXPENSES 16,408 4,104
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $755,210 $381,705
======== ========
The accompanying notes are an integral part of these statements.
F-11
<PAGE>
CORT FURNITURE BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
On July 31, 1998, the Wells/Orange County Associates ("Cort Joint Venture")
purchased the Cort Furniture Building for a total purchase price of
$6,400,000 plus acquisition expenses of approximately $150,000. The original
partners in the Cort Joint Venture included Wells Development Corporation and
the Wells Operating Partnership L.P. ("Wells OP"), a Delaware limited
partnership organized to own and operate properties on behalf of the Wells
Real Estate Investment Trust, Inc., the general partner of Wells OP. On
September 1, 1998, a joint venture ("Fund X-XI Joint Venture") between Wells
Real Estate Fund X L.P. ("Wells Fund X") and Wells Real Estate Fund XI L.P.
("Wells Fund XI") acquired an interest in the Cort Joint Venture from Wells
Development. As of September 1, 1998, the Fund X-XI Joint Venture had made
an aggregate capital contribution, including deferred project costs, to the
Cort Joint Venture of $3,863,272 and owned approximately 56% equity interest
in the Cort Joint Venture, while Wells OP had contributed $2,991,074, which
includes deferred project costs, and held approximately 44% equity interest
in the Cort Joint Venture. As of September 1, 1998, Wells Fund XI had
contributed $1,457,049, including deferred projects costs, to the Fund X-XI
Joint Venture and held approximately 38% equity interest in the Fund X-XI
Joint Venture, while Wells Fund X had contributed $2,406,223, including
deferred project costs, to the Fund X-XI Joint Venture and held an
approximately 62% equity percentage interest in the Fund X-XI Joint Venture.
The Cort Furniture Building is a 52,000-square-foot warehouse and office
building located in Fountain Valley, California. The building is 100%
occupied by one tenant with a 15-year lease term that commenced on November
1, 1988 and expires on October 31, 2003. The monthly base rent payable under
the lease is $63,247 through April 30, 2001 at which time the monthly base
rent will be increased 10% to $69,574 for the remainder of the lease term.
The lease is a triple net lease, whereby the terms require the tenant to
reimburse the Cort Joint Venture for certain operating expenses, as defined
in the lease, related to the building.
RENTAL REVENUES
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
F-12
<PAGE>
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statement excludes certain historical expenses, such as depreciation and
management fees, not comparable to the operations of the Cort Furniture
Building after acquisition by the Cort Joint Venture.
F-13
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(UNAUDITED PRO FORMA FINANCIAL STATEMENTS)
The following unaudited pro forma balance sheet as of June 30, 1998 and the pro
forma statements of income for the year ended December 31, 1997 and the six
months ended June 30, 1998 have been prepared to give effect to the following
transaction as if it occurred as of June 30, 1998 with respect to the balance
sheet and on January 1, 1997 with respect to the statements of income: Wells
Real Estate Fund XI, L.P.'s acquisition of an equity interest in the Cort
Furniture Building, which was acquired through Wells/Orange County Associates (a
joint venture between Fund X--XI Joint Venture and Wells Operating Partnership,
L.P., which was formerly a joint venture between Wells Operating Partnership,
L.P. and Wells Development Corporation). Wells Operating Partnership, L.P. is a
Delaware limited partnership that was organized to own and operate properties on
behalf of the Wells Real Estate Investment Trust, Inc. Wells Real Estate
Investment Trust, Inc. is the general partner of the Wells Operating
Partnership, L.P.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisition been consummated at
the beginning of the period presented.
The pro forma financial statements are based on available information and
certain assumptions that management believes are reasonable. Final adjustments
may differ from the pro forma adjustments herein.
F-14
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
PRO FORMA BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
FUND XI, PRO FORMA PRO FORMA
L.P. ADJUSTMENTS TOTAL
----------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Investment in joint ventures $2,571,107 $ 1,457,049 (a) $4,028,156
Cash and cash equivalents 3,101,364 (1,398,767)(a) 1,702,597
Deferred project costs 126,751 (58,282)(a) 68,469
Deferred offering costs 318,723 0 318,723
Prepaid expenses and other assets 20,000 0 20,000
Due from affiliates 26,736 0 26,736
---------- ----------- ----------
Total assets $6,164,681 $ 0 $6,164,681
========== =========== ==========
LIABILITIES:
Sales commissions payable $ 29,029 $ 0 $ 29,029
Due to affiliates 329,307 0 329,307
---------- ----------- ----------
Total liabilities 358,336 0 358,336
---------- ----------- ----------
PARTNERS' CAPITAL:
General partners 427 0 427
Original limited partner 100 0 100
Limited partners:
Class A 4,524,824 0 4,524,824
Class B 1,280,994 0 1,280,994
---------- ----------- ----------
Total partners' capital 5,806,345 0 5,806,345
---------- ----------- ----------
Total liabilities and partners' capital $6,164,681 $ 0 $6,164,681
========== =========== ==========
</TABLE>
(a) Reflects Wells Real Estate Fund XI L.P.'s contribution to
Wells/Orange County Associates, which is comprised of cash
contributions and deferred project costs.
F-15
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE PRO
FUND XI, PRO FORMA FORMA
L.P. ADJUSTMENT TOTAL
---------- ---------- ----------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint venture $0 $119,616(a) $119,616
EXPENSES 0 0 0
-- -------- --------
NET INCOME $0 $119,616 $119,616
== ======== ========
NET LOSS ALLOCATED TO GENERAL PARTNERS $0 $ (376) $ (376)
== ======== ========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $0 $157,241 $157,241
== ======== ========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $0 $(37,249) $(37,249)
== ======== ========
</TABLE>
(a) Reflects Wells Real Estate Fund XI L.P.'s 21% equity in income of
Wells/Orange County Associates. The pro forma adjustment results
from rental revenues, less operating expenses, management fees, and
depreciation expense.
F-16
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE PRO
FUND XI, PRO FORMA FORMA
L.P. ADJUSTMENT TOTAL
----------- ---------- --------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint venture $11,581 $ 60,915 (a) $ 72,496
Interest income 77,028 0 77,028
------- -------- --------
88,609 60,915 149,524
------- -------- --------
EXPENSES:
Legal and accounting 23,014 0 23,014
Computer costs 697 0 697
Printing and notebooks 4,592 0 4,592
Other 2,345 0 2,345
Administrative salaries 4,732 0 4,732
Office expense 1,807 0 1,807
Postage 730 0 730
------- -------- --------
37,917 0 37,917
------- -------- --------
NET INCOME $50,692 $ 60,915 $111,607
======= ======== ========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ (73) $ (188) $ (261)
======= ======== ========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $57,947 $ 79,727 $137,674
======= ======== ========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $(7,182) $(18,624) $(25,806)
======= ======== ========
NET INCOME PER WEIGHTED AVERAGE CLASS A LIMITED PARTNER UNIT $ 0.22 $ 0.31 $ 0.53
======= ======== ========
NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED PARTNER UNIT $ (0.10) $ (0.27) $ (0.37)
======= ======== ========
</TABLE>
(a) Reflects Wells Real Estate Fund XI L.P.'s 21% equity in income
of Wells/Orange County Associates. The pro forma adjustment
results from rental revenues, less operating expenses,
management fees, and depreciation expense.
F-17
<PAGE>
EXHIBIT 99.1
WELLS REAL ESTATE FUND XI, L.P.
SUPPLEMENT NO. 3 DATED AUGUST 12, 1998 TO THE PROSPECTUS
DATED DECEMBER 31, 1997
This document supplements, and should be read in conjunction with, the
Prospectus of Wells Real Estate Fund XI, L.P. dated December 31, 1997, as
supplemented and amended by Supplement No. 1 dated April 1, 1998 and Supplement
No. 2 dated June 30, 1998 (collectively, the "Prospectus"). Unless otherwise
defined herein, capitalized terms used in this Supplement shall have the same
meanings as set forth in the Prospectus.
The purpose of this Supplement is to describe the following:
(i) The status of the offering of units of limited partnership interest
(the "Units") in Wells Real Estate Fund XI, L.P. (the "Partnership");
(ii) The contribution of the Iomega Building located in Ogden, Weber County,
Utah by Wells Real Estate Fund X, L.P. ("Wells Fund X") to the Fund IX,
Fund X, Fund XI and REIT Joint Venture (the "IX-X-XI-REIT Joint Venture");
(iii) The Joint Venture Agreements entered into between Wells Development
Corporation ("Wells Development") and Wells Operating Partnership, L.P. ("Wells
OP") and the Joint Venture between the Partnership and Wells Fund X (the "Fund
X-XI Joint Venture");
(iv) The contracts between the Fund X-XI Joint Venture and Wells
Development;
(v) The acquisition of the Fairchild Building located in Fremont, Alameda
County, California;
(vi) The acquisition of the Cort Furniture Building located in Fountain
Valley, Orange County, California;
(vii) Revisions to the "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" section of the Prospectus; and
(viii) Inclusion of Audited and Pro Forma Financial Statements as described
in the "Financial Statements" section of this Supplement.
STATUS OF THE OFFERING
Pursuant to the Prospectus, the offering of Units in the Partnership commenced
on December 31, 1997. The Partnership commenced operations on March 3, 1998,
upon the acceptance of subscriptions for the minimum offering of $1,250,000
(125,000 Units). As of August 10, 1998, the Partnership had raised a total of
$8,283,613 in offering proceeds (828,361 Units), comprised of $6,669,723 raised
from the sale of Class A Status Units (666,972 Class A Status Units) and
$1,613,890 raised from the sale of Class B Status Units (161,389 Class B Status
Units).
THE IOMEGA BUILDING
Contribution of the Iomega Building. On July 1, 1998, Wells Fund X
-----------------------------------
contributed a single-story warehouse and office building with 108,000 rentable
square feet (the "Iomega Building") to the IX-X-XI-REIT Joint Venture as a
capital contribution. Wells Fund X was credited with making a capital
contribution to the IX-X-XI-REIT Joint Venture in the amount of $5,050,425,
which represents the purchase price of $5,025,000 plus $25,425 in closing costs
originally paid by Wells Fund X for the Iomega Building on April 1, 1998.
<PAGE>
As of August 1, 1998, Wells Fund X had made total capital contributions to the
IX-X-XI-REIT Joint Venture of $18,410,965 and held an equity percentage interest
in the IX-X-XI-REIT Joint Venture of 49.9%; Wells Real Estate Fund IX, L.P. had
made total capital contributions to the IX-X-XI-REIT Joint Venture of
$14,571,686 and held an equity percentage interest in the IX-X-XI-REIT Joint
Venture of 39.5%; Wells OP had made total capital contributions to the IX-X-XI-
REIT Joint Venture of $1,421,466 and held an equity percentage interest in the
IX-X-XI-REIT Joint Venture of 3.9%; and the Partnership had made total capital
contributions to the IX-X-XI-REIT Joint Venture of $2,482,810 and held an equity
percentage interest in the IX-X-XI-REIT Joint Venture of 6.7%.
Description of the Building and Site. The exterior of the Iomega Building is
------------------------------------
constructed of concrete tilt-up wall panels approximately 23 feet in height in
the warehouse area with windows along the west and north sides of the building.
The office portion of the Iomega Building on the north side is constructed of
masonry block. Construction of the Iomega Building was completed in 1989. In
1997, the current tenant, Iomega Corporation, completed construction of a 16,000
square foot two-level office space addition inside the warehouse area on the
west side of the Iomega Building. The Iomega Building contains an asphaltic
concrete paved parking lot with 286 parking spaces. A railroad spur provides
access to two rail docks on the east side of the Iomega Building. Access to the
Iomega Building is controlled by on-site security guards. The IX-X-XI-REIT
Joint Venture has no current plans to further develop, improve or renovate the
Iomega Building.
The Iomega Building is located at 2976 South Commerce Way in the Ogden
Commercial and Industrial Park (the "Ogden Commercial Park") in Ogden City,
Utah. The site is an 8.03 acre tract of land located in an area containing
primarily light manufacturing and warehousing buildings. The Iomega Building is
one of the largest and most modern warehouse and office buildings in the Ogden
Commercial Park. Although the Ogden Commercial Park is a well established
industrial park, there are vacant land parcels immediately adjacent to the
Iomega Building on the north, west and south sides.
The Ogden Commercial Park is located one mile north of Roy City, one mile
northwest of Riverdale City and three miles southwest of the Ogden central
business district. Interstate 15, a major north-south freeway through the
state, and Interstate 84, a major east-west freeway through Weber County, are
within one mile of the site.
Description of Iomega Lease. The entire Iomega Building is currently under a
---------------------------
net Lease Agreement dated April 9, 1996 (the "Iomega Lease") with Iomega
Corporation ("Iomega"). Wells Fund X assigned its rights under the Iomega Lease
to the IX-X-XI REIT Joint Venture in connection with the contribution of the
Iomega Building on July 1, 1998. The Iomega Lease has a ten year lease term
which commenced on August 1, 1996 and expires on July 31, 2006. The Iomega
Lease contains no extension provisions. Iomega's world headquarters are located
within one mile of the Iomega Building. In the event that Iomega vacates the
Iomega Building at the expiration of its current lease term, the IX-X-XI-REIT
Joint Venture would be required to find one or more new suitable tenants for the
Iomega Building at the then prevailing market rental rates.
Iomega, a New York Stock Exchange company, is a manufacturer of computer
storage devices used by individuals, businesses, government and educational
institutions, including "Zip" drives and disks, "Jaz" one gigabyte drives and
disks, and tape backup drives and cartridges. Iomega reported total sales of in
excess of $1.7 billion, net income of in excess of $115 million and a net worth
of in excess of $400 million for its fiscal year ended December 31, 1997.
The monthly base rent payable under the Iomega Lease is $40,000 through
November 12, 1999. Beginning on the 40th and 80th months of the lease term, the
monthly base rent payable under the Iomega Lease will be increased to reflect an
amount equal to 100% of the increase in the Consumer Price Index (as defined in
the Iomega Lease) during the preceding 40 months; provided however, that in no
event shall the base rent be increased with respect to any one year by more than
6% or by less than 3% per annum, compounded annually, on a cumulative basis from
the beginning of the lease term. Under the Iomega Lease, Iomega is responsible
for all utilities, taxes, insurance and other operating costs with respect to
the Iomega Building during the term of the lease. Currently,
-2-
<PAGE>
the estimated annual real estate taxes on the Iomega Building are $56,280. The
Joint Venture, as landlord, is responsible for maintenance of the structural
soundness of the roof, foundation and exterior walls of the Iomega Building,
reasonable wear and tear and uninsured losses and damages caused by Iomega
excluded.
Iomega has used all of its $500,000 tenant improvement allowance provided
under the Iomega Lease for the construction of the 16,000 square foot two-level
office space addition described above and the addition of an additional parking
lot outside the south entrance of the Iomega Building.
Under the terms of the Iomega Lease, the IX-X-XI-REIT Joint Venture is
responsible for carrying and maintaining all risk liability insurance covering
the full replacement cost of the Iomega Building. Iomega is responsible for
carrying and maintaining all risk property insurance covering the full
replacement cost of all property and improvements installed or placed on the
premises by Iomega; worker's compensation insurance with no less than the
minimum limits required by law; employer's liability insurance with such limits
as required by law; and commercial liability insurance, with a minimum limit of
$1,000,000 per occurrence and a minimum umbrella limit of $1,000,000, for a
total minimum combined general liability and umbrella limit of $2,000,000 for
property damage, personal injuries or deaths occurring in or about the premises.
The cost of the insurance paid by the landlord is billed on a monthly basis to
the tenant at a rate of $334. Management believes that the Iomega Building is
adequately insured against loss for property damage, personal injury and deaths
of persons in or about the premises.
THE JOINT VENTURES
The Fremont Joint Venture. In July 1998, Wells OP, a Delaware limited
-------------------------
partnership organized to own and operate properties on behalf of Wells Real
Estate Investment Trust, Inc. (the "Wells REIT"), entered into a Joint Venture
Agreement known as Wells/Fremont Associates (the "Fremont Joint Venture") with
Wells Development. The purpose of the Fremont Joint Venture is the acquisition,
ownership, leasing, operation, sale and management of real properties,
including, but not limited to, that certain office building containing 58,424
rentable square feet located in Fremont, Alameda County, California (the
"Fairchild Building").
Wells Development had previously entered into that certain Agreement for the
Purchase and Sale of Property dated June 8, 1998 with Rose Ventures V, Inc., a
California corporation, and Thomas G. Haury and Carleen S. Haury to acquire the
Fairchild Building (the "Fairchild Contract"). Prior to the closing of the
Fairchild Building, Wells Development assigned its rights to the Fairchild
Contract to the Fremont Joint Venture, and on July 21, 1998, the Fremont Joint
Venture acquired the Fairchild Building pursuant to the Fairchild Contract.
The Cort Joint Venture. In July 1998, Wells OP entered into another Joint
----------------------
Venture Agreement with Wells Development known as Wells/Orange County Associates
(the "Cort Joint Venture") for the purpose of the acquisition, ownership,
leasing, operation, sale and management of real properties, including, but not
limited to, that certain office building containing 52,000 rentable square feet
located in Fountain Valley, Orange County, California (the "Cort Furniture
Building").
Wells Development had previously entered into that certain Purchase and Sale
Agreement and Joint Escrow Instructions dated June 12, 1998 with Spencer
Fountain Valley Holdings, Inc., a California corporation ("Spencer"), to acquire
the Cort Furniture Building (the "Cort Contract"). Prior to the closing of the
Cort Furniture Building, Wells Development assigned its rights to the Cort
Contract to the Cort Joint Venture, and on July 31, 1998, the Cort Joint Venture
acquired the Cort Furniture Building pursuant to the Cort Contract.
The Fund X-XI Joint Venture. In July 1998, the Partnership entered into a
---------------------------
Joint Venture Agreement with Wells Fund X known as Fund X and Fund XI Associates
(the "Fund X-XI Joint Venture") for the purpose of the acquisition, ownership,
leasing, operation, sale and management of real properties, and interests in
real properties, including, but not limited to, the acquisition of equity
interests in the Fremont Joint Venture and the Cort Joint Venture (as described
below).
-3-
<PAGE>
Wells OP is acting as the initial Administrative Venturer of both the Fremont
Joint Venture and the Cort Joint Venture and, as such, is responsible for
establishing policies and operating procedures with respect to the business and
affairs of each of these joint ventures. However, approval of each of Wells OP
and ultimately the Fund X-XI Joint Venture will be required for any major
decision or any action which materially affects the Fremont Joint Venture or the
Cort Joint Venture or its real property investments.
CONTRACTS TO ACQUIRE JOINT VENTURE INTERESTS
Acquisition of the Fremont Joint Venture Interest. On July 17, 1998, the Fund
-------------------------------------------------
X-XI Joint Venture entered into an Agreement for the Purchase and Sale of Joint
Venture Interest (the "Fremont JV Contract") with Wells Development. Pursuant
to the Fremont JV Contract, the Fund X-XI Joint Venture contracted to acquire
Wells Development's interest in the Fremont Joint Venture (the "Fremont JV
Interest") which, at closing, will result in the Fund X-XI Joint Venture
becoming a joint venture partner with Wells OP in the ownership of the Fairchild
Building. Wells Fund X, Wells OP and Wells Development are all Affiliates of
the Partnership and the General Partners.
At the time of entering into the Fremont JV Contract, the Fund X-XI Joint
Venture delivered $2,000,000 to Wells Development as an earnest money deposit
(the "Fremont Earnest Money"). The Partnership contributed $1,000,000 of the
Fremont Earnest Money as a capital contribution to the Fund X-XI Joint Venture
and, as of July 21, 1998, held an equity percentage interest in the Fund X-XI
Joint Venture of 50%; and Wells Fund X contributed $1,000,000 of the Fremont
Earnest Money as a capital contribution to the Fund X-XI Joint Venture and, as
of July 21, 1998, held an equity percentage interest in the Fund X-XI Joint
Venture of 50%. Wells Development contributed the Fremont Earnest Money it
received from the Fund X-XI Joint Venture to the Fremont Joint Venture as its
initial capital contribution of $2,000,000, and Wells OP simultaneously
contributed $995,480 to the Fremont Joint Venture as its initial capital
contribution.
The obligation of the Fund X-XI Joint Venture to purchase the Fremont JV
Interest under the Fremont JV Contract is specifically conditioned upon the
following items: (i) the Fremont Joint Venture shall have paid off the
Fairchild Loan (described below) in full prior to the closing of the Fremont JV
Interest and the Fremont Joint Venture shall own title to the Fairchild Building
debt free at closing; (ii) the Fund X-XI Joint Venture shall have available to
it at the date of closing sufficient funds raised by the Partnership and Wells
Fund X from net offering proceeds available for investment in properties to
fully fund the remainder of the purchase price of the Fremont JV Interest; (iii)
Wells Development shall have complied with all of the representations and
warranties set forth in the Fremont JV Contract including (a) that, at the
closing of the Fremont JV Interest, the Fremont Joint Venture shall be the owner
of good and marketable fee simple record title to the Fairchild Building subject
only to certain permitted encumbrances, (b) that there are no actions, suits or
proceedings pending, or to the best of Wells Development's knowledge, threatened
by any organization, person, individual or governmental agency against Wells
Development which would impair its ability to convey the Fremont JV Interest
pursuant to the Fremont JV Contract or against the Fairchild Building, (c) that
no person or entity has any right or option to acquire the Fremont JV Interest
which will have any force or effect after the execution of the Fremont JV
Contract, other than the Fund X-XI Joint Venture, and (d) that Wells Development
owns the Fremont JV Interest free and clear of all liens, claims, pledges,
options, adverse claims and charges of any nature whatsoever; (iv) the Fund X-XI
Joint Venture shall receive evidence reasonably satisfactory to it that the land
encompassing the Fairchild Building is free of Hazardous Materials; (v) the Fund
X-XI Joint Venture shall receive evidence that Fairchild Technologies, USA, Inc.
continues to occupy the Fairchild Building as a tenant pursuant to the Fairchild
Lease (as described below) paying rent on a current basis and that neither the
landlord nor the tenant is in default under the Fairchild Lease; and (vi) the
Fund X-XI Joint Venture shall have received any necessary consents for the
admission of the Fund X-XI Joint Venture as a joint venture partner in the
Fremont Joint Venture. In the event that any of the foregoing conditions are
not met on or prior to the date of closing of the Fremont JV Interest, the Fund
X-XI Joint Venture has the right to terminate the Fremont JV Contract, in which
event, it would be entitled to a refund of all of the Fremont Earnest Money,
except $25.00. The obligation of Wells Development to refund the earnest money
deposit
-4-
<PAGE>
is an unsecured obligation of Wells Development, however, and since Wells
Development is thinly capitalized with no substantial assets, it is unlikely
that Wells Development would have adequate assets available with which to refund
such earnest money deposit. Although Wells Development's obligation to refund
the Fremont Earnest Money under the Fremont JV Contract has been guaranteed by
Wells Management Company, Inc., an Affiliated entity ("Wells Management"), Wells
Management has no substantial assets other than contracts for property
management and leasing services pursuant to which it is entitled to receive
property management fees on a monthly basis. Accordingly, there are no
assurances that either Wells Development or Wells Management would be able to
refund the entire amount of the Fremont Earnest Money to the Fund X-XI Joint
Venture upon the termination of the Fremont JV Contract by the Fund X-XI Joint
Venture. (See "RISK FACTORS - Risks Relating to Acquisition of Properties from
Wells Development Corporation" contained in the Prospectus.)
Acquisition of the Cort JV Interest. On July 30, 1998, the Fund X-XI Joint
-----------------------------------
Venture entered into another Agreement for the Purchase and Sale of Joint
Venture Interest (the "Cort JV Contract") with Wells Development. Pursuant to
the Cort JV Contract, the Fund X-XI Joint Venture contracted to acquire Wells
Development's interest in the Cort Joint Venture (the "Cort JV Interest") which,
at closing, will result in the Fund X-XI Joint Venture becoming a joint venture
partner with Wells OP in the ownership of the Cort Furniture Building.
At the time of entering into the Cort JV Contract, the Fund X-XI Joint Venture
delivered $1,500,000 to Wells Development as an earnest money deposit (the "Cort
Earnest Money"). The Partnership contributed $750,000 of the Cort Earnest Money
as a capital contribution to the Fund X-XI Joint Venture and, as of July 31,
1998, held an equity percentage interest in the Fund X-XI Joint Venture of 50%;
and Wells Fund X contributed $750,000 of the Cort Earnest Money as a capital
contribution to the Fund X-XI Joint Venture and, as of July 31, 1998, held an
equity percentage interest in the Fund X-XI Joint Venture of 50%. Wells
Development contributed the Cort Earnest Money it received from the Fund X-XI
Joint Venture to the Cort Joint Venture as its initial capital contribution of
$1,500,000, and Wells OP simultaneously contributed $168,000 to the Cort Joint
Venture as its initial capital contribution.
The obligation of the Fund X-XI Joint Venture to purchase the Cort JV Interest
under the Cort JV Contract is specifically conditioned upon the following items:
(i) the Cort Joint Venture shall have paid off the Cort Loan (described below)
in full prior to the closing of the Cort JV Interest and the Cort Joint Venture
shall own title to the Cort Furniture Building debt free at closing; (ii) the
Fund X-XI Joint Venture shall have available to it at the date of closing
sufficient funds raised by the Partnership and Wells Fund X from net offering
proceeds available for investment in properties to fully fund the remainder of
the purchase price of the Cort JV Interest; (iii) Wells Development shall have
complied with all of the representations and warranties set forth in the Cort JV
Contract including (a) that, at the closing of the Cort JV Interest, the Cort
Joint Venture shall be the owner of good and marketable fee simple record title
to the Cort Furniture Building subject only to certain permitted encumbrances,
(b) that there are no actions, suits or proceedings pending, or to the best of
Wells Development's knowledge, threatened by any organization, person,
individual or governmental agency against Wells Development which would impair
its ability to convey the Cort JV Interest pursuant to the Cort JV Contract or
against the Cort Furniture Building, (c) that no person or entity has any right
or option to acquire the Cort JV Interest which will have any force or effect
after the execution of the Cort JV Contract, other than the Fund X-XI Joint
Venture, and (d) that Wells Development owns the Cort JV Interest free and clear
of all liens, claims, pledges, options, adverse claims and charges of any nature
whatsoever; (iv) the Fund X-XI Joint Venture shall receive evidence reasonably
satisfactory to it that the land encompassing the Cort Furniture Building is
free of Hazardous Materials; (v) the Fund X-XI Joint Venture shall receive
evidence that Cort Furniture Rental Corporation continues to occupy the Cort
Furniture Building as a tenant pursuant to the Cort Furniture Lease (as
described below) paying rent on a current basis and that neither the landlord
nor the tenant is in default under the Cort Furniture Lease; and (vi) the Fund
X-XI Joint Venture shall have received any necessary consents for the admission
of the Fund X-XI Joint Venture as a joint venture partner in the Cort Joint
Venture. In the event that any of the foregoing conditions are not met on or
prior to the date of closing of the Cort JV Interest, the Fund X-XI Joint
Venture has the right to terminate the Cort JV Contract, in which event, it
would be entitled to a refund of all of the Cort Earnest Money, except $25.00.
As with the Fremont Earnest Money, the obligation of Wells Development to refund
the Cort Earnest Money is an
-5-
<PAGE>
unsecured obligation of Wells Development that is guaranteed by Wells
Management. Since, as stated above, Wells Development and Wells Management have
no substantial assets, there are no assurances that either Wells Development or
Wells Management would be able to refund the entire amount of the Cort Earnest
Money to the Fund X-XI Joint Venture. (See "RISK FACTORS -Risks Relating to
Acquisition of Properties from Wells Development Corporation" contained in the
Prospectus.)
THE FAIRCHILD BUILDING
Purchase of the Fairchild Building. On July 21, 1998, the Fremont Joint
----------------------------------
Venture acquired the Fairchild Building pursuant to the Fairchild Contract for a
purchase price of $8,900,000. The Fremont Joint Venture incurred acquisition
expenses including legal fees, title insurance fees, loan origination fees,
appraisal fees and other closing costs of approximately $60,000. The Fremont
Joint Venture used the $2,995,480 aggregate capital contributions described
above to partially fund the purchase of the Fairchild Building. The Fremont
Joint Venture also obtained a loan in the amount of $5,960,000 from NationsBank,
N.A., the proceeds of which were used to fund the remainder of the cost of the
Fairchild Building (the "Fairchild Loan").
The Fairchild Loan. The Fairchild Loan matures on July 21, 1999 (the
------------------
"Fairchild Maturity Date"), unless the Fremont Joint Venture exercises its
option to extend the Fairchild Maturity Date to January 21, 2000. The interest
rate on the Fairchild Loan is a variable rate per annum equal to the rate
appearing on Telerate Page 3750 as the London InterBank Offered Rate (the "LIBOR
Rate") for a thirty day period plus 220 basis points. Commencing on September
1, 1998, and on the first day of each calendar month thereafter continuing
through and including the first day of the calendar month in which the Fairchild
Maturity Date occurs, the Fremont Joint Venture is required to pay to
NationsBank monthly installments of principal in the amount of $10,498 plus
accrued interest. The Fairchild Loan is secured by a first mortgage against the
Fairchild Building. In addition, Leo F. Wells, III (one of the General
Partners) and Wells Development, an Affiliate of the Partnership and the General
Partners, are co-guarantors of the Fairchild Loan.
Closing of the Fremont JV Interest. Under the Joint Venture Agreement of the
----------------------------------
Fremont Joint Venture, cash flow distributions will be paid to Wells OP and
Wells Development in accordance with each such entity's equity interest in the
Fremont Joint Venture based upon each entity's relative capital contribution to
the Fremont Joint Venture. As of July 31, 1998, Wells OP held an approximately
33% equity interest and Wells Development held an approximately 67% equity
interest in the Fremont Joint Venture. As additional offering proceeds are
raised by the Wells REIT, it is anticipated that Wells OP will make additional
capital contributions to the Fremont Joint Venture, which will be utilized to
pay down the Fairchild Loan and will increase Wells OP's relative equity
interest (and decrease Wells Development's relative equity interest) in the
Fremont Joint Venture. Cash flow distributions payable by the Fremont Joint
Venture to Wells Development shall be credited as a purchase price adjustment or
paid to the Fund X-XI Joint Venture at the closing of the acquisition of the
Fremont JV Interest from Wells Development, since Wells Development is
prohibited from making any profit on the transaction during the holding period.
The Fund X-XI Joint Venture will have no property rights in the Fairchild
Building prior to closing nor any potential liability on the Fairchild Loan,
which will be paid off prior to closing.
At such time as sufficient funds have been raised, either in the Fund X-XI
Joint Venture or the Wells REIT, or a combination thereof, to pay off the
Fairchild Loan, the Fund X-XI Joint Venture shall close the acquisition of the
Fremont JV Interest. This closing shall take place on or before July 21, 1999;
however, the Fund X-XI Joint Venture has the right to extend the closing date
for two successive periods of six months if sufficient cash has not been raised
to pay off the Fairchild Loan. At the conclusion of such transaction, the Fund
X-XI Joint Venture will be admitted to the Fremont Joint Venture as a joint
venturer partner in the place of Wells Development. The ultimate equity
percentage interests in the Fremont Joint Venture to be owned by the Fund X-XI
Joint Venture and Wells OP are dependent upon the amount of offering proceeds
which are raised in the future by the Partnership and by the Wells REIT and,
accordingly, are indeterminable at this time.
-6-
<PAGE>
Description of the Fairchild Building. The Fairchild Building is a two-story
-------------------------------------
office and manufacturing building with 58,424 rentable square feet. The
Fairchild Building is composed of painted concrete tilt-up wall panels, plaster
walls with a clay tile covered mansard roof on the building's west and north
sides and aluminum framed windows. Construction of the Fairchild Building was
completed in 1985.
The Fairchild Building is located at 47320 Kato Road on the corner of Kato
Road and Auburn Road in the City of Fremont, California. The site is
approximately 3.05 acres and is located in a commercial area composed of similar
use buildings. The parking area surrounds the Fairchild Building and contains
approximately 184 paved parking spaces.
An independent appraisal of the Fairchild Building was prepared by CB Richard
Ellis Appraisal Services, a division of CB Commercial, as of June 29, 1998,
pursuant to which the market value of the land and the leased fee interest in
the Fairchild Building subject to the Fairchild Lease (described below) was
estimated to be $8,900,000. The value estimate contained in this appraisal was
based upon a number of assumptions, including that the Fairchild Building will
continue operating at a stabilized level with Fairchild occupying 100% of the
rentable areas, and is not necessarily an accurate reflection of the fair market
value of the property. The Fremont Joint Venture also obtained an environmental
report prior to closing evidencing that the environmental condition of the land
encompassing the Fairchild Building was satisfactory.
Fremont is considered Alameda County's extension of Silicon Valley as it is
home to a large number of high-technology manufacturing and new product
development companies. Fremont, which is the second largest city in Alameda
County and the fourth largest city in the Bay Area with a population of
approximately 190,000, is 25 miles south of Oakland and 15 miles north of San
Jose along Interstate 880. Fremont encompasses approximately 94 square miles
and is the largest source of current and future growth and development in
Alameda County due to its abundance of land relative to other areas and its
location on the fringe of Silicon Valley.
The Fremont Joint Venture will experience competition for its current tenant
from owners and managers of various other office and manufacturing buildings
located in the immediate area of the Fairchild Building, which could adversely
affect the Fremont Joint Venture's ability to retain Fairchild as a tenant, and
if necessary in the future, to attract and retain other tenants.
The Fairchild Lease. The entire 58,424 rentable square feet of the Fairchild
-------------------
Building is currently under a net lease agreement dated September 19, 1997 (the
"Fairchild Lease") with Fairchild Technologies U.S.A., Inc. ("Fairchild").
Fairchild took early possession of the second floor of the Fairchild Building on
October 1, 1997 at a monthly base rental of $22,456. The Fairchild Lease
commenced on December 1, 1997 (the "Rental Commencement Date") and expires on
November 30, 2004, subject to Fairchild's right to extend the Fairchild Lease
for an additional five-year period. Fairchild must give written notice of its
intention to exercise said option not more than 180 days and not less than 90
days before the last day of the initial term of the Fairchild Lease. In the
event that Fairchild vacates the Fairchild Building at the expiration of its
current lease term, the Fremont Joint Venture would be required to find one or
more new suitable tenants for the Fairchild Building at the then prevailing
market rental rates.
Fairchild is a global leader in the design and manufacture of production
equipment for semiconductor and compact disk manufacturing. The semiconductor
equipment group recently unveiled a new line of semiconductor wafer processing
equipment which will provide alternatives to the traditional semiconductor chip
production methods.
Fairchild is a wholly-owned subsidiary of the Fairchild Corporation, a
Delaware corporation ("Fairchild Corp"). Fairchild Corp is the largest
aerospace fastener and fastening system manufacturer and is one of the largest
independent aerospace parts distributors in the world. Fairchild Corp is a
leading supplier to aircraft manufacturers such as Boeing, Airbus, Lockheed
Martin, British Aerospace and Bombardier and to airlines such as Delta Airlines
and U.S. Airways. The aerospace fastener segment accounted for approximately
51.4% of the company's net sales
-7-
<PAGE>
and the aerospace parts distribution segment accounted for approximately 35.9%
of the company's net sales in fiscal year 1997. The obligations of Fairchild
under the Fairchild Lease are guaranteed by Fairchild Corp, which reported total
consolidated sales of in excess of $680 Million and a net worth of in excess of
$232 Million for its fiscal year ended June 30, 1997.
The monthly base rent payable under the Fairchild Lease is $68,128 through
November 30, 1998. On each one-year anniversary of the Rental Commencement
Date, the monthly base rent in effect for the preceding year shall be adjusted
upward by a 3% increase. The monthly base rent during the first year of the
extended term of the Fairchild Lease, if exercised by Fairchild, shall be 95% of
the then fair market rental value of the Fairchild Building subject to the
annual 3% increase adjustments. If Fairchild and the Fremont Joint Venture are
unable to agree upon the fair rental value for the extended lease term, each
party shall select an appraiser and the two appraisers shall establish the rent
by agreement. Under the Fairchild Lease, Fairchild is responsible for all
utilities, taxes, insurance and other operating costs with respect to the
Fairchild Building during the term of the Fairchild Lease. Currently, the
annual real estate taxes for the Fairchild Building are approximately $37,000.
The Fremont Joint Venture, as landlord, is responsible for the maintenance and
repair of the structural elements of the roof, bearing walls and foundation of
the Fairchild Building.
Under the terms of the Fairchild Lease, Fairchild is required to carry and
maintain, at its own cost and expense, certain types of insurance in form
acceptable to the Fremont Joint Venture, naming the Fremont Joint Venture as an
additional insured. With respect to insurance against loss or damage to the
Fairchild Building, Fairchild is required to name the Fremont Joint Venture as
loss payee under its policy. Among other types of insurance, the Fairchild
Lease requires that Fairchild maintain liability insurance coverage covering the
leased premises and Fairchild's use thereof against claims for personal injury,
death, property damage and product liability, in single limit amounts of not
less than $2,000,000 per occurrence, and an equivalent form of insurance against
loss or damage of the Fairchild Building, including earthquake insurance, in an
amount not less than 100% of the actual replacement value of the building and
improvements thereto. Management believes that the Fairchild Building is
adequately insured against loss for property damage, personal injury and deaths
of persons in or about the premises.
THE CORT FURNITURE BUILDING
Purchase of the Cort Furniture Building. On July 31, 1998, the Cort Joint
---------------------------------------
Venture acquired the Cort Furniture Building pursuant to the Cort Contract for a
purchase price of $6,400,000. The Cort Joint Venture incurred acquisition
expenses including legal fees, title insurance fees, loan origination fees,
appraisal fees and other closing costs of approximately $63,000. In addition,
at closing, the Cort Joint Venture paid $85,000 in real estate brokerage
commissions to Collins Commercial and Daum Commercial Real Estate, neither of
which are affiliated in any way with the Partnership or the General Partners.
The Cort Joint Venture used the $1,668,000 aggregate capital contributions to
partially fund the purchase of the Cort Furniture Building. The Cort Joint
Venture obtained a loan in the amount of $4,875,000 from NationsBank, N.A., the
proceeds of which were used to fund the remainder of the cost of the Cort
Furniture Building (the "Cort Loan").
The Cort Loan. The Cort Loan matures on July 31, 1999 (the "Cort Maturity
-------------
Date"), unless the Cort Joint Venture exercises its option to extend the Cort
Maturity Date to January 31, 2000. The interest rate on the Cort Loan is a
variable rate per annum equal to the rate appearing on Telerate Page 3750 as the
LIBOR Rate for a thirty day period plus 220 basis points. Commencing on
September 1, 1998, and on the first day of each calendar month thereafter
continuing through and including the first day of the calendar month in which
the Cort Maturity Date occurs, the Cort Joint Venture is required to pay to
Nationsbank monthly installments of principal in the amount of $8,587 plus
accrued interest. The Cort Loan is secured by a first mortgage against the Cort
Furniture Building. Leo F. Wells, III and Wells Development are also co-
guarantors of the Cort Loan.
Closing of the Cort JV Interest. Under the Joint Venture Agreement of the
-------------------------------
Cort Joint Venture, cash flow distributions will be paid to Wells OP and Wells
Development in accordance with each such entity's equity interest in the Cort
Joint Venture based upon each entity's relative capital contribution to the Cort
Joint Venture. As of July
-8-
<PAGE>
31, 1998, Wells Development held an approximately 90% equity interest and Wells
OP held an approximately 10% equity interest in the Cort Joint Venture. As
additional offering proceeds are raised by the Wells REIT, it is anticipated
that Wells OP will make additional capital contributions to the Cort Joint
Venture, which will be utilized to pay down the Cort Loan and will increase
Wells OP's relative equity interest (and decrease Wells Development's relative
equity interest) in the Cort Joint Venture. Cash flow distributions payable by
the Cort Joint Venture to Wells Development shall be credited as a purchase
price adjustment or paid to the Fund X-XI Joint Venture at the closing of the
acquisition of the Cort JV Interest from Wells Development, since Wells
Development is prohibited from making any profit on the transaction during the
holding period. The Fund X-XI Joint Venture will have no property rights in the
Cort Furniture Building prior to closing nor any potential liability on the Cort
Loan, which shall be paid off prior to closing.
At such time as sufficient funds have been raised, either in the Fund X-XI
Joint Venture or the Wells REIT, or a combination thereof, to pay off the Cort
Loan on the Cort Furniture Building, the Fund X-XI Joint Venture shall close the
acquisition of the Cort JV Interest. This closing shall take place on or before
July 31, 1999; however, the Fund X-XI Joint Venture has the right to extend the
closing date for two successive periods of six months if sufficient cash has not
been raised to pay off the Cort Loan. At the conclusion of such transaction,
the Fund X-XI Joint Venture will be admitted to the Cort Joint Venture as a
joint venture partner in the place of Wells Development. The ultimate equity
percentage interests in the Cort Joint Venture to be owned by the Fund X-XI
Joint Venture and Wells OP are dependent upon the amount of offering proceeds
which are raised in the future by the Partnership and by the Wells REIT and,
accordingly, are indeterminable at this time.
Description of the Cort Furniture Building. The Cort Furniture Building is a
------------------------------------------
single-story office and warehouse building with 52,000 rentable square feet
comprised of an 18,000 square foot office and open showroom area and a 34,000
square foot warehouse area. The Cort Furniture Building's foundation is shallow
reinforced concrete spread footings under load bearing columns with floor slabs
consisting of four inch thick reinforced concrete slab. The exterior walls of
the Cort Furniture Building are load bearing concrete tilt-wall panels. The
roof framing is composed of one-half inch thick plywood decking supported by
glu-lam beams and wood joyces. The main entrance of the Cort Furniture Building
consists of covered walkways. The site contains approximately 150 paved parking
spaces. Construction of the Cort Furniture Building was completed in 1975.
An independent appraisal of the Cort Furniture Building was prepared by
Cushman Wakefield, real estate appraisers and consultants, as of July 1, 1998,
pursuant to which the market value of the land and the leased fee interest in
the Cort Furniture Building subject to the Cort Furniture Lease (described
below) was estimated to be $6,400,000. The value estimate contained in this
appraisal was based upon a number of assumptions, including that the Cort
Furniture Building will continue operating at a stabilized level with Cort
occupying 100% of the rentable areas, and is not necessarily an accurate
reflection of the fair market value of the property. The Cort Joint Venture
also obtained an environmental report prior to closing evidencing that the
environmental condition of the land encompassing the Cort Furniture Building was
satisfactory.
The Cort Furniture Building is located at 10700 Spencer Street on the
southeast corner of Spencer Avenue and Mt. Langley Street adjacent on the south
side to Interstate 405 (with good freeway exposure) located in the City of
Fountain Valley, Orange County, California. The site consists of two parcels of
land totalling approximately 3.65 acres and is located in an established, built-
out industrial pocket within the southeastern region of the city. The site is
located approximately four miles West of the John Wayne Airport.
Fountain Valley is considered an established bedroom community which is
characterized by a family-oriented, affluent resident population. The city is
located on the fringe of one of the county's major regional employment centers.
Most development within the immediate area consists of mid-sized warehouse
distribution facilities, garden office buildings, corporate headquarter
facilities, small incubator industrial parks and various retail showroom
buildings. Fountain Valley encompasses approximately 9.75 square miles and is
considered to be in the stable stage of its life cycle with relatively little
vacant land parcels available for development. While the population of Fountain
Valley as of 1997 was approximately 55,000 residents, Orange County had a
population in excess of
-9-
<PAGE>
2.6 million. Orange County employs about 10% of the state's workers despite
having only about 8% of the state's population.
The Cort Joint Venture will experience competition for its current tenant from
owners and managers from various other office and warehouse buildings located in
the immediate area of the Cort Furniture Building which could adversely affect
the Cort Joint Venture's ability to retain Cort as a tenant, and if necessary in
the future, to attract and retain other tenants.
The Cort Furniture Lease. The entire 52,000 rentable square feet of the Cort
------------------------
Furniture Building is currently under a net lease agreement dated October 25,
1988 (The "Cort Furniture Lease") with Cort Furniture Rental Corporation, a New
York corporation ("Cort"). Cort uses the Cort Furniture Building as its
regional corporate headquarters with an attached clearance showroom and
warehouse storage areas. The Cort Furniture Building was originally developed
for and occupied by Mary Kay Cosmetics as its regional corporate headquarters.
In March 1988, the Cort Furniture Building was leased to Cort. Subsequently,
Cort exercised an option to purchase the property in mid-1988. In October 1988,
Cort sold the property to Spencer and leased back the property for a 15 year
term at an initial lease rate of $0.914 per square foot per month (on a triple
net basis).
The Cort Furniture Lease commenced on November 1, 1988 (the "Rental
Commencement Date") and contains a lease term of 15 years expiring on October
31, 2003. Cort has an option to extend the Cort Furniture Lease for an
additional five-year period of time. Such option must be exercised by Cort in a
written notice delivered to the Cort Joint Venture at least one year prior to
the expiration of the then current lease term. In the event that Cort vacates
the Cort Furniture Building at the expiration of its current lease term, the
Cort Joint Venture would be required to find one or more suitable tenants for
the Cort Furniture Building at the then prevailing market rental rates.
Cort is a wholly owned subsidiary of Cort Business Services Corporation, a New
York Stock Exchange Company trading under the symbol CBZ ("Cort Business
Services"). Cort Business Services is the largest and only national provider of
high-quality office and residential rental furniture and related accessories.
Cort Business Services has operations that cover 32 states and the District of
Columbia, including 109 rental showrooms, 72 clearance centers and 72
distribution centers. The obligations of Cort under the Cort Furniture Lease
are guaranteed by Cort Business Services, which reported net income of in excess
of $22 million on total consolidated revenue of in excess of $287 million, and
reported a net worth of in excess of $149 million for its fiscal year ended
December 31, 1997.
The monthly base rent payable under the Cort Furniture Lease is $63,247
through April 30, 2001 at which time the monthly base rent will be increased 10%
to $69,574 for the remainder of the lease term. The monthly base rent during
the first year of the extended term shall be 90% of the then fair market rental
value of the Cort Furniture Building, but will be no less than the rent in the
15th year of the Cort Furniture Lease. If Cort and the Cort Joint Venture are
unable to agree upon a fair rental value for the extended lease term, each party
shall select an appraiser and the two appraisers shall provide appraisals on the
Cort Furniture Building. If the appraisal values established are within 10% of
each other, the average of such appraised value shall be the fair market rental
value. If said appraisals are varied by more than 10%, the two appraisers shall
appoint a third appraiser and the middle appraisal of the three shall be the
fair rental value. Under the Cort Furniture lease, Cort is responsible for all
utilities, taxes, insurance and other operating costs with respect to the Cort
Furniture Building during the term of the Cort Furniture Lease. The estimated
annual real estate taxes on the Cort Furniture Building are $38,040. The Cort
Joint Venture, as landlord, is responsible for the maintenance and repair of the
structural portions of the exterior walls and the foundation of the Cort
Furniture Building, but shall not include painting or installing, maintaining or
repairing wall or floor coverings.
Under the terms of the Cort Furniture Lease, the Cort Joint Venture is
responsible for carrying and maintaining liability insurance covering the leased
premises including claims for personal injury, death, property damage and
product liability, in single limit amounts of not less than $1,000,000. The
insurance against property
-10-
<PAGE>
damage to the Cort Furniture Building shall be in an amount not less than 100%
of the actual replacement value of the building and improvements thereto. The
cost of said insurance is billed on a monthly basis to the tenant. Cort is
required to maintain property insurance for its personal property on the
premises, including all inventory, equipment, fixtures and tenant improvements
that have not become a part of the premises, in an amount equal to the full
replacement value of such personal property. Pursuant to the terms of the Cort
Loan, the Cort Joint Venture is required to carry and maintain earthquake
insurance on the Cort Furniture Building for the full replacement value of the
building. Management believes that the Cort Furniture Building is adequately
insured against loss for property damage, personal injury and deaths of persons
in or about the premises.
PROPERTY MANAGEMENT FEES
Iomega Building. Wells Management Company, Inc. ("Wells Management"), an
---------------
Affiliate of the General Partners and the Partnership, has been retained to
manage and lease all of the properties currently owned by the IX-X-XI-REIT Joint
Venture, including the Iomega Building. While the Partnership and the Wells
REIT are authorized to pay aggregate management and leasing fees to Wells
Management in the amount of 4.5% of gross revenues, Wells Fund IX and Wells Fund
X are authorized to pay aggregate management and leasing fees to Wells
Management in the amount of 6% of gross revenues. Since, as of August 1, 1998,
Wells Fund IX and Wells Fund X held an aggregate 89.4% ownership percentage
interest in the IX-X-XI-REIT Joint Venture, while the Partnership and the Wells
REIT held an aggregate 10.6% ownership percentage interest in the IX-X-XI-REIT
Joint Venture, 89.4% of the gross revenues of the IX-X-XI-REIT Joint Venture are
subject to a 6% property management and leasing fee, while 10.6% of the gross
revenues of the IX-X-XI-REIT Joint Venture are subject to a 4.5% property
management and leasing fee.
Fairchild and Cort Furniture Buildings. Wells Management has also been
--------------------------------------
retained to manage and lease the Fairchild Building and the Cort Furniture
Building. The Cort Joint Venture and the Cort Joint Venture shall each pay 4.5%
of gross revenues of these buildings to Wells Management for property management
and leasing services.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATION
The information contained on page 57 in the "MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS" section of the
Prospectus is revised as of the date of this Supplement by the deletion of the
first paragraph of that section and the insertion of the following paragraph in
lieu thereof:
The Partnership commenced operations on March 3, 1998, upon the
acceptance of subscriptions for the minimum offering of $1,250,000 (125,000
Units). As of August 10, 1998, the Partnership had raised a total of
$8,283,613 in offering proceeds (828,361 Units), comprised of $6,669,723
raised from the sale of Class A Status Units (666,972 Class A Status Units)
and $1,613,890 raised from the sale of Class B Status Units (161,389 Class
B Status Units). After the payment of $289,926 in acquisition and advisory
fees and acquisition expenses, the payment of $1,035,452 in selling
commissions and organizational and offering expenses, capital contributions
of $2,482,810 to the IX-X-XI-REIT Joint Venture and capital contributions
of $1,750,000 to the Fund X-XI Joint Venture, as of August 10, 1998, the
Partnership was holding net offering proceeds of $2,725,425 available for
investment in additional properties.
FINANCIAL STATEMENTS
The financial statements of the Iomega Building, the Fairchild Building and
the Cort Furniture Building for the year ended December 31, 1997, included
herein as Appendix I to this Supplement No. 3, have been audited by Arthur
Andersen LLP, independent public accountants, as indicated in their reports with
respect thereto, and are included herein upon the authority of said firm as
experts in giving said reports. The pro forma financial
-11-
<PAGE>
information for Wells Real Estate Fund XI, L.P. for the year ended December 31,
1997 and for the six month period ended June 30, 1998, and the financial
statements of the Iomega Building, the Fairchild Building and the Cort Furniture
Building for the six month period ended June 30, 1998, which are included in
Appendix I to this Supplement No. 3, have not been audited.
-12-
<PAGE>
APPENDIX F
INDEX TO FINANCIAL STATEMENTS
Page
----
IOMEGA BUILDING
Audited Financial Statements
Report of Independent Public Accountants F-1
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1997 (Audited) and for
the six months ended June 30, 1998 (Unaudited) F-2
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1997 (Audited)
and for the six months ended June 30, 1998 (Unaudited) F-3
CORT FURNITURE BUILDING
Audited Financial Statements
Report of Independent Public Accountants F-5
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1997 (Audited) and for
the six months ended June 30, 1998 (Unaudited) F-6
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1997 (Audited)
and for the six months ended June 30, 1998 (Unaudited) F-7
FAIRCHILD BUILDING
Audited Financial Statements
Report of Independent Public Accountants F-9
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1997 (Audited) and for
the six months ended June 30, 1998 (Unaudited) F-10
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1997 (Audited)
and for the six months ended June 30, 1998 (Unaudited) F-11
WELLS REAL ESTATE FUND XI, L.P.
Unaudited Pro Forma Financial Statements
Summary of Unaudited Pro Forma Financial Statements F-13
Pro Forma Balance Sheet as of June 30, 1998 F-14
Pro Forma Statement of Income for the year ended
December 31, 1997 F-15
Pro Forma Statement of Income for the six months ended
June 30, 1998 F-16
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XI, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the IOMEGA BUILDING for the year ended December 31, 1997. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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
audit provides a reasonable basis for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Iomega
Building after acquisition by Fund IX, X, XI, and REIT Joint Venture (a joint
venture between Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P.,
Wells Real Estate Fund XI, L.P. and Wells Operating Partnership, L.P.). The
accompanying statement of revenues over certain operating expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission and is not intended to be a complete presentation of the
Iomega Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Iomega Building for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 6, 1998
F-1
<PAGE>
IOMEGA BUILDING
STATEMENTS OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1997 1998
-------- --------
(Unaudited)
RENTAL REVENUES $552,828 $276,414
OPERATING EXPENSES, NET OF REIMBURSEMENTS (1,426) 9,750
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $554,254 $266,664
======== ========
The accompanying notes are an integral part of these statements.
F-2
<PAGE>
IOMEGA BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF REAL ESTATE PROPERTY ACQUIRED
On July 1, 1998, Wells Real Estate Fund X, L.P. ("Fund X") contributed a
single-story warehouse and office building with 108,000 rentable square feet
(the "Iomega Building") to the Fund IX, Fund X, Fund XI, and REIT Joint
Venture ("IX-X-XI-REIT Joint Venture") (a Georgia joint venture) as a capital
contribution. Fund X was credited with making a capital contribution to the
IX-X-XI-REIT Joint Venture in the amount of $5,050,425, which represents the
purchase price of $5,025,000 plus acquisition expenses of $25,425 originally
paid by Fund X for the Iomega Building on April 1, 1998. As of August 1,
1998, Fund X had made total capital contributions to the IX-X-XI-REIT Joint
Venture of $18,410,965 and held an equity percentage interest in the IX-X-XI-
REIT Joint Venture of 49.9%; Wells Real Estate Fund IX, L.P. had made total
capital contributions to the IX-X-XI-REIT Joint Venture of $14,571,686 and
held an equity percentage interest in the IX-X-XI-REIT Joint Venture of
39.5%; Wells Operating Partnership, L.P. had made total capital contributions
to the IX-X-XI-REIT Joint Venture of $1,421,466 and held an equity percentage
interest in the IX-X-XI-REIT Joint Venture of 3.9%; and Wells Real Estate
Fund XI, L.P. had made total capital contributions to the IX-X-XI-REIT Joint
Venture of $2,482,810 and held an equity percentage interest in the IX-X-XI-
REIT Joint Venture of 6.7%.
The building is 100% occupied by one tenant with a ten year lease term that
expires on July 31, 2006. The monthly base rent payable under the lease is
$40,000 through November 12, 1999. Beginning on the 40th and 80th months of
the lease term, the monthly base rent payable under the lease will be
increased to reflect an amount equal to 100% of the increase in the Consumer
Price Index (as defined in the lease) during the preceding 40 months;
provided however, that in no event shall the base rent be increased with
respect to any one year by more than 6% or by less than 3% per annum,
compounded annually, on a cumulative basis from the beginning of the lease
term. The lease is a triple net lease, whereby the terms require the tenant
to reimburse the IX-X-XI-REIT Joint Venture for certain operating expenses,
as defined in the lease, related to the building.
RENTAL REVENUES
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
F-3
<PAGE>
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statement excludes certain historical expenses, such as depreciation and
management fees, not comparable to the operations of the Iomega Building
after acquisition by the IX-X-XI-REIT Joint Venture.
F-4
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XI, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the CORT FURNITURE BUILDING for the year ended December 31, 1997.
This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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
audit provides a reasonable basis for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Cort
Furniture Building after acquisition by the Cort Joint Venture (a joint venture
between Wells Operating Partnership, L.P. and Wells Development Corporation).
The accompanying statement of revenues over certain operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and is not intended to be a complete
presentation of the Cort Furniture Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Cort Furniture Building for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 6, 1998
F-5
<PAGE>
CORT FURNITURE BUILDING
STATEMENTS OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $771,618 $385,809
OPERATING EXPENSES 16,408 4,104
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $755,210 $381,705
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-6
<PAGE>
CORT FURNITURE BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF REAL ESTATE PROPERTY ACQUIRED
The Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized to own and operate properties on behalf of the Wells
Real Estate Investment Trust, Inc, entered into a Joint Venture Agreement
known as Wells/Orange County Associates ("Cort Joint Venture") with Wells
Development Corporation. On July 31, 1998, the Cort Joint Venture acquired
the Cort Furniture Building, a 52,000-square-foot warehouse and office
building located in Fountain Valley, California, for a purchase price of
$6,400,000 plus acquisition expenses of approximately $150,000. The Cort
Joint Venture used the $1,668,000 aggregate capital contributions described
below to partially fund the purchase of the Cort Furniture Building. The
Cort Joint Venture obtained a loan in the amount of $4,875,000 from
NationsBank, N.A., the proceeds of which were used to fund the remainder of
the cost of the Cort Furniture Building (the "Cort Loan"). The Cort Loan
matures on July 31, 1999 (the "Cort Maturity Date"), unless the Cort Joint
Venture exercises its option to extend the Cort Maturity Date to January 31,
2000. The interest rate on the Cort Loan is a variable rate per annum equal
to the rate appearing on Telerate Page 3750 as the LIBOR Rate for 30-day
period plus 220 basis points.
The building is 100% occupied by one tenant with a 15-year lease term that
commenced on November 1, 1988 and expires on October 31, 2003. The monthly
base rent payable under the lease is $63,247 through April 30, 2001 at which
time the monthly base rent will be increased 10% to $69,574 for the remainder
of the lease term. The lease is a triple net lease, whereby the terms
require the tenant to reimburse the Cort Joint Venture for certain operating
expenses, as defined in the lease, related to the building.
ACQUISITION OF THE CORT JOINT VENTURE INTEREST
Wells Real Estate Fund XI, L.P. ("Wells Fund XI") entered into a Joint
Venture Agreement with Wells Real Estate Fund X, L.P. ("Wells Fund X") known
as Fund X and Fund XI Associates ("Fund X-XI Joint Venture") for the purpose
of the acquisition, ownership, leasing, operation, sale and management of
real properties, and interests in real properties, including but not limited
to, the acquisition of equity interests in the Cort Joint Venture.
F-7
<PAGE>
On July 30, 1998, the Fund X-XI Joint Venture entered into an Agreement for
the Purchase and Sale of Joint Venture Interest (the "Cort JV Contract") with
Wells Development. Pursuant to the Cort JV Contract, the Fund X-XI Joint
Venture contracted to acquire Wells Development's interest in the Cort Joint
Venture (the "Cort JV Interest") which, at closing, will result in the Fund
X-XI Joint Venture becoming a joint venture partner with Wells OP in the
ownership of the Cort Furniture Building. Wells Fund X, Wells OP and Wells
Development are all affiliates of Wells Fund XI.
At the time of entering into the Cort JV Contract, the Fund X-XI Joint
Venture delivered $1,500,000 to Wells Development as an earnest money deposit
(the "Cort Earnest Money"). Wells Fund XI contributed $750,000 of the Cort
Earnest Money as a capital contribution to the Fund X-XI Joint Venture and,
as of July 31, 1998, held an equity percentage interest in the Fund X-XI
Joint Venture of 50%; and Wells Fund X contributed $750,000 of the Cort
Earnest Money as a capital contribution to the Fund X-XI Joint Venture and,
as of July 31, 1998, held an equity percentage interest in the Fund X-XI
Joint Venture of 50%. Wells Development contributed the Cort Earnest Money
it received from the Fund X-XI Joint Venture to the Cort Joint Venture as its
initial capital contribution, and Wells OP simultaneously contributed
$168,000 to the Cort Joint Venture as its initial capital contribution.
Cash flow distributions allocable by the Cort Joint Venture to Wells
Development will be credited as a purchase price adjustment or paid to the
Fund X-XI Joint Venture at the closing of the acquisition of the Cort JV
Interest from Wells Development since Wells Development is prohibited from
making any profit on the transaction during the holding period. The Fund X-
XI Joint Venture will have no property rights in the Cort Building prior to
closing nor any potential liability on the Cort Loan, which will be paid off
prior to closing.
RENTAL REVENUES
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statement excludes certain historical expenses, such as interest,
depreciation, and management fees, not comparable to the operations of the
Cort Furniture Building after acquisition by the Cort Joint Venture.
F-8
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XI, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the FAIRCHILD BUILDING for the year ended December 31, 1997. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. 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
audit provides a reasonable basis for our opinion.
As described in note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the
Fairchild Building after acquisition by the Fremont Joint Venture (a joint
venture between Wells Operating Partnership, L.P. and Wells Development
Corporation). The accompanying statement of revenues over certain operating
expenses was prepared for the purpose of complying with the rules and
regulations of the Securities and Exchange Commission and is not intended to be
a complete presentation of the Fairchild Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Fairchild Building for the year ended December 31, 1997 in
conformity with generally accepted accounting principles.
/s/ Arthur Andersen LLP
Atlanta, Georgia
August 6, 1998
F-9
<PAGE>
FAIRCHILD BUILDING
STATEMENTS OF REVENUES OVER CERTAIN
OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
1997 1998
----------- -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $220,090 $440,178
OPERATING EXPENSES 67,573 10,420
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $152,517 $429,758
======== ========
</TABLE>
The accompanying notes are an integral part of these statements.
F-10
<PAGE>
FAIRCHILD BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1997
AND FOR THE SIX MONTHS ENDED JUNE 30, 1998
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
DESCRIPTION OF REAL ESTATE PROPERTY ACQUIRED
The Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized to own and operate properties on behalf of the Wells
Real Estate Investment Trust, Inc., entered into a Joint Venture Agreement
known as Wells/Fremont Associates ("Fremont Joint Venture") with Wells
Development Corporation. On July 21, 1998, the Fremont Joint Venture
acquired the Fairchild Building, a 58,424-square-foot warehouse and office
building located in Fremont, California, for a purchase price of $8,900,000
plus acquisition expenses of approximately $60,000. The Fremont Joint
Venture used the $2,995,480 aggregate capital contributions described below
to partially fund the purchase of the Fairchild Building. The Fremont Joint
Venture obtained a loan in the amount of $5,960,000 from NationsBank, N.A.,
the proceeds of which were used to fund the remainder of the cost of the
Fairchild Building (the "Fairchild Loan"). The Fairchild Loan matures on
July 21, 1999 (the "Fairchild Maturity Date"), unless the Fremont Joint
Venture exercises its option to extend the Fairchild Maturity Date to January
21, 2000. The interest rate on the Fairchild Loan is a variable rate per
annum equal to the rate appearing on Telerate Page 3750 as the LIBOR Rate for
a 30-day period plus 220 basis points.
The building is 100% occupied by one tenant with a seven-year lease term that
commenced on December 1, 1997 (with an early possession date of October 1,
1997) and expires on November 30, 2004. The monthly base rent payable under
the lease is $68,128 with a 3% increase on each anniversary of the
commencement date. The lease is a triple net lease, whereby the terms
require the tenant to reimburse Wells/Fremont for certain operating expenses,
as defined in the lease, related to the building. Prior to October 1, 1997,
the building was unoccupied and all operating expenses were paid by the
former owner of the Fairchild Building.
ACQUISITION OF THE FREMONT JOINT VENTURE INTEREST
Wells Real Estate Fund XI, L.P. ("Wells Fund XI") entered into a Joint
Venture Agreement with Wells Real Estate Fund X, L.P. ("Wells Fund X") known
as Fund X and Fund XI Associates ("Fund X-XI Joint Venture") for the purpose
of the acquisition, ownership, leasing, operation, sale and management of
real properties, and interests in real properties,
F-11
<PAGE>
including but not limited to, the acquisition of equity interests in the
Fremont Joint Venture.
On July 17, 1998, the Fund X-XI Joint Venture entered into an Agreement for
the Purchase and Sale of Joint Venture Interest (the "Fremont JV Contract")
with Wells Development. Pursuant to the Fremont JV Contract, the Fund X-XI
Joint Venture contracted to acquire Wells Development's interest in the
Fremont Joint Venture (the "Freemont JV Interest") which, at closing, will
result in the Fund X-XI Joint Venture becoming a joint venture partner with
Wells OP in the ownership of the Fairchild Building. Wells Fund X, Wells OP
and Wells Development are all affiliates of Wells Fund XI.
At the time of the entering into the Fremont JV Contract, the Fund X-XI Joint
Venture delivered $2,000,000 to Wells Development as an earnest money deposit
(the "Fremont Earnest Money"). Wells Fund XI contributed $1,000,000 of the
Fremont Earnest Money as a capital contribution to the Fund X-XI Joint
Venture and, as of July 21, 1998, held an equity percentage interest in the
Fund X-XI Joint Venture of 50%; and Wells Fund X contributed $1,000,000 of
the Fremont Earnest Money as a capital contribution to the Fund X-XI Joint
Venture and, as of July 21, 1998, held an equity percentage interest in the
Fund X-XI Joint Venture of 50%. Wells Development contributed the Fremont
Earnest Money it received from the Fund X-XI Joint Venture to the Fremont
Joint Venture as its initial capital contribution, and Wells OP
simultaneously contributed $995,480 to the Fremont Joint Venture as its
initial capital contribution.
Cash flow distributions allocable by the Fremont Joint Venture to Wells
Development will be credited as a purchase price adjustment or paid to the
Fund X-XI Joint Venture at the closing of the acquisition of the Fremont JV
Interest from Wells Development since Wells Development is prohibited from
making any profit on the transaction during the holding period. The Fund X-
XI Joint Venture will have no property rights in the Fairchild Building prior
to closing nor any potential liability on the Fairchild Loan, which will be
paid off prior to closing.
RENTAL REVENUES
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statement excludes certain historical expenses, such as interest,
depreciation, and management fees, not comparable to the operations of the
Fairchild Building after acquisition by Wells/Fremont.
F-12
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(UNAUDITED PRO FORMA FINANCIAL STATEMENTS)
The following unaudited pro forma balance sheet as of June 30, 1998 and the pro
forma statements of income for the year ended December 31, 1997 and the six
months ended June 30, 1998 have been prepared to give effect to the following
transactions as if each occurred as of June 30, 1998 with respect to the balance
sheet and on January 1, 1997 with respect to the statements of income: (i)
Wells Real Estate Fund XI's adjusted equity interest in the Fund IX, Fund X,
Fund XI, and REIT Joint Venture ("Joint Venture") (a joint venture between Wells
Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P., Wells Real Estate
Fund XI, L.P., and Wells Operating Partnership, L.P. and formerly Fund IX-Fund X
Associates) after giving effect to the Joint Venture's acquisition of the Lucent
Building and the contribution by Wells Real Estate Fund X, L.P. of the Iomega
Building to the Joint Venture, (ii) the earnest money deposit to Wells/Fremont
Associates relating to the acquisition of the Fairchild Building, and (iii) the
earnest money deposit to Wells/Orange County Associates relating to the
acquisition of the Cort Furniture Building.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisition been consummated at
the beginning of the period presented.
The pro forma financial statements are based on available information and
certain assumptions that management believes are reasonable. Final adjustments
may differ from the pro forma adjustments herein.
F-13
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
PRO FORMA BALANCE SHEET
JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE
FUND XI, PRO FORMA PRO FORMA
L.P. ADJUSTMENTS TOTAL
---------- ----------- ----------
<S> <C> <C> <C>
ASSETS:
Investment in joint venture $2,571,107 $ 0 $2,571,107
Cash and cash equivalents 3,101,364 (1,750,000)(a) 1,351,364
Deferred project costs 126,751 0 126,751
Deferred offering costs 318,723 0 318,723
Prepaid expenses and other assets 20,000 1,750,000 (a) 1,770,000
Due from affiliates 26,736 0 26,736
---------- ----------- ----------
Total assets $6,164,681 0 $6,164,681
========== =========== ==========
LIABILITIES:
Sales commissions payable $ 29,029 $ 0 $ 29,029
Due to affiliates 329,307 0 329,307
---------- ----------- ----------
Total liabilities 358,336 0 358,336
---------- ----------- ----------
PARTNERS' CAPITAL:
General partners 427 0 427
Original limited partner 100 0 100
Limited partners:
Class A 4,524,824 0 4,524,824
Class B 1,280,994 0 1,280,994
---------- ----------- ----------
Total partners' capital 5,806,345 0 5,806,345
---------- ----------- ----------
Total liabilities and partners'
capital $6,164,681 $ 0 $6,164,681
========== =========== ==========
</TABLE>
(a) Reflects a refundable earnest money deposit paid to Wells Development
Corporation relating to the purchase of the Fairchild Building
($1,000,000) and the Cort Furniture Building ($750,000) by the
Fremont Joint Venture and the Cort Joint Venture, respectively.
F-14
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE PRO
FUND XI, PRO FORMA FORMA
L.P. ADJUSTMENTS TOTAL
-------- -------- --------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint venture $0 $ 21,202(a) $ 21,202
======== ======== ========
NET LOSS ALLOCATED TO GENERAL
PARTNERS
0 $ (156) $ (156)
======== ======== ========
NET INCOME ALLOCATED TO CLASS A
LIMITED PARTNERS
0 $ 36,774 $ 36,774
======== ======== ========
NET LOSS ALLOCATED TO CLASS B
LIMITED PARTNERS $0 $(15,416) $(15,416)
======== ======== ========
</TABLE>
(a) Reflects Wells Real Estate Fund XI's 6.7% equity in earnings of Fund
IX, Fund X, Fund XI, and REIT Joint Venture, which totaled $316,445
after giving effect to the contribution by Wells Real Estate Fund X
of the Iomega Building to the Joint Venture. The pro forma
adjustments result from rental revenues less operating expenses,
management fees, and depreciation expense.
F-15
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
WELLS
REAL ESTATE PRO
FUND XI, PRO FORMA FORMA
L.P. ADJUSTMENTS TOTAL
----------- ----------- -------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint venture $11,581 $ 57,289 (a) $ 68,870
Interest income 77,028 0 77,028
------- -------- --------
88,609 57,289 145,898
------- -------- --------
EXPENSES:
Legal and accounting 23,014 0 23,014
Computer costs 697 0 697
Printing and notebooks 4,592 0 4,592
Other 2,345 0 2,345
Administrative salaries 4,732 0 4,732
Office expense 1,807 0 1,807
Postage 730 0 730
------- -------- --------
37,917 0 37,917
------- -------- --------
NET INCOME $50,692 $ 57,289 $107,981
======= ======== ========
NET LOSS ALLOCATED TO GENERAL PARTNER $ (73) $ (404) $ (477)
======= ======== ========
NET INCOME ALLOCATED TO CLASS A LIMITED
PARTNERS $57,947 $ 97,734 $155,681
======= ======== ========
NET LOSS ALLOCATED TO CLASS B LIMITED
PARTNERS $(7,182) $(40,041) $(47,223)
======= ======== ========
NET INCOME PER WEIGHTED AVERAGE CLASS A
LIMITED PARTNER UNIT $ 0.22 $ 0.37 $ 0.59
======= ======== ========
NET LOSS PER WEIGHTED AVERAGE CLASS B
LIMITED PARTNER UNIT $ (0.10) $ (0.56) $ (0.66)
======= ======== ========
</TABLE>
(a) Reflects Wells Real Estate Fund XI's 6.7% equity in earnings of Fund
IX, Fund X, Fund XI, and REIT Joint Venture, which totaled $855,066
after giving effect to the Joint Venture's acquisition of the Lucent
Building and the contribution by Wells Real Estate Fund X of the
Iomega Building to the Joint Venture. The pro forma adjustments
result from rental revenues less operating expenses, management fees,
and depreciation expense.
F-16
