<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended March 31, 1998 or
--------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from __________________to __________________
Commission file number 333-7979 (1933 Act)
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Wells Real Estate Fund XI, L.P.
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(Exact name of registrant as specified in its charter)
Georgia 58-2250094
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(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification no.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
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(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
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Form 10-Q
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Wells Real Estate Fund XI, L.P.
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INDEX
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Page No.
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PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - March 31, 1998
and December 31, 1997........................3
Statement of Income for the Three
Months ended March 31, 1998..................4
Statement of Partners' Capital
for the Three Months Ended March 31, 1998....5
Statement of Cash Flows for the Three Months
Ended March 31, 1998.........................6
Condensed Notes to Financial Statements......7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...................................9
PART II. OTHER INFORMATION......................................11
2
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WELLS REAL ESTATE FUND XI, L.P.
(a Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets March 30, 1998 December 31, 1997
------ -------------- -----------------
<S> <C> <C>
Cash and cash equivalents $2,325,013 $ 600
Deferred project costs (Note 2) 253,163 0
Deferred offering costs (Note 3) 77,134 194,020
Prepaid expenses and other assets 5,048 0
---------- --------
Total assets $2,660,358 $194,620
========== ========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Sales commissions payable $ 116,320 $ 0
Due to affiliates (Note 4) 289,029 194,020
---------- --------
Total liabilities 405,349 194,020
---------- --------
Partners' capital:
General partners 500 500
Original limited partner 100 100
Limited partners:
Class A - 209,793 Units outstanding
at March 31, 1998 1,840,373 0
Class B - 47,318 Units outstanding
at March 31, 1998 414,036 0
---------- --------
Total partners' capital 2,255,009 600
---------- --------
Total liabilities and partners' capital $2,660,358 $194,620
========== ========
</TABLE>
See accompanying condensed notes to financial statements.
3
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WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1998
--------------
Revenues:
<S> <C>
Interest income $ 7,005
-------------
Expenses:
Administrative salaries 1,873
Office expense 393
Postage 58
-------------
2,324
-------------
Net income $ 4,681
=============
Net loss allocated to General Partners $ 0
Net income allocated to Class A Limited Partners $ 4,681
Net loss allocated to Class B Limited Partners $ 0
Net income per Class A weighted average Limited Partner Unit $ .04
Net loss per Class B weighted average Limited Partner Unit $ 0
Cash distribution per Class A Limited Partner Unit $ 0
</TABLE>
See accompanying condensed notes to financial statements.
4
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WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
FOR THE THREE MONTHS ENDED MARCH 31, 1998
<TABLE>
<CAPTION>
LIMITED PARTNERS
-----------------------------------------
CLASS A CLASS B TOTAL
-------- ------- GENERAL PARTNERS'
ORIGINAL UNITS AMOUNTS UNITS AMOUNTS PARTNERS CAPITAL
-------- ----- ------- ----- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1997 $100 - $ - - $ - $ 500 $ 600
Limited partner contributions - 209,793 2,097,934 47,318 473,184 - 2,571,118
Net income - - 4,681 - - - 4,681
Sales commissions - - (199,304) - (44,953) - (244,257)
Other offering expenses - - (62,938) - (14,195) - (77,133)
-------- ------- ---------- ------ -------- -------- ----------
BALANCE,
MARCH 31, 1998 $100 209,793 $1,840,373 47,318 $414,036 $500 $2,255,009
======== ======= ========== ====== ======== ======== ==========
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1998
--------------
<S> <C>
Cash flows from operating activities:
Net income $ 4,681
Adjustments to reconcile net income to net cash
provided by operating activities:
Changes in assets and liabilities:
Increase in prepaid expenses and other assets (5,048)
Increase due to affiliates 48,721
----------
Net cash provided by operating activities 48,354
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Cash flow from investing activities:
Deferred project costs (89,989)
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Cash flow from financing activities:
Limited partners' contributions 2,571,118
Sales commissions (127,937)
Offering costs (77,133)
----------
Net cash provided by financing activities 2,366,048
----------
Net increase in cash and cash equivalents 2,324,413
Cash and cash equivalents, beginning of year 600
----------
Cash and cash equivalents, end of period $2,325,013
==========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
March 31, 1998
(1) Summary of Significant Accounting Policies
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(a) General
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Wells Real Estate Fund XI, L.P. (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Partners, L.P., as
General Partners. The Partnership was formed on June 20, 1996, for the
purpose of acquiring, developing, owning, operating, improving, leasing,
and otherwise managing for investment purposes, income producing commercial
properties.
On December 31, 1997, the Partnership commenced a public offering of up to
$35,000,000 of limited partnership units ($10.00 per unit) pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933.
The Partnership commenced active operations on March 3, 1998, when it
received and accepted subscriptions for 125,000 units. An aggregate
requirement of $2,500,000 of offering proceeds was reached on March 30,
1998, thus allowing for the admission of New York and Pennsylvania
investors in the Partnership. As of March 31, 1998, the Partnership had
sold 209,793 Class A status Units, and 47,318 Class B Status Units, held by
a total of 685 and 35 Limited Partners, respectively, for total Limited
Partner capital contributions of $2,571,118. After payment of $77,134 in
Acquisition and Advisory Fees, payment of $321,390 in selling commissions
and organization and offering expenses, the Partnership was holding net
offering proceeds of $2,172,594 available for investment in properties.
(b) Employees
-------------
The Partnership has no direct employees. The employees of Wells Capital,
Inc., the sole general partner of Wells Partners, L.P., perform a full
range of real estate services including leasing and property management,
accounting, asset management and investor relations for the Partnership.
(c) Insurance
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Wells Management Company, Inc., an affiliate of the General Partners,
carries comprehensive liability and extended coverage with respect to all
the properties owned directly or indirectly by the Partnership. In the
opinion of management of the registrant, the properties are adequately
insured.
7
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(d) Competition
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The Partnership will experience competition for tenants from owners and
managers of competing projects which may include the General Partners and
their affiliates. As a result, the Partnership may be required to provide
free rent, reduced charges for tenant improvements and other inducements,
all of which may have an adverse impact on results of operations. At the
time the Partnership elects to dispose of its properties, the Partnership
will also be in competition with sellers of similar properties to locate
suitable purchasers for its properties.
(e) Basis of Presentation
-------------------------
The financial statements of Wells Real Estate Fund XI, L.P. (the
"Partnership") have been prepared in accordance with instructions to Form
10-Q and do not include all of the information and footnotes required by
generally accepted accounting principles for complete financial statements.
These quarterly statements have not been examined by independent
accountants, but in the opinion of the General Partners, the statements for
the unaudited interim periods presented include all adjustments, which are
of a normal and recurring nature, necessary to present a fair presentation
of the results for such periods.
(f) Partnership Distributions
-----------------------------
Net Cash From Operations, as defined in the Partnership Agreement, will be
distributed first to Limited Partners holding Class A Status Units on a per
Unit basis until they have received a 10% annual return on their Net
Capital Contributions, as defined in the Partnership Agreement. Further
distributions of Net Cash From Operations will be made to the General
Partners until they receive distributions equal to 10% of the total amount
of Net Cash From Operations distributed. Thereafter, the Limited Partners
holding Class A Status Units will receive 90% of Net Cash From Operations
and the General Partners will receive 10%. No Net Cash From Operations
will be distributed to Limited Partners holding Class B Status Units. No
distributions will be paid to the Limited Partners for the quarter ended
March 31, 1998.
(g) Income Taxes
----------------
The Partnership has not requested a ruling from the Internal Revenue
Service to the effect that it will be treated as a partnership and not an
association taxable as a corporation for Federal income tax purposes. The
Partnership requested an opinion of counsel as to its tax status, but such
opinion is not binding upon the Internal Revenue Service.
(h) Statement of Cash Flows
---------------------------
For the purpose of the statement of cash flows, the Partnership considers
all highly liquid debt instruments purchased with an original maturity of
three months or less to be cash equivalents. Cash equivalents include cash
and short-term investments.
8
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(2) Deferred Project Costs
----------------------
The Partnership pays Acquisition and Advisory Fees to the General Partners
for acquisition and advisory services. These payments, as provided by the
Partnership Agreement, may not exceed 3% of the Limited Partners' capital
contributions. Acquisition and Advisory Fees paid as of March 31, 1998,
amounted to $77,134 and represented approximately 3% of the Limited
Partners' capital contributions received. These fees are allocated to
specific properties as they are purchased.
(3) Deferred Offering Costs
-----------------------
Wells Capital, Inc. (the "Company"), the general partner of Wells Partners,
L.P., pays all the offering expenses for the Partnership. The Company may
be reimbursed by the Partnership to the extent that such offering expenses
do not exceed 3% of total Limited Partners' capital contributions. As of
March 31, 1998, the Partnership had reimbursed the Company for $77,134 in
offering expenses, which amounted to approximately 3% of Limited Partners'
capital contributions.
(4) Due To Affiliates
-----------------
Due to Affiliates consists of Acquisition and Advisory Fees, deferred
offering costs, and other operating expenses paid by the Company on behalf
of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
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RESULTS OF OPERATION.
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The following discussion and analysis should be read in conjunction with the
accompanying financial statements of the Partnership and notes thereto. This
Report contains forward-looking statements, within the meaning of Section 27A of
the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934,
including discussion and analysis of the financial condition of the Partnership,
anticipated capital expenditures required to complete certain projects, amounts
of cash distributions anticipated to be distributed to Limited Partners in the
future and certain other matters. Readers of this Report should be aware that
there are various factors that could cause actual results to differ materially
form any forward-looking statement made in this Report, which include
construction costs which may exceed estimates, construction delays, lease-up
risks, inability to obtain new tenants upon expiration of existing leases, and
the potential need to fund tenant improvements or other capital expenditures out
of operating cash flow.
The Partnership commenced active operations on March 3, 1998, when it received
and accepted subscriptions for 125,000 units. An aggregate requirement of
$2,500,000 of offering proceeds was reached on March 30, 1998, thus allowing for
the admission of New York and Pennsylvania investors into the Partnership. As
of March 31, 1998, the Partnership had sold 209,793 Class A Status Units and
47,318 Class B Status Units, held by a total of 685 and 35 Limited Partners
respectively, for total Limited Partner contributions of $2,571,118. After
payment of $77,134 in Acquisition and Advisory Fees, payment of $321,390 in
selling commissions and organization
9
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and offering expenses, as of March 31, 1998, the Partnership was holding net
offering proceeds of $2,172,594 available for investment in properties. The
Partnership has not yet invested in any properties.
Gross revenues of the Partnership of $7,005 for the three months ended March 31,
1998, were attributable primarily to interest income earned on funds held by the
Partnership prior to the investment in properties. Expenses of the Partnership
were $2,324 for the three months ended March 31, 1998, and consisted primarily
of administrative salaries and office expenses. Since the Partnership did not
commence active operations until it received and accepted subscriptions for a
minimum of 125,000 units on March 3, 1998, there is no comparative financial
data available from the prior fiscal year.
Net income per weighted average unit for Class A Limited Partners was $0.04 for
the three months ended March 31, 1998.
Net increase in cash and cash equivalents is the result of raising $2,571,118 in
Limited Partners' capital contributions before deducting commissions and
offering costs.
No cash distributions were made to Limited Partners during the first quarter of
1998.
The General Partners have verified that all operational computer systems are
year 2000 compliant. This includes systems supporting accounting, property
management and investor services. Also, as part of this review, all building
control systems have been verified as compliant. The current line of business
applications are based on compliant operating systems and database servers. All
of these products are scheduled for additional upgrades before the year 2000.
Therefore, it is not anticipated that the year 2000 will have significant impact
on operations.
Recent Accounting Pronouncements
- --------------------------------
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", requires certain transactions (e.g., unrealized
gains/losses on available for sale securities) that are not reflected in net
income to be displayed as other comprehensive income. The Statement also
requires an entity to report total comprehensive income (i.e., net income plus
other comprehensive income) for every period in which an income statement is
presented. SFAS No. 130 is effective for annual and interim periods beginning
after December 15, 1997. None of the transactions required to be reported in
other comprehensive income pertain to the Partnership; consequently, adoption of
this Statement had no impact on the partnership's disclosures.
Effective April 3, 1998, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 98-5, "Reporting on the Costs of Start-Up
Activities". SOP 98-5 is effective for fiscal years beginning after December
15, 1998, and initial application is required to be reported as a cumulative
effect of change in accounting principle. This SOP provides guidance on the
financial reporting of start-up costs and organization costs. It requires costs
of start-up
10
<PAGE>
activities and organization costs to be expensed as incurred. Adoption of this
Statement by the Partnership in the first quarter of 1999 may result in the
write-off of certain capitalized organization costs. Adoption of this Statement
is not expected to have a material impact on the Partnership's results of
operations and financial condition.
PART II - OTHER INFORMATION
---------------------------
ITEM 6 (b). No reports on Form 8-K were filed during the first quarter of 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND XI, L.P.
(Registrant)
Dated: May 11, 1998 By: /s/ Leo F. Wells, III
-------------------------
Leo F. Wells, III, as Individual
General Partner and as President
and Chief Financial
Officer of Wells Capital, Inc., the
General Partner of Wells Partners, L.P.
11
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 2,325,013
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 335,345
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 2,660,358
<CURRENT-LIABILITIES> 405,349
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,255,009
<TOTAL-LIABILITY-AND-EQUITY> 2,660,358
<SALES> 0
<TOTAL-REVENUES> 7,005
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 2,324
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,681
<EPS-PRIMARY> 0.04
<EPS-DILUTED> 0
</TABLE>
