<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 September 30, 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)
------------------------------------------------------
Wells Real Estate Fund XI, L.P.
- ------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2250094
- ------------------------------- -----------------
(State of other jurisdiction of (I.R.S. Employer
incorporation or organization) 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, 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
---------
Wells Real Estate Fund XI, L.P.
-------------------------------
INDEX
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<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1998
and December 31, 1997................................................................. 3
Statement of Income for the Three and Nine Months
Ended September 30, 1998.............................................................. 4
Statements of Partners' Capital for the Nine Months
Ended September 30, 1998.............................................................. 5
Statements of Cash Flows for the Nine
Months Ended September 30, 1998...................................................... 6
Condensed Notes to Financial Statements................................................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations........................................... 13
PART II. OTHER INFORMATION................................................................................ 22
</TABLE>
2
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WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30,1998 December 31, 1997
------ ----------------- -----------------
<S> <C> <C>
Cash and cash equivalents $3,412,621 $ 600
Investment in Joint Venture (Note 2) 4,993,318 0
Deferred project costs (Note 3) 179,552 0
Deferred offering costs (Note 4) 387,172 194,020
Prepaid expenses and other assets 15,000 0
Due from affiliates 75,926 0
---------- --------
Total assets $9,063,589 $194,620
========== ========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accrued payables $ 32,940 $ 0
Sales commissions payable 30,370 0
Due to affiliates (Note 5) 398,302 194,020
Partnership distribution payable 99,874 0
---------- --------
Total liabilities 561,486 194,020
---------- --------
Partners' capital:
General partners 46 500
Original limited partner 100 100
Limited partners:
Class A - 773,851 Units outstanding
at September 30, 1998 6,785,989 0
Class B - 201,249 Units outstanding
at September 30, 1998 1,715,968 0
---------- --------
Total partners' capital 8,502,103 600
---------- --------
Total liabilities and partners' capital $9,063,589 $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)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------ ------------------
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Equity in income of joint ventures $ 41,088 $ 52,669
Interest income (2,640) 74,388
------------------ ------------------
38,448 127,057
Expenses:
Legal and accounting 9,770 32,784
Computer costs 1,170 1,867
Printing and notebooks 1,151 5,743
Administrative salaries 6,109 10,841
Office expense 994 2,801
Postage 256 986
Other 435 2,780
------------------ ------------------
19,885 57,802
------------------ ------------------
Net income $ 18,563 $ 69,255
================== ==================
Net loss allocated to General Partners $ (381) $ (454)
Net income allocated to Class A Limited Partners $ 56,719 $114,666
Net loss allocated to Class B Limited Partners $(37,775) $(44,957)
Net income per weighted average
Class A Limited Partner Unit $ .14 $ .36
Net loss per weighted average
Class B Limited Partner Unit $ (.43) $ (.53)
Cash distribution per Class A Limited Partner Unit $ .15 $ .15
</TABLE>
4
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WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LIMITED PARTNERS TOTAL
--------------------------------------------
CLASS A CLASS B 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 - 773,851 7,738,512 201,249 2,012,486 - 9,750,998
Net income - - 114,666 - (44,957) (454) 69,255
Partnership distributions - - (99,874) - - - (99,874)
Sales commissions - - (706,968) - (191,186) - (898,154)
Other offering expenses - - (260,347) - (60,375) - (320,722)
---- ------- ---------- ------- ---------- ----- ----------
BALANCE,
SEPTEMBER 30, 1998 $100 773,851 $6,785,989 201,249 $1,715,968 $ 46 $8,502,103
==== ======= ========== ======= ========== ===== ==========
</TABLE>
See accompanying condensed notes to financial statements.
5
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WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1998
-------------------
<S> <C>
Cash flows from operating activities:
Net income $ 69,255
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of joint venture (52,669)
Changes in assets and liabilities:
Increase in accounts receivables (10,000)
Increase in prepaid expenses and other
assets (5,000)
Increase due to affiliates 44,070
-----------
Net cash provided by operating activities 45,656
-----------
Cash flow from investing activities:
Distributions received from joint ventures 26,736
Deferred project costs (341,285)
Investment in joint venture (4,881,577)
-----------
Net cash used in investing activities (5,196,126)
-----------
Cash flow from financing activities:
Limited partners' contributions 9,750,998
Sales commissions (895,976)
Offering costs (292,530)
-----------
Net cash provided by financing activities 8,562,492
-----------
Net increase in cash and cash equivalents 3,412,022
Cash and cash equivalents, beginning of year 600
-----------
Cash and cash equivalents, end of period $ 3,412,622
===========
Supplemental disclosure of noncash investing activities:
Deferred project costs applied to joint venture property $ 161,734
===========
</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
September 30, 1998
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-----------
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 September 30, 1998 the Partnership had
sold 773,851 Class A Status Units, and 201,249 Class B Status Units, held
by a total of 1008 and 64 Limited Partners, respectively, for total Limited
Partner capital contributions of $9,750,998. After payment of $341,285 in
acquisition and advisory fees and acquisition expenses, payment of
$1,218,875 in selling commissions and organization and offering expenses,
the investment of $2,482,810 in the Fund IX-X-XI-REIT Joint Venture, and
the investment of $2,398,767 in the Fund X-XI Joint Venture, as of
September 30, 1998, the Partnership was holding net offering proceeds of
$3,309,261 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
-------------
Wells Management Company, Inc., an affiliate of the General Partners,
carries comprehensive liability and extended coverage with respect to all
the properties owned
7
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directly or indirectly by the Partnership. In the opinion of management of
the registrant, the properties are adequately insured.
(d) Competition
---------------
The Partnership will experience competition for tenants from owners and
managers of competing projects which may include the General Partners and
their affiliates. As a result, the Partnership may be required to provide
free rent, reduced charges for tenant improvements and other inducements,
all of which may have an adverse impact on results of operations. At the
time the Partnership elects to dispose of its properties, the Partnership
will also be in competition with sellers of similar properties to locate
suitable purchasers for its properties.
(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.
(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
8
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equivalents. Cash equivalents include cash and short-term investments.
(2) Investments in Joint Venture
----------------------------
The Partnership owns interest in six office buildings through its ownership
in two joint ventures. The Partnership does not have control over the
operations of these two joint ventures; however, it does exercise
significant influence. Accordingly, investment in joint venture is
recorded using the equity method.
The following describes additional information about the properties in
which the Partnership owns an interest as of September 30, 1998:
FUND IX-X-XI-REIT JOINT VENTURE
-------------------------------
On June 11, 1998, Fund IX and Fund X Associates (the "Fund IX-X Joint
Venture"), a joint venture between Wells Real Estate Fund IX, L.P. ("Wells
Fund IX") and Wells Real Estate Fund X, L.P. ("Wells Fund X"), Georgia
public limited partnerships, was amended and restated to admit the
Partnership and Wells Operating Partnership, L.P. ("Wells OP"), a Delaware
limited partnership having Wells Real Estate Investment Trust, Inc. (the
"Wells REIT"), a Maryland corporation, as its General Partner. Wells Fund
IX, Wells Fund X, Wells OP and the Wells REIT are all Affiliates of the
Partnership and its General Partners.
The Joint Venture, which changed its name to the Fund IX-X-XI-REIT Joint
Venture, had previously acquired and owned the following three properties:
(i) the ABB Building located in Knoxville, Knox County, Tennessee, (ii) the
Ohmeda Building located in Louisville, Boulder County, Colorado, and (iii)
the 360 Interlocken Building located in Broomfield, Boulder County,
Colorado. On June 24, 1998, the Fund IX-X-XI-REIT Joint Venture purchased
the Lucent Technologies Building located in Oklahoma City, Oklahoma County,
Oklahoma. On July 1, 1998, Wells Fund X contributed the Iomega building
located in Ogden, Weber County, Utah to the Fund IX-X-XI-REIT Joint
Venture.
As of September 30, 1998, the Partnership had contributed $2,482,810 and
held an approximate 6.7% equity interest in the Fund IX-X-XI-REIT Joint
Venture. As of September 30, 1998, Wells Fund IX held an approximate 39.8%
equity interest, Wells Fund X held an approximate 49.7% equity interest,
and Wells OP held an approximate 3.8% equity interest in the Fund IX-X-XI-
REIT Joint Venture.
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")
and was credited with making a capital contribution to the IX-X-XI-REIT
Joint Venture in the amount of $5,050,425,
9
<PAGE>
which represents the purchase price of $5,025,000 plus acquisition expenses
of $25,425 originally paid by Wells Fund X for the Iomega Building on April
1, 1998.
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.
WELLS/ORANGE COUNTY JOINT VENTURE
---------------------------------
Wells OP entered into a joint venture agreement known as Wells/Orange
County Associates ("Cort Joint Venture") with Wells Development Corporation
("Wells Development") a Georgia corporation. 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 also 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 the Partnership and
Wells Fund X acquired an interest in the Cort Joint Venture from Wells
Development .
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.
The Partnership 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 interest in the Cort Joint
Venture.
10
<PAGE>
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 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 the
Partnership and the General Partners.
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 the Partnership each
contributed $750,000 of the Cort Earnest Money as 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 the Partnership 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. As of September 30, 1998, the
Partnership had made total capital contributions of $2,398,767 to the Fund
X-XI Joint Venture and held and approximate 42.1% equity percentage
interest in the Fund X-XI Joint Venture, while Wells Fund X had made
capital contributions of $3,296,233 and held an approximate 57.9% equity
percentage interest in the Fund X-XI Joint Venture. As of September 30,
1998, the Fund X-XI Joint Venture had made total capital contributions of
$3,695,000 and held an approximate 56% equity percentage interest in the
Cort Joint Venture, while Wells OP had contributed $2,870,982 and held an
approximate 44% equity percentage interest in the Cort Joint Venture.
Accordingly, as of September 30, 1998, the Partnership, through its
interest in the Fund X-XI Joint Venture, owned an approximate 21% equity
interest in the Cort Joint Venture.
WELLS/FREMONT JOINT VENTURE
---------------------------
On July 15, 1998, the Wells/Fremont Joint Venture was formed. Wells OP
entered into a joint venture agreement known as Wells/Fremont Associates
("Fremont Joint Venture") with Wells Development. 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 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
11
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cost of the Fairchild Building (the "Fairchild Loan"). The Fairchild Loan
had a one year term matuing on July 21, 1999. The interest rate on the
Fairchild Loan is a variable rate per annum equal to the LIBOR Rate for a
30-day period plus 220 basis points.
The Fairchild 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 the landlord 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.
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. 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"); the Partnership contributed $1,000,000 of the
Fremont Earnest Money as a capital contribution to the Fund X-XI Joint
Venture and; and Wells Fund X contributed $1,000,000 of the Fremont Earnest
Money as capital contribution to the Fund X-XI Joint Venture. 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. Wells OP has contributed $5,273,000 to the Fremont Joint
Venture as capital contribution as of September 30, 1998. As of September
30, 1998, Wells OP held an approximate 73% equity percentage interest and
Wells Development held an approximate 27% equity percentage interest in the
Fremont Joint Venture.
(3) Deferred Project Costs
----------------------
The Partnership pays Acquisition and Advisory Fees and Acquisition Expenses
to Wells Capital, Inc., the General Partner of Wells Partners, L.P., for
acquisition and advisory services and as reimbursement for acquisition
expenses. These payments, as provided in the Partnership Agreement, may
not exceed 3-1/2% of Limited Partners' capital contributions. Acquisition
and Advisory Fees and Acquisition Expenses paid as of September 30, 1998,
amounted to $341,285 and represented approximately 3-1/2% of Limited
Partners' capital contributions received. These fees are allocated to
specific properties as they are purchased.
12
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(4) Deferred Offering Costs
-----------------------
Wells Capital, Inc. (the "Company"), the General Partner of Wells Partners,
L.P., pays all offering expenses on behalf of 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 September 30, 1998, the Partnership had reimbursed the Company for
$292,530 in offering expenses, which amounted to approximately 3% of
Limited Partners' capital contributions.
(5) Due to Affiliates
-----------------
Due to Affiliates consists of Acquisition and Advisory Fees and Acquisition
Expenses 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
- -------------------------------------------------------------------------
RESULTS OF OPERATION.
- ---------------------
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
from 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 September 30, 1998, the Partnership had sold 773,851 Class A Status Units and
201,249 Class B Status Units, held by a total of 1008 and 64 Limited Partners
respectively, for total Limited Partner contributions of $9,750,998. After
payment of $341,285 in acquisition and advisory fees and expenses, payment of
$1,218,875 in selling commissions and organization and offering expenses, the
investment of $2,482,810 in the Fund IX-X-XI-REIT Joint Venture, and the
investment of $2,398,767 in the Fund X-XI Joint Venture, as of September 30,
1998 the Partnership was holding net offering proceeds of $3,309,261 available
for investment in properties.
As of September 30, 1998, the properties owned by the Partnership were 99%
occupied. Gross revenues of the Partnership of $127,057 for the nine months
ended September 30, 1998, were attributable primarily to interest income earned
on funds held by the Partnership prior to the
13
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investment in properties and equity in the joint venture. Expenses of the
Partnership were $57,802 for the nine months ended September 30, 1998, and
consisted primarily of administrative and legal 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 $0.14 for
the three months ended September 30, 1998 and $0.36 for the nine months ended
September 30, 1998. Net loss per weighted average unit for Class B Limited
Partners was $0.43 for the three months ended September 30, 1998 and $0.53 net
loss for the nine months ended September 30, 1998. Net loss of $454 was
allocated to the General Partner.
Net increase in cash and cash equivalents is the result of raising $9,750,998 in
Limited Partners' capital contributions before deducting commissions and
offering costs and the investment of $4,881,577 in the joint venture.
Cash distributions of $0.15 per weighted average unit were paid to Class A
Limited Partners for three months ended September 30, 1998, while no cash
distributions were paid to Class B Limited Partners.
The Partnership expects to continue to meet its short-term liquidity
requirements generally through net cash provided by operations which the
Partnership believes will continue to be adequate to meet both operating
requirements and distributions to limited partners. At this time, given the
nature of the joint venture and property in which the Partnership has invested,
there are no known improvements or renovations to the properties expected to be
funded from cash flow from operations.
The Partnership expects to make future real estate investments, directly or
through investments in joint ventures from limited partnership contributions.
As of September 30, 1998, the Partnership has reserved $3,309,261 for this
purpose.
Since properties are acquired on an all-cash basis, the Partnership has no
permanent long-term liquidity requirements.
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 the Partnership's operations.
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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 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.
15
<PAGE>
Property Operations
- -------------------
As of September 30, 1998, the Partnership owned interests in the following
operational properties:
The ABB Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
Sept. 30, 1998 Sept. 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income $ 208,370 $ 590,342
Interest income 6,000 6,000
---------- -----------
214,370 596,342
----------- -----------
Expenses:
Depreciation 120,433 305,211
Management & leasing expense 25,577 75,765
Other operating expenses, net of reimbursements 3,050 49,717
---------- -----------
149,060 430,693
---------- -----------
Net income $ 65,310 $ 165,649
========== ===========
Occupied % 95% 95%
Partnership's Ownership % in the Fund IX-X-XI-REIT Joint Venture 6.7% 6.7%
Cash distribution to Partnership $ 12,545 $ 17,105
Net income allocated to Partnership $ 4,388 $ 6,488
</TABLE>
ABB Environmental Systems, a subsidiary of ABB, Inc., occupied its leased space
of 56,012 rentable square feet comprising approximately 67% of the building in
December 1997. The initial term of the lease is 9 years and 11 months. ABB has
the option under its lease to extend the initial term of the lease for two
consecutive five year periods. The annual base rent payable during the initial
term is $646,250 payable in equal monthly installments of $53,854 during the
first five years and $728,750 payable in equal monthly installments of $60,729
during the last four years and 11 months of the initial term. The annual base
rent for each extended term will be at market rental rates. In addition to the
base rent, ABB is required to pay additional rent equal to its share of
operating expenses during the lease term. Another tenant has occupied 23,490
rentable square feet bringing the occupancy to 95%.
It is currently anticipated that the total cost to complete the project will be
approximately $7,900,000. It is currently anticipated that Wells Fund IX
will contribute approximately $80,000 of the remaining cost to complete the
building.
Since the ABB Building was opened in December 1997, comparative income and
expense figures for the prior year are not available.
16
<PAGE>
The Ohmeda Building/Fund IX-X-XI-REIT Joint Venture
- ---------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Eight Months Ended
Sept. 30, 1998 Sept. 30, 1998
------------------- -------------------
<S> <C> <C>
Revenues:
Rental income $ 254,940 $ 643,963
------------- ---------------
Expenses:
Depreciation 81,576 217,536
Management & leasing expense 11,618 29,546
Other operating expenses, net of reimbursements 1,171 1,082
------------- ---------------
94,365 248,164
------------- ---------------
Net income $ 160,575 $ 395,799
============= ===============
Occupied % 100% 100%
Partnership's Ownership % in the Fund IX-X-XI-REIT Joint Venture 6.7% 6.7%
Cash distribution to Partnership $ 16,012 $ 22,222
Net income allocated to Partnership $ 10,787 $ 14,975
</TABLE>
On February 13, 1998, the Fund IX-X-XI-REIT Joint Venture (formerly, the Fund
IX-X Joint Venture) acquired a two story office building containing
approximately 106,750 rentable square feet on a 15-acre tract of land located in
Louisville, Boulder County, Colorado (the "Ohmeda Building") for a purchase
price of $10,325,000, excluding acquisition costs. The Partnership was admitted
to the Fund IX-X-XI-REIT Joint Venture and, accordingly, the Company acquired an
interest in this property on June 11, 1998.
The entire Ohmeda building is currently under a net lease with Ohmeda, Inc. and
was assigned to the Fund IX-X-XI-REIT Joint Venture at closing. The lease
currently expires in January 2005.
The monthly base rental payable under the lease is $83,709.79 through January
31, 2003; $87,890.83 from February 1, 2003 through January 31, 2004; and
$92,249.79 from February 1, 2004 through January 31, 2005. Under the lease,
Ohmeda is responsible for all utilities, taxes, insurance and other operating
costs with respect to the Ohmeda Building under the term of the lease. In
addition, Ohmeda is required to pay a $21,000 per year management fee for
maintenance and administrative services of the Ohmeda Building. The Fund IX-X-
XI-REIT Joint Venture, as landlord, is responsible for maintenance of the roof,
exterior and structural walls, foundations, other structural members and floor
slab, provided that the landlord's obligation to make repairs specifically
excludes items of cosmetic and routine maintenance such as the painting of
walls.
17
<PAGE>
Since the Ohmeda Building was purchased in February 1998, comparative income and
expense figures are not available for the prior year.
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Seven Months Ended
Sept. 30, 1998 Sept. 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income $ 215,289 $ 453,864
----------- ----------
Expenses:
Depreciation 71,793 166,432
Management & leasing expense 18,086 37,323
Other operating expenses, net of reimbursements (7,850) (56,128)
----------- ----------
82,029 147,627
----------- ----------
Net income $ 133,260 $ 306,237
=========== ==========
Occupied % 100% 100%
Partnership's Ownership % in the Fund IX-X-XI-REIT Joint Venture 6.7% 6.7%
Cash distribution to Partnership $ 13,178 $ 19,215
Net income allocated to Partnership $ 8,950 $ 13,814
</TABLE>
On March 20, 1998, the Fund IX-X-XI-REIT Joint Venture (formerly, the Fund IX-X
Joint Venture) acquired a three-story multi-tenant office building containing
approximately 51,974 rentable square feet on a 5.1 tract of land located in
Broomfield, Boulder County, Colorado (the "360 Interlocken Building") for a
purchase price of $8,275,000, excluding acquisition costs. The Partnership was
admitted to the Fund IX-X-XI-REIT Joint Venture and, accordingly, acquired its
interest in this property on June 11, 1998.
The 360 Interlocken Building was completed in December 1996. The first floor
has multiple tenants and contains 15,599 rentable square feet; the second floor
is leased to ODS Technologies, L.P. and contains 17,146 rentable square feet;
and the third floor is leased to Transecon, Inc. and contains 19,229 rentable
square feet.
Other operating expenses are negative due to tenant reimbursements being greater
than operating expenses. Since the 360 Interlocken Building was purchased in
March 1998, comparable income and expense figures for the prior year are not
available.
18
<PAGE>
Lucent Technologies Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Four Months Ended
Sept 30, 1998 Sept 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income $133,600 $143,485
-------- --------
Expenses:
Depreciation 51,514 55,896
Management & leasing expenses 5,084 5,084
Operating costs, net of reimbursements 7,584 7,584
-------- --------
64,182 68,564
-------- --------
Net income $ 69,418 $ 74,921
======== ========
Occupied % 100% 100%
Partnership's ownership in the Fund IX-X-XI-REIT Joint Venture 6.7% 6.7%
Cash distributed to Partnership $ 7,685 $ 17,614
Net Income allocated to the Partnership $ 4,664 $ 5,093
</TABLE>
On June 24, 1998, Fund IX-X-XI-REIT Joint Venture acquired a one-story office
building containing approximately 57,186 rentable square feet on a 5.3 acre
tract of land in Oklahoma City, Oklahoma (the "Lucent Technologies Building")
for a purchase price of $5,504,276, excluding acquisition cost.
The Lucent Technologies Building was completed in January 1998 with Lucent
Technologies occupying the entire building.
Since the Lucent Technologies Building was purchased in June 1998, comparable
income and expense figures for the prior year are not available.
19
<PAGE>
Wells/Cort Joint Venture
- ------------------------
<TABLE>
<CAPTION>
Two Months Ended
------------------------------
Sept. 30, 1998
------------------------------
Revenues:
<S> <C>
Rental income $133,857
Expenses:
Depreciation 45,288
Management & leasing expenses 5,144
Operating costs, net of reimbursements 29,700
--------
80,132
--------
Net income $ 53,725
========
Occupied % 100%
Partnership's ownership % 21.2%
Cash distributed to the Partnership $ 19,051
Net income allocated to the Partnership $ 7,664
</TABLE>
On July 31, 1998, the Cort Joint Venture acquired a one-story office and
warehouse building containing approximately 52,000 rentable square feet on a
3.65 acre tract of land in Fountain Valley, California (the "Cort Building") for
a purchase price of $6,400,000, excluding acquisition costs.
The building is 100% leased by Cort Furniture Rental Corporation with a lease
expiration of October 31, 2003.
Since the Cort Building was purchased in July 1998, comparable income and
expense figures for the prior year are not available.
20
<PAGE>
Iomega Building/Fund IX-X-XI-REIT Joint Venture
- -----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, 1998 September 30, 1998
------------------- ------------------
<S> <C> <C>
Revenues:
Rental income $126,666 $246,666
-------- --------
Expenses:
Depreciation 48,594 97,578
Management & leasing expenses 5,596 11,199
Operating costs, net of reimbursements 3,526 5,731
-------- --------
57,716 114,508
-------- --------
Net income $ 68,950 $132,158
======== ========
Occupied % 100% 100%
Partnership's ownership % 6.7% 6.7%
Cash distributed to Partnership $ 7,449 $ 7,449
Net Income allocated to the Partnership $ 4,632 $ 4,632
</TABLE>
On April 1, 1998, Wells Fund X acquired a single story warehouse and office
building containing approximately 100,000 rentable square feet on a 8.03 acre
tract of land in Ogden, Weber County, Utah (the "Iomega Building") for a
purchase price of $5,025,000.
On July 1, 1998, Wells Fund X contributed the Iomega Building to the Fund IX-X-
XI-REIT Joint Venture. The Partnership acquired an interest in the Iomega
Building and began participating in income and distributions from this property
as of July 1, 1998.
The entire Iomega Building is under a net lease with Iomega Corporation until
July 31, 2006.
Since the Iomega Building was purchased in April 1998, comparable income and
expense figures for the prior year are not available.
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.
21
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 6 (b). During the third quarter of 1998, the Registrant filed a Current
Report on Form 8-K dated September 1, 1998, describing the acquisition of an
interest in the Cort Joint Venture by the Wells Fund X-XI Joint Venture
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: November 10, 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.
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 3,412,621
<SECURITIES> 4,993,318
<RECEIVABLES> 75,926
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 581,724
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 9,063,589
<CURRENT-LIABILITIES> 561,486
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,502,103
<TOTAL-LIABILITY-AND-EQUITY> 9,063,589
<SALES> 0
<TOTAL-REVENUES> 127,057
<CGS> 0
<TOTAL-COSTS> 57,802
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 69,255
<INCOME-TAX> 69,255
<INCOME-CONTINUING> 69,255
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 69,255
<EPS-PRIMARY> .36
<EPS-DILUTED> 0
</TABLE>
