<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 June 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
-------- --------
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund XI, L.P.
-------------------------------
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets June 30, 1998
and December 31, 1997.................................... 3
Statement of Income for the Three and Six Months
Ended June 30, 1998...................................... 4
Statements of Partners' Capital for the Six Months
Ended June 30, 1998...................................... 5
Statements of Cash Flows for the Six
Months Ended June 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.................................................. 20
2
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(a Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 1998 December 31, 1997
------ ------------- -----------------
<S> <C> <C>
Cash and cash equivalents $3,101,364 $ 600
Investment in Joint Venture (Note 2) 2,571,107 0
Deferred project costs (Note 3) 126,751 0
Deferred offering costs (Note 4) 318,723 194,020
Prepaid expenses and other assets 20,000 0
Due from affiliates 26,736 0
---------- --------
Total assets $6,164,681 $194,620
========== ========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Sales commissions payable $ 29,029 $ 0
Due to affiliates (Note 5) 329,307 194,020
---------- --------
Total liabilities 358,336 194,020
---------- --------
Partners' capital:
General partners 427 500
Original limited partner 100 100
Limited partners:
Class A 510,500 Units outstanding
at June 30, 1998 4,524,824 0
Class B 147,220 Units outstanding
at June 30, 1998 1,280,994 0
---------- --------
Total partners' capital 5,806,345 600
---------- --------
Total liabilities and partners' capital $6,164,681 $194,620
========== ========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(a Georgia Public Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Revenues:
Equity in income of joint ventures $11,581 $11,581
Interest income 70,023 77,028
------- -------
81,604 88,609
Expenses:
Legal and accounting 23,014 23,014
Computer costs 697 697
Printing and notebooks 4,592 4,592
Administrative salaries 2,859 4,732
Office expense 1,414 1,807
Postage 672 730
Other 2,345 2,345
------- -------
35,593 37,917
------- -------
Net income $46,011 $50,692
======= =======
Net loss allocated to General Partners $ (73) $ (73)
Net income allocated to Class A Limited Partners $53,266 $57,947
Net loss allocated to Class B Limited Partners $(7,182) $(7,182)
Net income per weighted average
Class A Limited Partner Unit $ .18 $ .22
Net loss per weighted average
Class B Limited Partner Unit $ (.10) $ (.10)
Cash distribution per Class A Limited Partner Unit $ 0 $ 0
-------
</TABLE>
4
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENT OF PARTNERS' CAPITAL
FOR THE SIX MONTHS ENDED JUNE 30, 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 - 510,500 5,105,002 147,220 1,472,201 - 6,577,203
Net income - - 57,947 - (7,182) (73) 50,692
Sales commissions - - (484,975) - (139,859) - (624,834)
Other offering expenses - - (153,150) - (44,166) - (197,316)
-------- ------- ---------- ------- ---------- ---- ----------
BALANCE,
JUNE 30, 1998 $100 510,500 $4,524,824 147,220 $1,280,994 $427 $5,806,345
======== ======= ========== ======= ========== ==== ==========
</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>
Six Months Ended
----------------
June 30, 1998
----------------
<S> <C>
Cash flows from operating activities:
Net income 50,692
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in earnings of joint venture (11,581)
Changes in assets and liabilities:
Increase in accounts receivables (15,000)
Increase in prepaid expenses and other assets (5,000)
Increase due to affiliates 10,584
-----------
Net cash provided by operating activities 29,695
-----------
Cash flow from investing activities:
Deferred project costs (230,202)
Investment in joint venture (2,482,811)
-----------
Net cash used in investing activities (2,713,013)
-----------
Cash flow from financing activities:
Limited partners' contributions 6,577,203
Sales commissions (595,805)
Offering costs (197,316)
-----------
Net cash provided by financing activities 5,784,082
-----------
Net increase in cash and cash equivalents 3,100,764
Cash and cash equivalents, beginning of year 600
-----------
Cash and cash equivalents, end of period $ 3,101,364
===========
Supplemental disclosure of noncash investing activities:
Deferred project costs applied to joint venture property $ 103,451
===========
</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
June 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 June 30, 1998, the Partnership had
sold 510,500 Class A Status Units, and 147,220 Class B Status Units, held
by a total of 886 and 52 Limited Partners, respectively, for total Limited
Partner capital contributions of $6,577,203. After payment of $230,202 in
Acquisition and Advisory Fees and Acquisition Expenses, payment of $822,150
in selling commissions and organization and offering expenses and
investment of $2,482,810 in the Fund IX-X-XI-REIT Joint Venture, as of June
30, 1998, the Partnership was holding net offering proceeds of $3,042,041
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 directly or indirectly by the Partnership. In the
opinion of management of the registrant, the properties are adequately
insured.
7
<PAGE>
(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. No
distributions were paid to the Limited Partners for the quarter ended June
30, 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
<PAGE>
(2) Investments in Joint Venture
----------------------------
The Partnership owns interest in four office buildings through its
ownership in a joint venture. The Partnership does not have control over
the operations of the joint venture; however, it does exercise significant
influence. Accordingly, investment in joint venture is recorded using the
equity method.
The following describes additional information about the properties in
which the Partnership owns an interest as of June 30, 1998:
Fund IX, Fund X, Fund XI and 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, affiliated with the Partnership through common
general partners, 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 the general partner. Wells OP and the
Wells REIT are also affiliated with 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.
As of June 30, 1998, the Partnership had contributed approximately
$2,482,810 for an approximate 7.8% equity interest in the Fund IX-X-XI-REIT
Joint Venture. As of June 30, 1998, Wells Fund IX had an approximate 45.8%
equity interest, Wells Fund X had an approximate 42.0% equity interest, and
Wells OP had an approximate 4.4% equity interest in the Fund IX-X-XI-REIT
Joint Venture.
ABB BUILDING
------------
On March 20, 1997, the Fund IX-X-XI-REIT Joint Venture began construction
on a three-story office building containing approximately 83,885 rentable
square feet (the "ABB Building") on a 5.62 acre tract of real property in
Knoxville, Knox County, Tennessee.
ABB Environmental Systems, a subsidiary of ABB, Inc., occupied its leased
space of 55,000 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
9
<PAGE>
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 for
its share of operating expenses during the lease term.
It is currently anticipated that the total cost to complete this project
which includes the final buildout of remaining space will be approximately
$7,800,000. It is currently anticipated that the Wells Fund IX will
contribute approximately $63,235 and that Wells Fund X will contribute
approximately $65,000 to the remaining cost of approximately $128,235.
For additional information regarding the ABB Building, refer to Supplement
No. 2, dated June 30, 1998, to the Prospectus of Wells Real Estate Fund XI,
L.P. dated December 31, 1997, contained in Post-Effective Amendment No. 6
to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and
Wells Real Estate Fund XI, L.P., which was filed with the Commission on
July 9, 1998 (Commission File No. 333-7979).
OHMEDA BUILDING
---------------
On February 13, 1998, the Joint Venture acquired a two story office
building that was completed in 1988 with approximately 106,750 rentable
square feet (the "Ohmeda Building") on a 15-acre tract of land located in
Louisville, Boulder County, Colorado from Lincor Centennial Ltd., a
Colorado limited partnership. The purchase price for the Ohmeda Building
was $10,325,000. The Joint Venture also incurred additional acquisition
expenses in connection with the purchase of the Ohmeda Building, including
attorneys' fees, recording fees and other closing costs for a total cost of
$10,347,955.
The entire 106,750 rentable square feet of the Ohmeda Building is currently
under a net lease date February 26, 1987, as amended by First Amendment to
Lease dated December 3, 1987, and as amended by Second Amendment to Lease
dated October 20, 1997 (the "Lease") with Ohmeda, Inc., a Delaware
corporation. The lease was assigned to the Joint Venture at the closing.
The lease currently expires in January 2005, subject to (i) Ohmeda's right
to effectuate an early termination of the lease under the terms and
conditions described below, and (ii) Ohmeda's right to extend the lease for
two additional five year periods of time at the then current market rental
rates.
Ohmeda is a medical supply firm based in Boulder, Colorado and is a
worldwide leader in vascular access and haemodynamic monitoring for
hospital patients. Ohmeda also has a special products division, which
produces neonatal and other oxygen care products. Ohmeda recently extended
an agreement with Hewlett-Packard to include co-marketing and promotion of
combined Ohmeda/H-P neonatal products.
10
<PAGE>
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 during the term
of the lease. In addition, Ohmeda shall 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, will be 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.
The lease contains an early termination cause that allows Ohmeda the right
to terminate the lease, subject to certain conditions, on either January
31, 2001 or January 31, 2002. In order to exercise this early termination
clause, Ohmeda must give the landlord notice on or before 5:00 p.m. MST,
January 31, 2000, and said notice must identify which early termination
date Ohmeda is exercising. If Ohmeda exercises its right to terminate on
January 31, 2001, then Ohmeda must tender $753,388.13 plus an amount equal
to the amount of real property taxes estimated to be payable to the
landlord in 2002 for the tax year 2001 based on the most recent assessment
information available on the early termination date. If Ohmeda exercises
its right to terminate on January 31, 2002, then Ohmeda must tender
$502,258.75 plus an amount equal to the amount of real property taxes
estimated to be payable to the landlord in 2003 for the tax year 2002 based
on the most recent assessment information available on the early
termination date. At the present time, real property taxes relating to
this property are approximately $135,500 per year. The payment of these
amounts by Ohmeda for early termination must be made on or before the 180th
day prior to the appropriate early termination date. If the amount of the
real property taxes actually assessed is greater than the amount paid by
Ohmeda on the early termination date, then Ohmeda shall pay the landlord
the difference within thirty (30) days of the receipt of landlord's demand
for said difference. If the amount of the real property taxes actually
assessed is less than the amount paid by Ohmeda on the early termination
date, then Ohmeda shall be entitled to a refund from the landlord of the
difference within thirty (30) days of the landlord's receipt of the real
property tax invoice for the appropriate tax year.
For the additional information regarding the Ohmeda Building, refer to
Supplement No. 2 dated June 30, 1998, to the Prospectus of Wells Real
Estate Fund XI, L.P. dated December 31, 1997, contained in Post-Effective
Amendment No. 6 to Form S-11 Registration Statement of Wells Real Estate
Fund X, L.P. and Wells Real Estate Fund XI, L.P., which was filed with the
Commission on July 8, 1998 (Commission File No. 333-7979).
11
<PAGE>
360 Interlocken Building
------------------------
On March 20, 1998, the Joint Venture acquired a three-story multi-tenant
office building containing approximately 51,974 rentable square feet (the
"360 Interlocken Building") on a 5.1 acre tract of land in Broomfield,
Boulder County, Colorado for a purchase price of $8,275,000, excluding
acquisition costs.
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.
For additional information regarding the 360 Interlocken Building, refer to
Supplement No. 2, dated June 30, 1998, to the Prospectus of Wells Real
Estate Fund XI, L.P., dated December 31, 1997, contained in Post-Effective
Amendment No. 6 to Form S-11 Registration Statement of Wells Real Estate
Fund X, L.P. and Wells Real Estate Fund XI, L.P., which was filed with the
Commission on July 8, 1998 (Commission File No. 333-7979).
LUCENT TECHNOLOGIES/OKLAHOMA CITY
---------------------------------
On May 30, 1997, the Joint Venture entered into an agreement for the
purchase and sale of real property with Wells Development Corporation
("Wells Development"), an affiliate of the General Partners, for the
acquisition and development of a one-story office building containing
57,186 net rentable square feet on 5.3 acres of land (the "Lucent
Technologies Building"). On June 24, 1998, the Fund IX-X-XI-REIT Joint
Venture purchased this property for a purchase price of $5,504,276.
Lucent Technologies, Inc., a world-wide leader in the telecommunications
technology producing a variety of communication products, has occupied the
entire Lucent Technologies Building. The initial term of the lease is ten
years commencing on January 5, 1998. Lucent Technologies has the option to
extend the initial term of the lease for two additional five year periods.
The annual base rent payable during the initial term is $508,383 payable in
equal monthly installment of $42,365 during the first five years and
$594,152 payable in equal monthly installments of $49,513 during the second
five years of the lease term. The annual base rent for each extended term
will be at market rental rates. In addition to the base rent, Lucent
Technologies will be required to pay additional rent equal to its share of
operating expenses during the lease term.
For additional information regarding the Lucent Technologies Building,
refer to Supplement No. 2, dated June 30, 1998, to the Prospectus of Wells
Real Estate Fund XI, L.P., dated December 31, 1997, contained in Post-
Effective Amendment No. 6 to Form S-11 Registration Statement of Wells Real
Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., which was filed
with the Commission on July 9, 1998 (Commission File No. 333-7979).
12
<PAGE>
(3) Deferred Project Costs
----------------------
The Partnership pays Acquisition and Advisory Fees and Acquisition Expenses
to Wells Capital, Inc., the Advisor, for acquisition and advisory services
and as reimbursements for acquisition expenses. These payments, as
provided by the Partnership Agreement, may not exceed 3 1/2% of the
Shareholders' capital contributions. Acquisition and Advisory Fees paid as
of June 30, 1998, amounted to $230,202 and represented approximately 3 1/2%
of the Shareholders' capital contributions received. These fees are
allocated to specific properties as they are purchased.
(4) 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
June 30, 1998, the Partnership had reimbursed the Company for $197,316 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 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 June 30, 1998, the Partnership had sold 510,500 Class A Status Units and
147,220 Class B Status Units, held by a total of 886 and 52 Limited Partners
respectively, for total Limited Partner contributions of $6,577,203. After
payment of $230,202 in
13
<PAGE>
acquisition and advisory fees and expenses, payment of $822,150 in selling
commissions and organization and offering expenses and investment of $2,482,810
in the Fund IX-X-XI-REIT Joint Venture, as of June 30, 1998, the Partnership was
holding net offering proceeds of $3,042,041 available for investment in
properties.
As of June 30, 1998, the properties owned by the Partnership were 91% occupied.
Gross revenues of the Partnership of $88,609 for the six months ended June 30,
1998, were attributable primarily to interest income earned on funds held by the
Partnership prior to the investment in properties and equity in the joint
venture. Expenses of the Partnership were $37,917 for the six months ended June
30, 1998, and consisted primarily of administrative 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 $0.18 for
the three months ended June 30, 1998 and $0.22 for the six months ended June 30,
1998. Net loss per weighted average unit for Class B Limited Partners was $0.10
for both the three and six months ended June 30, 1998. Net loss of $73 was
allocated to the General Partner.
Net increase in cash and cash equivalents is the result of raising $6,577,203 in
Limited Partners' capital contributions before deducting commissions and
offering costs and the investment of $2,482,810 in the joint venture.
No cash distributions were made to Limited Partners during the second quarter of
1998.
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 June 30, 1998, the Partnership has reserved $3,042,041 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
14
<PAGE>
2000. Therefore, it is not anticipated that the year 2000 will have significant
impact on the Partnership's 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 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 June 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 Six Months Ended
June 30, 1998 June 30, 1998
------------------ ----------------
<S> <C> <C>
Revenues:
Rental income $190,986 $381,972
Expenses:
Depreciation 93,684 184,778
Management & leasing expense 24,906 50,188
Other operating expenses 8,899 46,667
-------- --------
127,489 281,633
-------- --------
Net income $ 63,497 $100,339
======== ========
Occupied % 67% 67%
Partnership's Ownership % in the Fund
IX-X-XI-REIT Joint Venture 7.8% 7.8%
Cash distribution to Partnership $ 4,560 $ 4,560
Net income allocated to Partnership $ 2,100 $ 2,100
</TABLE>
The ABB Building is owned and operated by the Fund IX-X-XI-REIT Joint Venture.
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.
ABB Environmental Systems, a subsidiary of ABB, Inc., occupied its leased space
of 55,000 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.
It is currently anticipated that the total cost to complete the project will be
approximately $7,800,000. It is currently anticipated that the Wells Fund IX
will contribute $63,235 and that Wells Fund X will contribute $65,000 to the
remaining cost of approximately $128,235.
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 Five Months Ended
June 30, 1998 June 30, 1998
------------------ -----------------
<S> <C> <C>
Revenues:
Rental income $254,939 $389,023
Expenses:
Depreciation 81,576 135,960
Management & leasing expense 17,928 17,928
Other operating expenses 610 (89)
-------- --------
100,114 153,799
-------- --------
Net income $154,825 $235,224
======== ========
Occupied % 100% 100%
Partnership's Ownership % in the Fund
IX-X-XI-REIT Joint Venture 7.8% 7.8%
Cash distribution to Partnership $ 6,210 $ 6,210
Net income allocated to Partnership $ 4,188 $ 4,188
</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, 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 shall 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.
Since the Ohmeda Building was purchased in February 1998, comparative income and
expense figures are not available for the prior year.
17
<PAGE>
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Four Months Ended
June 30, 1998 June 30, 1998
------------------ -----------------
<S> <C> <C>
Revenues:
Rental income $212,442 $238,575
Expenses:
Depreciation 71,065 94,639
Management & leasing expense 19,237 19,237
Other operating costs, net of reimbursements (48,278) (48,278)
-------- --------
42,024 65,598
-------- --------
Net income $170,418 $172,977
======== ========
Occupied % 100% 100%
Partnership's Ownership % in the Fund
IX-X-XI-REIT Joint Venture 7.8% 7.8%
Cash distribution to Partnership $ 6,037 $ 6,037
Net income allocated to Partnership $ 4,864 $ 4,864
</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 an
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.
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>
One Month Ended
--------------
June 30, 1998
--------------
<S> <C>
Revenues:
Rental income $9,885
Expenses:
Depreciation 4,382
------
4,382
------
Net income $5,503
======
Occupied % 100%
Partnership's ownership % in the Fund
IX-X-XI-REIT Joint Venture 7.8%
Cash distributed to Partnership $9,929
Net income allocated to the Partnership $ 429
</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>
PART II - OTHER INFORMATION
---------------------------
ITEM 6 (b). No reports on Form 8-K were filed by the Registrant during the
second 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: August 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.
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,101,364
<SECURITIES> 2,571,107
<RECEIVABLES> 26,736
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 20,000
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 6,164,681
<CURRENT-LIABILITIES> 358,336
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 5,806,345
<TOTAL-LIABILITY-AND-EQUITY> 6,164,681
<SALES> 0
<TOTAL-REVENUES> 88,609
<CGS> 0
<TOTAL-COSTS> 37,917
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 50,692
<INCOME-TAX> 50,692
<INCOME-CONTINUING> 50,692
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 50,692
<EPS-PRIMARY> 0.22
<EPS-DILUTED> 0
</TABLE>
