<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, 1999 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 0-25731
----------------------------------------------------------
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
-----
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1999
and December 31, 1998................................ 3
Statement of Income for the Three and Six Months
Ended June 30, 1999 and 1998......................... 4
Statements of Partners' Capital for the Year Ended
December 31, 1998 and the Six Months Ended June 30,
1999................................................. 5
Statements of Cash Flows for the Six
Months Ended June 30, 1999 and 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.............................................. 24
2
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WELLS REAL ESTATE FUND XI, L.P.
(a Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 1999 December 31, 1998
------ ------------- -----------------
<S> <C> <C>
Cash and cash equivalents $ 6,546,138 $ 9,292,800
Investment in Joint Venture (Note 4) 7,379,878 4,997,787
Deferred project costs (Note 2) 276,080 375,246
Organizational Costs, less accumulated amortization
of $6,250 in 1998 and $9,375 in June, 1999 21,875 25,000
Due from Affiliates 215,438 126,692
Prepaid expenses and other assets 26,990 26,990
------------ ------------
Total assets $ 14,466,399 $ 14,844,515
============ ============
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Due to Affiliates $ (595) $ 88,473
Partnership distribution payable 196,635 141,007
Sales commissions payable 0 214,609
------------ ------------
Total liabilities 196,040 444,089
------------ ------------
Partners' capital:
Limited partners:
Class A - 1,310,906 11,488,904 11,439,315
Class B - 342,374 2,781,355 2,961,011
Original Partner 100 100
------------ ------------
Total partners' capital 14,270,359 14,400,426
------------ ------------
Total liabilities and partners' capital $ 14,466,399 $ 14,844,515
============ ============
</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 Six Months Ended
------------------ ----------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Interest income $ 74,364 $ 70,023 $ 146,186 $ 77,028
Equity in income of joint ventures 98,117 11,581 186,795 11,581
--------- --------- --------- --------
172,481 81,604 332,981 88,609
Expenses: --------- --------- --------- --------
Computer costs 1,477 697 3,141 697
Partnership administration 14,131 11,882 33,508 14,206
Legal and accounting 19,298 23,014 31,199 23,014
Amortization of organization costs 1,562 0 3,125 0
--------- --------- --------- --------
36,468 35,593 70,973 37,917
--------- --------- --------- --------
Net income $ 136,013 $ 46,011 $ 262,008 $ 50,692
========= ========= ========== ========
Net loss allocated to General Partners 0 $ (73) $ 0 $ (73)
Net income allocated to Class A Limited $ 199,995 $ 53,266 $ 374,368 $ 57,947
Partners
Net loss allocated to Class B Limited $ (63,983) $ (7,182) $ (112,360) $ (7,182)
Partners
Net income per weighted average $ .15 $ (.18) $ .20 $ .22
Class A Limited Partner Unit
Net loss per weighted average
Class B Limited Partner Unit $ (.19) $ (.10) $ (.33) $ (.10)
Cash distribution per Class A Limited
Partner Unit $ .15 $ 0 $ .30 $ 0
</TABLE>
4
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WELLS REAL ESTATE FUND XI, L.P.
(a Georgia Public Limited Partnership
STATEMENT OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1998
AND THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
Limited Partners
----------------------------------------------
Class A Class B Total
------- ------- General Partner's
Original Units Amounts Units Amounts Partners Capital
-------- ----- ------- ----- ------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31, 1997 $ 100 0 $ 0 0 $ 0 $ 500 $ 600
Limited partner contributions 0 1,302,942 13,029,423 350,333 3,503,378 0 16,532,801
Net income (loss) 0 0 254,862 0 (111,067) (500) 143,295
Sales commissions 0 0 (1,237,834) 0 (332,821) 0 (1,570,655)
Other offering expenses 0 0 (366,255) 0 (98,479) 0 (464,734)
Partnership distributions 0 0 (240,881) 0 0 0 (240,881)
----- --------- ------------ --------- ----------- ----- ------------
BALANCE,
December 31, 1998 $ 100 1,302,942 $ 11,439,315 350,338 $ 2,961,011 $ 0 $ 14,400,426
----- --------- ------------ --------- ----------- ----- ------------
Net income (loss) 0 0 374,368 0 (112,360) 0 262,008
Partnership distributions 0 0 (392,075) 0 0 0 (392,075)
Class A conversions elections 0 8,000 67,616 (8,000) (67,616) 0 0
Class B conversions elections 0 (36) (320) 36 320 0 0
----- --------- ------------ --------- ----------- ----- ------------
BALANCE,
June 30, 1999 $ 100 1,310,906 $ 11,488,904 342,374 $ 2,781,355 0 $ 14,270,359
===== ========== ============ ========= =========== ===== ============
</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>
Six Months Ended
----------------
June 30, 1999 June 30, 1998
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 262,008 $ 50,692
Adjustments to reconcile net income to net cash
(used in) provided by operating activities:
Equity in earnings of joint venture (186,795) (11,581)
Changes in assets and liabilities:
Amortization of organization costs 3,125 0
Increase in accounts receivables 0 (15,000)
Decrease in accounts payable (1,125) 0
Increase in prepaid expenses and other assets (60,000) (5,000)
(Decrease) Increase due to affiliates (87,944) 10,584
------------ ------------
Net cash (used in) provided by operating activities (70,731) 29,695
------------ ------------
Cash flow from investing activities:
Deferred project costs 0 (230,202)
Investment in joint venture (2,381,000) (2,482,811)
Distributions received from joint ventures 256,126 0
------------ ------------
Net cash used in investing activities (2,124,874) (2,713,013)
Cash flow from financing activities:
Limited partners' contributions 0 6,577,203
Sales commissions (214,609) (595,805)
Offering costs 0 (197,316)
Distribution to Partners from accumulated earnings (336,447) 0
------------ ------------
Net cash (used in) provided by financing activities (551,056) 5,784,082
------------ ------------
Net (decrease) increase in cash and cash equivalents (2,746,662) 3,100,764
Cash and cash equivalents, beginning of year $ 9,292,800 $ 600
------------ ------------
Cash and cash equivalents, end of period $ 6,546,138 $ 3,101,364
============ ============
Supplemental disclosure of noncash investing activities:
Deferred project costs applied to joint venture property $ 99,167 $ 103,451
============ ============
</TABLE>
See accompanying condensed notes to financial statements.
6
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WELLS REAL ESTATE FUND XI, L.P.
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
June 30, 1999
(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. As of June 30, 1999,
the Partnership had sold 1,310,906 Class A Status Units, and 342,374 Class
B Status Units, held by a total of 1,250 and 95 Class A and B Limited
Partners, respectively, for total Limited Partner capital contributions of
$16,532,802. After payment of $578,648 in acquisition and advisory fees and
acquisition expenses, payment of $2,066,600 in selling commissions and
organization and offering expenses, the investment of $3,333,810 in the
Fund IX-X-XI-REIT Joint Venture, and the investment of $2,398,767 in Fund
X-XI Joint Venture and the investment of $1,530,000 in the Fund XI-XII-REIT
Joint Venture, as of June 30, 1999, the Partnership was holding net
offering proceeds of $6,624,977 available for investment in properties.
The Partnership owns interests in properties through equity ownership in
the following joint ventures: (i) the Fund X and Fund XI Joint Venture, a
joint venture among the Partnership and Wells Real Estate Fund X, L.P. (the
"Fund X-XI Joint Venture"), (ii) the Fund IX-X-XI-REIT Joint Venture, a
joint venture between the Partnership and Wells Real Estate Fund IX, L.P.,
Wells Real Estate Fund X, L.P., and Wells Operating Partnership, L.P.
("Wells OP"), a Delaware limited partnership having Wells Real Estate
Investment Trust, Inc., as general partner (the "Fund IX-X-XI-REIT Joint
Venture"), and (iii) the Fund XI-XII-REIT Joint Venture, a joint venture
among the Partnership and Wells Real Estate Fund XII, L.P., and Wells OP
(the "Fund XI-XII REIT Joint Venture").
As of June 30, 1999, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a
three-story office building in
7
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Knoxville, Tennessee (the "ABB Building") which is owned by the Fund
IX-X-XI-REIT Joint Venture; (ii) a two-story office building in Bolder
County, Colorado (the "Ohmeda Building") which is owned by Fund
IX-X-XI-REIT Joint Venture; (iii) a three-story office building located in
Broomfield, Colorado (the "360 Interlocken Building") which is owned by
Fund IX-X-XI-REIT Joint Venture; (iv) a one-story office building located
in Oklahoma City, Oklahoma (the"Lucent Technologies Building") which is
owned by Fund IX-X-XI-REIT Joint Venture; (v) a single-story warehouse and
office building located in Ogden, Weber County, Utah (the "Iomega
Building") which is owned by Fund IX-X-XI-REIT Joint Venture; (vi) a
two-story office building located in Fremont, California (the "Fairchild
Building") which is owned by Wells/Fremont Associates (the "Fremont Joint
Venture"), a joint venture between the Fund X-XI Joint Venture and Wells
OP, (vii) a one-story office and warehouse building located in Fountain
Valley, California (the "Cort Building") which is owned by Wells/Orange
County Associates (the "Cort Joint Venture"), a joint venture between the
Fund X-XI Joint Venture and Wells OP, and (viii) a two-story manufacturing
and office building located in Fountain Inn, South Carolina (the "EYBL
CarTex Building"), which is owned by Fund XI-XII-REIT Joint Venture.
(b) 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.
(2) Deferred Project Costs
----------------------
The Partnership pays acquisition and advisory fees and acquisition expenses
to Wells Capital, Inc., for acquisition and advisory services. These
payments, as provided by the Partnership Agreement, may not exceed 3.5% of
the Limited Partners' capital contributions. Acquisition and advisory fees
and expenses paid as of June 30, 1999, amounted to $578,648 and represented
approximately 3.5% 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
June 30, 1999, the Partnership had reimbursed the
8
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Company for $495,984 in offering expenses, which amounted to approximately
3% of Limited Partners' capital contributions.
(4) Investments in Joint Ventures
-----------------------------
The Partnership owns interests in several properties as of June 30,
1999 through its ownership of joint ventures. The Partnership does not
have control over the operations of the joint ventures; however it does
exercise significant influence. Accordingly investments in joint
ventures is recorded on the equity method. For further information on
investments in joint ventures, see Form 10-K for the Partnership for
the year ended December 31, 1998.
The following describes additional information about the properties in
which the Partnership owns an interest as of June 30, 1999:
Fund IX-X-XI-REIT Joint Venture
-------------------------------
Iomega Building
---------------
On March 22, 1999, the Fund IX-X-XI-REIT Joint Venture purchased a 4.0
acre tract of vacant land adjacent to the Iomega Building located in
Ogden, Utah. This site is intended for additional parking and loading
dock area and will include at least 400 new parking stalls and new site
work for truck maneuver space, in accordance with the requirements of
the tenant and the city of Ogden. The project was completed on July 31,
1999. The tenant, Iomega Corporation, has agreed to extend the term of
its lease to April 30, 2009 and will pay as additional rent an amount
equal to thirteen percent (13%) per annum payable in monthly
installments of the direct and indirect cost of acquiring the property
and construction of improvements. This additional rent was due and
payable commencing on May 1, 1999. The tenant was billed retroactively
for this amount.
The land was purchased at a cost of $212,000 excluding acquisition
costs. It is anticipated that the total cost to complete the project
will be $612,689. The funds used to acquire the land and for the
improvements were funded entirely from capital contributions made by
the Partnership in the amount of $851,000. The project was completed at
a total cost of $874,625. It is anticipated that the shortfall will be
funded by Wells Real Estate Fund XI.
Acquisitions of Assets
----------------------
On May 18, 1999, Wells Real Estate, LLC - SC I ("Wells LLC"), a Georgia
limited liability company wholly owned by the Wells Fund XI-XII-REIT
Joint Venture (the "Joint Venture"), acquired a manufacturing and
office building located in Fountain Inn, unincorporated Greenville
County, South Carolina (the "EYBL CarTex Building"). Wells LLC
purchased the EYBL CarTex Building from Liberty Property Limited
Partnership, a Pennsylvania limited partnership (the "Seller").
9
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The Joint Venture is a joint venture partnership among Wells Operating
Partnership, L.P. ("Wells OP"), a Delaware limited Partnership formed
to acquire, own lease, operate and manage real properties on behalf of
the Wells Real Estate Investment Trust, Inc. (the "Wells REIT"), the
Partnership, and Wells Real Estate Fund XII, L.P. ("Wells Fund XII") an
affiliated Georgia limited partnership. The Joint Venture was
originally formed on May 1, 1999 as a joint venture between Wells OP
and the Partnership and pursuant to a joint venture partnership
agreement, which was amended and restated on June 21, 1999 to admit
Wells Fund XII as a joint venture partner. The Joint Venture was formed
for the purpose of the acquisition, ownership, development, leasing,
operation, sale and management of real properties. The investment
objectives of Wells OP and Wells Fund XII are substantially identical
to those of the Partnership.
Wells LLC was formed by the Joint Venture solely for the purpose of the
acquisition, ownership and operation of the EYBL CarTex Building.
The rights under the Contract were assigned by Wells Capital, Inc., an
affiliate of the Partnership and the original purchaser under the
Contract, to Wells LLC at closing. The purchase price for the EYBL
CarTex Building was $5,085,000. Wells LLC also incurred additional
acquisitions expenses in connection with the purchase of the EYBL
CarTex Building, including attorney's fees, recording fees and other
closing costs, of approximately $37,000.
The Partnership contributed $1,530,000 to the Joint Venture and held an
equity percentage interest in the Joint Venture of approximately 29.9%
for its share of the purchase of the EYBL CarTex Building, and Wells OP
contributed $3,592,000 to the Joint Venture and, as of June 30, 1999,
held an equity percentage interest in the Joint Venture of
approximately 70.1% for its share of the purchase of the EYBL CarTex
Building. Wells Fund XII had not yet contributed to the Joint Venture
as of June 30, 1999. All income, loss, profit, net cash flow, resale
gain and sale proceeds of the Joint Venture are allocated and
distributed between the Partnership, Wells Fund XII, and Wells OP based
upon their respective capital contributions to the Joint Venture.
The EYBL CarTex Building is a manufacturing and office building
consisting of a total of 169,510 square feet comprised of approximately
140,580 square feet of manufacturing space, 25,300 square feet of
two-story office space and 3,360 square feet of cafeteria/training
space. An addition was constructed to the EYBL CarTex Building in 1989,
which consisted of an additional 64,000 square feet of warehouse space.
The property, located at 111 SouthChase Boulevard, was developed in the
early 1980s on a site of approximately 11.94 acres. The site is located
in the SouthChase Industrial Park, which is located adjacent to I-385
in southwest Greenville with easy access to I-85. The current
configuration of the parking lot allows for approximately 252 spaces
for vehicles, which has proven adequate for current tenant. The
landscaping at the facility is in good condition and is consistent with
the quality level of the entire complex.
10
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An independent appraisal of the EYBL CarTex Building was prepared by CB
Richard Ellis, real estate appraisers, as of April 27, 1999, pursuant
to which the market value of the land and the leased fee interest
subject to the Lease (described below) was estimated to be $5,250,000,
in cash or terms equivalent to cash. This value estimate was based upon
a number of assumptions, including that the EYBL CarTex Building will
continue operating at a stabilized level with EYBL Cartex occupying
100% of the rentable area, and is not necessarily an accurate
reflection of the fair market value of the property. The Partnership
also obtained an environmental report prepared by Law Engineering and
Environmental Testing, Inc. prior to closing evidencing that the
environmental condition of the land and the EYBL CarTex Building was
satisfactory.
The entire 169,510 rentable square feet of the EYBL CarTex Building is
currently under an Agreement of Lease (The "Lease") with EYBL CarTex,
Inc., a South Carolina corporation ("Eybl CarTex"). The Lease was
assigned to Wells LLC at the closing.
The initial term of the Lease is ten years which commenced on March 1,
1998 and expires in February 2008. EYBL CarTex has the right to extend
the Lease for two additional five year periods of time. Each extension
option must be exercised by giving notice to the landlord at least 12
months prior to the expiration date of the then current lease term.
The base rent payable under the Lease for the remainder of the lease
term shall be as follows.
Lease Year Annual Rent
---------- -----------
2 $508,530.00
3 $508,530.00
4 $508,530.00
5 $550,907.50
6 $550,970.50
7 $593,285.00
8 $593,285.00
9 $610,236.00
10 $610,236.00
Under the Lease, EYBL CarTex is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and
other operating costs with respect to the EYBL CarTex Building during
the term of the Lease. In additional, EYBL CarTex is responsible for
all routine maintenance and repairs to the EYBL CarTex Building. Wells
LLC, as landlord, is responsible for maintenance of the footings and
foundations and the structural steel columns and girders associated
with the building.
11
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Pursuant to a lease commission agreement dated February 12, 1998
between Seller and The McNamara Company, Inc., Wells LLC is required to
pay on or before March 1 of each year an amount equal to $13,787 as a
brokerage fee to the McNamara Company, Inc. through March 1, 2007.
For additional information regarding the EYBL CarTex Building, refer to
the Partnership's form 8-K dated May 18, 1999, which was filed with the
Commission on June 2, 1999 (Commission File No. 0-25731).
Property Management Fees
------------------------
Wells Management Company, Inc. ("Wells Management"), an affiliate of
the Partnership, has been retained to manage and lease the EYBL CarTex
Building. Wells LLC pays management and leasing fees to Wells
Management in the amount of 4.5% of gross revenues from the EYBL CarTex
Building on a monthly basis.
Fund XI-XII-REIT Joint Venture
------------------------------
On June 21, 1999, Fund XI and REIT Associates, a joint venture between
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, was amended and restated to admit Wells Real Estate Fund XII,
L.P. ("Wells Fund XII"), a Georgia public limited partnership. Wells
Fund XII is also affiliated with the Partnership and its General
Partners.
The Sprint Building
-------------------
On July 2, 1999, the Fund XI-XII-REIT Joint Venture acquired a
three-story office building with approximately 68,900 rentable square
feet located in Leawood, Johnson County, Kansas (the "Sprint Building")
for a purchase price of $9,546,210.
Sprint Communications, a world wide leader in the telecommunications
field has occupied the entire Sprint Building since May 19, 1997, under
a 10 year net lease that expires on May 18, 2007. Sprint has the right
to extend the lease for two additional five year periods. The annual
base rent payable during the first five years of the lease is $999,050
in equal monthly installments of $83,254. The annual base rent during
the last five years of the lease is $1,102,400 in equal monthly
installments $91,867. The monthly base rent for each extended term of
the Lease will be equal to 95% of the then "current market rate" which
is calculated as a full-service rental rate less anticipated annual
operating expenses on a rentable square foot basis charged for space of
comparable location, size and conditions in comparable office buildings
in the suburban south Kansas City, Missouri and south Johnson County,
Kansas areas. In addition to base rent, Sprint will pay as additional
rent all real estate taxes, special assessments, utilities, taxes,
insurance and other operating costs with respect to the Sprint Building
during the term of the Lease. In addition, Sprint is responsible for
all routine maintenance and repairs
12
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including the interior mechanical and electrical systems, the HVAC system,
the parking lot and the landscaping to the Sprint Building. The Fund
XI-XII-REIT Joint Venture, as landlord, is responsible for repair and
replacement of the exterior, roof, foundation and structure.
The Partnership contributed $3,000,000, Wells Fund XII contributed
$1,000,000 and Wells OP contributed $5,546,210 to the Joint Venture for
their respective share of the acquisition costs for the Sprint
Building.
The Partnership has made total capital contributions to the Fund
XI-XII-REIT Joint Venture of $4,530,000 and currently has an equity
percentage interest in the Fund XI-XII-REIT Joint Venture of $30.88%;
Wells Fund XII has made total capital contributions to the Fund
XI-XII-REIT Joint Venture of $1,000,000 and currently has an equity
percentage interest in the Fund XI-XII-REIT Joint Venture of 6.82%; and
Wells OP has made total capital contributions to the Fund XI-XII-REIT
Joint Venture of $9,138,038 and currently has an equity percentage
interest in the Fund XI-XII-REIT Joint Venture of 62.30%.
For additional information regarding the Sprint Building, refer to the
Partnership's Form 8-K dated July 2, 1999, which was filed with the
Commission on July 16, 1999 (Commission File No. 0-25731).
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 the shareholders 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, financing risks, 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.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
As of June 30, 1999, the developed properties owned by the Partnership
were 99.8% occupied, compared to 91% in 1998. Gross revenues of the
Partnership of were $332,981 and $88,609 for the six months ended June
30, 1999 and 1998, respectively. The increase
13
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in revenues was attributable primarily to interest income earned on funds
held by the Partnership prior to the investment in properties and increase
in income from joint ventures. Expense of the Partnership were $70,973 for
the six months ended June 30, 1999 as compared to $37,917 for the same
period in 1998. The increase was due to an increase in administrative
salaries as well as accounting and legal expenses, computer costs and
amortization expense.
Net income per weighted average unit for Class A Limited Partners was
$0.29 and $0.22 for the six months ended June 30, 1999 and 1998,
respectively.
The Partnership's distributions from net cash from operations accrued
to Class A units holders for the second quarter of 1999 was $0.15 per
weighted average unit. There were no distributions for the same period
in 1998.
Liquidity and Capital Resources
-------------------------------
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 distribution to limited partners. At this
time, given the nature of the joint ventures in which the Partnership
has invested, there are no known improvements or renovation 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
partners' capital contributions. As of June 30, 1999, the Partnership
was holding $6,624,977 available for investment in additional
properties.
Year 2000
---------
The Partnership is presently reviewing the potential impact of Year
2000 compliance issues on its information systems and business
operations. A full assessment of Year 2000 compliance issues was begun
in late 1997 and was completed during the first half of 1999.
Renovations and replacements of equipment have been and are being made
as warranted. The costs incurred by the Partnership and its affiliates
thus far for renovations and replacements have been immaterial. As of
June 30, 1999, all testing of systems has been completed.
As to the status of the Partnership's information technology systems,
it is presently believed that all major systems and software packages
are year 2000 compliant. At the present time, it is believed that all
major non-information technology systems are Year 2000 compliant. The
cost to upgrade any non-compliant systems is believed to be immaterial.
The Partnership has confirmed with the Partnership's vendors, including
third-party service providers such as banks, that their systems are
Year 2000 compliant.
14
<PAGE>
The Partnership relies on computers and operating systems provided by
equipment manufacturers, and also on application software designed for
use with its accounting, property management and investment portfolio
tracking. The Partnership has preliminarily determined that any costs,
problems or uncertainties associated with the potential consequences of
Year 2000 issues are not expected to have a material impact on the
future operations or financial condition of the Partnership. The
Partnership will perform due diligence as to the Year 2000 readiness of
each property owned by the Partnership and each property contemplated
for purchase by the Partnership.
The Partnership's reliance on embedded computer systems (i.e.,
microcontrollers) is limited to facilities related matters, such as
office security systems and environmental control systems.
The Partnership is currently formulating contingency plans to cover any
areas of concern. Alternate means of operating the business are being
developed in the unlikely circumstance that the computer and phone
systems are rendered inoperable. An off-site facility from which the
Partnership could operate is being sought as well as alternate means of
communication with key third-party vendors. A written plan is being
developed for testing and dispensation to each staff member of the
General Partner of the Partnership.
Management believes that the Partnership's risk of Year 2000 problems
is minimal. In the unlikely event there is a problem, the worst case
scenarios would include the risks that the elevator or security systems
within the Partnership's properties would fail or the key third-party
vendors upon which the Partnership relies would be unable to provide
accurate investor information. In the event that the elevator shuts
down, the Partnership has devised a plan for each building whereby the
tenants will use the stairs until the elevators are fixed. In the event
that the security system shuts down, the Partnership has devised a plan
for each building to hire temporary on-site security guards. In the
event that a third-party vendor has Year 2000 problems relating to
investor information, the Partnership intends to perform a full system
back-up of all investor information as of December 31, 1999 so that the
Partnership will have accurate hard-copy investor information.
15
<PAGE>
Property Operations
- -------------------
As of June 30, 1999, 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 30,1999 June 30,1998 June 30,1999 June 30, 1998
------------ ------------ ------------ --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 261,987 $ 190,986 $ 522,079 $ 381,972
Interest income 16,681 0 31,741 0
--------- --------- --------- ---------
278,668 190,986 553,820 381,972
--------- --------- --------- ---------
Expenses:
Depreciation 134,100 93,684 268,200 184,778
Management & leasing expense 29,504 24,906 61,406 50,188
Other operating expenses 25,829 8,899 3,707 46,667
--------- --------- --------- ---------
189,433 127,489 333,313 281,633
--------- --------- --------- ---------
Net income $ 89,235 $ 63,497 $ 220,507 $ 100,339
========= ========= ========= =========
Occupied % 98.28% 67% 98.28% 67%
Partnership's Ownership % in the Fund
IX-X-XI-REIT Joint Venture 8.8% 7.8% 8.8% 7.8%
Cash distribution to Partnership $ 19,909 $ 4,560 $ 39,415 $ 4,560
Net income allocated to Partnership $ 7,888 $ 2,100 $ 17,611 $ 2,100
</TABLE>
Rental income increased in 1999 over 1998 due primarily to the increased
occupancy level of the property. Total expenses increased in 1999 as compared to
1998 due largely to the increase in depreciation expenses. Other operating
expenses decreased for the six months ended June 30, 1999, as compared to the
same period in 1998, due primarily to differences in the annual adjustment for
common area maintenance billing to the tenants. Tenants are billed an estimated
amount for the current year common area maintenance which is then reconciled the
second quarter of the following year and the difference billed to the tenant.
Operating expenses were higher for the three month period ended June 30, 1999,
as compared to the six months ended June 30, 1999, because upon reconciliation
of the common area maintenance, some tenants received credit for overpayments.
16
<PAGE>
The Ohmeda Building/Fund IX-X-XI-REIT Joint Venture
- ---------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended Five Months Ended
------------------ ---------------- -----------------
June 30, 1999 June 30,1998 June 30, 1999 June 30, 1998
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $256,829 $ 254,939 $ 513,657 $ 389,023
-------- --------- --------- ---------
Expenses:
Depreciation 81,576 81,576 163,152 135,960
Management & leasing expense 12,058 17,928 23,675 17,928
Other operating expenses (4,450) 610 (4,087) (89)
-------- --------- --------- ---------
89,184 100,114 182,740 153,799
-------- --------- --------- ---------
Net income $167,645 $ 154,825 $ 330,917 $ 235,224
======== ========= ========= =========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % in the Fund 8.8% 7.8% 8.8% 7.8%
IX-X-XI-REIT Joint Venture
Cash distribution to Partnership $ 21,528 $ 6,210 $ 39,218 $ 6,210
Net income allocated to Partnership $ 14,820 $ 4,188 $ 26,894 $ 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 entire Ohmeda building is currently under a net lease with Ohmeda, Inc. The
lease currently expires in January 2005.
Rental income remained relatively stable for the three months ended June 30,
1999 as compared to the same period in 1998. The six month period ended June 30,
1999, cannot be compared to 1998, because that year covered approximately 5
months. Other operating expenses are negative for the second quarter due to an
offset of tenant reimbursements in operating costs as well as management and
leasing fee reimbursements. Tenants are billed an estimated amount for the
current year operating expenses which is then reconciled the second quarter of
the following year and the difference billed to the tenant.
Cash distributions and net income allocated to the Partnership increased in 1999
as compared to 1998. The Partnership's ownership in the Fund IX-X-XI-REIT Joint
Venture increased in 1999 as compared to 1998 due to additional funding by the
Partnership to the Joint Venture.
17
<PAGE>
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------ Six Months Ended Four Months Ended
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
------------- ------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 207,758 $ 212,442 $ 414,279 $ 238,575
--------- --------- --------- ---------
Expenses:
Depreciation 71,670 71,065 143,340 94,639
Management & leasing expense 17,755 19,237 35,619 19,237
Other operating costs, 12,884 (48,278) 10,633 (48,278)
--------- --------- --------- ---------
102,309 42,024 189,592 65,598
--------- --------- --------- ---------
Net income $ 105,449 $ 170,418 $ 224,687 $ 172,977
========= ========= ========= =========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % in the Fund 8.8% 7.8% 8.8% 7.8%
IX-X-XI-REIT Joint Venture
Cash distribution to the Partnership $ 15,526 $ 6,037 $ 29,738 $ 6,037
Net income allocated to the Partnership $ 9,322 $ 4,864 $ 18,340 $ 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 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.
Rental income remained relatively stable for the three month period ended June
30, 1999 as compared to the same period for 1998. The six month period ended
June 30, 1999 cannot be compared to 1998 since those figures reflect only four
months activities.
Cash distributions and net income allocated to the Partnership for three months
ended June 30, 1999 increased as compared to the same period last year.
Operating expenses increased significantly for the period ended June 30, 1999,
as compared to the same period for 1998. This is attributed to the large
increase in property taxes, utilities and security costs. The Partnership's
ownership in the Fund IX-X-XI REIT Joint Venture increased in 1999 as compared
to 1998 due to additional funding by the Partnership to the Joint Venture in
1999.
18
<PAGE>
Lucent Technologies Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended One Month Ended Six Months Ended
------------------ --------------- -----------------
June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- -------------
<S> <C> <C> <C>
Revenues:
Rental income $145,752 $9,885 $291,504
Expenses:
Depreciation 45,801 4,382 91,602
Management & leasing expenses 5,370 0 10,739
Other operating expenses 9,184 0 12,198
-------- ------ --------
60,355 4,382 114,539
-------- ------ --------
Net income $ 85,397 5,503 $176,965
======== ====== ========
Occupied % 100% 100% 100%
Partnership's ownership % in the
Fund IX-X-XI-REIT 8.8% 7.8% 8.8%
Cash distributed to the
Partnership $ 10,581 $9,929 $ 19,867
Net income allocated to the
Partnership $ 7,549 $ 429 $ 14,298
</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. Under the terms of the lease, the
tenant is responsible for all utilities, property taxes and other operating
expenses.
Since the Lucent Technologies Building was purchased by the IX-X-XI-REIT Joint
Venture in June 1998, comparable income and expense figures for the three months
and six months ended June 30, 1998 only reflect one months activity. Thus,
comparative financial information from the prior year's periods is not
available. The Partnership's ownership in the Fund IX-X-XI-REIT Joint Venture
increased in 1999, as compared to 1998, due to additional fundings by the
Partnership to the Joint Venture in 1999.
19
<PAGE>
Iomega Building/Fund IX-X-XI-REIT Joint Venture
- -----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1999 June 30, 1998 June 30, 1999
------------- ------------- ----------------
<S> <C> <C> <C>
Revenues:
Rental income $123,873 $120,000 $247,746
-------- -------- --------
Expenses:
Depreciation 48,495 48,984 96,990
Management & leasing expenses 3,735 5,603 9,338
Other operating expenses 4,238 2,205 2,525
-------- -------- --------
56,468 56,792 108,853
-------- -------- --------
Net income $ 67,405 $ 63,208 $138,893
======== ======== ========
Occupied % 100% 100% 100%
Partnership ownership % in the
Fund IX-X-XI-REIT 8.84% 0% 8.84%
Cash distributed to Partnership $ 9,904 $ 0.00 $ 18,470
Net income allocated to the
Partnership $ 5,959 $ 0.00 $ 11,222
</TABLE>
On April 1, 1998, Wells Fund X acquired a single story warehouse and office
building containing approximately 108,250 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, the Partnership 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 distribution 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, comparative income and
expense figures for the period ended June 30, 1998 only reflect three months of
activities, and cannot be compared to the six months ended June 30, 1999.
On March 22, 1999, the Fund IX-X-XI-REIT Joint Venture purchased a 4 acre tract
of vacant land adjacent to the Iomega Building located in Ogden, Utah. This site
is intended for additional parking and loading dock area and will include at
least 400 new parking stalls and new site work for truck maneuver space, in
accordance with the requirements of the tenant and the city of Ogden. The
project was completed July 31, 1999. The tenant, Iomega Corporation, has agreed
to extend the term of its lease to April 30, 2009 and will pay as additional
rent an amount equal
20
<PAGE>
to thirteen percent (13%) per annum payable in monthly installments of the
direct and indirect cost of acquiring the property and construction of
improvements. This additional rent was due and payable commencing on May 1,
1999.
The land was purchased at a cost of $212,000 excluding acquisition costs. It is
anticipated that the total cost to complete the project will be $612,689. The
funds used to acquire the land and for the improvements are being funded
entirely from capital contributions made by Wells Fund XI in the amount of
$851,000. The project was completed at a total cost of $874,625. It is
anticipated that the shortfall will be funded by the Partnership.
Cort Building / Wells / Orange County Joint Venture
- ---------------------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1999 June 30, 1999
------------- -------------
Revenues:
Rental income $ 198,886 $ 397,771
--------- ---------
Expenses:
Depreciation 46,641 93,282
Management & leasing expenses 7,590 15,180
Other operating expenses 5,281 13,453
--------- ---------
59,512 121,915
--------- ---------
Net income $ 139,374 $ 275,856
========= =========
Occupied % 100% 100%
Partnership's ownership % 21.2% 21.2%
Cash distributed to the Partners $ 41,850 $ 83,016
Net income allocated to the
Partnership $ 26,281 $ 58,573
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 $6,4000,000, excluding acquisitions costs.
The Cort 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
21
<PAGE>
terms of the lease require the tenant to reimburse the Cort Joint Venture of
certain operating expenses, as defined in the lease, related to the building.
Since the Cort Building was purchased in July 1998, comparable income and
expenses figures for the prior year are not available.
Fairchild Building / Wells / Fremont Joint Venture
- --------------------------------------------------
Three Months Ended Six Months Ended
------------------ ----------------
June 30, 1999 June 30, 1999
------------- -------------
Revenues:
Rental income $ 225,211 $ 450,421
--------- ---------
Expenses:
Depreciation 71,382 142,764
Management & leasing expenses 9,343 18,667
Other operating expenses 6,315 7,315
--------- ---------
87,040 168,746
--------- ---------
Net income $ 138,171 $ 281,675
========= =========
Occupied % 100% 100%
Partnership's Ownership % 11.25% 11.25%
Cash distributed to the Partnership $ 13,055 $ 37,493
Net income allocated to the
Partnership $ 18,494 $ 26,614
On July 21, 1998, the Wells/Fremont Joint Venture acquired a two-story
warehouse and office building containing approximately 58,424 rentable
square feet on a 3.05 acre tract of land in Fremont, California (the
"Fairchild Building") for a purchase price of $8,900,000 excluding
acquisitions costs.
The building is 100% occupied by Fairchild Technologies, U.S.A., Inc. with
a lease expiration of 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.
Since the Fairchild Building was purchased in July of 1998, comparable
income and expense figures for the prior year are not available.
22
<PAGE>
EYBL CarTex Building / Wells Fund XI-XII-REIT Joint Venture
- -----------------------------------------------------------
Two Months Ended
----------------
June 30, 1999
-------------
Revenues:
Rental income $70,126
-------
Expenses:
Depreciation 33,268
Management & leasing expenses 10,849
Other operating expenses
0
-------
44,117
-------
Net income $26,009
=======
Occupied % 100%
Partnership's ownership % 29.9%
Cash distribution to Partnership $15,152
Net income allocated to the Partnership
$ 7,761
On May 18, 1999, Wells Real Estate, LLC - SC I ("Wells LLC"), a Georgia limited
liability company wholly owned by the Wells Fund XI-REIT Joint Venture, acquired
a manufacturing and office building containing 169,510 square feet located in
Fountain Inn, unincorporated Greenville County, South Carolina (the "EYBL CarTex
Building") for a purchase price of $5,085,000 excluding acquisitions costs.
The building is 100% occupied by EYBL CarTex, Inc. with a lease expiration of
February 2008. The monthly base rent payable under the lease is $42,377.50 with
an increase to $45,905.95 in the 5th year, $49,440.42 in the 7th year and
$50,853.00 in the 9th year. The lease is a triple net lease, whereby the terms
of the lease require the tenant to reimburse the landlord for certain operating
expenses, as defined in the lease, related to the building.
Since the EYBL CarTex Building was purchased in May of 1999, comparable income
and expense figures for the year are not available.
23
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 6 (b). On June 2, 1999, the Partnership filed a Form 8-K dated May 18,
1999, reporting the acquisition of the EYBL CarTex Building.
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, 1999 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.
24
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 6,546,138
<SECURITIES> 7,379,878
<RECEIVABLES> 215,438
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 26,990
<PP&E> 14,466,399
<DEPRECIATION> 0
<TOTAL-ASSETS> 14,466,399
<CURRENT-LIABILITIES> 196,040
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 14,270,359
<TOTAL-LIABILITY-AND-EQUITY> 14,466,399
<SALES> 0
<TOTAL-REVENUES> 332,981
<CGS> 0
<TOTAL-COSTS> 70,973
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 262,008
<INCOME-TAX> 262,008
<INCOME-CONTINUING> 262,008
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 262,008
<EPS-BASIC> .20
<EPS-DILUTED> 0
</TABLE>
