<PAGE>
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) August 17, 1999
---------------
Wells Real Estate Fund XI, L.P.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia
- --------------------------------------------------------------------------------
(State or other jurisdiction of incorporation)
0-25731 58-2250094
------------------------ ---------------------------------
(Commission File Number) (IRS Employer Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
----------------------
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report)
<PAGE>
Item 2. Acquisition of Assets
Purchase of the Johnson Matthey Building. On August 17, 1999, The Wells Fund XI
- -----------------------------------------
Fund XII REIT Joint Venture (the "XI-XII-REIT Joint Venture") acquired a
research and development, office and warehouse building (the "Johnson Matthey
Building") located in Chester County, Pennsylvania from Alliance Commercial
Properties Ltd. ("Alliance") pursuant to an Agreement of Sale and Purchase
between Alliance and Wells Capital, Inc., an affiliate of Wells Real Estate Fund
XI, L.P. (the "Registrant") and its General Partners. Alliance is not in any
way affiliated with the Registrant or its General Partners.
The XI-XII-REIT Joint Venture is a joint venture partnership among the
Registrant, Wells Real Estate Fund XII, L.P. ("Wells Fund XII"), an affiliated
Georgia limited partnership, and Wells Operating Partnership, L.P. ("Wells OP"),
a Delaware limited partnership formed to acquire, own, lease, operate and manage
real properties on behalf of Wells Real Estate Investment Trust, Inc. (the
"Wells REIT"), an affiliated Maryland corporation. The XI-XII-REIT Joint
Venture was originally formed on May 1, 1999 as a joint venture partnership
between the Registrant and the Wells REIT 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 XI-XII-REIT 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 Fund XII and the Wells REIT are substantially identical to those of the
Registrant.
Wells Capital, Inc., as original purchaser under the agreement, assigned
its rights under the agreement to the XI-XII-REIT Joint Venture at closing. The
purchase price paid for the Johnson Matthey Building was $8,000,000. The XI-XII-
REIT Joint Venture also incurred additional acquisition expenses in connection
with the purchase of the Johnson Matthey Building, including attorneys' fees,
recording fees and other closing costs, of approximately $50,000.
The Registrant contributed $3,494,797.27, Wells OP contributed
$3,055,694.41 and Wells Fund XII contributed $1,500,000.00 to the XI-XII-REIT
Joint Venture for their respective shares of the acquisition costs for the
Johnson Matthey Building.
Description of the Building and the Site. The Johnson Matthey Building is
-----------------------------------------
a 130,000 square foot research and development, office and warehouse building
that was first constructed in 1973 as a multi-tenant facility. It was
subsequently converted into a single-tenant facility in 1998. The building is
constructed of a structural steel frame and is rectangular in shape with two
rectangular cut-outs at the front corners. The exterior is cinderblock, with
brick on the lower ten feet of the north, east and west walls. The south wall
is all cinderblock. The interior contains office space that comprises
approximately 23% of the rentable square feet of the Johnson Matthey Building.
1
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The site consists of a 10.0 acre tract of land located at 434-436 Devon
Park Drive in Tredyffrin Township, Chester County, Pennsylvania. The site is
located along the Route 202 "high tech" corridor close to King of Prussia and is
considered a suburb of Philadelphia. The site is within five minutes of Route
422, the Pennsylvania Turnpike and Interstate 76.
An independent appraisal of the Johnson Matthey Building was prepared by CB
Richard Ellis, real estate appraisers, as of June 24, 1999. The appraisers
estimated the market value of the land and the leased fee interest subject to
the Johnson Matthey lease (described below) to be $8,000,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Johnson Matthey Building will continue operating at a
stabilized level with Johnson Matthey, Inc. ("Johnson Matthey") occupying 100%
of the rentable area. The value estimate set forth in the appraisal is not
necessarily an accurate reflection of the fair market value of the property.
The XI-XII-REIT Joint Venture also obtained an environmental report
prepared by Dames & Moore evidencing that the environmental condition of the
land and the Johnson Matthey Building was satisfactory. Although the soil does
contain some traces of environmental groundwater contaminants approximately 60
feet below the surface, Dames & Moore, in a letter addressed to Wells Capital,
Inc. dated August 13, 1999, did not recommend any further environmental
investigation for the site. At the closing, the seller assigned its rights to a
$2,000,000 insurance policy to the XI-XII-REIT Joint Venture relating to
potential losses from environmental contamination. The General Partners of the
Partnership are satisfied that the environmental condition of the site is
satisfactory and believe that the rights assigned under this insurance policy
protect the partnership from potential liability exposure resulting from
environmental contamination.
The Johnson Matthey Lease. The entire 130,000 rentable square feet of the
- -------------------------
Johnson Matthey Building is currently leased to Johnson Matthey. The Johnson
Matthey lease was assigned to the XI-XII-REIT Joint Venture at the closing with
the result that the joint venture is now the landlord under the lease.
The current lease term expires in June 2007. Johnson Matthey has the right
to extend the lease for two additional three 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 Johnson Matthey lease for the remainder of
the lease term is as follows:
2
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<TABLE>
<CAPTION>
Lease Year Annual Rent Monthly Rent
- ---------------------------- ----------------------------- -----------------------------
<S> <C> <C>
3 $789,750 $65,812.50
4 $809,250 $67,437.50
5 $828,750 $69,062.50
6 $854,750 $71,229.17
7 $874,250 $72,854.17
8 $897,000 $74,750.00
9 $916,500 $76,375.00
10 $939,250 $78,270.84
</TABLE>
The monthly base rent payable for each extension term will be equal to the
fair market rent taking into consideration rental rates for comparable
industrial and research and development properties in the local market area. If
the parties cannot agree upon the fair market rent, the matter shall be
submitted to arbitration.
Under the lease, Johnson Matthey is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Johnson Matthey Building during the term of
the lease. In addition, Johnson Matthey is responsible for all routine
maintenance and repairs to the Johnson Matthey Building. The XI-XII-REIT Joint
Venture, as landlord, is responsible for maintenance of the footings and
foundations and the structural steel columns and girders associated with the
building.
Johnson Matthey has a right of first refusal to purchase the Johnson
Matthey Building in the event that the XI-XII-REIT Joint Venture desires to sell
the building to an unrelated third-party. The joint venture must give Johnson
Matthey written notice of its intent to sell the Johnson Matthey Building, and
Johnson Matthey will have ten days from the date of such notice to provide
written notice of its intent to purchase the building. If Johnson Matthey
exercises its right of first refusal, it must purchase the Johnson Matthey
Building on the same terms contained in the offer.
Property Management Fees. Wells Management Company, Inc. ("Wells Management"),
- ------------------------
an affiliate of the Registrant and its General Partners, has been retained to
manage and lease the Johnson Matthey Building. The XI-XII-REIT Joint Venture
will pay management and leasing fees to Wells Management in the amount of 4.5%
of gross revenues from the Johnson Matthey Building on a monthly basis.
3
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Item 7. Financial Statements and Exhibits.
(a) Financial Statements. The following financial statements relating
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to the real property acquired by the XI-XII-REIT Joint Venture are submitted at
the end of this Current Report and are filed herewith and incorporated herein by
reference:
Page
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Report of Independent Public Accountants F-1
Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1998
(Audited) and for the six months ended
June 30, 1999 (Unaudited) F-2
Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended December 31,
1998 (Audited) and for the six months ended
June 30, 1999 (Unaudited) F-3
(b) Pro Forma Financial Information. The following unaudited pro forma
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financial statements of the Registrant relating to the real property acquired
are submitted at the end of this Current Report and are filed herewith and
incorporated herein by reference:
Page
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Summary of Unaudited Pro Forma Financial Statements F-5
Pro Forma Balance Sheet as of June 30, 1999 F-6
Pro Forma Income Statement for the year ended
December 31, 1998 F-7
Pro Forma Income Statement for the six months
ended June 30, 1999 F-8
After reasonable inquiry, the Registrant is not aware of any material
factors relating to the real property described in this Current Report that
would cause the financial information reported herein not to be necessarily
indicative of future operating results.
4
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
WELLS REAL ESTATE FUND XI, L.P.
Registrant
By: /s/ Leo F. Wells, III
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Leo F. Wells, III, as General Partner
and as President and sole Director of
Wells Capital, Inc., the General Partner
of Wells Partners, L.P., General Partner
Dated: August 24, 1999
5
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[LETTERHEAD OF ARTHUR ANDERSEN LLP APPEARS HERE]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.,
Wells Real Estate Fund XI, L.P.,
and Wells Real Estate Fund XII, L.P.:
We have audited the accompanying statement of revenues over certain operating
expenses for the JOHNSON MATTHEY BUILDING for the year ended December 31, 1998.
This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the statement of revenues over certain operating
expenses is free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the statement of
revenues over certain operating expenses. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audit provides a reasonable basis for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Johnson
Matthey Building after acquisition by the Wells Fund XI-Fund XII-REIT Joint
Venture (a joint venture between the Wells Operating Partnership, L.P. [on
behalf of Wells Real Estate Investment Trust, Inc.], Wells Real Estate Fund XI,
L.P., and Wells Real Estate Fund XII, L.P.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Johnson
Matthey Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Johnson Matthey Building for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
/s/ ARTHUR ANDERSEN
Atlanta, Georgia
August 30, 1999
F-1
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JOHNSON MATTHEY BUILDING
STATEMENTS OF REVENUES OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
<TABLE>
<CAPTION>
1998 1999
--------- -----------
(Unaudited)
<S> <C> <C>
RENTAL REVENUES $745,935 $424,724
OPERATING EXPENSES, NET OF REIMBURSEMENTS 100,314 59,398
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $645,621 $365,326
======== ========
</TABLE>
THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE STATEMENTS.
F-2
<PAGE>
JOHNSON MATTHEY BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1998 AND
FOR THE SIX MONTHS ENDED JUNE 30, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On August 17, 1999, the Wells Fund XI-Fund XII-REIT Joint Venture (the
"Joint Venture") acquired an office building with approximately 130,000
rentable square feet located in Tredyffrin Township, Chester County,
Pennsylvania (the "Johnson Matthey Building"). The Joint Venture is a joint
venture partnership between Wells Real Estate Fund XI, L.P. ("Wells Fund
XI"), Wells Real Estate Fund XII, L.P. ("Wells Fund XII"), and Wells
Operating Partnership, L.P. ("Wells OP"), a Delaware limited partnership
formed to acquire, own, lease, operate, and manage real properties on
behalf of Wells Real Estate Investment Trust, Inc. (the "Wells REIT").
Wells Fund XI contributed $3,494,797, Wells Fund XII contributed
$1,500,000, and Wells OP contributed $3,055,694 to the Joint Venture for
their respective share of the purchase of the Johnson Matthey Building.
The entire 133,000 rentable square feet of the Johnson Matthey Building is
currently under a net lease agreement (the "Lease") with Johnson Matthey.
The Lease was assigned to the Joint Venture at the closing. The initial
term of the Lease is ten years, which commenced on July 1, 1997 and expires
on June 30, 2007. Johnson Matthey has the right to extend the Lease for two
additional three-year periods. 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 monthly base rent payable for each
extended term of the Lease will be equal to the fair market rent taking
into consideration rental rates for comparable industrial and research and
development properties in the local market area.
Under the Lease, Johnson Matthey is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance, and
other operating costs with respect to the Johnson Matthey Building during
the term of the Lease. In addition, Johnson Matthey is responsible for all
routine maintenance and repairs including interior mechanical and
electrical, HVAC, parking lot, and landscaping to the Johnson Matthey
Building. The Joint Venture, as landlord, is responsible for repair and
replacement of the exterior, roof, foundation, and structure.
F-3
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The Lease contains a purchase option, which may be exercised by Johnson
Matthey in the event that the Joint Venture desires to sell the building to
an unrelated third party. The Joint Venture must give Johnson Matthey
written notice of its intent to sell the Johnson Matthey Building, and
Johnson Matthey will have ten days from the date of such notice to provide
written notice of its intent to purchase the building. If Johnson Matthey
exercises the purchase option, it must purchase the Johnson Matthey
Building on the same terms contained in the offer.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over
the life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statements exclude certain historical expenses, such as depreciation, not
comparable to the operations of the Johnson Matthey Building after
acquisition by the Joint Venture.
F-4
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of June 30, 1999 and the pro
forma statements of income for the year ended December 31, 1998 and the six-
month period ended June 30, 1999 have been prepared to give effect to the
acquisition of the Johnson Matthey Building by the Wells Fund XI-Fund XII-REIT
Joint Venture (a joint venture between the Wells Operating Partnership, L.P.,
Wells Real Estate Fund XI, L.P., and Wells Real Estate Fund XII, L.P.) as if the
acquisition occurred as of June 30, 1999 with respect to the balance sheet and
on January 1, 1998 with respect to the statements of income. Wells Operating
Partnership, L.P. is a Delaware limited partnership that was organized to own
and operate properties on behalf of the Wells Real Estate Investment Trust, Inc.
Wells Real Estate Investment Trust, Inc. is the general partner of the Wells
Operating Partnership, L.P.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisition been consummated at
the beginning of the period presented.
F-5
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WELLS REAL ESTATE FUND XI, L.P.
BALANCE SHEET
JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
ASSETS
Wells Real Pro
Estate Pro Forma Forma
Fund XI, L.P. Adjustments Total
------------- --------------- ------------
<S> <C> <C> <C>
CASH AND CASH EQUIVALENTS $ 6,546,138 $(3,494,797)(a) $ 3,051,341
INVESTMENTS IN JOINT VENTURES 7,379,878 3,640,425 (b) 11,020,303
DEFERRED PROJECT COSTS 276,080 (145,628)(c) 130,452
ORGANIZATIONAL COSTS, less accumulated amortization of
$9,375 in June 1999 21,875 0 21,875
DUE FROM AFFILIATES 215,438 0 215,438
PREPAID EXPENSES AND OTHER ASSETS 26,990 0 26,990
----------- ----------- -----------
Total assets $14,466,399 $ 0 $14,466,399
=========== =========== ===========
LIABILITIES AND PARTNERS' CAPITAL
DUE TO AFFILIATES $ (595) $ 0 $ (595)
PARTNERSHIP DISTRIBUTIONS PAYABLE 196,635 0 196,635
SALES COMMISSIONS PAYABLE 0 0 0
----------- ----------- -----------
Total liabilities 196,040 0 196,040
----------- ----------- -----------
LIMITED PARTNERS:
Class A--1,310,906 11,488,904 0 11,488,904
Class B--342,374 2,781,355 0 2,781,355
ORIGINAL LIMITED PARTNER 100 0 100
----------- ----------- -----------
Total partners' capital 14,270,359 0 14,270,359
----------- ----------- -----------
Total liabilities and partners' capital $14,466,399 $ 0 $14,466,399
=========== =========== ===========
</TABLE>
(a) Reflects Wells Real Estate Fund XI, L.P.'s portion of the
purchase price related to the Johnson Matthey Building.
(b) Reflects Wells Real Estate Fund XI, L.P.'s contribution to
the Wells Fund XI-Fund XII-REIT Joint Venture.
(c) Reflects deferred project costs contributed to the Wells Fund
XI-Fund XII-REIT Joint Venture.
F-6
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
STATEMENT OF INCOME
FOR THE YEAR ENDING DECEMBER 31, 1998
(Unaudited)
<TABLE>
<CAPTION>
Wells Real Pro
Estate Pro Forma Forma
Fund XI, L.P. Adjustment Total
------------- ----------- ----------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint ventures $ 142,163 $147,056(a) $289,219
Interest income 120,566 0 120,566
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262,729 147,056 409,785
--------- --------- --------
EXPENSES:
Legal and accounting 64,052 0 64,052
Partnership administration 46,649 0 46,649
Computer costs 2,483 0 2,483
Amortization 6,250 0 6,250
--------- --------- ---------
119,434 0 119,434
--------- --------- ---------
NET INCOME $ 143,295 $147,056 $ 290,351
========= ======== =========
NET LOSS ALLOCATED TO GENERAL PARTNERS $ (500) $ 0 $ (500)
========= ======== =========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 254,862 $244,232 $ 499,094
========= ======== =========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $(111,067) $(97,176) $(208,243)
========= ======== =========
NET INCOME PER WEIGHTED AVERAGE CLASS A LIMITED
PARTNER UNIT $ 0.50 $ 0.48 $ 0.98
========= ======== =========
NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED
PARTNER UNIT $ (0.77) $ (0.67) $ (1.44)
========= ======== =========
</TABLE>
(a) Reflects Wells Real Estate Fund XI, L.P.'s equity in income of the Wells
Fund XI-Fund XII-REIT Joint Venture related to the Johnson Matthey
Building. The pro forma adjustment results from rental revenues less
operating expenses, management fees, and depreciation.
F-7
<PAGE>
WELLS REAL ESTATE FUND XI, L.P.
STATEMENT OF INCOME
FOR THE SIX-MONTH PERIOD ENDING JUNE 30, 1999
(Unaudited)
<TABLE>
<CAPTION>
Wells Real Pro
Estate Pro Forma Forma
Fund XI, L.P. Adjustment Total
-------------- ------------ ------------
<S> <C> <C> <C>
REVENUES:
Equity in income of joint ventures $ 186,795 $ 82,042(a) $ 268,837
Interest income 146,186 0 146,186
--------- -------- ---------
332,981 82,042 415,023
--------- -------- ---------
EXPENSES:
Legal and accounting 31,199 0 31,199
Partnership administration 33,508 0 33,508
Computer costs 3,141 0 3,141
Amortization 3,125 0 3,125
--------- -------- ---------
70,973 0 70,973
--------- -------- ---------
NET INCOME $ 262,008 $ 82,042 $ 344,050
========= ======== =========
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 374,368 $126,719 $ 501,087
========= ======== =========
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $(112,360) $(44,677) $(157,037)
========= ======== =========
NET INCOME PER WEIGHTED CLASS A LIMITED
PARTNER UNIT $ 0.29 $ 0.10 $ 0.39
========= ======== =========
NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED
PARTNER UNIT $ (0.33) $ (0.13) $ (0.46)
========= ======== =========
</TABLE>
(a) Reflects Wells Real Estate Fund XI, L.P.'s equity in income of the Wells
Fund XI-Fund XII-REIT Joint Venture related to the Johnson Matthey
Building. The pro forma adjustment results from rental revenues less
operating expenses, management fees, and depreciation.
F-8
