<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 333-32099 (1933 Act)
----------------------------------------------------------
Wells Real Estate Investment Trust, Inc.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2328421
- ------------------------------- -------------------
(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 Investment Trust, Inc. and Subsidiaries
---------------------------------------------------------
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 Months
Ended June 30, 1998...................................... 4
Statements of Shareholders' Equity
for the Three Months Ended
June 30, 1998............................................ 5
Statements of Cash Flows for the Three
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................................................ 19
2
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 1998 December 31, 1997
------ ------------- -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $1,472,065 $ 0
Due from affiliates 15,307 0
Cash and cash equivalents 1,112,656 201,000
Deferred project costs (Note 3) 34,651 0
Deferred offering costs (Note 4) 604,201 289,073
Prepaid expenses and other assets 10,000 0
---------- --------
Total assets $3,248,880 $490,073
========== ========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Sales commissions payable $ 33,675 $ 0
Due to affiliates (Note 5) 655,160 289,073
Minority interest of unit holder in
operating partnership 200,000 200,000
---------- --------
Total liabilities 888,835 489,073
---------- --------
Shareholders' equity:
Common shares,$.01 par value; $165,000,000
shares authorized, 268,459 shares issued
and outstanding 2,685 1
Additional paid in capital 2,346,461 999
Retained earnings 10,899 0
---------- --------
Total shareholders' equity 2,360,045 1,000
---------- --------
Total liabilities and shareholders' equity $3,248,880 $490,073
========== ========
</TABLE>
See accompanying condensed notes to financial statements.
3
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
-------------------
June 30, 1998
-------------------
<S> <C>
Revenues:
Equity in income of joint ventures $ 6,631
Interest income 4,286
-------
10,917
-------
Expenses:
Office expense 18
-------
18
-------
Net income $10,899
=======
Basic and diluted earnings per share $0.16
</TABLE>
See accompanying condensed notes to financial statements.
4
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WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED JUNE 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK
------------------------------------ TOTAL
ADDITIONAL PAID RETAINED SHAREHOLDERS'
SHARES AMOUNTS IN CAPITAL EARNINGS EQUITY
------- ------- ---------------- -------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1997 100 $ 1 $ 999 $ - $ 1,000
Issuance of common stock 268,359 2,684 2,680,911 - 2,683,595
Net income - - - 10,899 10,899
Sales commissions - - (254,941) - (254,941)
Other offering expenses - - (80,508) - (80,508)
------- ------ ---------- -------- ----------
BALANCE,
JUNE 30, 1998 268,459 $2,685 $2,346,461 $10,899 $2,360,045
======= ====== ========== ======== ==========
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Three Months Ended
------------------
June 30, 1998
------------------
<S> <C>
Cash flows from operating activities:
Net income $ 10,899
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in income of joint venture (6,631)
Changes in assets and liabilities:
Increase in prepaid expenses and other assets (10,000)
Increase due to affiliates 50,959
-----------
Net cash provided by operating activities 45,227
-----------
Cash flow from investing activities:
Investment in joint venture (1,421,466)
Deferred project costs (93,926)
-----------
Net cash used by investing activities (1,515,392)
-----------
Cash flow from financing activities:
Shareholders' contributions 2,683,595
Sales commissions (221,266)
Offering costs (80,508)
-----------
Net cash provided by financing activities 2,381,821
-----------
Net increase in cash and cash equivalents 911,656
Cash and cash equivalents, beginning of year 201,000
-----------
Cash and cash equivalents, end of period $ 1,112,656
===========
Supplemental schedule of noncash investing
activities:
Deferred project costs applied to investing
activities $ 59,275
===========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Condensed Notes to Financial Statements
June 30, 1998
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-----------
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation formed on July 3, 1997. The company is the sole general
partner of Wells Operating Partnership, L.P. ("Wells OP"), a Delaware
limited partnership organized for the purpose of acquiring, developing,
owning, operating, improving, leasing, and otherwise managing for
investment purposes, income producing commercial properties.
On January 30, 1998, the Company commenced a public offering of up to
$165,000,000 shares of common stock ($10.00 per share) pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933.
The Company commenced active operations on June 5, 1998, when it received
and accepted subscriptions for 125,000 shares. An aggregate requirement of
$2,500,000 of offering proceeds, excluding New York and Pennsylvania, was
reached on July 8, 1998, thus allowing for the admission of New York and
Pennsylvania investors in the Company. As of June 30, 1998, the Company
had sold 268,459 shares for total capital contributions of $2,684,595.
After payment of $93,926 in Acquisition and Advisory Fees and Expenses,
payment of $335,449 in selling commissions and organization and offering
expenses and the capital contribution by Wells OP of $1,421,466 to the Fund
IX-X-XI-REIT Joint Venture, the Company was holding net offering proceeds
of $833,754 available for investment in properties.
(b) Employees
-------------
The Company has no direct employees. The employees of Wells Capital, Inc.,
the Company's Advisor, perform a full range of real estate services
including leasing and property management, accounting, asset management and
investor relations for the Company.
(c) Insurance
-------------
Wells Management Company, Inc., an affiliate of the Company and the
Advisor, carries comprehensive liability and extended coverage with respect
to all the properties owned directly or indirectly by the Company. In the
opinion of management of the registrant, the properties are adequately
insured.
7
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(d) Competition
---------------
The Company will experience competition for tenants from owners and
managers of competing projects which may include its affiliates. As a
result, the Company 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 Company elects to
dispose of its properties, the Company will also be in competition with
sellers of similar properties to locate suitable purchasers for its
properties.
(e) Basis of Presentation
-------------------------
Substantially all of the Company's business will be conducted through Wells
OP. At December 31, 1997, the Wells OP had issued 20,000 limited partner
units to Wells Capital Inc., the Advisor, in exchange for a capital
contribution of $200,000. The Company is the sole general partner in Wells
OP and possesses full legal control and authority over the operations of
Wells OP; consequently, the accompanying consolidated balance sheet of the
Company includes the amounts of the Company and Wells OP.
The consolidated financial statements of the Company 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 Board of Directors, 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) Distribution Policy
-----------------------
The Company will make distributions each taxable year (not including a
return of capital for federal income tax purposes) equal to at least 95% of
its real estate investment trust taxable income. The Company intends to
make regular quarterly distributions to holders of the Shares.
Distributions will be made to those shareholders who are shareholders as of
the record date selected by the Directors. Distributions will be declared
monthly and paid on a quarterly basis during the Offering period and
declared and paid quarterly thereafter.
(g) Income Taxes
----------------
The Company plans to make an election to be taxed as a Real Estate
Investment Trust ("REIT") under sections 856 through 860 of the Code,
effective for its short taxable year beginning on the day prior to the date
on which the Offering commences and ending on December 31, 1998. The
Company believes that, commencing with such taxable year, it will be
organized and will operated in such a manner as to qualify for taxation as
a REIT under the Code, and the Company intends to continue to operate in
such a manner, but no
8
<PAGE>
assurance can be given that the Company will operate in a manner so as to
qualify or remain qualified as a REIT.
(h) Statement of Cash Flows
---------------------------
For the purpose of the statement of cash flows, the Company 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.
(2) Investments in Joint Venture
----------------------------
The Company owns interests in four office buildings through its ownership
in Wells OP which owns interest in a joint venture. The Company 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 the properties in which the Company 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"), a Georgia public limited partnership, and Wells Real Estate Fund
X, L.P. ("Wells Fund X"), a Georgia public limited partnership, was amended
and restated to admit the Wells Real Estate Fund XI, L.P. ("Wells Fund
XI"), a Georgia public limited partnership, and Wells OP. Wells Fund IX,
Wells Fund X and Wells Fund XI are all Affiliates of the Company and the
Advisor.
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 Wells OP had contributed approximately $1,421,466
for an approximate 4.4% 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 Fund XI had an approximate 7.8% equity interest in the Fund IX-X-XI-
REIT Joint Venture.
9
<PAGE>
ABB BUILDING
------------
On March 20, 1997, the 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 lease
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 commencing. 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 this project
which includes the final buildout of remaining space will be approximately
$7,800,000. It is 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.
For additional information regarding the ABB Building, refer to Supplement
No. 2 dated June 30, 1998 to the Prospectus of Wells Real Estate Investment
Trust, Inc. dated January 30, 1998, contained in Post-Effective Amendment
No. 2 to Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., which was filed with the Commission on July 9, 1998
(Commission File No. 333-32099).
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 $10,325,000.00. 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
10
<PAGE>
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.
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 additional information regarding the Ohmeda Building, refer to
Supplement No. 2 dated June 30, 1998 to the Prospectus of Wells Real Estate
Investment Trust, Inc. dated
11
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January 30, 1998, contained in Post-Effective Amendment No. 2 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., which
was filed with the Commission on July 9, 1998 (Commission File No. 333-
32099).
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 contain 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
Investment Trust, Inc. dated January 30, 1998, contained in Post-Effective
Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate
Investment Trust, Inc., which was filed with the Commission on July 9, 1998
(Commission File No. 333-32099).
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 item of the lease is ten
years commencing 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 Investment Trust, Inc. dated January 30, 1998, contained in
Post-Effective Amendment No. 2 to
12
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Form S-11 Registration Statement of Wells Real Estate Investment Trust,
Inc., which was filed with the Commission on July 9, 1998 (Commission File
No. 333-32099).
(3) Deferred Project Costs
----------------------
The Company pays Acquisition and Advisory Fees and Acquisition Expenses to
Wells Capital, Inc., the Advisor, for acquisition and advisory services and
as reimbursement for acquisition expenses. These payments may not exceed 3
1/2% of shareholders' capital contributions. Acquisition and Advisory Fees
and Acquisition Expenses paid as of June 30, 1998, amounted to $93,926 and
represented approximately 3 1/2% of shareholders' capital contributions
received. These fees are allocated to specific properties as they are
purchased.
(4) Deferred Offering Costs
-----------------------
The Advisor pays all the offering expenses for the Company. The Advisor
may be reimbursed by the Company to the extent that such offering expenses
do not exceed 3% of shareholders' capital contributions. As of June 30,
1998, the Company had reimbursed the Advisor for $80,508 in offering
expenses, which amounted to approximately 3% of shareholders' capital
contributions.
(5) Due To Affiliates
-----------------
Due to Affiliates consists of Acquisition and Advisory Fees, deferred
offering costs, and other operating expenses paid by the Advisor on behalf
of the Company.
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 Company 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 Company, 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.
The Company commenced active operations on June 5, 1998, when it received and
accepted subscriptions for 125,000 shares. An aggregate requirement of
$2,500,000 of offering proceeds, excluding New York and Pennsylvania, was
reached on July 8, 1998, thus allowing for the admission of New York and
Pennsylvania investors into the Partnership. As of June 30, 1998,
13
<PAGE>
the Company had sold 268,459 common shares of stock, for total share
contributions of $2,684,595. After payment of $93,926 in Acquisition and
Advisory Fees and Acquisition Expenses, payment of $335,449 in selling
commissions and organization and offering expenses and the capital contribution
by Wells OP of $1,421,466 to the Fund IX-X-XI-REIT Joint Venture, as of June 30,
1998, the Company was holding net offering proceeds of $833,754 available for
investment in properties.
Gross revenues of the Company of $10,917 for the three months ended June 30,
1998, were attributable primarily to interest income earned on funds held by the
Company prior to the investment in properties and income earned from joint
ventures. Expenses of the Company were $18 for the three months ended June 30,
1998, and consisted primarily of office expenses. Since the Company did not
commence active operations until it received and accepted subscriptions for a
minimum of 125,000 units on June 5, 1998, there is no comparative financial data
available from the prior fiscal year.
Net increase in cash and cash equivalents is the result of raising $2,684,595 in
common stock capital contributions before deducting acquisition and advisory
fees and expenses, commissions and offering costs.
No cash distributions were made to shareholders during the second quarter of
1998.
Company management has verified that all operational computer systems are year
2000 compliant. This includes systems supporting accounting, property
management and investor services. Also, as part of this review, all building
control systems have been verified as compliant. The current line of business
applications are based on compliant operating systems and database servers. All
of these products are scheduled for additional upgrades before the year 2000.
Therefore, it is not anticipated that the year 2000 will have significant impact
on the Company'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 currently pertain to the Company; consequently,
adoption of this Statement had no impact on the Company'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
14
<PAGE>
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 Company 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
Company's results of operations and financial condition.
Property Operations
- -------------------
As of June 30, 1998, the Company 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%
Company's Ownership % in the Fund
IX-X-XI-REIT Joint Venture 4.4% 4.4%
Cash distribution to Company $ 2,611 $ 2,611
Net income allocated to Company $ 1,203 $ 1,203
</TABLE>
The ABB Building is owned and operated by the Fund IX-X-XI-REIT Joint Venture.
Wells OP was admitted to the Fund IX-X-XI-REIT Joint Venture and, accordingly,
the Company 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 additions to the
base rent, ABB is required to pay additional rent equal to its share of
operating expenses during the lease term.
15
<PAGE>
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.
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%
Company's Ownership % in the Fund
IX-X-XI-REIT Joint Venture 4.4% 4.4%
Cash distribution to Company $ 3,556 $ 3,556
Net income allocated to Company $ 2,398 $ 2,398
</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. Wells OP was admitted to the
Fund IX-X-XI-REIT Joint Venture and, accordingly, the Company acquired its
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
16
<PAGE>
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.
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%
Company's Ownership % in the Fund
IX-X-XI-REIT Joint Venture 4.4% 4.4%
Cash distribution to Company $ 3,457 $ 3,457
Net income allocated to Company $ 2,785 $ 2,785
</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. Wells OP was
admitted to the Fund IX-X-XI-REIT Joint Venture and, accordingly, the Company
acquired its interest in this property on June 11, 1998.
The 360 Interlocken Building was completed in December 1996. The first floor
has multiple tenants and contains 15,599 rentable square feet; the second floor
is leased to ODS Technologies, L.P. and contains 17,146 rentable square feet;
and the third floor is leased to Transecon, Inc. and contains 19,229 rentable
square feet.
Since the 360 Interlocken Building was purchased in March 1998, comparable
income and expense figures for the prior year are not available.
17
<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
Management & leasing expenses 0
Operating costs, net of reimbursements 0
------
4,382
------
Net income $5,503
======
Occupied % 100%
Company's ownership % in the Fund
IX-X-XI-REIT Joint Venture 4.4%
Cash distributed to Company $5,684
Net income allocated to the Company $ 246
</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.
18
<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 INVESTMENT TRUST, INC.
(Registrant)
Dated: August 10, 1998 By: /s/ Leo F. Wells, III
-------------------------------------
Leo F. Wells, III
President and Director
19
<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> 1,112,656
<SECURITIES> 1,472,065
<RECEIVABLES> 15,307
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 648,852
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 3,248,880
<CURRENT-LIABILITIES> 888,835
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 2,360,045
<TOTAL-LIABILITY-AND-EQUITY> 3,248,880
<SALES> 0
<TOTAL-REVENUES> 10,917
<CGS> 0
<TOTAL-COSTS> 18
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 10,899
<INCOME-TAX> 10,899
<INCOME-CONTINUING> 10,899
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 10,899
<EPS-PRIMARY> 0.16
<EPS-DILUTED> 0
</TABLE>
