<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1998 or
-----------------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from__________________to__________________
Commission file number 333-32099 (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
-----
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1998
and December 31, 1997............................................................. 3
Statement of Income for the Three and six months
Ended September 30, 1998.......................................................... 4
Statements of Shareholders' Equity for the Year Ended December, 31, 1997
and the Six Months Ended
September 30, 1998................................................................ 5
Statements of Cash Flows for the Six
Months Ended June 30, 1998........................................................ 6
Condensed Notes to Financial Statements............................................ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations..................................... 13
PART II. OTHER INFORMATION........................................................................... 22
</TABLE>
2
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets Sept. 30, 1998 December 31, 1997
------ -------------- -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $ 9,861,770 $ 0
Cash and cash equivalents 591,122 201,000
Due from affiliates 162,877 0
Deferred project costs (Note 3) 10,584 0
Deferred offering costs (Note 4) 648,130 289,073
Prepaid expenses and other assets 11,250 0
----------- --------
Total assets $11,285,733 $490,073
=========== ========
Liabilities and Shareholders' Equity
------------------------------------
Liabilities:
Sales commissions payable $ 99,599 $ 0
Due to affiliates (Note 5) 681,674 289,073
Partnership distribution payable 102,987 0
Minority interest of unit holder in operating partnership 200,000 200,000
----------- --------
Total liabilities 1,084,260 489,073
----------- --------
Shareholders' equity:
Common shares, $.01 par value; 165,000,000 shares
authorized, 1,169,292 shares issued and outstanding 11,693 1
Additional paid in capital 10,219,740 999
Account deficit (29,960) 0
----------- --------
Total shareholders' equity 10,201,473 1,000
----------- --------
Total liabilities and shareholders' equity $11,285,733 $490,073
=========== ========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
STATEMENT OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, 1998 September 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Equity in income of joint ventures $68,683 $75,314
Interest Income 4,609 8,895
------- -------
73,292 84,209
------- -------
Expenses:
Administrative 3,426 3,444
Legal and accounting 318 318
Printing 7,420 7,420
------- -------
11,164 11,182
------- -------
Net income $62,128 $73,027
======= =======
Basic and diluted earnings per share $ 0.06 $ 0.06
</TABLE>
See accompanying condensed notes to financial statements.
4
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY FOR THE YEAR
ENDED DECEMBER 31, 1997 AND THE SIX MONTHS ENDED SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
---------------------------------------
ADDITIONAL PAID ACCOUNT SHAREHOLDERS'
SHARES AMOUNTS IN CAPITAL DEFICIT EQUITY
--------- -------- ---------------- ---------- --------------
<S> <C> <C> <C> <C> <C>
BALANCE,
DECEMBER 31, 1997 100 $ 1 $ 999 $ - $ 1,000
Issuance of common stock 1,169,192 11,692 11,680,231 - 11,691,923
Net income - - - 73,027 73,027
Distributions - - (102,987) (102,987)
Sales commissions - - (1,110,732) - (1,110,732)
Other offering expenses - - (350,758) - (350,758)
--------- -------- ----------- --------- -----------
BALANCE,
SEPTEMBER 30, 1998 1,169,292 $11,693 $10,219,740 $ (29,960) $10,201,473
========= ======== =========== ========= ===========
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
STATEMENT OF CASH FLOW
<TABLE>
<CAPTION>
Six Months Ended
----------------
September 30, 1998
------------------
<S> <C>
Cash flows from operating activities:
Net income $ 73,027
Adjustments to reconcile net income to net cash
Provided by operating activities:
Equity in income of joint ventures (75,314)
Changes in assets and liabilities:
Increase in prepaid expenses and other assets (11,250)
Increase in due to affiliates 33,544
-----------
Net cash provided by operating activities 20,007
-----------
Cash flow from investing activities:
Distributions received from joint venture 15,307
Investment in joint ventures (9,566,007)
Deferred project costs (409,217)
-----------
Net cash used by investing activities (9,959,917)
-----------
Cash flow from financing activities:
Shareholders' contributions 11,691,923
Sales commissions (1,011,133)
Offering costs (350,758)
-----------
Net cash provided by financing activities 10,330,032
-----------
Net increase in cash and cash equivalents 390,122
Cash and cash equivalents, beginning of year 201,000
-----------
Cash and cash equivalents, end of period $ 591,122
===========
Supplemental schedule of noncash investing
activities:
Deferred project costs applied to investing
activities $ 398,634
===========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARIES
Condensed Notes to Financial Statements
September 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 behalf of
the Company.
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 September 30, 1998, the
Company had sold 1,169,292 shares for total capital contributions of
$11,692,923. After payment of $409,217 in Acquisition and Advisory Fees
and Expenses, payment of $1,461,490 in selling commissions and organization
and offering expenses and capital contributions by Wells OP of $9,566,007
to the joint ventures, the Company was holding net offering proceeds of
$256,209 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
<PAGE>
(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 is 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 accounts 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 operate in such a manner as to qualify for taxation as a
REIT
8
<PAGE>
under the Code, and the Company intends to continue to operate in such a
manner, but no 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 seven office buildings through its ownership
in Wells OP which owns interest in two joint ventures. The Company does
not have control over the operations of these two joint ventures; however,
it does exercise significant influence. Accordingly, investment in joint
ventures is recorded using the equity method.
The following describes additional information about the properties in
which the Company owns an interest as of September 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 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. On July 1, 1998, Wells Fund X contributed the Iomega building
located in Ogden, Weber County, Utah to the Fund IX-X-XI- REIT Joint
Venture.
As of September 30, 1998, the Wells OP had contributed approximately
$1,421,466 for an approximate 3.8% equity interest in the Fund IX-X-XI-REIT
Joint Venture. As of September 30, 1998, Wells Fund IX held an approximate
39.8% equity interest, Wells Fund X held an approximate 49.7% equity
interest, and Wells Fund XI held an approximate 6.7% equity interest in the
Fund IX-X-XI-REIT Joint Venture.
9
<PAGE>
IOMEGA BUILDING
---------------
On July 1, 1998, Wells Real Estate Fund X, L.P. ("Wells Fund X")
contributed a single story warehouse and office building with 108,000
rentable square feet (the "Iomega Building") and was credited with making a
capital contribution to the IX-X-XI-REIT Joint Venture in the amount of
$5,050,425, which represents the purchase price of $5,025,000 plus
acquisition expenses of $25,425 originally paid by Wells Fund X for the
Iomega Building on April 1, 1998.
The building is 100% occupied by one tenant with a ten year lease term that
expires on July 31, 2006. The monthly base rent payable under the lease is
$40,000 through November 12, 1999. Beginning on the 40/th/ and 80/th/
months of the lease term, the monthly base rent payable under the lease
will be increased to reflect an amount equal to 100% of the increase in the
Consumer Price Index (as defined in the lease) during the preceding 40
months; provided however, that in no event shall the base rent be increased
with respect to any one year by more than 6% or by less than 3% per annum,
compounded annually, on a cumulative basis from the beginning of the lease
term. The lease is a triple net lease, whereby the terms require the
tenant to reimburse the IX-X-XI-REIT Joint Venture for certain operating
expenses, as defined in the lease, related to the building.
WELLS/FREMONT JOINT VENTURE
---------------------------
On July 15, 1998, the Wells/Fremont Joint Venture was formed. Wells OP
entered into a joint venture agreement known as Wells/Fremont Associates
("Fremont Joint Venture") with Wells Development Corporation, a Georgia
corporation. Wells Development Corporation is an affiliate of the Company
and the adviser. On July 21, 1998, the Fremont Joint Venture acquired the
Fairchild Building, a 58,424-square-foot warehouse and office building
located in Fremont, California, for a purchase price of $8,900,000 plus
acquisition expenses of approximately $60,000. The Fremont Joint Venture
used the $2,995,480 aggregate capital contributions described below to
partially fund the purchase of the Fairchild Building. The Fremont Joint
Venture also obtained a loan in the amount of $5,960,000 from NationsBank,
N.A., the proceeds of which were used to fund the remainder of the cost of
the Fairchild Building (the "Fairchild Loan"). The Fairchild Loan had a
one year term maturing on July 21, 1999. The interest rate on the
Fairchild Loan was a variable rate per annum equal to the LIBOR Rate for a
30-day period plus 220 basis points.
The Fairchild Building is 100% occupied by one tenant with a seven-year
lease term that commenced on December 1, 1997 (with an early possession
date of October 1, 1997) and expires on November 30, 2004. The monthly
base rent payable under the lease is $68,128 with a 3% increase on each
anniversary of the commencement date. The lease is a triple net lease,
whereby the terms require the tenant to reimburse the landlord for
10
<PAGE>
certain operating expenses, as defined in the lease, related to the
building. Prior to October 1, 1997, the building was unoccupied and all
operating expenses were paid by the former owner of the Fairchild Building.
On July 17, 1998, a joint venture between Wells Fund X and Wells Fund XI
(the "Fund X-XI Joint Venture") entered into an Agreement for the Purchase
and Sale of Joint Venture Interest (the "Fremont JV Contract") with Wells
Development. Pursuant to the Fremont JV Contract, the Fund X-XI Joint
Venture contracted to acquire Wells Development's interest in the Fremont
Joint Venture (the "Fremont JV Interest") which at closing, will result in
the Fund X-XI Joint Venture becoming a joint venture partner with Wells OP
in the ownership of the Fairchild Building. At the time of the entering
into the Fremont JV Contract, the Fund X-XI Joint Venture delivered
$2,000,000 to Wells Development as an earnest money deposit (the "Fremont
Earnest Money"). Wells Development contributed the Fremont Earnest Money
it received from the Fund X-XI Joint Venture to the Fremont Joint Venture
as its initial capital contribution.
As of September 30, 1998, Wells OP had made total capital contributions of
$5,273,000 to the Fremont Joint Venture and held an approximate 73% equity
percentage interest in the Fremont Joint Venture, and Wells Development had
contributed $2,000,000 and held an approximate 27% equity percentage
interest in the Fremont Joint Venture.
WELLS/ORANGE COUNTY JOINT VENTURE
---------------------------------
Wells OP entered into a joint venture agreement known as Wells/Orange
County Associates ("Cort Joint Venture") with Wells Development
Corporation. On July 31, 1998, the Cort Joint Venture acquired the Cort
Furniture Building for a purchase price of $6,400,000 plus acquisition
expenses of approximately $150,000. The Cort Joint Venture used the
$1,668,000 aggregate capital contributions described below to partially
fund the purchase of the Cort Furniture Building. The Cort Joint Venture
also obtained a loan in the amount of $4,875,000 from NationsBank, N.A.,
the proceeds of which were used to fund the remainder of the cost of the
Cort Furniture Building (the "Cort Loan"). On September 1, 1998, the Fund
X-XI Joint Venture acquired an interest in the Cort Joint Venture from
Wells Development Corporation.
The Cort Furniture Building is a 52,000-square-foot warehouse and office
building located in Fountain Valley California. The building is 100%
occupied by one tenant with a 15-year lease term that commenced on November
1, 1988 and expires on October 31, 2003. The monthly base rent payable
under the lease is $63,247 through April 30, 2001, at which time the
monthly base rent will be increased 10% to $69,574 for the remainder of the
lease term. The lease is a triple net lease, whereby the terms require the
tenant to reimburse the Cort Joint Venture for certain operating expenses,
as defined in the lease, related to the building.
11
<PAGE>
On July 30, 1998, the Fund X-XI Joint Venture entered into the Agreement
for the Purchase and Sale of Joint Venture Interest (the "Cort JV
Contract") with Wells Development. Pursuant to the Cort JV Contract, the
Fund X-XI Joint Venture contracted to acquire Wells Development's interest
in the Cort Joint Venture. On September 1, 1998 the Fund X-XI Joint
Venture exercised its rights under the Cort JV Contract and purchased Wells
Development's interest in the Cort Joint Venture and became a joint venture
partner with Wells OP in the ownership of the Cort Furniture Building.
At the time of entering into the Cort JV Contract, the Fund X-XI Joint
Venture paid $1,500,000 to Wells Development as an earnest money deposit
(the "Cort Earnest Money"). Wells Development contributed the Cort Earnest
Money it received from the Fund X-XI Joint Venture to the Cort Joint
Venture as its initial capital contribution, and Wells OP simultaneously
contributed $168,000 to the Cort Joint Venture as its initial capital
contribution.
On September 1, 1998, Wells Fund X and Wells Fund XI contributed an
additional $1,546,233 and $648,767, respectively, to the Fund X-XI Joint
Venture, and these aggregate proceeds of $2,195,000 were contributed to the
Cort Joint Venture. Wells OP contributed an additional $2,702,982 to the
Cort Joint Venture. These proceeds were used to pay off the Cort Loan.
As of September 30, 1998, Wells OP had made total capital contributions of
$2,870,982 and held an approximate 44% equity percentage interest in the
Cort Joint Venture, and the Fund X-XI Joint Venture had contributed
$3,695,000 and held and approximately 56% equity percentage interest in the
Cort Joint Venture.
(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 September 30, 1998, amounted to
$409,217 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 September
30, 1998, the Company had reimbursed the Advisor for $350,758 in offering
expenses, which amounted to approximately 3% of shareholders' capital
contributions.
(5) Due To Affiliates
-----------------
12
<PAGE>
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 September 30, 1998, the
Company had sold 1,169,292 common shares of stock, for total share contributions
of $11,692,923. After payment of $409,217 in Acquisition and Advisory Fees and
Acquisition Expenses, payment of $1,461,490 in selling commissions and
organization and offering expenses, and capital contributions by Wells OP of
$9,566,007 to joint ventures, as of September 30, 1998, the Company was holding
net offering proceeds of $256,209 available for investment in properties.
Gross revenues of the Company of $84,209 for the six months ended September 30,
1998, were attributable 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 $11,182 for the six months ended September 30,
1998, and consisted primarily of administrative and printing 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 for the prior fiscal year.
Net increase in cash and cash equivalents is primarily the result of raising
$11,691,923 in common stock capital contributions offset by acquisition and
advisory fees and expenses, commissions, offering costs and capital
contributions to joint ventures.
Cash distributions of $0.06 per share were made to shareholders during the third
quarter of 1998.
13
<PAGE>
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 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.
14
<PAGE>
Property Operations
- -------------------
As of September 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 Nine Months Ended
Sept. 30, 1998 Sept. 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income $208,370 $590,342
Interest income 6,000 6,000
-------- --------
214,370 596,342
-------- --------
Expenses:
Depreciation 120,433 305,211
Management & leasing expense 25,577 75,765
Other operating expenses, net of reimbursements 3,050 49,717
-------- --------
149,060 430,693
-------- --------
Net income $ 65,310 $165,649
======== ========
Occupied % 95% 95%
Company's Ownership % in the Fund IX-X-XI-REIT Joint Venture 3.8% 3.8%
Cash distribution to Company $ 7,185 $ 9,796
Net income allocated to Company $ 2,513 $ 3,716
</TABLE>
ABB Environmental Systems, a subsidiary of ABB, Inc., occupied its leased space
of 56,012 rentable square feet comprising approximately 67% of the building in
December 1997. The initial term of the lease is 9 years and 11 months. ABB has
the option under its lease to extend the initial term of the lease for two
consecutive five year periods. The annual base rent payable during the initial
term is $646,250 payable in equal monthly installments of $53,854 during the
first five years and $728,750 payable in equal monthly installments of $60,729
during the last four years and 11 months of the initial term. The annual base
rent for each extended term will be at market rental rates. In additions to the
base rent, ABB is required to pay additional rent equal to its share of
operating expenses during the lease term. Another tenant has occupied 23,490
rentable square feet bringing the occupancy to 95%.
It is currently anticipated that the total cost to complete the project will be
approximately $7,900,000. It is currently anticipated that Wells Fund IX will
contribute approximately $80,000 of the remaining cost to complete the building.
Since the ABB Building was opened in December 1997, comparative income and
expense figures for the prior year are not available.
15
<PAGE>
The Ohmeda Building/Fund IX-X-XI-REIT Joint Venture
- ---------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Eight Months Ended
Sept. 30, 1998 Sept. 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income $254,940 $643,963
-------- --------
Expenses:
Depreciation 81,576 217,536
Management & leasing expense 11,618 29,546
Other operating expenses, net of reimbursements 1,171 1,082
-------- --------
94,365 248,164
-------- --------
Net income $160,575 $395,799
======== ========
Occupied % 100% 100%
Company's Ownership % in the Fund IX-X-XI-REIT Joint Venture 3.8% 3.8%
Cash distribution to Company $ 9,170 $ 12,726
Net income allocated to Company $ 6,178 $ 8,576
</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 is required to pay a $21,000 per year management fee for
maintenance and administrative services of the Ohmeda Building. The Fund IX-X-
XI-REIT Joint Venture, as landlord, is responsible for maintenance of the roof,
exterior and structural walls, foundations, other structural members and floor
slab, provided that the landlord's obligation to make repairs specifically
excludes items of cosmetic and routine maintenance such as the painting of
walls.
16
<PAGE>
Since the Ohmeda Building was purchased in February 1998, comparative income and
expense figures are not available for the prior year.
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Seven Months Ended
Sept. 30, 1998 Sept. 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income $215,289 $453,864
-------- --------
Expenses:
Depreciation 71,793 166,432
Management & leasing expense 18,086 37,323
Other operating expenses, net of reimbursements (7,850) (56,128)
-------- --------
82,029 147,627
-------- --------
Net income $133,260 $306,237
======== ========
Occupied % 100% 100%
Company's Ownership % in the Fund IX-X-XI-REIT Joint Venture 3.8% 3.8%
Cash distribution to Company $ 7,547 $ 11,004
Net income allocated to Company $ 5,127 $ 7,912
</TABLE>
On March 20, 1998, the Fund IX-X-XI-REIT Joint Venture (formerly, the Fund IX-X
Joint Venture) acquired a three-story multi-tenant office building containing
approximately 51,974 rentable square feet on a 5.1 tract of land located in
Broomfield, Boulder County, Colorado (the "360 Interlocken Building") for a
purchase price of $8,275,000, excluding acquisition costs. The Partnership was
admitted to the Fund IX-X-XI-REIT Joint Venture and, accordingly, 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.
Other operating expenses are negative due to tenant reimbursements being greater
than operating expenses. Since the 360 Interlocken Building was purchased in
March 1998, comparable income and expense figures for the prior year are not
available.
17
<PAGE>
Lucent Technologies Building/Fund IX-X-XI-REIT Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Four Months Ended
September 30, 1998 September 30, 1998
------------------- ----------------------
<S> <C> <C>
Revenues:
Rental income $133,600 $143,485
-------- --------
Expenses:
Depreciation 51,514 55,896
Management & leasing expenses 5,084 5,084
Operating costs, net of reimbursements 7,584 7,584
-------- --------
64,182 68,564
-------- --------
Net income $ 69,418 $ 74,921
======== ========
Occupied % 100% 100%
Company's ownership % in the Fund IX-X-XI-REIT Joint Venture 3.8% 3.8%
Cash distributed to Company $ 4,406 $ 10,090
Net Income allocated to the Company $ 2,670 $ 2,916
</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>
Iomega Building/Fund IX-X-XI-REIT Joint Venture
- -----------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
September 30, 1998 September 30, 1998
------------------ ------------------
<S> <C> <C>
Revenues:
Rental income $126,666 $246,666
-------- --------
Expenses:
Depreciation 48,594 97,578
Management & leasing expenses 5,596 11,199
Operating costs, net of reimbursements 3,526 5,731
-------- --------
57,716 114,508
-------- --------
Net income $ 68,950 $132,158
======== ========
Occupied % 100% 100%
Company's ownership % in the Fund IX-X-XI-REIT Joint Venture 3.8% 3.8%
Cash distributed to Company $ 4,265 $ 4,265
Net Income allocated to the Company $ 2,652 $ 2,652
</TABLE>
On April 1, 1998, Wells Fund X acquired a single story warehouse and office
building containing approximately 100,000 rentable square feet on a 8.03 acre
tract of land in Ogden, Weber County, Utah (the "Iomega Building") for a
purchase price of $5,025,000.
On July 1, 1998, Wells Fund X contributed the Iomega Building to the Fund IX-X-
XI-REIT Joint Venture. The Company 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, comparable income and
expense figures for the prior year are not available.
19
<PAGE>
Wells/Fremont Joint Venture
- ---------------------------
<TABLE>
<CAPTION>
Three Months Ended
------------------
September 30, 1998
------------------
<S> <C>
Revenues:
Rental income $175,381
--------
Expenses:
Depreciation 70,324
Management & leasing expenses 7,315
Operating costs, net of reimbursements 71,011
--------
148,650
--------
Net income $ 26,731
========
Occupied % 100%
Company's ownership % 73.1%
Cash distributed to Company $ 83,001
Net income allocated to the Company $ 17,694
</TABLE>
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 "Fremont Building") for a
purchase price of $8,900,000 excluding acquisition costs.
The building is 100% occupied by Fairchild Technologies, U.S.A., Inc. with a
lease expiration of November 30, 2004.
Since the Fremont Building was purchased in July of 1998, comparable income and
expense figures for the prior year are not available.
20
<PAGE>
Wells/Cort Joint Venture
- ------------------------
<TABLE>
<CAPTION>
Two Months Ended
----------------
Sept. 30, 1998
--------------
<S> <C>
Revenues:
Rental income $133,857
--------
Expenses:
Depreciation 45,288
Management & leasing expenses 5,144
Operating costs, net of reimbursements 29,700
--------
80,132
--------
Net income $ 53,725
========
Occupied % 100%
Company's ownership % 43.7%
Cash distributed to Company $ 47,312
Net income allocated to the Company $ 31,853
</TABLE>
On July 31, 1998, the Cort Joint Venture acquired a one-story warehouse and
office building containing approximately 52,000 rentable square feet on a 3.65
acre tract of land in Fountain Valley, California (the "Cort Building") for a
purchase price of $6,400,000, excluding acquisition costs.
The building is 100% leased by Cort Furniture Rental Corporation with a lease
expiration of October 31, 2003.
Since the Cort Building was purchased in July 1998, comparable income and
expense figures for the prior year are not available.
21
<PAGE>
PART II - OTHER INFORMATION
---------------------------
ITEM 6 (b). During the third quarter of 1998, the Registrant filed a Current
Report on Form 8-K dated July 21, 1998, describing the acquisition of the
Fairchild Building by the Fremont Joint Venture.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Registrant)
Dated: November 10, 1998 By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III
President and Director
22
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<CASH> 591,122
<SECURITIES> 9,861,770
<RECEIVABLES> 162,877
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 669,964
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 11,285,733
<CURRENT-LIABILITIES> 1,084,260
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 10,201,473
<TOTAL-LIABILITY-AND-EQUITY> 11,285,733
<SALES> 0
<TOTAL-REVENUES> 84,209
<CGS> 0
<TOTAL-COSTS> 11,182
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 73,027
<INCOME-TAX> 73,027
<INCOME-CONTINUING> 73,027
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 73,027
<EPS-PRIMARY> 0
<EPS-DILUTED> .06
</TABLE>
