<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1998 or
--------------------------- -----------------------
[ ] Transition report pursuant to Section 13 or 15 (d) of the Securities
Exchange Act of 1934
[No Fee Required]
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 or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
3885 Holcomb Bridge Road
Norcross, Georgia 30092
- ---------------------------------------- ---------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
------------------------------
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which registered
- ----------------------------------- ------------------------------------
NONE NONE
Securities registered pursuant to Section 12 (g) of the Act:
NONE
- --------------------------------------------------------------------------------
(Title of Class)
NONE
- --------------------------------------------------------------------------------
(Title of Class)
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
--- ---
Aggregate market value of the voting stock held by non-affiliates:
While there is no established market for the Registrant's shares of voting
stock, the Registrant has offered and sold shares of its voting stock pursuant
to a Form S-11 Registration Statement under the Securities Act of 1933 at a
price of $10 per share. The number of shares of common stock outstanding as of
February 28, 1999 was 4,078,535.
DOCUMENTS INCORPORATED BY REFERENCE:
Registrant incorporates by reference portions of the Wells Real Estate
Investment Trust, Inc. Definitive Proxy Statement for the
1999 Annual Meeting of Stockholders (Items 10, 11, 12 and 13 of Part III) to be
filed no later than April 30, 1999.
1
<PAGE>
PART I
ITEM 1. BUSINESS.
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 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 December 31, 1998 the Company had
sold 3,154,136 shares for total capital contributions of $31,541,360. After
payment of $1,103,913 in Acquisition and Advisory Fees and Expenses, payment of
$3,942,545 in selling commissions and organization and offering expenses, and
capital contributions and acquisition expenditures by Wells OP of $18,442,540,
the Company was holding net offering proceeds of $8,052,362 available for
investment in properties.
Wells OP owns interests in properties through equity ownership in the following
joint ventures: (i) The Fund IX-X-XI-REIT Joint Venture, a joint venture among
the Partnership and Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X,
L.P., and Wells Real Estate Fund XI, L.P. (the "Fund IX-X-XI-REIT Joint
Venture"), (ii) Wells/Fremont Associates (the "Fremont Joint Venturo"), a joint
venture between the Partnership and Fund X and Fund XI Associates, which is a
joint venture between Wells Real Estate Fund X, L.P. and Wells Real Estate Fund
XI, L.P. (the "Fund X-XI Joint Venture"), and (iii) Wells/Orange County
Associates (the "Cort Joint Venture"), a joint venture between the Partnership
and the Fund X-XI Joint Venture.
As of December 31, 1998, the Partnership owned interests in the following
properties: (i) a three story office building in Knoxville, Tennessee (the "ABB
Building"), (ii) a two story office building in Louisville, Colorado (the
"Ohmeda Building"), (iii) a three story office building in Broomfield, Colorado
(the "360 Interlocken Building"), (iv) a one story office building in Oklahoma
City, Oklahoma (the "Lucent Technologies Building"), (v) a one story warehouse
and office building in Ogden, Utah (the "Iomega Building"), all five of which
are owned by the Fund IX-X-XI-REIT Joint Venture; (vi) a two story warehouse
office building in Fremont, California (the "Fremont Building"), which is owned
by the Fremont Joint Venture, (vii) a one story warehouse and office building in
Fountain Valley, California (the "Cort Building"), which is owned by the Cort
Joint Venture, and (viii) a four story office building in Tampa, Florida (the
"PWC Building") which is owned directly by the Partnership.
2
<PAGE>
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.
See Item II "Compensation of Advisor and Affiliates", for a summary of the fees
paid to the Advisor and affiliates during the fiscal year ended December 31,
1998.
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.
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.
ITEM 2. PROPERTIES.
The Company owns interest in eight properties through its ownership in Wells OP
which owns interest directly or through its ownership in two joint ventures of
which all are office buildings. The Company does not have control over the
operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investment in joint venture is recorded on the equity
method. As of December 31, 1998, these properties were 99.9% occupied.
3
<PAGE>
The following table shows lease expirations during each of the next ten years
for all leases as of December 31, 1998, assuming no exercise of renewal options
or termination rights:
<TABLE>
<CAPTION>
Partnerships
Year of Number of Annualized Share of Percentage of Percentage of
Lease Leases Square Gross Base Annualized Total Square Total Annualized
Expiration Expiring Feet Expiring Rent(1) Gross Base Rent(1) Feet Expiring Base Rent
- -----------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
1999 1 23,490 236,748 9,080 3.6% 3.0%
2000 - - - - - -
2001 2 20,739 328,620 12,604 3.2% 4.2%
2002 3 12,606 256,980 9,856 2.0% 3.3%
2003(2) 2 69,146 1,072,828 357,960 10.8% 13.6%
2004(3) 1 58,424 902,946 699,819 9.1% 11.5%
2005(4) 1 106,750 1,027,320 39,403 16.6% 13.0%
2006(5) 1 108,250 497,892 19,097 16.9% 6.3%
2007(6) 1 55,000 764,364 29,317 8.6% 9.7%
2008(7) 2 187,276 2,792,211 2,231,554 29.2% 35.4%
- -----------------------------------------------------------------------------------------------------------------
14 641,681 $7,879,909 $3,408,690 100.0% 100.0%
</TABLE>
(1) Average monthly gross rent over life of the lease, annualized.
(2) Expiration of Cort building lease, - 52,000 square feet.
(3) Expiration of Fairchild building lease, - 58,424 square feet.
(4) Expiration of Ohmeda building lease, - 106,750 square feet.
(5) Expiration of Iomega building lease, - 108,250 square feet.
(6) Expiration of ABB building lease, - 55,000 square feet.
(7) Expiration of PriceWaterhouse building lease, - 130,090 square feet and
Expiration of Lucent building lease, - 57,186 square feet.
The following describes the properties in which the Company owns an interest of
December 31, 1998:
Fund IX-X-XI-REIT Joint Venture
On June 11, 1998, Fund IX and Fund X Associates (the "Joint Venture"), a joint
venture between the 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,
4
<PAGE>
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 December 31, 1998, 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 December 31, 1998, Wells Fund IX had an approximate 39.8% equity interest,
Wells Fund X had an approximate 49.7% equity interest, and Wells Fund XI had an
approximate 6.7% equity interest in the Fund IX-X-XI-REIT Joint Venture.
The 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
in December, 1997. 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 remaining cost to complete this project
which includes the final buildout of remaining space will be approximately
$170,000, which it is anticipated will be contributed by Wells Fund IX.
The average effective annual rental per square foot at the ABB Building was
$9.97 for 1998 and $8.16 for 1997, the first year of occupancy. The occupancy
rate at year end was 95% for 1998 and 67% for 1997.
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. 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).
5
<PAGE>
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. The purchase price for the Ohmeda Building was $10,325,000.
The Joint Venture also incurred additional acquisition expenses in connection
with the purchase of the Ohmeda Building, including attorneys' fees, recording
fees and other closing costs for a total cost of $10,347,955.
The entire 106,750 rentable square feet of the Ohmeda Building is currently
under a net lease date February 26, 1987, as amended by First Amendment to Lease
dated December 3, 1987, as amended by Second Amendment to Lease dated October
20, 1997 (the "Lease") with Ohmeda, Inc., a Delaware corporation. The lease was
assigned to the Joint Venture at the closing. The lease currently expires in
January 2005, subject to (i) Ohmeda's right to effectuate an early termination
of the lease under the terms and conditions described below, and (ii) Ohmeda's
right to extend the lease for two additional five year periods of time at the
then current market rental rates.
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, 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.
The average effective annual rental per square foot at the Ohmeda Building was
$9.62, the first year of occupancy. The occupancy rate at year end was 100% for
1998.
For additional information regarding the Ohmeda Building, refer to Supplement
No. 2 dated June 30, 1998 Prospectus of Wells Real Estate Investment Trust, Inc.
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.
6
<PAGE>
The average effective annual rental per square foot at the 360 Interlocken
Building was $16.31 the first year of occupancy. The occupancy rate at year end
was 100% for 1998.
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. 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 Building
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 Company and the Advisor, 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, a world-wide leader in telecommunications technology
producing a variety of communication products, has occupied the entire Lucent
Technologies Building. The initial term of the lease is ten years commencing
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 installments 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 extendable 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.
The average effective annual rental per square foot at the Lucent Technologies
Building was $9.69, the first year of occupancy. The occupancy rate at year end
was 100% for 1998.
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. 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).
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 108,250 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 $5,025,000 plus acquisition expenses of price of $25,425 originally
paid by the Partnership for the Iomega Building on April 1, 1998.
7
<PAGE>
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 40th and 80th 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.
The average effective annual rental per square foot at the Iomega Building was
$4.60, the first year of occupancy. The occupancy rate at year end was 100% for
1998.
For additional information regarding the Iomega Building, refer to Supplement
No. 3 dated August 12, 1998, to the Prospectus of Wells Real Estate Investment
Trust, Inc. contained in Post-Effective Amendment No. 3 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc. which was
filed with the Commission on August 14, 1998 (Commission File No. 333-32099).
Wells/Fremont Joint Venture -- Fairchild Building
On July 15, 1998, 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"). Wells Development is
an affiliate of the Company and the Advisor. 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 (the "Fairchild Building"), 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
is 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 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
8
<PAGE>
Fund X-XI Joint Venture contracted to acquire Wells Development's interest in
the Fremont Joint Venture (the "Fremont JV Interest. On October 8, 1998, the
Fund X-XI Joint Venture exercised its rights under the Fremont Joint Venture
Contract and purchased Wells Development's interest in the Fremont Joint Venture
and became a joint venture partner with Wells OP in the ownership of the
Fairchild Building.
On October 6, 1998, Wells OP contributed an additional $6,983,110 to the
Wells/Fremont Joint Venture. These proceeds were used to pay off the Fremont
Loan. As of December 31, 1998, Wells OP held an approximate 78% equity
percentage interest in the Fremont Joint Venture, and the Fund X-XI Joint
Venture held an approximate 22% equity percentage interest in the Fremont Joint
Venture.
The average effective annual rental per square foot at the Fairchild Building
was $8.46, the first year of occupancy. The occupancy rate at year end was 100%
for 1998.
For additional information regarding the Fairchild Building, refer to Supplement
No. 3 dated August 12, 1998, to the Prospectus of Wells Real Estate Investment
Trust, Inc. contained in Post-Effective Amendment No. 3 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., which was
filed with the Commission on August 14, 1998 (Commission File No. 333-32099).
Wells/Cort Joint Venture
In July of 1998, 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").
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.
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.
9
<PAGE>
On September 1, 1998, the Fund X-XI Joint Venture, contributed an additional
$2,195,000 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 December 31, 1998, Wells OP had made total capital contributions of
$2,871,430 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 an approximate 56% equity percentage interest in the Cort Joint Venture.
The average effective annual rental per square foot at the CORT Building was
$15.30, the first year of occupancy. The occupancy rate at year end was 100% for
1998.
For additional information regarding the Cort Furniture Building, refer to
Supplement No. 3 dated August 12, 1998, to the Prospectus of Wells Real Estate
Investment Trust, Inc. contained in Post-Effective Amendment No. 3 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., which was
filed with the Commission on August 14, 1998 (Commission File No. 333-32099),
The PWC Building
On December 31, 1998, Wells OP acquired a four-story office building containing
approximately 130,090 rentable square feet (the "PWC Building") which was
recently developed and constructed on an approximately 9 acre tract of real
property located in Tampa, Hillsborough County, Florida. The total purchase
price for the PWC Building pursuant to the Purchase Agreement was $21,127,854.
At the closing, Wells OP paid a purchase price of $20,707,854 to the Seller plus
$98,609.30 for closing costs.
Wells OP purchased the PWC Building subject to a loan from SouthTrust Bank,
National Association ("SouthTrust") in the outstanding principal of
$14,132,537.87 (the "SouthTrust Loan"). The SouthTrust Loan consists of a
revolving credit facility whereby SouthTrust agreed to loan up to $15.5 million.
The SouthTrust Loan matures on December 31, 2000. The interest rate on the
SouthTrust Loan is a variable rate per annum equal to the London InterBank
Offered Rate for a thirty day period plus 185 basis points. Commencing on
February 1, 1999, Wells OP is require to pay to SouthTrust monthly installments
of principal in the amount of $12,500.00 plus accrued interest. The SouthTrust
Loan is secured by a first mortgage against the PWC Building.
On December 31, 1998, the Seller assigned all of its rights pursuant to the
Lease Agreement dated as of March 30, 1998 between the Seller, as landlord, and
Price Waterhouse LLP, which has subsequently merged with Coopers & Lybrand to
form PriceWaterhouseCoopers ("PWC"), as tenant (such agreement, as assigned, is
referred to herein as the "PWC Lease"). The PWC lease currently expires in
December 2008, subject to PWC's right to extend the lease for two additional
five year periods of time.
PWC provides a full range of business advisory services to leading global,
national and local companies and to public institutions. These services include
audit, accounting and tax advice, management, information technology and human
resources consulting; financial advisory
10
<PAGE>
services including mergers and acquisitions, business recovery, project finance
and litigation support; business process outsourcing services; and legal advice
through a global network of affiliated law firms. PWC employs more than 140,000
people in 152 countries.
The annual base rent payable under the PWC Lease is $1,915,741.13 ($14.73 per
square foot) payable in equal monthly installments of $159,645.09 during the
first year of the initial lease term. The base rent escalates at the rate of 3%
per year throughout the ten year lease term. In addition, PWC is required to pay
a "reserve" of all property taxes, operating expenses, and other repair and
maintenance work relating to the PWC Building. PWC is also required to reimburse
the landlord the cost of casualty insurance for the property. Wells OP, as
landlord, is responsible for all maintenance, repairs and replacements to the
roof and structural components of the PWC Building, including without
limitation, the roof system, exterior walls, load bearing walls, foundations,
glazing and curtain wall systems.
For additional information regarding the PWC Building, refer to Supplement No. 6
dated January 12, 1999, to the Prospectus of Wells Real Estate Investment Trust,
Inc. contained in Post-Effective Amendment No. 4 to Form S-11 Registration
Statement of Wells Real Estate Investment Trust, Inc., which was filed with the
Commission on January 15, 1999 (Commission File No. 333-32099).
ITEM 3. LEGAL PROCEEDINGS
There were no material pending legal proceedings or proceedings known to be
contemplated by governmental authorities involving the Company during 1998.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the shareholders during the fourth
quarter of 1998.
PART II
ITEM 5. MARKET FOR COMPANY'S COMMON STOCK AND RELATED SECURITY HOLDER
MATTERS.
As of February 28, 1999, the Company had 4,078,535 shares of common stock
outstanding held by a total of 1,957 shareholders. The current offering price
per share is $10.00. There is no established public trading market for the
Company's common stock. Under the Company's Articles of Incorporation,
restrictions are imposed on ownership and transfer of shares.
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 dividend distributions to holders of the shares. Dividends will be
paid to those shareholders who are shareholders as of the record dates selected
by the Directors. Dividends are currently declared monthly and paid on a
quarterly basis.
11
<PAGE>
Dividend distributions made to the shareholders during 1998 (the first year of
operations) were as follows:
Per Common Share
----------------
Distribution for Total Cash Investment Return of
Quarter Ended Distributed Income Capital
---------------- ----------- ---------- ---------
March 31, 1998 $ 0.00 $0.00 $0.00
June 30, 1998 $ 0.00 $0.00 $0.00
September 30, 1998 $102,987 $0.15 $0.00
December 31, 1998 $408,176 $0.16 $0.00
The fourth quarter dividend distributions for1998 were paid to shareholders in
February, 1999. Although there is no assurance, Management of the Company
anticipates that dividend distributions to shareholders will continue in 1999 at
a level at least comparable with 1998 dividend distributions.
ITEM 6. SELECTED FINANCIAL DATA.
The Company did not commence active operations until it received and accepted
subscriptions for a minimum of 125,000 shares on June 5, 1998, and accordingly,
there is no comparative financial data available from prior fiscal years. As of
December 31, 1997, the Company's assets totaled approximately $490,073
consisting primarily of cash and deferred offering costs accrued.
The following sets forth a summary of the selected financial data for the fiscal
year ended December 31, 1998.
1998
-----------
Total assets $42,832,573
Total revenues 395,178
Net income 334,034
Net income allocated to
Shareholders 334,034
Earnings per Share -
Basic & Diluted 0.40
Cash Distributions 0.31
12
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATION.
The following discussion and analysis should be read in conjunction with the
Selected Financial Data and 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 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 the Report, which include
changes in general economic conditions, changes in real estate conditions,
construction costs which may exceed estimates, construction delays, increases in
interest rates, lease-up risks, inability to obtain new tenants upon the
expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow.
Results of Operations and Changes in Financial Conditions
General
On January 30, 1998, the Company commenced a public offering of up to
$16,500,000 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 subscription 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 December 31, 1998, the Company had sold 3,154,136 shares
for total capital contributions of $31,541,360. After payment of $1,103,913 in
Acquisition and Advisory Fees and Expenses, payment of $3,942,545 in selling
commissions and organization and offering expenses and capital contributions and
acquisitions expenditures by Wells OP of $18,442,540, the Company was holding
net offering proceeds of $8,052,362 available for investment in properties, as
of December 31, 1998.
Gross revenues of the Company of $395,178 for the nine months ended December 31,
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 $61,144 for nine months ended December 31, 1998,
and consisted primarily of administrative, accounting fees, and printing
expenses. Since the Company did not commence active operations until it received
and accepted subscriptions for a minimum of 125,000 shares 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
$31,540,360 in common stock capital contributions offset by acquisition and
advisory fees and expenses, commissions, offering costs and capital
contributions to joint ventures.
13
<PAGE>
Cash dividends of $0.16 per share were paid to shareholders for the fourth
quarter of 1998.
The Company has made an election under Section 856 (c) of the Internal Revenue
Code of 1986, as amended (the "Code"), to be taxed as a REIT under the Code
beginning with its taxable year ended December 31, 1998. As a REIT, for federal
income tax purposes, the Company generally will not be subject to Federal income
tax on income that it distributes to its stockholders. If the Company fails to
qualify as a REIT in any taxable year, it will be subject to federal income tax
on its taxable income at regular corporate rates and will not be permitted to
qualify for treatment as a REIT for federal income tax purposes for four years
following the year during which qualification is lost. Such an event could
materially adversely affect the Company's net income. However, the Company
believes that it is organized and operates in such a manner as to qualify for
treatment as a REIT for the year ended December 31, 1998. In addition, the
Company intends to continue to operate the Company so as to remain qualified as
a REIT for federal income tax purposes.
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 has 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 December 31, 1998, the Company owned interests in the following
operational properties:
The ABB Building - IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Year Ended One Month Ended
December 31, 1998 December 31, 1997
----------------- -----------------
<S> <C> <C>
Revenues:
Rental income $836,746 $ 28,512
Interest income 20,192 0
-------- --------
856,938 28,512
-------- --------
Expenses:
Depreciation 475,020 36,863
Management & leasing expenses 107,338 1,711
Operating costs, net of
reimbursements (40,641) 10,118
-------- --------
541,717 48,692
-------- --------
Net income (loss) $315,221 $(20,180)
======== ========
Occupied % 95% 67%
Company's Ownership % in the Fund IX-X-XI
REIT Joint Venture 3.8% 0%
Cash Distributions to Company $ 21,965 $ 0
Net income (loss) allocated to
Company $ 9,453 $ (0)
</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 of the project upon competition,
will be approximately $7,900,000. It is currently anticipated that Wells Fund IX
will contribute approximately $170,000 to complete the building.
Since the ABB Building was opened in December 1997, comparative income and
expense figures for the prior year are only available, for a one month period.
Other operating expenses are negative due to tenant reimbursements reflected in
this category which includes management
15
<PAGE>
and leasing expenses reimbursement. The ABB Building incurred property taxes of
$36,771 for 1998.
The Company was admitted to the Fund IX-X-XI-REIT Joint Venture on June 11, 1998
and began participating in net income and cash distributions in June 1998.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
The Ohmeda Building/Fund IX-X-XI-REIT Joint Venture
Eleven Months Ended
December 31, 1998
-------------------
Revenues:
Rental income $898,901
--------
Expenses:
Depreciation 299,112
Management & leasing expenses 41,688
Other operating expenses, net of reimbursements 2,863
--------
343,663
--------
Net income $555,238
========
Occupied % 100%
Company's ownership % in the
Fund IX-X-XI-REIT Joint Venture 3.8%
Cash distribution to the Company $21,824
Net income allocated to the Company $14,691
On February 13, 1998, the Fund IX-X-XI-REIT Joint Venture (formerly, the Fund IX
- --Fund X Joint Venture) acquired a two story office building containing
approximately 106,750 rentable square feet on a 15 acre tract of land located in
Louisville, Boulder County, Colorado (the "Ohmeda Building") for a purchase
price of $10,325,000 excluding acquisition costs.
The entire Ohmeda Building is currently under a net lease with Ohmeda, Inc. 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
16
<PAGE>
lease. In addition, Ohmeda is required to pay a $21,000 per year management fee
for maintenance and administrative services of the Ohmeda Building.
Since the Ohmeda Building was purchased in February, 1998, comparative income
and expense figures are not available for the prior year. The Ohmeda Building
incurred property taxes of $143,962 for 1998.
The Company was admitted to the Fund IX-X-XI-REIT Joint Venture on June 11, 1998
and began participating in net income and cash distributions in June, 1998.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
Ten Months Ended
December 31, 1998
-----------------
Revenues:
Rental income $655,405
Interest Income 246
--------
655,651
--------
Expenses:
Depreciation 238,299
Management & leasing expense 55,130
Other operating expenses, net of
reimbursements (65,654)
--------
227,775
--------
Net income $427,876
========
Occupied % 100%
Company's Ownership % in the Fund IX-X-XI-REIT
Joint Venture 3.8%
Cash distribution to Company $18,126
Net income allocated to Company $12,577
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
17
<PAGE>
rentable square feet on a 5.1 tract of land located in Broomfield, Boulder
County, Colorado (the "360 Interlocken Building") for a purchase price of
$8,275,000, excluding acquisition costs.
The 360 Interlocken Building was completed in December 1996. The first floor has
multiple tenants and contains 15,599 rentable square feet; the second floor is
leased to ODS Technologies, L.P. and contains 17,146 rentable square feet; and
the third floor is leased to Transecon, Inc. and contains 19,229 rentable square
feet.
Since the 360 Interlocken Building was purchased in March 1998, comparable
income and expense figures for the prior year are not available. Other operating
expenses are negative due to tenant reimbursements reflected in this category
which include management and leasing expense reimbursement. The 360 Interlocken
Building incurred property taxes of $96,747 for 1998.
The Company was admitted to the Fund IX-X-XI-REIT Joint Venture on June 11, 1998
and began participating in net income and cash distributions in June 1998.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Lucent Technologies Building/Fund IX-X-XI-REIT Joint Venture
Seven Months Ended
December 31, 1998
------------------
Revenues:
Rental income $291,508
--------
Expenses:
Depreciation 106,871
Management & leasing expenses 11,281
Operating costs, net of reimbursements 9,883
--------
128,035
--------
Net income $163,473
========
Occupied % 100%
Company's ownership % in the Fund IX-X-XI-REIT
Joint Venture 3.8%
Cash distributions to Company $15,279
Net Income allocated to the Company $6,313
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
18
<PAGE>
City, Oklahoma (the "Lucent Technologies Building") for a purchase price of
$5,504,276, excluding acquisition cost.
The Lucent Technologies Building was completed in January 1998 with Lucent
Technologies occupying the entire building. Under the terms of the lease, the
tenant is responsible for all utilities, property taxes and other operating
expenses.
Since the Lucent Technologies Building was purchased by the IX-X-XI REIT Joint
Venture in June 1998, comparable income and expense figures for the prior year
are not available.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Iomega Building/Fund IX-X-XI-REIT Joint Venture
Nine Months Ended
December 31, 1998
-----------------
Revenues:
Rental income $373,420
--------
Expenses:
Depreciation 145,975
Management & leasing expenses 16,808
Other operating expenses, net of
reimbursement (4,579)
--------
158,204
--------
Net income $215,216
========
Occupied % 100%
Company's ownership % in the 3.8%
Fund IX-X-XI-EIT Joint Venture
Cash distribution to the Company $9,048
Net income allocated to the Company $5,838
On April 1, 1998, the Wells Fund X acquired a two story office building
containing approximately 108,250 rentable square feet on a 8.03 acre tract of
land located 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 on July 1,
1998. The entire Iomega Building is under a net lease with Iomega Corporation
until July 31, 2006.
19
<PAGE>
Since the Iomega Building was purchased in April 1998, comparative income and
expense figures for the prior year are not available. Other operating expenses
are negative due to tenant reimbursements reflected in this category which
include management and leasing expense reimbursement. The Iomega Building
incurred property taxes of $44,559 for 1998.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Cort Building/Wells/Orange County Joint Venture
Five Months Ended
December 31, 1998
-----------------
Revenues:
Rental income $331,477
Interest income 448
--------
331,925
--------
Expenses:
Depreciation 92,087
Management & leasing expenses 12,734
Operating costs, net of reimbursements 35,690
--------
140,511
--------
Net income $191,414
========
Occupied % 100%
Company's ownership % 43.7%
Cash distribution to Company $124,435
Net income allocated to the Company $ 91,978
On July 31, 1998, the Cort Joint Venture acquired a one-story office and
warehouse building containing approximately 52,000 rentable square feel 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 Cort Building is 100% occupied by one tenant with a 15-year lease term that
commenced on November 1, 1988 and expires on October 31, 2003. The monthly base
rent payable under the lease is $63,247 through April 30, 2001, at which time
the monthly base rent will be increased 10% to $69,574 for the remainder of the
lease term. The lease is a triple net lease, whereby the terms require the
tenant to reimburse the Cort Joint Venture for certain operating expenses, as
defined in the lease, related to the building.
20
<PAGE>
Since the Cort Building was purchased in July 1988, comparable income and
expense figures for the prior year are not available. The Cort Building incurred
property taxes of $14,367 for 1988.
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Fairchild Building/Wells/Fremont Joint Venture
Six Months Ended
December 31, 1998
-----------------
Revenues:
Rental income $401,058
Interest income 3,896
--------
404,954
--------
Expenses:
Depreciation 142,720
Management & leasing expenses 16,726
Operating costs, net of reimbursements 83,589
--------
243,035
--------
Net income $161,919
========
Occupied % 100%
Company's ownership % 77.5%
Cash distribution to Company $229,864
Net income allocated to the Company $122,470
On July 21, 1998, the Wells/Fremont Joint Venture acquired a two-story warehouse
and office building containing approximately 58,424 rentable square feet on a
3.05 acre tract of land in Fremont, California (the "Fairchild Building") for a
purchase price of $8,900,000 excluding acquisition costs.
The Building is 100% occupied by Fairchild Technologies, U.S.A., Inc. with a
lease expiration of November 30, 2004. The monthly base rent payable under the
lease is $68,128 with a 3% increase on each anniversary of the commencement
date. The lease is a triple net lease, whereby the terms require the tenant to
reimburse the landlord for certain operating expenses, as defined in the lease,
related to the building. The tenant is responsible for property taxes.
Since the Fairchild Building was purchased in July of 1998, comparable income
and expense figures for the prior year are not available.
21
<PAGE>
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
PWC Building
One Month Ended
December 31, 1998
-----------------
Revenues:
Rental income $20,994
Interest income 14,518
-------
35,512
-------
Expenses:
Depreciation -0-
Management & leasing expenses -0-
Operating costs, net of reimbursements 11,033
-------
11,033
-------
Net income $24,479
=======
Occupied % 100%
Company's ownership % 100%
Cash distribution to Company $24,479
Net income allocated to the Company $24,479
On December 31, 1998, the Wells OP acquired a four-story office building
containing approximately 130,090 rentable square feel on a 9 acre tract of land
in Tampa, Florida (the "PWC Building") for a purchase price of $21,127,854,
excluding acquisition costs.
The building is 100% leased by PriceWaterhouseCooper with a lease expiration in
December, 2008.
The annual base rent payable under the PWC Lease is $1,915,741.13 ($14.73 per
square foot) payable in equal monthly installments of $159,645.09 during the
first year of the initial lease term. The base rent escalates at the rate of 3%
per year throughout the ten year lease term. In addition, PWC is required to pay
a "reserve" of all property taxes, operating expenses, and other repair and
maintenance work relating to the PWC Building. PWC is also required to reimburse
the landlord the cost of casualty insurance for the property.
Since the PWC Building was purchased in December 1988, comparable income and
expense figures for the prior year are not available.
22
<PAGE>
For comments on the general competitive conditions to which the property may be
subject, see Item 1, Business, page 2. For additional information on tenants,
etc. refer to Item 2, Properties, page 3.
Liquidity and Capital Resources
The Company commenced active operations on June 5, 1998, when it received and
accepted subscriptions for 125,000 units. As of December 31, 1998, the Company
raised $31,541,360 in capital through the sale of 3,154,136 shares. After
payment of $5,046,458 in acquisition and advisory fees, selling commissions and
organizational and offering expenses, and capital contributions and acquisitions
expenditures by Wells OP of $18,442,540, as of December 31, 1998, the Company
was holding net offering proceeds of approximately $8,052,362 available for
investment in additional properties.
The Company's net cash used in operating activities was 275,549 in 1998. Net
cash used in investing activities of $33,500,807 in 1998 is primarily the result
of investments in the joint ventures, investments in real estate, deferred
project costs paid offset by distributions received from the joint ventures.
Distribution to partners began in 1998. Net cash provided by financing
activities is the result of raising $31,540,360 in 1998 in shareholders
contributions less commissions and organizational and offering expenses.
The Company's dividends paid and payable through the fourth quarter of 1998 have
been paid from cash from operations and from distributions received from its
equity investment in joint ventures. The Company anticipates that dividends will
continue to be paid on a quarterly basis from such sources. The Company expects
to meet liquidity requirements and budget demands through cash flow from
operations.
The Company expects to make future real estate investments, directly or through
investments in joint ventures, from shareholder contributions.
Inflation
The real estate market has not been affected significantly by inflation in the
past three years due to the relatively low inflation rate. There are provisions
in the majority of tenant leases to protect the Company from the impact of
inflation. These leases contain common area maintenance charges (CAM charges),
real estate tax and insurance reimbursements on a per square foot bases, or in
some cases, annual reimbursement of operating expenses above a certain per
square foot allowance. These provisions should reduce the Company's exposure to
increases in costs and operating expenses resulting from inflation.
Year 2000
The Company is presently reviewing the potential impact of Year 2000 compliance
issues on its information systems and business operations. A full assessment of
Year 2000 compliance issues was begun in late 1997 and is expected to be
completed by March 31, 1999. Renovations and replacements of equipment have been
and are being made as warranted as the assessment progresses. The costs incurred
by the Company and its affiliates thus far for renovations and
23
<PAGE>
replacements have been immaterial. Some testing of systems has begun and all
testing is expected to be complete by June 30, 1999.
As to the status of the Company's information technology systems, it is
presently believed that all major systems and software packages with the
exception of the accounting and property management package are Year 2000
compliant. The Company's affiliated entities are purchasing the upgrade for the
accounting and property management package system; however, it is not slated to
be available until the end of the first quarter of 1999. At the present time, it
is believed that all major non-information technology systems are Year 2000
compliant. The cost to upgrade any non-compliant systems is believed to be
immaterial.
The Company is in the process of confirming with the Company's vendors,
including third-party service providers such as banks, that their systems will
be Year 2000 compliant. Based on the information received thus far, the primary
third-party service providers with which the Company has relationships have
confirmed their Year 2000 readiness.
The Company relies on computers and operating systems provided by equipment
manufactures, and also on application software designed for use with its
accounting, property management and investment portfolio tracking. The Company
has preliminarily determined that any costs, problems or uncertainties
associated with the potential consequences of Year 2000 issues are not expected
to have a material impact on the future operations or financial condition of the
Company. The Company will perform due diligence as to the Year 2000 readiness of
each property owned by the Company and each property contemplated for purchase
by the Company.
The Company's reliance on embedded computed systems (i.e., microcontrollers) is
limited to facilities related matters, such as office security systems and
environmental control systems.
The Company is currently formulating contingency plans to cover any areas of
concern. Alternate means of operating the business are being developed in the
unlikely circumstance that the computer and phone system are rendered
inoperable. An off-site facility from which the Company could operate is being
sought as facility from which the Company could operate is being sought as well
as alternate means of communication with key third-party vendors. A written plan
is being developed for testing and dispensation to each staff member of the
Advisor of the Company.
Management believes that the Company's risk of Year 2000 problems is minimal. In
the unlikely event there is a problem, the worst case scenarios would include
the risks that the elevator or security systems within the Company's properties
would fail or the key third-party vendors upon which the Company relies would be
unable to provide accurate investor information. In the event that the elevator
shuts down, the Company has devised a plan for each building whereby the tenants
will use the stairs until the elevators are fixed. In the event that the
security systems shuts down, the Company has devised a plan for each building to
hire temporary on-site security guards. In the event that a third-party vendor
has Year 2000 problems relating to investor information, the Company intends to
perform a full system back-up of all investors information as of December 31,
1999 so that the Company will have accurate hard-copy investor information.
24
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The Financial Statements of the Registrant and supplementary data are detailed
under Item 14 (a) and filed as part of the report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
There were no disagreements with the Company's accountants or other reportable
events during 1998.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY.
The information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission for its
annual stockholders' meeting to be held on June 16, 1999.
ITEM 11 EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission for its
annual stockholders' meeting to be held on June 16, 1999.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission for its
annual stockholders' meeting to be held on June 16, 1999.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this Item is incorporated by reference to the
Company's Definitive Proxy Statement to be filed with the Commission for its
annual stockholders' meeting to be held on June 16, 1999.
25
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) 1. The Financial Statements are contained on Pages F-2 through F-30 of the
Annual Report Form 10-K, and the list of the Financial Statements
contained herein is set forth on page F-1, which is hereby incorporated
by reference.
(a) 2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of the Annual
Report on Form 10-K .
(a) 3. The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during the fourth
quarter of 1998.
(c) The Exhibits filed in response to Item 601 of Regulation S-K are listed
on the Exhibit Index attached hereto.
(d) See (a)2 above
26
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934. The Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized this 20th day of March,
1999.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
By: /s/ Leo F. Wells III
----------------------------
Leo F. Wells, III
President and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf on the Registrant and
in the capacities and on the dates indicated.
Signature Title Date
/s/ Leo F. Wells, III President and Director March 20, 1999
- ------------------------ (Principal Executive Officer)
Leo F. Wells, III
/s/ Brian M. Conlon Executive Vice President and March 20, 1999
- ------------------------ Director (Principal Financial
Brian M. Conlon and Accounting Officer)
/s/ John L. Bell Director March 23, 1999
- ------------------------
John L. Bell
/s/ Richard W. Carpenter Director March 23, 1999
- ------------------------
Richard W. Carpenter
/s/ Bud Carter Director March 23, 1999
- ------------------------
Bud Carter
27
<PAGE>
INDEX TO FINANCIAL STATEMENTS
-----------------------------
Financial Statements Page
- -------------------- ----
Independent Auditors' Report F-2
Balance Sheets as of December 31, 1998 and 1997 F-3
Statement of Income of the Year Ended December 31, 1998 F-4
Statement of Partners' Capital for the Year Ended
December 31, 1998 F-5
Statement of Cash Flows for the Year Ended
December 31, 1998 F-6
Notes to Financial Statements for
December 31, 1998 and 1997 F-7
F-1
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying consolidated balance sheets of WELLS REAL
ESTATE INVESTMENT TRUST, INC. (a Maryland corporation) AND SUBSIDIARY as of
December 31, 1998 and 1997 and the related consolidated statements of income,
shareholders' equity, and cash flows for the year ended December 31, 1998.
These financial statements and the schedule referred to below are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements. 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 audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Investment
Trust, Inc. and subsidiary as of December 31, 1998 and 1997 and the results of
their operations and their cash flows for the year ended December 31, 1998 in
conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments
and Accumulated Depreciation as of December 31, 1998 is presented for purposes
of complying with the Securities and Exchange Commission's rules and is not part
of the basic financial statements. This schedule has been subjected to the
auditing procedures applied in the audit of the basic financial statements and,
in our opinion, fairly states in all material respects the financial data
required to be set forth therein in relation to the basic financial statements
taken as a whole.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 27, 1999
F-2
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1998 AND 1997
ASSETS
<TABLE>
1998 1997
----------- --------
<S> <C> <C>
REAL ESTATE ASSETS, AT COST:
Land $ 1,520,834 $ 0
Building 20,076,845 0
----------- --------
Total real estate assets 21,597,679 0
INVESTMENT IN JOINT VENTURES 11,568,677 0
CASH AND CASH EQUIVALENTS 7,979,403 201,000
DEFERRED OFFERING COSTS 548,729 289,073
DEFERRED PROJECT COSTS 335,421 0
DUE FROM AFFILIATES 262,345 0
PREPAID EXPENSES AND OTHER ASSETS 540,319 0
----------- --------
Total assets $42,832,573 $490,073
=========== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 187,827 $ 0
Note payable 14,059,930 0
Shareholder distributions payable 408,176 0
Due to affiliate 554,953 289,073
----------- --------
Total liabilities 15,210,886 289,073
----------- --------
MINORITY INTEREST OF UNIT HOLDER IN
OPERATING PARTNERSHIP 200,000 200,000
----------- --------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 16,500,000
shares authorized, 3,154,136 and 100
shares issued and outstanding, respectively 31,541 1
Additional paid-in capital 27,056,112 999
Retained earnings 334,034 0
----------- --------
Total shareholders' equity 27,421,687 1,000
----------- --------
Total liabilities and shareholders' equity $42,832,573 $490,073
=========== ========
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
F-3
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
<S> <C>
REVENUES:
Rental income $ 20,994
Equity in income of joint ventures 263,315
Interest income 110,869
--------
395,178
--------
EXPENSES:
Operating costs, net of reimbursements 11,033
General and administrative 29,943
Legal and accounting 19,552
Computer costs 616
--------
61,144
--------
NET INCOME $334,034
========
EARNINGS PER SHARE:
Basic and diluted $ 0.40
========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-4
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Common Stock Additional Total
------------------ Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
--------- ------- ----------- -------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1997sss 100 $ 1 $ 999 $ 0 $ 1,000
Issuance of common stock 3,154,036 31,540 31,508,820 0 31,540,360
Net income 0 0 0 334,034 334,034
Distributions 0 0 (511,163) 0 (511,163)
Sales commissions 0 0 (2,996,334) 0 (2,996,334)
Other offering expenses 0 0 (946,210) 0 (946,210)
--------- ------- ----------- -------- -----------
BALANCE, DECEMBER 31, 1998 3,154,136 $31,541 $27,056,112 $334,034 $27,421,687
========= ======= =========== ======== ===========
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-5
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 334,034
------------
Adjustments to reconcile net income to net cash used in operating activities:
Equity in income of joint ventures (263,315)
Changes in assets and liabilities:
Prepaid expenses and other assets (540,319)
Accounts payable and accrued expenses 187,827
Due to affiliates 6,224
------------
Total adjustments (609,583)
------------
Net cash used in operating activities (275,549)
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (21,299,071)
Investment in joint ventures (11,276,007)
Deferred project costs paid (1,103,913)
Distributions received from joint ventures 178,184
------------
Net cash used in investing activities (33,500,807)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 14,059,930
Distributions (102,987)
Issuance of common stock 31,540,360
Sales commission paid (2,996,334)
Offering costs paid (946,210)
------------
Net cash provided by financing activities 41,554,759
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 7,778,403
CASH AND CASH EQUIVALENTS, beginning of year 201,000
------------
CASH AND CASH EQUIVALENTS, end of year $ 7,979,403
============
SUPPLEMENTAL DISCLOSURES OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to real estate assets $ 298,608
============
Deferred project costs contributed to joint ventures $ 469,884
============
</TABLE>
The accompanying notes are an integral part of this consolidated statement.
F-6
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1998 AND 1997
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation that qualifies as a real estate investment trust ("REIT"). The
Company is conducting an offering for the sale of a maximum of 15,000,000
(exclusive of 1,500,000 shares available pursuant to the Company's dividend
reinvestment plan) shares of common stock, $.01 par value per share, at a
price of $10 per share. During 1997, the Company sold 100 shares to Wells
Capital, Inc. (the "Advisor") at the proposed initial public offering price
of $10 per share. The Company will seek to acquire and operate commercial
properties, including, but not limited to, office buildings, shopping
centers, business and industrial parks, and other commercial and industrial
properties, including properties which are under construction, are newly
constructed, or have been constructed and have operating histories. All such
properties may be acquired, developed, and operated by the Company alone or
jointly with another party. The Company is likely to enter into one or more
joint ventures with affiliated entities for the acquisition of properties.
In connection with this, the Company may enter into joint ventures for the
acquisition of properties with prior or future real estate limited
partnership programs sponsored by the Advisor or its affiliates.
Substantially all of the Company's business is conducted through Wells
Operating Partnership, L.P. (the "Operating Partnership"), a Delaware limited
partnership. During 1997, the Operating Partnership issued 20,000 limited
partner units to the Advisor in exchange for $200,000. The Company is the
sole general partner in the Operating Partnership and possesses full legal
control and authority over the operations of the Operating Partnership;
consequently, the accompanying consolidated financial statements of the
Company include the amounts of the Operating Partnership.
The Company owns interests in several properties through a joint venture
among the Operating Partnership, Wells Real Estate Fund IX, L.P. ("Wells Fund
IX"), Wells Real Estate Fund X, L.P. ("Wells Fund X"), and Wells Real Estate
Fund XI, L.P. ("Wells Fund XI"). This joint venture is referred to as the
Fund IX, Fund X, Fund XI, and REIT Joint Venture ("Fund IX, X, XI, and REIT
Joint Venture"). In addition, the Company owns two properties through joint
ventures between the Operating Partnership and a joint venture between Wells
Fund X and Wells Fund XI, referred to as "Fund X and XI Associates." In
addition, the Operating Partnership directly owns an office building in
Tampa, Florida.
Through its investment in the Fund IX, X, XI, and REIT Joint Venture, the
Company owns interests in the following properties: (i) a three-story office
building in Knoxville, Tennessee (the "ABB Building"), (ii) a two-story
office building in Louisville, Colorado (the "Ohmeda Building"), (iii) a
three-story office building in Broomfield, Colorado (the "360 Interlocken
Building"), (iv) a one-story warehouse facility in Ogden, Utah (the "Iomega
Building"), and (v) a one-story office building in Oklahoma City, Oklahoma
(the "Lucent Technologies Building").
F-7
<PAGE>
The following properties are owned by the Operating Partnership through
investments in joint ventures with Fund X and XI Associates: (i) a one-story
office and warehouse building in Fountain Valley, California (the "Cort
Furniture Building") owned by Wells/Orange County Associates and (ii) a
warehouse and office building in Fremont, California (the "Fairchild
Building") owned by Wells/Fremont Associates.
Use of Estimates and Factors Affecting the Company
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those
estimates.
The carrying values of real estate are based on management's current intent
to hold the real estate assets as long-term investments. The success of the
Company's future operations and the ability to realize the investment in its
assets will be dependent on the Company's ability to maintain rental rates,
occupancy, and an appropriate level of operating expenses in future years.
Management believes that the steps it is taking will enable the Company to
realize its investment in its assets.
Real Estate Assets
Real estate assets held by the Company and joint ventures are stated at cost
less accumulated depreciation. Major improvements and betterments are
capitalized when they extend the useful life of the related asset. All
repair and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets by
determining whether the carrying value of such real estate assets will be
recovered through the future cash flows expected from the use of the asset
and its eventual disposition. Management has determined that there has been
no impairment in the carrying value of real estate assets held by the Company
or the joint ventures as of December 31, 1998.
Depreciation of building and improvements is calculated using the straight-
line method over 25 years. Tenant improvements are amortized over the life
of the related lease or the life of the asset, whichever is shorter.
Investment in Joint Ventures
The Operating Partnership does not have control over the operations of the
joint ventures; however, it does exercise significant influence.
Accordingly, the Operating Partnership's investment in the joint ventures is
recorded using the equity method of accounting.
Revenue Recognition
All leases on real estate assets held by the Company or the joint ventures
are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective leases.
F-8
<PAGE>
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on a
straight-line basis over the terms of the related leases.
Cash and Cash Equivalents
For the purposes of the statement of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months
or less to be cash equivalents. Cash equivalents include cash and short-term
investments. Short-term investments are stated at cost, which approximates
fair value, and consist of investments in money market accounts.
2. DEFERRED PROJECT COSTS
The Company paid a percentage of shareholder contributions to the Advisor for
acquisition and advisory services. These payments, as stipulated in the
prospectus, can be up to 3.5% of shareholder contributions, subject to
certain overall limitations contained in the prospectus. Aggregate fees paid
through December 31, 1998 were $1,103,913 and amounted to 3.5% of
shareholders' contributions received. These fees are allocated to specific
properties as they are purchased or developed and are included in capitalized
assets of the joint ventures or real estate assets. Deferred project costs
at December 31, 1998 represent fees not yet applied to properties.
3. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
proceeds, will be paid by the Advisor and not by the Company. Organization
and offering expenses do not include sales or underwriting commissions but do
include such costs as legal and accounting fees, printing costs, and other
offering expenses.
As of December 31, 1998 and 1997, the Advisor had paid organization and
offering expenses related to the Company of $946,211 and $0, respectively.
4. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1998 represents the Operating
Partnership's share of the cash to be distributed for the fourth quarter of
1998 as follows:
Fund IX, X, XI, and REIT Joint Venture $ 38,360
Wells/Orange County Associates 77,123
Wells/Fremont Associates 146,862
--------
$262,345
========
The Company entered into a property management agreement with Wells
Management Company, Inc. ("Wells Management"), an affiliate of the Advisor.
In consideration for supervising the management and leasing of the Operating
Partnership's properties, the Operating Partnership will pay Wells Management
management and leasing fees equal to the lesser of (a) fees that would be
paid to a comparable outside firm, or (b) 4.5% of the gross revenues
generally paid over the life of
F-9
<PAGE>
the lease plus a separate competitive fee for the one-time initial lease-up
of newly constructed properties generally paid in conjunction with the
receipt of the first month's rent. In the case of commercial properties which
are leased on a long-term (ten or more years) net lease basis, the maximum
property management fee from such leases shall be 1% of the gross revenues
generally paid over the life of the leases except for a one-time initial
leasing fee of 3% of the gross revenues on each lease payable over the first
five full years of the original lease term.
The Operating Partnership's portion of the management and leasing fees and
lease acquisition costs paid to Wells Management by the joint ventures was
$5,673 for the year ended December 31, 1998.
The Advisor performs certain administrative services for the Operating
Partnership, such as accounting and other partnership administration, and
incurs the related expenses. Such expenses are allocated among the Operating
Partnership and the various Wells Real Estate Funds based on time spent on
each fund by individual administrative personnel. In the opinion of
management, such allocation is a reasonable basis for allocating such
expenses.
The Advisor is a general partner in various Wells Real Estate Funds. As
such, there may exist conflicts of interest where the Advisor, while serving
in the capacity as general partner for Wells Real Estate Funds, may be in
competition with the Operating Partnership for tenants in similar geographic
markets.
5. INVESTMENT IN JOINT VENTURES
The Operating Partnership's investment and percentage ownership in joint
ventures at December 31, 1998 is summarized as follows:
AMOUNT PERCENT
----------- -------
Fund IX, X, XI, and REIT Joint Venture $ 1,443,378 4%
Wells/Orange County Associates 2,958,617 44
Wells/Fremont Associates 7,166,682 78
-----------
$11,568,677
===========
The following is a roll forward of the Operating Partnership's investment in
joint ventures for the year ended December 31, 1998:
Investment in joint ventures, beginning of year $ 0
Equity in income of joint ventures 263,315
Contributions to joint ventures 11,745,890
Distributions from joint venture (440,528)
-----------
Investment in joint ventures, end of year $11,568,677
===========
Fund IX, X, XI, and REIT Joint Venture
On March 20, 1997, Wells Fund IX and Wells Fund X entered into a joint
venture agreement. The joint venture, Fund IX and X Associates, was formed
to acquire, develop, operate, and sell real properties. On March 20, 1997,
Wells Fund IX contributed a 5.62-acre tract of real property in Knoxville,
Tennessee, and improvements thereon, known as the ABB Building, to the Fund
IX and
F-10
<PAGE>
X Associates joint venture. A 83,885-square-foot, three-story
building was constructed and commenced operations at the end of 1997.
On February 13, 1998, the joint venture purchased a two-story office
building, known as the Ohmeda Building, in Louisville, Colorado. On March
20, 1998, the joint venture purchased a three-story office building, known as
the 360 Interlocken Building, in Broomfield, Colorado. On June 11, 1998,
Fund IX and X Associates was amended and restated to admit Wells Fund XI and
the Operating Partnership. The joint venture was renamed the Fund IX, X, XI,
and REIT Joint Venture. On June 24, 1998, the new joint venture purchased a
one-story office building, known as the Lucent Technologies Building, in
Oklahoma City, Oklahoma. On April 1, 1998, Wells Fund X purchased a one-
story warehouse facility, known as the Iomega Building, in Ogden, Utah. On
July 1, 1998, Wells Fund X contributed the Iomega Building to the Fund IX, X,
XI, and REIT Joint Venture.
F-11
<PAGE>
Following are the financial statements for the Fund IX, X, XI, and REIT Joint
Venture:
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 1998 and 1997
Assets
<TABLE>
<CAPTION>
1998 1997
------------ ----------
<S> <C> <C>
Real estate assets, at cost:
Land $ 6,454,213 $ 607,930
Building and improvements, less accumulated depreciation
of $1,253,156 in 1998 and $36,863 in 1997 30,686,845 6,445,300
Construction in progress 990 35,622
----------- ----------
Total real estate assets 37,142,048 7,088,852
Cash and cash equivalents 1,329,457 289,171
Accounts receivable 133,257 40,512
Prepaid expenses and other assets 441,128 329,310
----------- ----------
Total assets $39,045,890 $7,747,845
=========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 409,737 $ 379,770
Due to affiliates 4,406 2,479
Partnership distributions payable 1,000,127 0
----------- ----------
Total liabilities 1,414,270 382,249
=========== ==========
Partners' capital:
Wells Real Estate Fund IX 14,960,100 3,702,793
Wells Real Estate Fund X 18,707,139 3,662,803
Wells Real Estate Fund XI 2,521,003 0
Wells Operating Partnership, L.P. 1,443,378 0
----------- ----------
Total partners' capital 37,631,620 7,365,596
----------- ----------
Total liabilities and partners' capital $39,045,890 $7,747,845
=========== ==========
</TABLE>
F-12
<PAGE>
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income (Loss)
for the Year Ended December 31, 1998 and
for the Period from Inception (March 20, 1997) to December 31, 1997
<TABLE>
<CAPTION>
1998 1997
---------- --------
<S> <C> <C>
Revenues:
Rental income $2,945,980 $ 28,512
Interest income 20,438 0
---------- --------
2,966,418 28,512
---------- --------
Expenses:
Depreciation 1,216,293 36,863
Management and leasing fees 226,643 1,711
Operating costs, net of reimbursements (140,506) 10,118
Property administration 34,821 0
Legal and accounting 15,351 0
---------- --------
1,352,602 48,692
---------- --------
Net income (loss) $1,613,816 $(20,180)
========== ========
NET INCOME (LOSS) ALLOCATED TO WELLS REAL ESTATE FUND IX $ 692,116 $(10,145)
========== ========
NET INCOME (LOSS) ALLOCATED TO WELLS REAL ESTATE FUND X $ 787,481 $(10,035)
========== ========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND XI $ 85,352 $ 0
========== ========
NET INCOME ALLOCATED TO WELLS OPERATING PARTNERSHIP, L.P. $ 48,867 $ 0
========== ========
</TABLE>
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Year Ended December 31, 1998 and
for the Period from Inception (March 20, 1997) to December 31, 1997
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Total
Estate Estate Estate Operating Partners'
Fund IX Fund X Fund XI Partnership, L.P. Capital
----------- ----------- ---------- ----------------- -----------
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 0 $ 0 $ 0 $ 0 $ 0
Net loss (10,145) (10,035) 0 0 (20,180)
Partnership contributions 3,712,938 3,672,838 0 0 7,385,776
----------- ----------- ---------- ---------- -----------
Balance, December 31, 1997 3,702,793 3,662,803 0 0 7,365,596
Net income 692,116 787,481 85,352 48,867 1,613,816
Partnership contributions 11,771,312 15,613,477 2,586,262 1,480,741 31,451,792
Partnership distributions (1,206,121) (1,356,622) (150,611) (86,230) (2,799,584)
----------- ----------- ---------- ---------- -----------
Balance, December 31, 1998 $14,960,100 $18,707,139 $2,521,003 $1,443,378 $37,631,620
=========== =========== ========== ========== ===========
</TABLE>
F-13
<PAGE>
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Year Ended December 31, 1998 and
for the Period from Inception (March 20, 1997) to December 31, 1997
<TABLE>
<CAPTION>
1998 1997
------------ -----------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 1,613,816 $ (20,180)
------------ -----------
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
Depreciation 1,216,293 36,863
Changes in assets and liabilities:
Accounts receivable (92,745) (40,512)
Prepaid expenses and other assets (111,818) (329,310)
Accounts payable 29,967 379,770
Due to affiliates 1,927 2,479
------------ -----------
Total adjustments 1,043,624 49,290
------------ -----------
Net cash provided by operating activities 2,657,440 29,110
------------ -----------
Cash flows from investing activities:
Investment in real estate (24,788,070) (5,715,847)
------------ -----------
Cash flows from financing activities:
Distributions to joint venture partners (1,799,457) 0
Contributions received from partners 24,970,373 5,975,908
------------ -----------
Net cash provided by financing activities 23,170,916 5,975,908
------------ -----------
Net increase in cash and cash equivalents 1,040,286 289,171
Cash and cash equivalents, beginning of period 289,171 0
------------ -----------
Cash and cash equivalents, end of year $ 1,329,457 $ 289,171
============ ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed $ 1,470,780 $ 318,981
Contribution of real estate assets $ 5,010,639 $ 1,090,887
============ ===========
</TABLE>
Wells/Orange County Associates
On July 27, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Orange
County Associates. On July 31, 1998, Wells/Orange County Associates acquired
a 52,000-square-foot warehouse and office building located in Fountain
Valley, California, known as the Cort Furniture Building.
On September 1, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Orange County Associates which resulted in
Fund X and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Cort Furniture Building.
F-14
<PAGE>
Following are the financial statements for Wells/Orange County Associates:
Wells/Orange County Associates
(A Georgia Joint Venture)
Balance Sheet
December 31, 1998
<TABLE>
<CAPTION>
Assets
Real estate assets, at cost:
<S> <C>
Land $2,187,501
Building, less accumulated depreciation of $92,087 4,572,028
----------
Total real estate assets 6,759,529
Cash and cash equivalents 180,895
Accounts receivable 13,123
----------
Total assets $6,953,547
==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 1,550
Partnership distributions payable 176,614
----------
Total liabilities 178,164
----------
Partners' capital:
Wells Operating Partnership, L.P. 2,958,617
Fund X and XI Associates 3,816,766
----------
Total partners' capital 6,775,383
----------
Total liabilities and partners' capital $6,953,547
==========
</TABLE>
F-15
<PAGE>
Wells/Orange County Associates
(A Georgia Joint Venture)
Statement of Income
for the Period From Inception (July 27, 1998)
to December 31, 1998
<TABLE>
<CAPTION>
Revenues:
<S> <C>
Rental income $331,477
Interest income 448
----------
331,925
----------
Expenses:
Depreciation 92,087
Management and leasing fees 12,734
Operating costs, net of reimbursements 2,288
Interest 29,472
Legal and accounting 3,930
140,511
----------
Net income $191,414
==========
Net income allocated to Wells Operating Partnership, L.P. $ 91,978
==========
Net income allocated to Fund X and XI Associates $ 99,436
==========
</TABLE>
Wells/Orange County Associates
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Period From Inception (July 27, 1998)
to December 31, 1998
<TABLE>
<CAPTION>
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
---------- ---------- ----------
<S> <C> <C> <C>
Balance, December 31, 1997 $ 0 $ 0 $ 0
Net income 91,978 99,436 191,414
Partnership contributions 2,991,074 3,863,272 6,854,346
Partnership distributions (124,435) (145,942) (270,377)
---------- ---------- ----------
Balance, December 31, 1998 $2,958,617 $3,816,766 $6,775,383
========== ========== ==========
</TABLE>
F-16
<PAGE>
Wells/Orange County Associates
(A Georgia Joint Venture)
Statement of Cash Flows
for the Period From Inception (July 27, 1998)
to December 31, 1998
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net income $ 191,414
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 92,087
Changes in assets and liabilities:
Accounts receivable (13,123)
Accounts payable 1,550
-----------
Total adjustments 80,514
-----------
Net cash provided by operating activities 271,928
-----------
Cash flows from investing activities:
Investment in real estate (6,563,700)
-----------
Cash flows from financing activities:
Issuance of note payable 4,875,000
Payment of note payable (4,875,000)
Distributions to partners (93,763)
Contributions received from partners 6,566,430
-----------
Net cash provided by financing activities 6,472,667
-----------
Net increase in cash and cash equivalents 180,895
Cash and cash equivalents, beginning of period 0
-----------
Cash and cash equivalents, end of year $ 180,895
===========
Supplemental disclosure of noncash investing activities:
Deferred project costs contributed $ 287,916
===========
</TABLE>
Wells/Fremont Associates
On July 15, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Fremont
Associates. On July 21, 1998, Wells/Fremont Associates acquired a 58,424-
square-foot warehouse and office building located in Fremont, California,
known as the Fairchild Building.
On October 8, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Fremont Associates which resulted in Fund X
and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Fairchild Building.
F-17
<PAGE>
Following are the financial statements for Wells/Fremont Associates:
Wells/Fremont Associates
(A Georgia Joint Venture)
Balance Sheet
December 31, 1998
Assets
<TABLE>
<CAPTION>
Real estate assets, at cost:
<S> <C>
Land $2,219,251
Building, less accumulated depreciation of $142,720 6,995,439
----------
Total real estate assets 9,214,690
Cash and cash equivalents 192,512
Accounts receivable 34,742
----------
Total assets $9,441,944
==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 3,565
Due to affiliate 2,052
Partnership distributions payable 189,490
----------
Total liabilities 195,107
----------
Partners' capital:
Wells Operating Partnership, L.P. 7,166,682
Fund X and XI Associates 2,080,155
----------
Total partners' capital 9,246,837
----------
Total liabilities and partners' capital $9,441,944
==========
</TABLE>
F-18
<PAGE>
Wells/Fremont Associates
(A Georgia Joint Venture)
Statement of Income
for the Period From Inception (July 15, 1998)
to December 31, 1998
<TABLE>
<CAPTION>
Revenues:
<S> <C>
Rental income $401,058
Interest income 3,896
--------
404,954
--------
Expenses:
Depreciation 142,720
Management and leasing fees 16,726
Operating costs, net of reimbursements 3,364
Interest 73,919
Legal and accounting 6,306
--------
243,035
--------
Net income $161,919
========
Net income allocated to Wells Operating Partnership, L.P. $122,470
========
Net income allocated to Fund X and XI Associates $ 39,449
========
</TABLE>
Wells/Fremont Associates
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Period From Inception (July 15, 1998)
to December 31, 1998
<TABLE>
<CAPTION>
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------ ---------- ---------
<S> <C> <C> <C>
Balance, December 31, 1997 $ 0 $ 0 $ 0
Net income 122,470 39,449 161,919
Partner contributions 7,274,075 2,083,334 9,357,409
Partnership distributions (229,863) (42,628) (272,491)
---------- ---------- ----------
Balance, December 31, 1998 $7,166,682 $2,080,155 $9,246,837
========== ========== ==========
</TABLE>
F-19
<PAGE>
Wells/Fremont Associates
(A Georgia Joint Venture)
Statement of Cash Flows
for the Period From Inception (July 15, 1998)
to December 31, 1998
<TABLE>
<CAPTION>
Cash flows from operating activities:
<S> <C>
Net income $ 161,919
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 142,720
Changes in assets and liabilities:
Accounts receivable (34,742)
Accounts payable 3,565
Due to affiliate 2,052
-----------
Total adjustments 113,595
-----------
Net cash provided by operating activities 275,514
-----------
Cash flows from investing activities:
Investment in real estate (8,983,111)
Cash flows from financing activities:
Issuance of note payable 5,960,000
Payment of note payable (5,960,000)
Distributions to partners (83,001)
Contributions received from partners 8,983,110
-----------
Net cash provided by financing activities 8,900,109
-----------
Net increase in cash and cash equivalents 192,512
Cash and cash equivalents, beginning of period 0
-----------
Cash and cash equivalents, end of year $ 192,512
===========
Supplemental disclosure of noncash investing activities:
Deferred project costs contributed $ 374,299
===========
</TABLE>
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Operating Partnership's income tax basis net income for the year ended
December 31, 1998 is calculated as follows:
Financial statement net income $334,034
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting
purposes in excess of amounts for income tax
purposes 82,618
Rental income accrued for financial reporting
purposes in excess of amounts for
income tax purposes (35,427)
Expenses capitalized for income tax purposes,
deducted for financial reporting purposes 1,634
--------
Income tax basis net income $382,859
========
F-20
<PAGE>
The Operating Partnership's income tax basis partners' capital at
December 31, 1998 is computed as follows:
Financial statement partners' capital $27,421,687
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 82,618
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of capital
for financial reporting purposes 3,942,545
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for
income tax purposes (35,427)
Accumulated expenses capitalized for income tax
purposes, deducted for financial reporting
purposes 1,634
Operating Partnership's distributions payable 408,176
-----------
Income tax basis partners' capital $31,821,233
===========
7. RENTAL INCOME
The future minimum rental income due from the Operating Partnership's direct
investment in real estate or its respective ownership interest in the joint
ventures under noncancelable operating leases at December 31, 1998 is as
follows:
Year ended December 31:
1999 $ 3,056,108
2000 3,130,347
2001 3,229,087
2002 3,306,364
2003 3,332,111
Thereafter 12,865,333
-----------
$28,919,350
===========
Two tenants contributed 47% and 35% of rental income, which is included in
equity in income of joint ventures for the year ended December 31, 1998. In
addition, one tenant will contribute 77% of future minimum rental income.
F-21
<PAGE>
The future minimum rental income due the Fund IX, X, XI, and REIT Joint
Venture under noncancealable operating leases at December 31, 1998 is as
follows:
Year ended December 31:
1999 $ 3,689,498
2000 3,615,011
2001 3,542,714
2002 3,137,241
2003 3,196,100
Thereafter 8,225,566
-----------
$25,406,130
===========
Three significant tenants contributed 31%, 26%, and 13% of rental income for
the year ended December 31, 1998. In addition, four significant tenants will
contribute 27%, 25%, 21%, and 15% of future minimum rental income.
The future minimum rental income due Wells/Orange County Associates under
noncancealable operating leases at December 31, 1998 is as follows:
Year ended December 31:
1999 $ 758,964
2000 758,964
2001 809,580
2002 834,888
2003 695,740
----------
$3,858,136
==========
One tenant contributed 100% of rental income for the year ended December 31,
1998 and will contribute 100% of future minimum rental income.
The future minimum rental income due Wells/Fremont Associates under
noncancelable operating leases at December 31, 1998 is as follows:
Year ended December 31:
1999 $ 844,167
2000 869,492
2001 895,577
2002 922,444
2003 950,118
Thereafter 894,832
----------
$5,376,630
==========
One tenant contributed 100% of rental income for the year ended December 31,
1998 and will contribute 100% of future minimum rental income.
F-22
<PAGE>
8. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company, the Operating
Partnership, or the Advisor. In the normal course of business, the Company,
the Operating Partnership, or the Advisor may become subject to such
litigation or claims.
F-23
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund IX, L.P.,
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.
Wells Real Estate Investment
Trust, Inc. and Subsidiary:
We have audited the accompanying balance sheet of THE OHMEDA BUILDING as of
December 31, 1998 and the related statements of income, partners' capital, and
cash flows for the period from inception (February 13, 1998) to December 31,
1998. These financial statements are the responsibility of the building's
management. Our responsibility is to express an opinion on these financial
statements 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 financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. 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.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of the Ohmeda Building as of
December 31, 1998 and the results of its operations and its cash flows for the
period from inception (February 13, 1998) to December 31, 1998, in conformity
with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 27, 1999
F-24
<PAGE>
THE OHMEDA BUILDING
BALANCE SHEET
DECEMBER 31, 1998
ASSETS
<TABLE>
<CAPTION>
REAL ESTATE ASSETS:
<S> <C>
Land $ 2,746,894
Building and improvements, less accumulated
depreciation of $299,112 7,858,490
-----------
Total real estate assets 10,605,384
CASH AND CASH EQUIVALENTS 983,061
ACCOUNTS RECEIVABLE 13,969
-----------
Total assets $11,602,414
===========
LIABILITIES AND PARTNERS' CAPITAL
LIABILITIES:
Accounts payable and accrued expenses $ 157,691
Due to affiliates 825,380
-----------
Total liabilities 983,071
-----------
COMMITMENTS AND CONTINGENCIES
PARTNERS' CAPITAL:
Wells Real Estate Fund IX, L.P. 3,519,869
Wells Real Estate Fund X, L.P. 7,119,063
Wells Real Estate Fund XI, L.P. (12,456)
Wells Real Estate Investment Trust, Inc. and Subsidiary (7,133)
-----------
Total partners' capital 10,619,343
-----------
Total liabilities and partners' capital $11,602,414
===========
</TABLE>
The accompanying notes are an integral part of this balance sheet.
F-25
<PAGE>
THE OHMEDA BUILDING
STATEMENT OF INCOME
FOR THE PERIOD FROM INCEPTION
(FEBRUARY 13, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
REVENUES:
<S> <C>
Rental income $898,901
--------
EXPENSES:
Depreciation 299,112
Operating costs, net of reimbursements 663
Management and leasing fees 41,688
Legal and accounting 2,200
--------
343,663
--------
NET INCOME $555,238
========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND IX, L.P. $243,597
========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND X, L.P. $271,294
========
NET INCOME ALLOCATED TO WELLS REAL ESTATE FUND XI, L.P. $ 25,656
========
NET INCOME ALLOCATED TO WELLS REAL ESTATE INVESTMENT
TRUST, INC. AND SUBSIDIARY $ 14,691
========
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE>
THE OHMEDA BUILDING
STATEMENT OF PARTNERS' CAPITAL
FOR THE PERIOD FROM INCEPTION
(FEBRUARY 13, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
Wells Real
Wells Real Wells Real Wells Real Estate Investment Total
Estate Estate Estate Trust, Inc. and Partners'
Fund IX, L.P. Fund X, L.P. Fund XI, L.P. Subsidiary Capital
------------ ------------ ------------- ---------------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 $ 0 $ 0 $ 0 $ 0 $ 0
Contributions 3,636,662 7,252,823 0 0 10,889,485
Net income 243,597 271,294 25,656 14,691 555,238
Distributions (360,390) (405,054) (38,112) (21,824) (825,380)
---------- ---------- -------- -------- -----------
BALANCE, December 31, 1998 $3,519,869 $7,119,063 $(12,456) $ (7,133) $10,619,343
========== ========== ======== ======== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE>
THE OHMEDA BUILDING
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION
(FEBRUARY 13, 1998) TO DECEMBER 31, 1998
<TABLE>
<CAPTION>
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C>
Net income $ 555,238
------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 299,112
Changes in assets and liabilities:
Accounts receivable (13,969)
Accounts payable and accrued expenses 157,691
------------
Total adjustments 442,834
------------
Net cash provided by operating activities 998,072
------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (10,904,496)
------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Contributions received from partners 10,889,485
------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 983,061
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD 0
------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 983,061
============
</TABLE>
The accompanying notes are an integral part of this statement.
F-28
<PAGE>
THE OHMEDA BUILDING
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization and Business
The Ohmeda Building ("Ohmeda") is a two-story office building located in
Louisville, Colorado. The building is owned by Fund IX, X, XI, and REIT
Associates, a joint venture between Wells Real Estate Fund IX, L.P. ("Fund
IX"), Wells Real Estate Fund X, L.P. ("Fund X"), Wells Real Estate Fund XI,
L.P. ("Fund XI"), and Wells Real Estate Investment Trust, Inc. ("REIT"). As
of December 31, 1998, Fund IX, Fund X, Fund XI, and REIT owned 40%, 50%, 6%,
and 4% of Ohmeda, respectively. Allocation of net income and distributions
are made in accordance with ownership percentages.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
Income Taxes
Ohmeda is not deemed to be a taxable entity for federal income tax purposes.
Real Estate Assets
Real estate assets are stated at cost, less accumulated depreciation. Major
improvements and betterments are capitalized when they extend the useful life
of the related asset. All repairs and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets by
determining whether the carrying value of such real estate assets will be
recovered through the future cash flows expected from the use of the asset
and its eventual disposition. Management has determined that there has been
no impairment in the carrying value of Ohmeda as of December 31, 1998.
Depreciation is calculated using the straight-line method over 25 years.
F-29
<PAGE>
Revenue Recognition
The lease on Ohmeda is classified as an operating lease, and the related
rental income is recognized on a straight-line basis over the terms of the
lease.
2. RENTAL INCOME
The future minimum rental income due Ohmeda under noncancelable operating
leases at December 31, 1998 is as follows:
Year ending December 31:
1999 $1,004,517
2000 1,004,517
2001 1,004,517
2002 1,004,517
2003 1,050,509
Thereafter 1,194,889
----------
$6,263,466
==========
One tenant contributed 100% of rental income for the year ended December 31,
1998 and represents 100% of the future minimum rental income above.
3. RELATED-PARTY TRANSACTIONS
Fund IX, Fund X, Fund XI, and REIT entered into a property management
agreement with Wells Management Company, Inc. ("Wells Management"), an
affiliate of Fund IX, Fund X, Fund XI, and REIT. In consideration for
supervising management of the property, Fund IX, Fund X, Fund XI, and REIT
will generally pay Wells Management management and leasing fees equal to (a)
3% of the gross revenues for management and 3% of the gross revenues for
leasing (aggregate maximum of 6%) plus a separate fee for the one-time
initial lease-up of newly constructed properties in an amount not to exceed
the fee customarily charged in arm's-length transactions by others rendering
similar services in the same geographic area for similar properties or (b) in
the case of commercial properties which are leased on a long-term net basis
(ten or more years), 1% of the gross revenues except for initial leasing fees
equal to 3% of the gross revenues over the first five years of the lease
term.
Ohmeda incurred management and leasing fees of $41,688 for the year ended
December 31, 1998 which were paid to Wells Management.
F-30
<PAGE>
<TABLE>
<CAPTION>
Wells Real Estate Investment Trust, inc. and subsidiary
(A Georgia Public Limited Partnership)
Schedule III--Real Estate Investments and Accumulated Depreciation
December 31, 1998
Initial Cost Gross Amount at Which Carried at December 31, 1998
------------------------- Costs of --------------------------------------------------
Buildings and Capitalized Buildings and Construction
Description Encumbrances Land Improvements Improvements Land Improvements in Progress Total
- ------------------- ------------ ---------- ------------ ------------ ----------- ------------ ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
ABB PROPERTY (a) None $ 582,897 $ 744,164 $6,542,818 $ 607,930 $ 7,261,949 $ 0 $ 7,869,879
LUCENT TECHNOLOGIES (b) None 1,002,723 4,386,374 237,971 1,045,878 4,580,200 990 5,627,068
360 INTERLOCKEN (c) None 1,570,000 6,733,500 437,266 1,650,070 7,090,696 0 8,740,766
IOMEGA PROPERTY (d) None 385,000 4,674,624 193,372 403,442 4,849,554 0 5,252,996
OHMEDA PROPERTY (e) None 2,613,600 7,762,481 528,415 2,746,894 8,157,602 0 10,904,496
FAIRCHILD PROPERTY (f) None 2,130,480 6,852,630 374,300 2,219,251 7,138,159 0 9,357,410
ORANGE COUNTY PROPERTY (g) None 2,100,000 4,463,700 287,916 2,187,501 4,664,115 0 6,851,616
PRICEWATERHOUSECOOPERS
PROPERTY (h) None 1,460,000 19,839,071 298,608 1,520,834 20,076,845 0 21,597,679
----------- ----------- ---------- ----------- ----------- ---- -----------
Total $11,844,700 $55,456,544 $8,900,666 $12,381,800 $63,819,120 $990 $76,201,910
=========== =========== ========== =========== =========== ==== ===========
</TABLE>
<TABLE>
<CAPTION>
Life on Which
Accumulated Date of Date Depreciation
Description Depreciation Construction Acquired Is Computed
- ---------------------- ------------ ------------ -------- --------------
<S> <C> <C> <C> <C>
ABB PROPERTY (a) $ 511,883 1997 12/10/96 20 to 25 years
LUCENT TECHNOLOGIES (b) 106,871 1998 6/24/98 20 to 25 years
360 INTERLOCKEN (c) 238,299 1996 3/20/98 20 to 25 years
IOMEGA PROPERTY (d) 96,991 1998 7/01/98 20 to 25 years
OHMEDA PROPERTY (e) 299,112 1998 2/13/98 20 to 25 years
FAIRCHILD PROPERTY (f) 142,720 1998 7/21/98 20 to 25 years
ORANGE COUNTY PROPERTY (g) 92,087 1998 7/31/98 20 to 25 years
PRICEWATERHOUSECOOPERS
PROPERTY (h) 0 1998 12/31/98 20 to 25 years
----------
Total $1,487,963
==========
(a) The Knoxville Property consists of a three-story office building located in Knoxville, Tennessee. It is owned by Fund IX-X-XI-
REIT Joint Venture. The Company owned a 4% interest in Fund IX-X-XI-REIT Joint Venture at December 31, 1998.
(b) The Lucent Technologies property consists of a one-story office building located in Oklahoma City, Oklahoma. It is owned by
Fund IX-X-XI-REIT Joint Venture. The Company owned a 4% interest in Fund IX-X-XI-REIT Joint Venture at December 31, 1998.
(c) The 360 Interlocken property consists of a three-story multi-tenant office building located in Broomfield, Colorado. It is
owned by Fund IX-X-XI-REIT Joint Venture. The Company owned a 4% interest in Fund IX-X-XI-REIT Joint Venture at December 31,
1998.
(d) The Iomega Property consists of a one-story warehouse and office building located in Ogden, Utah. It is owned by Fund IX-X-XI-
REIT Joint Venture. The Company owned a 4% interest in Fund IX-X-XI-REIT Joint Venture at December 31, 1998.
(e) The Ohmeda Property consists of a two-story office building located in Louisville, Colorado. It is owned by Fund IX-X-XI-REIT
Joint Venture. The Company owned a 4% interest in Fund IX-X-XI-REIT Joint Venture at December 31, 1998.
(f) The Fairchild Property consists of a two-story warehouse and office building located in Fremont, California. It is owned by
Wells/Freemont Associates. The Company owned a 78% interest in Wells/Freemont Associates at December 31, 1998.
(g) The Orange County Property consists of a one-story warehouse and office building located in Fountain Valley, California. It is
owned by Wells/Orange County Associates. The Partnership owned a 44% interest in Wells/Orange County Associates at December 31,
1998.
(h) The PriceWaterhouseCoopers Property consists of a four-story office building located in Tampa, Florida. It is 100% owned by
the Company at December 31, 1998.
(i) Depreciation lives used for buildings are 25 years. Depreciation lives used for land improvements are 20 years.
</TABLE>
S-1
<PAGE>
Wells Real Estate Investment Trust, Inc. and Subsidiary
(A Georgia Public Limited Partnership)
Schedule III--Real Estate Investments and Accumulated Depreciation
December 31, 1998
Accumulated
Cost Depreciation
----------- ------------
BALANCE AT DECEMBER 31, 1997 $ 0 $ 0
1998 additions 76,201,910 1,487,963
----------- ----------
BALANCE AT DECEMBER 31, 1998 $76,201,910 $1,487,963
=========== ==========
S-2
<PAGE>
EXHIBIT INDEX
-------------
(Wells Real Estate Investment Trust, Inc.)
The following documents are filed as exhibits to this report. Those
exhibits previously filed and incorporated herein by reference are identified
below by an asterisk. For each such asterisked exhibit, there is shown below
the description of the previous filing. Exhibits which are not required for
this report are omitted.
Exhibit
Number Description of Document
- ------ -----------------------
*3.1 Amended and Restated Articles of Incorporation of Wells Real Estate
Investment Trust, Inc. (Exhibit 3.1 to Form S-11 Registration
Statement of Wells Real Estate Investment Trust, Inc., as amended to
date, Commission File No. 333-32099)
*3.2 Bylaws of Wells Real Estate Investment Trust, Inc. (Exhibit 3.2 to
Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.1 Agreement of Limited Partnership of Wells Operating Partnership, L.P.
(Exhibit 10.1 to Form S-11 Registration Statement of Wells Real Estate
Investment Trust, Inc., as amended to date, Commission File No. 333-
32099)
*10.2 Escrow Agreement (Exhibit 10.2 to Form S-11 Registration Statement of
Wells Real Estate Investment Trust, Inc., as amended to date,
Commission File No. 333-32099)
*10.3 Advisory Agreement (Exhibit 10.3 to Form S-11 Registration Statement
of Wells Real Estate Investment Trust, Inc., as amended to date,
Commission File No. 333-32099)
*10.3(a) First Amendment to Advisory Agreement dated June 1, 1998 (Exhibit
10.3(a) to Form S-11 Registration Statement of Wells Real Estate
Investment Trust, Inc., as amended to date, Commission File No. 333-
32099)
*10.4 Amended and Restated Joint Venture Agreement of The Fund IX, Fund X,
Fund XI and REIT Joint Venture (the "IX-X-XI-REIT Joint Venture")
dated June 11, 1998 (Exhibit 10.4 to Form S-11 Registration Statement
of Wells Real Estate Investment Trust, Inc., as amended to date,
Commission File No. 333-32099)
*10.5 Lease Agreement for the ABB Building dated December 10, 1996 (Exhibit
10(kk) to Form S-11 Registration Statement of Wells Real Estate Fund
VIII, L.P. and Wells Real Estate Fund IX, L.P., as amended to date,
Commission File No. 33-83852)
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
*10.6 Agreement for the Purchase and Sale of Real Property relating to the
Ohmeda Building dated November 14, 1997 between Lincor Centennial,
Ltd. and Wells Real Estate Fund X, L.P. (Exhibit 10.6 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.7 Agreement for the Purchase and Sale of Property relating to the 360
Interlocken Building dated February 11, 1998 between Orix Prime West
Broomfield Venture and Wells Development Corporation (Exhibit 10.7 to
Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.8 Agreement for the Purchase and Sale of Real Property relating to the
Lucent Technologies Building dated May 30, 1997 (Exhibit 10(k) to Form
S-11 Registration Statement of Wells Real Estate Fund X, L.P. and
Wells Real Estate Fund XI, L.P., as amended to date, Commission File
No. 333-7979)
*10.8(a) First Amendment to the Agreement for the Purchase and Sale of Real
Property relating to the Lucent Technologies Building dated April 21,
1998 (Exhibit 10.8(a) to Form S-11 Registration Statement of Wells
Real Estate Investment Trust, Inc., as amended to date, Commission
File No. 333-32099)
*10.9 Development Agreement relating to the Lucent Technologies Building
dated May 30, 1997 between Wells Development Corporation and ADEVCO
Corporation (Exhibit 10(m) to Form S-11 Registration Statement of
Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as
amended to date, Commission File No. 333-7979)
*10.10 Net Lease Agreement for the Lucent Technologies Building dated May 30,
1997 (Exhibit 10(l) to Form S-11 Registration Statement on Form S-11
of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P.,
as amended to date, Commission File No. 333-7979)
*10.10(a) First Amendment to Net Lease Agreement for the Lucent Technologies
Building dated March 30, 1998 (Exhibit 10.10(a) to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.11 Purchase and Sale Agreement relating to the Iomega Building dated
February 4, 1998 with SCI Development Services Incorporated (Exhibit
10.11 to Form S-11 Registration Statement of Wells Real Estate
Investment Trust, Inc., as amended to date, Commission File No. 333-
32099)
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
*10.12 Lease Agreement for the Iomega Building dated April 9, 1996 (Exhibit
10.12 to Form S-11 Registration Statement of Wells Real Estate
Investment Trust, Inc., as amended to date, Commission File No. 333-
32099)
*10.13 Agreement for the Purchase and Sale of Property relating to the
Fairchild Building dated June 8, 1998 (Exhibit 10.13 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.14 Restatement of and First Amendment to Agreement for the Purchase and
Sale of Property relating to the Fairchild Building dated July 1, 1998
(Exhibit 10.14 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)
*10.15 Promissory Note for $5,960,000 from the Fremont Joint Venture to
NationsBank, N.A. relating to the Fairchild Building dated July 16,
1998 (Exhibit 10.15 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)
*10.16 Deed of Trust securing the Fairchild Building dated July 16, 1998
between the Fremont Joint Venture and NationsBank, N.A. (Exhibit 10.16
to Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.17 Joint Venture Agreement of Wells/Fremont Associates (the "Fremont
Joint Venture") dated July 15, 1998 between Wells Development
Corporation and Wells Operating Partnership, L.P. (Exhibit 10.17 to
Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.18 Joint Venture Agreement of Fund X and Fund XI Associates (the "Fund X-
XI Joint Venture") dated July 15, 1998 (Exhibit 10.18 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.19 Agreement for the Purchase and Sale of Joint Venture Interest relating
to the Fremont Joint Venture dated July 17, 1998 between Wells
Development Corporation and the Fund X-XI Joint Venture (Exhibit 10.19
to Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
*10.20 Lease Agreement for the Fairchild Building dated September 19, 1997
between the Fremont Joint Venture (as successor in interest by
assignment) and Fairchild Technologies USA, Inc. (Exhibit 10.20 to
Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.21 Purchase and Sale Agreement and Joint Escrow Instructions relating to
the Cort Furniture Building dated June 12, 1998 between the Cort Joint
Venture (as successor in interest by assignment) and Spencer Fountain
Valley Holdings, Inc. (Exhibit 10.21 to Form S-11 Registration
Statement of Wells Real Estate Investment Trust, Inc., as amended to
date, Commission File No. 333-32099)
*10.22 First Amendment to Purchase and Sale Agreement and Joint Escrow
Instructions relating to the Cort Furniture Building dated July 16,
1998 between the Cort Joint Venture (as successor in interest by
assignment) and Spencer Fountain Valley Holdings, Inc. (Exhibit 10.22
to Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.23 Promissory Note for $4,875,000 from the Cort Joint Venture to
NationsBank, N.A. relating to the Cort Furniture Building dated July
30, 1998 (Exhibit 10.23 to Form S-11 Registration Statement of Wells
Real Estate Investment Trust, Inc., as amended to date, Commission
File No. 333-32099)
*10.24 Deed of Trust securing the Cort Furniture Building dated July 30, 1998
between the Fremont Joint Venture and NationsBank, N.A. (Exhibit 10.24
to Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.25 Joint Venture Agreement of Wells/Orange County Associates (the "Cort
Joint Venture") dated July 27, 1998 between Wells Development
Corporation and Wells Operating Partnership, L.P. (Exhibit 10.25 to
Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.26 Agreement for the Purchase and Sale of Joint Venture Interest relating
to the Cort Joint Venture dated July 30, 1998 between Wells
Development Corporation and the Fund X-XI Joint Venture (Exhibit 10.26
to Form S-11 Registration Statement of Wells Real Estate Investment
Trust, Inc., as amended to date, Commission File No. 333-32099)
*10.27 Real Estate Option Agreement for the purchase of Lot 11 dated April
22, 1998 between The Development Corporation of Knox County and Wells
Development
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
Corporation (Exhibit 10.27 to Form S-11 Registration Statement of
Wells Real Estate Investment Trust, Inc., as amended to date,
Commission File No. 333-32099)
*10.28 Real Estate Option Agreement for the purchase of Lot 10 dated June 21,
1998 between The Development Corporation of Knox County and Wells
Development Corporation (Exhibit 10.28 to Form S-11 Registration
Statement of Wells Real Estate Investment Trust, Inc., as amended to
date, Commission File No. 333-32099)
*10.29 Amendment to Real Estate Option Agreements (Lots 10 and 11) dated
September 8, 1998 between The Development Corporation of Knox County
and Wells Development Corporation (Exhibit 10.29 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.30 Second Amendment to Real Estate Option Agreements (Lots 10 and 11)
dated October 7, 1998 between The Development Corporation of Knox
County and Wells Development Corporation (Exhibit 10.30 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.31 Agreement for the Purchase and Sale of Property for an undivided
interest in the Associates Property dated September 15, 1998 between
Wells Development Corporation and Wells Operating Partnership, L.P.
(Exhibit 10.31 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)
*10.32 Development Agreement for the Associates Building dated September 15,
1998 between Wells Development Corporation and ADEVCO Corporation
(Exhibit 10.32 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)
*10.33 Guaranty of Development Agreement for the Associates Building dated
September 15, 1998 by David M. Kraxberger (Exhibit 10.33 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
*10.34 Owner-Contractor Agreement for the construction of the Associates
Building dated September 10, 1998 between Wells Development
Corporation and Integra Construction, Inc. (Exhibit 10.34 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.35 Temporary Lease Agreement for remainder of the ABB Building dated
September 10, 1998 between the IX-X-XI-REIT Joint Venture and
Associates Housing Finance, LLC (Exhibit 10.35 to Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc., as
amended to date, Commission File No. 333-32099)
*10.36 Lease Agreement for the Associates Building dated September 10, 1998
between Wells Development Corporation and Associates Housing Finance,
LLC (Exhibit 10.36 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)
*10.37 Amended and Restated Purchase Agreement relating to the PWC Building
dated December 4, 1998 between Carter Sunforest, L.P. and Wells
Operating Partnership, L.P. (Exhibit 10.37 to Form S-11 Registration
Statement of Wells Real Estate Investment Trust, Inc., as amended to
date, Commission File No. 333-32099)
*10.38 Assignment and Assumption Agreement relating to the PWC Building dated
December 4, 1998 between TriNet Corporate Realty Trust, Inc. and Wells
Operating Partnership, L.P. (Exhibit 10.38 to Form S-11 Registration
Statement of Wells Real Estate Investment Trust, Inc., as amended to
date, Commission File No. 333-32099)
*10.39 Amended and Restated Loan Agreement dated December 31, 1998 between
Wells Operating Partnership, L.P. and SouthTrust Bank, National
Association (Exhibit 10.39 to Form S-11 Registration Statement of
Wells Real Estate Investment Trust, Inc., as amended to date,
Commission File No. 333-32099)
*10.40 Amended and Restated Promissory Note for $15,500,000 from Carter
Sunforest, L.P. to SouthTrust Bank, National Association dated
December 31, 1998 (Exhibit 10.40 to Form S-11 Registration Statement
of Wells Real Estate Investment Trust, Inc., as amended to date,
Commission File No. 333-32099)
<PAGE>
Exhibit
Number Description of Document
- ------ -----------------------
*10.41 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents securing the PWC Building dated December 31, 1998 between
Carter Sunforest, L.P. and SouthTrust Bank, National Association
(Exhibit 10.41 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)
*10.42 Lease for the PWC Building dated March 30, 1998 between Wells
Operating Partnership, L.P. (as successor in interest by assignment)
and Price Waterhouse LLP (Exhibit 10.42 to Form S-11 Registration
Statement of Wells Real Estate Investment Trust, Inc., as amended to
date, Commission File No. 333-32099)
*10.43 Amended and Restated Warrant Purchase Agreement dated December 31,
1998 between the Registrant and Wells Investment Securities, Inc.
(Exhibit 10.43 to Form S-11 Registration Statement of Wells Real
Estate Investment Trust, Inc., as amended to date, Commission File No.
333-32099)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 7,979,403
<SECURITIES> 11,568,677
<RECEIVABLES> 262,345
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 1,424,469
<PP&E> 21,597,679
<DEPRECIATION> 0
<TOTAL-ASSETS> 42,832,573
<CURRENT-LIABILITIES> 15,210,886
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 27,621,687
<TOTAL-LIABILITY-AND-EQUITY> 42,832,573
<SALES> 0
<TOTAL-REVENUES> 395,178
<CGS> 0
<TOTAL-COSTS> 61,144
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 334,034
<INCOME-TAX> 334,034
<INCOME-CONTINUING> 334,034
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 334,034
<EPS-PRIMARY> 0
<EPS-DILUTED> .40
</TABLE>
