<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 31, 2000 or
-----------------------------------------------
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________________ to ________________________
Commission file number 0-25739
---------------------------------------------------------
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
incorporation or organization) Identification Number)
6200 The Corners Pkwy., Norcross, Georgia 30092
- ------------------------------------------- -----------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
----------------------------
(Former name, former address, and former fiscal year, if changed since
last report)
- --------------------------------------------------------------------------------
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
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FORM 10-Q
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets--March 31, 2000 and December 31, 1999 3
Statements of Income for the Three Months Ended March 31, 2000
and 1999 4
Statements of Shareholders' Equity for the Year Ended December 31, 1999 and the
Three Months Ended March 31, 2000 5
Statements of Cash Flows for the Three Months Ended March 31, 2000
and 1999 6
Condensed Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 13
PART II. OTHER INFORMATION 35
</TABLE>
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
------------- ---------------
<S> <C> <C>
REAL ESTATE, at cost:
Land $ 19,341,552 $ 14,500,822
Building and improvements, less accumulated depreciation of
$2,906,361 in 2000 and $1,726,103 in 1999 149,407,541 81,507,040
Construction in progress 4,719,269 12,561,459
------------ ------------
Total real estate 173,468,362 108,569,321
------------ ------------
INVESTMENT IN JOINT VENTURES (Note 2) 29,241,630 29,431,176
DUE FROM AFFILIATES 671,307 648,354
CASH AND CASH EQUIVALENTS 4,259,855 2,929,804
DEFERRED PROJECT COSTS (Note 1) 219,218 28,093
DEFERRED OFFERING COSTS (Note 1) 1,059,174 964,941
PREPAID EXPENSES AND OTHER ASSETS 4,077,581 1,280,601
------------ ------------
Total assets $212,997,127 $143,852,290
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 541,301 $ 461,300
Notes payable (Note 3) 68,512,901 23,929,228
Due to affiliates (Note 4) 2,528,586 1,079,466
Dividends payable 2,623,280 2,166,701
Minority interest of unit holder in operating partnership 200,000 200,000
------------ ------------
Total liabilities 74,406,068 27,836,695
------------ ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares authorized,
16,158,906 shares issued and outstanding at March 31, 2000 161,589 134,710
Additional paid-in capital 138,429,470 115,880,885
Retained earnings 0 0
------------ ------------
Total shareholders' equity 138,591,059 116,015,595
------------ ------------
Total liabilities and shareholders' equity $212,997,127 $143,852,290
============ ============
</TABLE>
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
STATEMENTS OF INCOME
Three Months Ended
------------------------
March 31, March 31,
2000 1999
---------- ----------
REVENUES:
Rental income $3,151,262 $726,183
Equity in income of joint ventures 481,761 192,723
Interest income 77,386 69,094
---------- ----------
3,710,409 988,000
---------- ----------
EXPENSES:
Operating costs, net of reimbursements 148,808 (22,595)
Management and leasing fees 233,770 44,692
Depreciation 1,180,258 286,242
Administrative costs 57,144 29,710
Legal and accounting 19,418 27,100
Computer costs 3,068 2,703
Amortization of organizational costs 22,603 1,622
Interest expense 354,052 225,088
---------- ----------
2,019,121 594,562
---------- ----------
NET INCOME $1,691,288 $393,438
========== ==========
BASIC AND DILUTED EARNINGS PER SHARE $ 0.11 $ 0.10
========== ==========
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999
AND FOR THE THREE MONTHS ENDED MARCH 31, 2000
<TABLE>
<CAPTION>
Common Stock Additional Total
----------------------- Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
----------- --------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1998 3,154,136 $ 31,541 $ 27,056,112 $ 334,034 $ 27,421,687
Issuance of common stock 10,316,949 103,169 103,066,321 0 103,169,490
Net income 0 0 0 3,884,649 3,884,649
Dividends ($.70 per share) 0 0 (1,346,240) (4,218,683) (5,564,923)
Sales commission 0 0 (9,801,197) 0 (9,801,197)
Other offering expenses 0 0 (3,094,111) 0 (3,094,111)
----------- --------- ------------- ----------- -------------
BALANCE, December 31, 1999 13,471,085 134,710 115,880,885 0 116,015,595
Issuance of common stock 2,704,837 27,048 27,021,317 0 27,048,365
Net income 0 0 0 1,691,288 1,691,288
Dividends ($.175 per share) 0 0 (942,963) (1,691,288) (2,634,251)
Sales commission 0 0 (2,553,429) 0 (2,553,429)
Other offering expenses 0 0 (806,346) 0 (806,346)
Common stock retired (17,016) (169) (169,994) 0 (170,163)
----------- -------- ------------ ------------ ------------
BALANCE, March 31, 2000 16,158,906 $161,589 $138,429,470 $ 0 $138,591,059
=========== ======== ============ =========== ============
</TABLE>
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 31,
2000 1999
------------ -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 1,691,288 $ 393,438
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in income of joint ventures (481,761) (192,723)
Depreciation 1,180,258 286,242
Amortization of organizational costs 22,603 7,720
Changes in assets and liabilities:
Prepaid expenses and other assets (2,819,583) (214,252)
Accounts payable and accrued expenses 80,001 390,501
Due to affiliates 1,354,887 (206,611)
------------ -------------
Net cash provided by operating activities 1,027,693 464,315
------------ -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (65,329,686) (17,428,018)
Deferred project costs paid (940,738) (891,867)
Distributions received from joint ventures 648,354 262,332
------------ -------------
Net cash used in investing activities (65,622,070) (18,057,553)
------------ -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 54,991,145 9,650,000
Repayment of notes payable (10,407,472) (14,059,930)
Dividends paid (2,177,672) (408,379)
Issuance of common stock 27,048,365 25,481,931
Sales commissions paid (2,553,429) (2,420,783)
Offering costs paid (806,346) (764,458)
Common stock retired (170,163) 0
------------ -------------
Net cash provided by financing activities 65,924,428 17,478,381
------------ -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,330,051 (114,857)
CASH AND CASH EQUIVALENTS, beginning of year 2,929,804 7,979,403
------------ -------------
CASH AND CASH EQUIVALENTS, end of period $ 4,259,855 $ 7,864,546
------------ -------------
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to investing activities $ 749,613 $ 852,162
============ =============
Increase (decrease) in deferred offering cost accrual $ 94,233 $ (254,692)
============ =============
</TABLE>
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation formed on July 3, 1997. The Company is the sole general partner
of Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized for the purpose of acquiring, developing, owning,
operating, improving, leasing, and otherwise managing for investment
purposes income-producing commercial properties.
On January 30, 1998, the Company commenced a public offering of up to
16,500,000 shares of common stock at $10 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. The Company terminated its
initial public offering on December 19, 1999, and on December 20, 1999, the
Company commenced a second follow-on public offering of up to 22,200,000
shares of common stock at $10 per share. As of March 31, 2000, the Company
had sold 16,175,922 shares for total capital contributions of $161,759,218.
After payment of $5,655,617 in Acquisition and Advisory Fees and
Acquisition Expenses, payment of $20,198,632 in selling commissions and
organization and offering expenses, and capital contributions and
acquisition expenditures by Wells OP of $133,599,737 in property
acquisitions and common stock retirement of $170,163, pursuant to the
Company's share redemption program, the Company was holding net offering
proceeds of $2,135,069 available for investment in properties. An
additional $68,512,901 was spent for acquisition expenditures and was
funded by loans from various lending institutes.
Wells OP owns interest in properties through equity ownership in the
following joint ventures: (i) The Fund IX-X-XI-REIT Joint Venture, a joint
venture among Wells OP 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
Venture"), a joint venture between Wells OP 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"), (iii)
Wells/Orange County Associates (the "Cort Joint Venture") a joint venture
between Wells OP and the Fund X-XI Joint Venture, and (iv) the Fund XI-XII-
REIT Joint Venture, a joint venture among Wells OP, Wells Real Estate Fund
XI, L.P., and Wells Real Estate Fund XII, L.P. (the "Fund XI-XIII-REIT
Joint Venture").
As of March 31, 2000, Wells OP owned interest in the following properties
either directly or through its interest in joint ventures: (i) a three-
story office building in Knoxville, Tennessee (the "ABB-Knoxville
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
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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; (viii) a four-story
office building in Tampa, Florida (the "PWC Building"); (ix) a four-story
office building in Harrisburg, Pennsylvania (the "AT&T Building"), which
are owned directly by Wells OP; (x) a two-story manufacturing and office
building located in Fountain Inn, South Carolina (the "EYBL CarTex
Building"); (xi) a three-story office building located in Leawood, Kansas
(the "Sprint Building"); (xii) a one story office building and warehouse in
Tredyffrin Township, Pennsylvania (the "Johnson Matthey Building"); (xiii)
a two-story office building in Ft. Meyers, Florida (the "Gartner
Building"), all four of which are owned by Fund XI-XII-REIT Joint Venture;
(xiv) a two-story office building located in Lake Forest, California (the
"Matsushita Project"); (xv) a four-story office building under construction
in Richmond, Virginia (the "ABB-Richmond Building"); (xvi) a two-story
office building and warehouse in Wood Dale, Illinois (the "Marconi
Building"); (xvii) a five-story office building in Plano, Texas (the
"Cinemark Building"); (xviii) a three-story office building in Tulsa,
Oklahoma (the "Metris Building"); (xix) a two-story office building in
Scottsdale, Arizona (the "Dial Building"); (xx) a two-story office building
in Tempe, Arizona (the "ASML Building"); and (xxi) a two-story office
building in Tempe, Arizona (the "Motorola Building"); all eight of which
are owned directly by Wells OP.
(b) Deferred Project Costs
The Company pays Acquisition and Advisory Fees and Acquisition Expenses to
Wells Capital, Inc., the Advisor, for acquisition and advisory services and
as reimbursement for acquisition expenses. These payments may not exceed 3
1/2% shareholders' capital contributions. Acquisition and Advisory Fees and
Acquisition Expenses paid as of March 31, 2000, amounted to $5,655,617 and
represented approximately 3 1/2% of shareholders' capital contributions
received. These fees are allocated to specific properties as they are
purchased.
(c) Deferred Offering Costs
The Advisor pays all the offering expenses for the Company. The Advisor may
be reimbursed by the Company to the extent that such offering expenses do
not exceed 3%.
(d) 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.
(e) 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 and indirectly by the Company. In the
opinion of management of the registrant, the properties are adequately
insured.
(f) 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
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<PAGE>
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.
(g) Basis of Presentation
Substantially all of the Company's business will be conducted through Wells
OP. At December 31, 1997, the Wells OP had issued 20,000 limited partner
units to Wells Capital, Inc., the Advisor, in exchange for a capital
contribution of $200,000. The Company is the sole general partner in Wells
OP; consequently, the accompanying consolidated balance sheet of the
Company includes the amounts of the Company and Wells OP.
The consolidated financial statements of the Company have been prepared in
accordance with instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. These quarterly statements
have not been examined by independent accountants, but in the opinion of
the Board of Directors, the statements for the unaudited interim periods
presented include all adjustments, which are of a normal and recurring
nature, necessary to present a fair presentation of the results for such
periods. For further information, refer to the financial statements and
footnotes included in the Company's Form 10-K for the year ended December
31, 1999.
(h) Distribution Policy
The Company will make distributions each taxable year (not including a
return of capital for federal income tax purposes) equal to at least 95% of
its real estate investment trusts taxable income. The Company intends to
make regular quarterly distributions to holders of the shares.
Distributions will be made to those shareholders who are shareholders as of
the record date selected by the Directors. Distributions will be declared
on a monthly basis and paid on a quarterly basis during the Offering period
and declared and paid quarterly thereafter.
(i) Income Taxes
The Company has made an election under Section 856 (C) of the Internal
Revenue Code 1986, as amended (the "Code"), to be taxed as a Real Estate
Investment Trust ("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 shareholders. If the Company fails to qualify as a
REIT in any taxable year, it will then 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 and net cash
available to distribute to shareholders. However, the Company believes that
it is organized and operates in such a manner as to qualify for treatment
as a REIT and intends to continue to operate in the foreseeable future in
such a manner so that the Company will remain qualified as a REIT for
federal income tax purposes.
(j) Statement of Cash Flows
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments.
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2. INVESTMENTS IN JOINT VENTURES
The Company owned interests in 21 office buildings through its ownership in
Wells OP, which owns interest in four joint ventures. The Company does not
have control over the operations of these joint ventures; however, it does
exercise significant influence. Accordingly, investment in joint venture is
recorded using the equity method.
The following describes additional information about certain of the
properties in which the Company owns an interest as of March 31, 2000.
The Metris Building
On February 11, 2000, Wells OP purchased a three-story office building with
approximately 101,100 rentable square feel on a 14.6-acre tract of land
located in Tulsa, Tulsa County, Oklahoma from Meridian Tulsa, L.L.C., an
Oklahoma limited company ("Meridian").
The purchase price paid for the Metris Building was $12,700,000 excluding
closing costs. The $12,740,000 required to close the Metris Building
consisted of $4,740,000 in cash funded from a capital contribution by the
Company and $8,000,000 in loan proceeds from an existing revolving credit
facility ("Metris Loan"). The Metris Loan was originally established by
Meridian with Richter-Schroeder Company, Inc on April 8, 1999. Wells OP
assumed and extended the original three-year term loan entered into by
Meridian. The Metris Loan requires monthly payments of interest only and
matures on February 3, 2003. The interest rate on the Metris Loan is an
annual variable rate equal to the London InterBank offered rate for a 30-
day period plus 175 basis points. The current interest rate under the
Metris Loan is 7.75% per annum. The Metris Loan is secured by a first
mortgage against the Metris Building, which was granted in connection with
Meridian's original purchase of the Metris Building, and assumed by Wells
OP on the date of closing.
Metris occupies all 101,100 square feet of the Metris Building pursuant to
a lease agreement dated March 3, 1999, as amended on January 21, 2000. The
initial term of the Metris lease is ten years, which commenced on February
1, 2000 and expires on January 31, 2010. Metris has the right to renew the
lease for two additional five-year periods upon one year's advance notice.
Metris is a principal subsidiary of Metris Companies, Inc., a publicly
traded company on the New York Stock Exchange and guarantor of the Metris
lease. Metris Companies is an information-based direct marketer of consumer
credit products and fee-based services primarily to moderate income
consumers. Metris Companies consumer credit products are primarily
unsecured credit cards issued by its subsidiary, Direct Merchants Credit
Card Bank.
The annual base rent payable for the Metris lease is $1,187,925 for the
first five years and $1,306,718 thereafter. The monthly base rent payable
for the renewal terms of the Metris lease shall be equal to the then
current market rate based on the then existing rates for comparable space
of equivalent quality in suburban Tulsa, Oklahoma taking into account
location, quality, age of the office value rental rate determination as of
twelve months prior to commencement of the renewal term. If the parties are
unable to agree upon the market rate within eleven months prior to
commencement of the renewal term, the market rate shall then be determined
by arbitration.
Under the Metris lease, Metris is required to pay as additional monthly
rent all electricity costs and all operating costs and the repair and
replacement of the roof, foundation, exterior windows, load bearing items,
exterior surface walls, plumbing, pipes and conduits located in the common
and service areas,
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central heating ventilation and air conditioning systems, and electrical,
mechanical and plumbing systems of the Metris Building.
The Dial Building
On March 29, 2000, Wells OP purchased a two-story office building with
approximately 129,689 rentable square feet on a 8,375-acre tract of land
located at 15501 N. Dial Boulevard, Scottsdale, Maricopa County, Arizona
(the "Dial Building") from Ryan Companies US, Inc. The purchase price for
the Dial Building was $14,250,000, excluding closing costs.
The entire 129,689 rentable square feet of the Dial Building is currently
under a net lease agreement with Dial Corporation ("Dial"). The landlord's
interest in the lease was assigned to Wells OP at the closing. The lease
commenced on August 14, 1997, and the initial term expires on August 31,
2008. Dial has the right to extend the Dial Lease for two additional five-
year periods of time at 95% of the then-current "fair market rental rate."
The annual rent payable for the initial term of the lease is $1,387,672.
Dial, a publicly traded company which is currently headquartered in the
Dial Building, is one of the leading consumer product manufacturers in the
United States.
For further information regarding the acquisition of the Dial Building,
refer to the Form 8-K of Wells Real Estate Investment Trust, Inc. dated
March 29, 2000, which was filed with the Commission on April 12, 2000
(Commission File No. 0-25739).
The ASML Building
On March 29, 2000, Wells OP purchased a two story office building with
approximately 95,133 rentable square feel on a 9.51-acre tract of land
located at 8555 South River Parkway, Tempe, Maricopa County, Arizona (the
"ASML Building") from Ryan Companies US, Inc. The purchase price for the
ASML Building was $17,355,000 excluding closing costs.
The land upon which the ASML building is situated is subject to a long-term
ground lease (the "ASML Ground Lease") with Price-Elliott Research Park,
Inc. and, at closing, Wells OP was assigned and assumed all the tenant's
rights, duties, and obligations under the ASML Ground Lease. The ASML
Ground Lease commenced August 22, 1997 and expires on December 31, 2082.
The annual ground lease payment for the first 15 years of the ASML Ground
Lease term is $186,368.
The entire 95,133 rentable square feet of the ASML Building is currently
under a net lease agreement (the "ASML Lease") with ASM Lithography, Inc.
("ASML"). The landlord's interest in the ASML Lease was assigned to Wells
OP at the closing. The ASML Lease commenced on June 4, 1998, and expires on
June 30, 2013. ASML has the right to extend the ASML Lease for two
additional five year periods of time at the prevailing "market rental
rate," but in no event less than the rate in force at the end of the
preceding lease term. The current annual rent payable under the ASML Lease
is $1,927,788, out of which Wells OP will be required to make the annual
ground lease payment described above.
ASML is a wholly-owned subsidiary of ASM Lithography Holdings NV ("ASML
Holdings"), a Dutch multi-national corporation that supplies lithography
systems used for printing integrated circuit designs onto very thin disks
of silicon, commonly referred to as wafers.
For further information regarding the acquisition of the ASML Building,
refer to the Form 8-K of Wells Real Estate Investment Trust, Inc. dated
March 29, 2000, which was filed with the Commission on April 12, 2000
(Commission File No. 0-25739).
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The Motorola Building
On March 29, 2000, Wells OP purchased a two-story office building with
approximately 133,225 rentable square feet on a 12.44-acre tract of land
located at 8075 South River Parkway, Tempe, Maricopa County, Arizona (the
"Motorola Building") from Ryan Companies US, Inc. The purchase price for
the Motorola Building was $16,000,000, excluding closing costs. In order to
finance part of the acquisition of the Motorola Building, Wells OP obtained
a loan of $5,000,000 from Ryan in a seller financing transaction (the "Ryan
Loan"). The Ryan Loan matures in one year and accrues interest at the rate
of nine percent (9%) per annum, payable on a monthly basis. The Ryan Loan
is secured by a first mortgage interest on the Motorola Building.
The land upon which the Motorola Building is situated is subject to a long-
term ground lease (the "Motorola Ground Lease") with the Research Park and,
at closing, Wells OP was assigned and assumed all the tenant's rights,
duties and obligations under the Motorola Ground Lease. The Motorola Ground
Lease commenced November 19, 1997 and expires on December 31, 2082. The
annual ground lease payment for the first 15 years of the Motorola Ground
Lease term is $243.825.
The entire 133,225 rentable square feet of the Motorola Building is
currently under a net lease agreement (the "Motorola Lease") with Motorola,
Inc. ("Motorola"). The landlord's interest in the Motorola Lease was
assigned to Wells OP at the closing. The initial term of the Motorola Lease
is seven years, which commenced on August 17, 1998, and expires on August
31, 2005. Motorola has the right to extend the Motorola Lease for four
additional five-year periods of time at the prevailing "market rental
rate." The current annual rent payable under the Motorola Lease is
$1,843,834, out of which Wells OP will be required to make the annual
ground lease payment described above.
The building is occupied by Motorola's Satellite Communications Division
("SATCOM"). SATCOM is a worldwide developer and manufacturer of space and
ground communications equipment and systems.
For further information regarding the acquisition of the Motorola Building,
refer to the Form 8-K of Wells Real Estate Investment Trust, Inc. dated
March 29, 2000, which was filed with the Commission on April 12, 2000
(Commission File No. 0-25739).
Financing for the Buildings (Dial, ASML, and Motorola)
The aggregate purchase price for the buildings was $47,605,000. The
aggregate amount of $47,725,000 required to close the acquisition of the
Buildings consisted of (a) $7,225,000 in cash funded from a capital
contribution by the Company, (b) $9,000,000 in loan proceeds obtained from
a revolving credit facility established with SouthTrust Bank, N.A., (c)
$26,500,000 in loan proceeds obtained from a revolving credit facility
established with Bank of America, N.A., and (d) $5,000,000 in loan proceeds
provided by Ryan as seller financing in connection with the purchase of the
Motorola Building, as described above.
3. NOTES PAYABLE
Notes payable consists of loans of (i) $11,320,000 due to SouthTrust Bank
secured by a first mortgage against the PWC Building; (ii) $3,286,008 due
to SouthTrust Bank secured by a pledge of the ABB property and the ABB
Richmond Lease, which is secured by a $4,000,000 letter of credit; (iii)
$14,246,095 due to Bank of America secured by a first priority mortgage
against the Matsushita Property; (iv) $26,660,798 due to Bank of America
secured by first mortgages on the AT&T and Marconi buildings; (v)
$8,000,000 due to Richter-Schroeder Company, Inc. secured by a first
mortgage
-12-
<PAGE>
against the Metris Building; and (vi) $5,000,000 due to Ryan Companies US,
Inc. secured by a first mortgage on the Motorola Building.
4. DUE TO AFFILIATES
Due to affiliates consists of Acquisitions and Advisory Fees and
Acquisition Expenses, deferred offering costs, and other operating expenses
paid by the Advisor on behalf of the Partnership. Also included in Due to
Affiliates is the Matsushita lease guarantee which is explained in detail
in the December 31, 1999 10-K. Payments of $221,464 have been made as of
March 31, 2000 toward fulfilling the Matsushita agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
the accompanying financial statements of the Company and notes thereto.
This report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and Section 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 limited partners 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
statements made in this report, which include construction costs which may
exceed estimates, construction delays, 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.
Liquidity and Capital Resources
The Company began active operations on June 5, 1998, when it received and
accepted subscriptions for 125,000 shares pursuant to its initial public
offering, which commenced on January 30, 1998. The Company terminated its
initial public offering on December 19, 1999, and on December 20, 1999, the
Company commenced a follow-on public offering of up to 22,200,000 shares of
common stock at $10 per share. As of December 31, 1999, the Company had
raised an aggregate of $134,710,850 in offering proceeds through the sale
of 13,471,085 shares. As of December 31, 1999, the Company had paid
$4,714,880 in Acquisition Advisory Fees and Acquisition Expenses,
$16,838,857 in selling commissions and organizational offering expenses,
and $112,287,969 in capital contributions to Wells Operating Partnership,
L.P. ("Wells OP"), the operating partnership of the Company, for
investments in joint ventures and acquisitions of real properties. As of
December 31, 1999, the Company was holding net offering proceeds of
approximately $869,144 available for investment in additional properties.
Between December 31, 1999, and March 31, 2000, the Company raised an
additional $27,048,368 in offering proceeds through the sale of an
additional 2,704,837 shares. Accordingly, as of March 31, 2000, the Company
had raised a total of $161,759,218 in offering proceeds through the sale of
16,175,922 shares of common stock. As of March 31, 2000, the Company had
paid a total of $5,655,617 in Acquisition and Advisory Fees and Acquisition
Expenses, had paid a total of $20,198,632 in selling commissions and
organizational offering expenses, had made capital contributions of
$133,599,737 to Wells OP for investments in joint ventures and acquisitions
of real property, had utilized $170,163 for the retirement of stock
pursuant to the Company's share redemption program, and was holding net
offering proceeds of $2,135,069 available for investment and additional
properties.
-13-
<PAGE>
Cash and cash equivalents at March 31, 2000 and 1999 were $4,259,855 and
$7,864,546, respectively. The decrease in cash and cash equivalents
resulted primarily from raising additional capital which was more than
offset by increased investment in real property acquisitions.
Operating cash flows are expected to increase as additional properties are
added to the Company's investment portfolio. Dividends to be distributed to
the shareholders are determined by the Board of Directors and are dependent
upon a number of factors relating to the Company, including funds available
for payment of dividends, financial condition, capital expenditure
requirements and annual distribution requirements in order to maintain the
Company's status as a REIT under the Internal Revenue Code.
As of March 31, 2000, the Company had acquired interests in 21 real estate
properties. These properties are generating sufficient cash flow to cover
the operating expenses of the Company and pay quarterly dividends.
Dividends declared for the first quarter of 2000 and the first quarter of
1999 totaled $0.175 per share, which were declared on a daily record date
basis in the amount of $0.1902 per share payable to the shareholders of
record at the close of business of each day during the quarter.
Cash Flows from Operating Activities
Net cash provided by operating activities was $2,753,796 for the three
months ended March 31, 2000 and $464,315 for the three months ended March
31, 1999. The increase in net cash provided by operating activities was due
primarily to the purchase of additional properties in 1999 and 2000.
Cash Flows from Investing Activities
The increase in net cash used in investing activities from $18,057,553 for
the three months ended March 31, 1999 to $67,348,173 for the three months
ended March 31, 2000 was due primarily to the raising of additional capital
and funds that have been invested in real property acquisitions.
Cash Flows from Financing Activities
The increase in net cash provided by financing activities from $17,478,381
for the three months ended March 31, 1999 to $65,924,428 for the three
months ended March 31, 2000 was due primarily to the raising of additional
capital and the corresponding increase in funds borrowed to purchase
additional properties. The Company raised $27,048,365 in offering proceeds
for the three months ended March 31, 2000, as compared to $25,481,931 for
the three months ended March 31, 1999. In addition, the Company received
loan proceeds from financings secured by properties of $54,991,145 and
repaid notes payable in the amount of $10,407,472.
Results of Operations
As of March 31, 2000, the properties owned by the Company were 100%
occupied. Gross revenues for the three months ended March 31, 1999 and for
the three months ended March 31, 2000 were $988,000 and $3,710,409,
respectively. This increase was due to the purchase of additional
properties during 1999 and 2000. The purchase of interest in additional
properties also resulted in an increase in operating expenses, management
and leasing fees, and depreciation expense. As a result, net income
increased to $1,691,288 for 2000 as compared to $393,438 for 1999.
-14-
<PAGE>
Property Operations
As of March 31, 2000, the Company owned interests in the following
operational properties:
The ABB Building/Fund IX-X-XI-REIT Joint Venture
Three Months Ended
-------------------------
March 31, March 31,
2000 1999
--------- ---------
Revenues:
Rental income $315,165 $260,092
Interest income 17,728 15,060
--------- ---------
332,893 275,152
--------- ---------
Expenses:
Depreciation 98,454 134,100
Management and leasing expenses 25,253 21,386
Other operating expenses (6,063) (11,607)
--------- ---------
117,644 143,879
--------- ---------
Net income $215,249 $131,273
========= =========
Occupied percentage 100% 98%
========= =========
Company's ownership percentage 3.72% 3.74%
========= =========
Cash distributions to the Company $ 11,534 $ 9,989
========= =========
Net income allocated to the Company $ 8,009 $ 4,986
========= =========
Net income increased in 2000, over 1998, due primarily to the increased
occupancy level of the property. Total expenses decreased due to a decrease
in depreciation expense. Other operating expenses are negative due to an
offset of tenant reimbursements in operating costs, as well as management
and leasing fee reimbursements. Tenants are billed an estimated amount for
the current year common-area maintenance which is then reconciled the
following year and the difference billed to the tenant.
Cash distributions increased in 2000 over 1999 due to a combination of
increased rental income and decreased expenses. The Company's ownership
percentage decreased due to the contribution of additional capital
contributions made to the Fund IX-X-XI-REIT Joint Venture in the first
quarter of 2000 by Wells Fund IX.
It is currently anticipated that the total cost to complete the tenant
improvements estimated to be approximately $50,000 will be contributed by
Wells Fund X.
-15-
<PAGE>
The Ohmeda Building/Fund IX-X-XI-REIT Joint Venture
Three Months Ended
----------------------
March 31, March 31,
2000 1999
--------- ---------
Revenues:
Rental income $ 256,829 $256,829
--------- --------
Expenses:
Depreciation 81,576 81,576
Management and leasing expenses 17,001 11,618
Other operating expenses, net of reimbursements 27,594 363
--------- --------
126,171 93,557
--------- --------
Net income $ 130,658 $163,272
========= ========
Occupied percentage 100% 100%
========= ========
Company's ownership percentage 3.72% 3.74%
========= ========
Cash distributions to Company $ 7,684 $ 9,084
========= ========
Net income allocated to Company $ 4,861 $ 6,202
========= ========
Net income decreased in 2000 as compared to 1999 due to an overall increase
in expenses. Operating expenses increased significantly due to the rise in
real estate taxes, which stemmed from the revaluation of the property by
Boulder County authorities in 1999.
Cash distributions have decreased largely because of the decrease in net
income. The Company's ownership percentage decreased due to additional
capital contributions made to the Fund IX-X-XI-REIT Joint Venture by Wells
Fund IX during the first quarter of 2000.
-16-
<PAGE>
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
Three Months Ended
----------------------
March 31, March 31,
2000 1999
--------- ---------
Revenues:
Rental income $206,189 $206,522
-------- --------
Expenses:
Depreciation 71,670 71,670
Management and leasing expenses 20,907 17,864
Other operating expenses, net of reimbursements (16,920) (2,250)
-------- --------
75,657 87,284
-------- --------
Net income $130,532 $119,238
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 3.72% 3.74%
======== ========
Cash distributions to the Company $ 7,573 $ 7,186
======== ========
Net income allocated to the Company $ 4,857 $ 4,521
======== ========
Net income increased in 2000 as compared to 1999 due to an increase in CAM
reimbursement billed in 2000 to the tenants. Other operating expenses are
negative due to an offset of tenant reimbursements in operating costs, as
well as management and leasing fee reimbursement. Tenants are billed an
estimated amount for current year common-area maintenance which is then
reconciled the following year and the difference billed to the tenants.
Cash distributions and net income allocated to the Company for the quarter
increased in 2000 over 1999 due to an increase in net income. The Company's
ownership interest in the Fund IX-X-XI-REIT Joint Venture decreased due to
additional capital contributions made by Wells Fund IX to the Joint Venture
during the first quarter of 2000.
-17-
<PAGE>
The Lucent Technologies Building/Fund IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended
------------------------------
March 31, March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $145,752 $ 145,752
------------- --------------
Expenses:
Depreciation 45,801 45,801
Management and leasing expenses 5,370 5,370
Other operating expenses 3,481 3,014
------------- --------------
54,652 54,185
------------- --------------
Net income $ 91,100 $ 91,567
============= ==============
Occupied percentage 100% 100%
============= ==============
Company's ownership percentage 3.72% 3.74%
============= ==============
Cash distributions to the Company $ 4,702 $ 4,782
============= ==============
Net income allocated to the Company $ 3,389 $ 3,479
============= ==============
</TABLE>
Rental income, net income and distributions remained relatively stable as
compared to 1999 due to the stable occupancy rate. The Company's ownership
interest in the Fund IX-X-XI-REIT Joint Venture decreased due to additional
capital contributions made by the Wells Fund IX to the Joint Venture during the
first quarter of 2000.
-18-
<PAGE>
The Iomega Building/Fund IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $ 168,250 $ 123,873
-------------- --------------
Expenses:
Depreciation 55,062 48,495
Management and leasing expenses 7,280 5,603
Other operating expenses 5,148 (1,713)
-------------- --------------
67,490 52,385
-------------- --------------
Net income $ 100,760 $ 71,488
============== ==============
Occupied percentage 100% 100%
============== ==============
Company's ownership percentage 3.72% 3.74%
============== ==============
Cash distributions to the Company $ 5,618 $ 4,411
============== ==============
Net income allocated to the Company $ 3,749 $ 2,716
============== ==============
</TABLE>
Rental income increased in 2000 as compared to 1999 due to the completion of the
parking lot complex in the second quarter of 1999. Total expenses increased in
2000 over 1999 due to an increase in depreciation and real estate tax expenses
relating to the new parking lot. Cash distributions increased in 2000 over 1999
due primarily to the increase in net income. The Company's ownership interest in
the Fund IX-X-XI-REIT Joint Venture decreased due to additional capital
contributions made by Wells Fund IX to the Joint Venture during the first
quarter of 2000.
-19-
<PAGE>
The Cort Building/Wells/Orange County Joint Venture
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $ 198,885 $ 198,885
------------- -------------
Expenses:
Depreciation 46,641 46,641
Management and leasing expenses 7,590 7,590
Other operating expenses
11,171 8,172
------------- -------------
65,402 62,403
------------- -------------
Net income $ 133,483 $ 136,482
============= =============
Occupied percentage 100% 100%
============= =============
Company's ownership percentage 43.7% 43.7%
============= =============
Cash distributions to the Company $ 74,665 $ 75,974
============= =============
Net income allocated to the Company $ 58,288 $ 59,598
============= =============
</TABLE>
Rental income, depreciation, and management and leasing expenses remained stable
in 2000, as compared to 1999, while other operating expenses are slightly higher
due to increased expenditures for travel and taxes.
-20-
<PAGE>
The Fairchild Building/Wells/Fremont Joint Venture
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------
March 31, March 31,
2000 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $ 225,195 $ 225,210
-------------- --------------
Expenses:
Depreciation 71,382 71,382
Management and leasing expenses 9,175 9,324
Other operating expenses 3,770 1,000
-------------- --------------
84,327 81,706
-------------- --------------
Net income $ 140,868 $ 143,504
============== ==============
Occupied percentage 100% 100%
============== ==============
Company's ownership percentage 77.5% 77.5%
============== ==============
Cash distributions to the Company $ 158,409 $ 155,840
============== ==============
Net income allocated to the Company $ 109,178 $ 111,222
============== ==============
</TABLE>
Rental income, depreciation, and management and leasing expenses remained stable
in 2000, as compared to 1999, while other operating expenses are slightly higher
due primarily to increased expenditures for accounting fees.
-21-
<PAGE>
PCW Building
<TABLE>
<CAPTION>
Three Months Ended
----------------------------
March 31, March 31,
2000 1999
------------ -------------
<S> <C> <C>
Revenues:
Rental income $552,298 $552,042
------------ -------------
Expenses:
Depreciation 206,037 205,770
Management and leasing expenses 38,945 41,272
Other operating expenses (36,029) 135,003
------------ -------------
208,953 382,045
------------ -------------
Net income $343,345 $169,997
============ =============
Occupied percentage 100% 100%
============ =============
Company's ownership percentage 100% 100%
============ =============
Cash generated to the Company $496,230 $309,863
============ =============
Net income generated to the Company $343,345 $169,997
============ =============
</TABLE>
Rental income has remained stable. For March 31, 2000, other operating expenses
are negative and management and leasing fees are lower than for 1999 due to
increased common area maintenance billings in 2000. Management and leasing fee
reimbursement is also included in other operating expenses. Tenants are billed
an estimated amount for current year common area maintenance which is then
reconciled the following year and the difference billed to the tenants.
-22-
<PAGE>
AT&T Building
<TABLE>
<CAPTION>
Three Months Two Months
Ended Ended
March 31, 2000 March 31, 1999
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $340,832 $174,141
------------- -------------
Expenses:
Depreciation 120,744 80,472
Management and leasing expenses 15,338 3,420
Other operating expenses 6,874 807
Interest expense 3,206 66,924
------------- -------------
146,162 151,623
------------- -------------
Net income $194,670 $ 22,518
============= =============
Occupied percentage 100% 100%
============= =============
Company's ownership percentage 100% 100%
============= =============
Cash generated to the Company $324,414 $ 32,042
============= =============
Net income generated to the Company $194,670 $ 22,518
============= =============
</TABLE>
On February 4, 1999, the Wells OP acquired a four-story office building
containing approximately 81,859 rentable square feet on a 10.5-acre tract of
land in Harrisburg, Pennsylvania (the "AT&T Building") for a purchase price of
$12,291,2000, excluding acquisitions costs.
The building is 100% leased by Pennsylvania Cellular Telephone Corp., with a
lease expiration in November 2008. The first year annual base rent payable under
the AT&T lease is $880,264. The second annual base rent payable will be
$1,390,833. The base rent escalates at the rate of approximately 2% per year
throughout the ten-year lease term.
Since the AT&T Building was purchased in February 1999, comparable income and
expenses figures for the prior year are not available.
-23-
<PAGE>
EYBL CarTex Building/Wells Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 2000
--------------
<S> <C>
Revenues:
Rental income $ 140,089
--------------
Expenses:
Depreciation 49,901
Management and leasing expenses 5,721
Other operating expenses 9,840
--------------
65,462
--------------
Net income $ 74,627
==============
Occupied percentage 100%
==============
Company's ownership percentage 56.8%
==============
Cash distributions to the Company $ 56,928
==============
Net income allocated to the Company $ 42,361
==============
</TABLE>
On May 18, 1999, Wells Real Estate, LLC-SC I ("Wells LLC"), a Georgia limited
liability company wholly owned by the Wells Fund XI-REIT Joint Venture (which
later admitted Wells Fund XII and changed its name to the Fund XI-XII-REIT Joint
Venture), acquired a manufacturing and office building containing 169,510 square
feet located in Fountain Inn, unincorporated Greenville County, South Carolina
(the "EYBL CarTex Building") for a purchase price of $5,085,000 excluding
acquisitions costs.
The building is 100% occupied by EYBL CarTex, Inc. with a lease expiration of
February 2008. The monthly base rent payable under the lease is $42,377.50 with
an increase to $45,905.95 in the fifth year, $49,440.42 in the seventh year, and
$50,853.00 in the ninth year. The lease is a triple net lease, whereby the terms
of the lease require the tenant to reimburse the landlord for certain operating
expenses, as defined in the lease, related to the building.
Since the EYBL CarTex Building was purchased in May of 1999, comparable income
and expense figures for the prior year are not available.
-24-
<PAGE>
The Sprint Building/Fund X-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 2000
--------------
<S> <C>
Revenues:
Rental income $265,997
--------------
Expenses:
Depreciation 81,779
Management and leasing expenses 11,239
Other operating expenses 6,324
--------------
99,342
--------------
Net income 166,655
==============
Occupied percentage 100%
==============
Company's ownership percentage 56.8%
==============
Cash distributions to the Company $131,801
==============
Net income allocated to the Company $ 94,597
==============
</TABLE>
On July 2, 1999, the Fund XI-XII-REIT Joint Venture acquired a three-story
office building with approximately 68,900 rentable square feet located in
Leawood, Johnson County, (the "Sprint Building") for the purchase price of
$9,546,210.
The entire Sprint Building is currently under a net lease with Sprint
Communications, Inc. and expires on May 18, 2007. Sprint has the option under
its lease to extend the initial term for two consecutive five-year periods. The
annual base rent payable during the first five years of the initial term is
$999,050 in equal monthly installments of $83,254. The annual lease rent during
the last five years of the lease is $1,102,400 in equal monthly installments of
$91,867. Under the lease, Sprint is responsible for all-routine maintenance and
repairs. The Fund XI-XII-REIT Joint Venture, as landlord, is responsible for
repair and replacement of the exterior, roof, foundation and structure.
Since the Sprint Building was purchased in July 1999, comparative income and
expense figures are not available for the prior year.
-25-
<PAGE>
Johnson Matthey Building/Fund XI-XII-REIT Joint Venture
Three Months
Ended
March 31, 2000
----------------
Revenues:
Rental income $214,474
----------------
Expenses:
Depreciation 63,869
Management and leasing expenses 8,885
Other operating expenses 4,877
----------------
77,631
----------------
Net income $136,843
================
Occupied percentage 100%
================
Company's ownership percentage 56.8%
================
Cash distributions to the Company $104,258
================
Net income allocated to the Company $ 77,675
================
On August 17, 1999, the Fund XI-XII-REIT Joint acquired a research and
development office and warehouse building containing approximately 130,000
rentable square feet on a ten-acre tract of land located in Tredyffrim Township,
Chester County, Pennsylvania, for a purchase price of $8,000,000, excluding
acquisition costs. The entire Johnson Matthey Building is currently under a net
lease with Johnson Matthey, and was assigned to the XI-XII-REIT Joint Venture at
closing. The lease currently expires on June 2007, and John Matthey has the
right to extend the lease for two additional three-year periods of time. The
monthly lease rent payable under the Johnson Matthey lease for the remainder of
the lease term is $65,812.50 through June 30, 2000; $67,437.54 through June 30,
2001; $69,062.50 through June 30, 2002; $71,229.17 through June 30, 2003;
$72,854.17 through June 30, 2004; $74,750.00 through 2005; $76,375.00 through
June 30, 2006; and $78,270.84 through June 30, 2007. Under the Lease, Johnson
Matthey is required to pay as additional rent all real estate taxes, special
assessments, utilities, taxes, insurance and other operating costs with respect
to the Johnson Matthey Building during the term of the Lease. In addition,
Johnson Matthey is responsible for all-routine maintenance and repairs to the
Johnson Matthey Building. The XI-XII-REIT Joint Venture, as landlord, is
responsible for maintenance of the footings and foundations and the structural
steel columns and girders associated with the building.
Since the Johnson Matthey Building was purchased in August 1999, comparative
income and expense figures are not available for the prior year.
-26-
<PAGE>
The Gartner Building/Fund XI-XII-REIT Joint Venture
Three Months
Ended
March 31, 2000
----------------
Revenues:
Rental income $204,241
----------------
Expenses:
Depreciation 77,623
Management and leasing expenses 10,162
Other operating expenses (15,311)
----------------
72,474
----------------
Net income $131,767
================
Occupied percentage 100%
================
Company's ownership percentage 56.8%
================
Cash distributions to the Company $108,131
================
Net income allocated to the Company $ 74,795
================
On September 20, 1999, the Wells Fund XI-XII-REIT Joint Venture acquired a two
story office building containing approximately 62,400 rentable square feet
located on a 4.9-acre tract of land located in Fort Meyers, Florida for a
purchase price of $8,320,000 excluding acquisition costs.
The entire 62,400 rentable square feet of the Gartner Building is currently
under a net lease agreement with Gartner and was assigned to the Fund
XI-XII-REIT Joint Venture at the closing. The lease currently expires on January
31, 2008. Gartner has the right to extend its Lease for two additional five-year
periods of time.
The monthly lease rent payable under the Gartner lease for the remainder of the
lease term is $53,566.50 through January 31, 2000; $65,866.83 through January
31, 2001; $67,534.00 through January 31, 2002; $69,222.35 through January 31,
2003; $70,952.89 through January 31, 2005; $74,544.92 through January 31, 2006;
$76,408.54 through January 31, 2007; and $78,318.71 through January 31, 2008.
Under the Lease, Gartner is required to pay as additional rent all real estate
taxes, special assessments, utilities, taxes, insurance and other operating
costs with respect to the Gartner Building during the term of the Lease. In
addition, Gartner is responsible for all-routine maintenance and repairs to the
Gartner Building. The Joint Venture, as landlord, is responsible for repair and
replacement of the roof structure, and paved parking areas.
Since the Gartner Building was purchased in September 1999, comparative income
and expense figures are not available for the prior year.
Other operating expenses are negative due to an offset of tenant reimbursements
in operating costs both for the first quarter of 2000 as well as the fourth
quarter of 1999. Since the building was purchased in September of 1999, the
Partnership could not estimate the amount to be billed for 1999 until the first
quarter of 2000.
-27-
<PAGE>
The Marconi Building
Three Months
Ended
March 31, 2000
----------------
Revenues:
Rental income $817,819
----------------
Expenses:
Depreciation 293,352
Management and leasing expenses 37,453
Other operating expenses 6,635
----------------
337,440
----------------
Net income $480,379
================
Occupied percentage 100%
================
Company's ownership percentage 100%
================
Cash generated to the Company $671,165
================
Net income generated to the Company $480,379
================
On September 10, 1999, Wells OP acquired a two-story corporate headquarters
facility containing approximately 250,354 rentable square feet on a 15.3-acre
tract of land in Wood Dale, Illinois, for a purchase price of $32,630,940,
excluding acquisition costs.
The building is 100% leased by Marconi Data, with a lease expiration of November
2011. The annual base rent payable under the Marconi Lease is $2,838,952 through
November 2001 and then $3,376,746 through November 2011.
Since the Marconi Building was purchased in September 1999, comparable income
and expense figures for the prior year are not available.
-28-
<PAGE>
The Matsushita Building
Three Months
Ended
March 31, 2000
----------------
Revenues:
Rental income $524,609
----------------
Expenses:
Depreciation 254,757
Management and leasing expenses 44,103
Other operating expenses 17,315
----------------
316,175
----------------
Net income $208,434
================
Occupied percentage 100%
================
Company's ownership percentage 100%
================
Cash generated to the Company $273,249
================
Net income generated to the Company $208,434
================
As of March 31, 2000, Wells OP had spent approximately $18,000,000 towards the
construction of the approximately 150,000 square foot office building in Lake
Forest, California. The Matsushita project is substantially complete, and the
aggregate of all costs and expenses to be incurred by Wells OP with respect to
the acquisition and construction of the Matsushita project is not expected to
exceed the budget of $18,400,000. The screen wall for the roof top air
conditioning unit will be completed in the second quarter of 2000.
On January 4, 2000, Matsushita Avionics occupied 100% of the 150,000 rentable
square foot building. The monthly base rent is based upon a projected total cost
for the Matsushita project of $17,847,769. If the total project cost is more or
less than $17,847,769, then the monthly base rent shall be adjusted upward or
downward, as the case may be, by 10% of the difference. Matsushita is currently
paying $154,602 in monthly rent.
Since the Matsushita Building opened in January 2000, comparable income and
expense figures for the prior year are not available.
-29-
<PAGE>
The Cinemark Building
<TABLE>
<CAPTION>
Three Months
Ended
March 31, 2000
----------------
<S> <C>
Revenues:
Rental income $701,604
----------------
Expenses:
Depreciation 212,276
Management and leasing expenses 32,700
Other operating expenses 165,590
----------------
410,566
----------------
Net income $291,038
================
Occupied percentage 100%
================
Company's ownership percentage 100%
================
Cash generated to the Company $455,916
================
Net income generated to the Company $291,038
================
</TABLE>
On December 21, 1999, Wells OP acquired a five-story office building containing
approximately 118,108 rentable square feet on a 3.52-acre tract of land in
Plano, Texas, for a purchase price of $21,800,000, excluding acquisition costs.
The building is 100% leased by Cinemark and Coca-Cola, with lease expirations of
November 2009 and November 2006, respectively.
Since the Cinemark Building was purchased in December of 1999, comparable income
and expense figures for the prior year are not available.
-30-
<PAGE>
The Metris Building
<TABLE>
<CAPTION>
Two Months
Ended
March 31, 2000
--------------
<S> <C>
Revenues:
Rental income $172,492
--------------
Expenses:
Depreciation 77,130
Management and leasing expenses 7,373
Other operating expenses 2,916
--------------
87,419
--------------
Net income $ 85,073
==============
Occupied percentage 100%
==============
Company's ownership percentage 100%
==============
Cash generated to the Company $154,675
==============
Net income generated to the Company $ 85,073
==============
</TABLE>
In February 2000, Wells OP acquired a three-story office building containing
approximately 101,100 rentable square feet on a 14.6-acre tract of land in
Tulsa, Oklahoma, for a purchase price of $12,700,000 excluding acquisition
costs.
The building is 100% leased by Metris, with a lease expiration of January 31,
2010. The annual base rent payable under the Metris Lease is $1,187,925 through
January 2005 and then $1,306,718 through January 2010.
Since the Metris Building was purchased in February of 2000, comparable income
and expense figures for the prior year are not available.
-31-
<PAGE>
The Dial Building
<TABLE>
<CAPTION>
One Month
Ended
March 31, 2000
----------------
<S> <C>
Revenues:
Rental income $11,191
----------------
Expenses:
Depreciation 3,894
----------------
Net income $ 7,297
================
Occupied percentage 100%
================
Company's ownership percentage 100%
================
Cash generated to the Company $11,191
================
Net income generated to the Company $ 7,297
================
</TABLE>
On March 29, 2000, Wells OP acquired a two-story office building containing
approximately 129,689 rentable square feet on a 8.8375-acre tract of land in
Scottsdale, Arizona, for a purchase price of $14,250,000, excluding acquisition
costs.
The building is 100% leased by Dial Corporation, with a lease expiration of
August 31, 2008. The annual base rent payable under the Dial Lease is $1,387,672
through the initial term of the lease.
Since the Dial Building was purchased in March of 2000, comparable income and
expense figures for the prior year are not available.
-32-
<PAGE>
The ASML Building
<TABLE>
<CAPTION>
One Month
Ended
March 31, 2000
----------------
<S> <C>
Revenues:
Rental income $15,547
----------------
Expenses:
Depreciation 6,279
Other operating expenses 1,503
----------------
7,782
----------------
Net income $ 7,765
================
Occupied percentage 100%
================
Company's ownership percentage 100%
================
Cash generated to the Company $14,044
================
Net income generated to the Company $ 7,765
================
</TABLE>
On March 29, 2000, Wells OP acquired a two-story office building containing
approximately 95,133 rentable square feet on a 9.51-acre tract of land in Tempe,
Arizona, for a purchase price of $17,355,000, excluding acquisition costs.
The building is 100% leased by ASML Lithography, Inc. ("ASML"), with a lease
expiration of June 30, 2013. The current annual base rent payable under the ASML
Lease is $1,927,788, out of which Wells OP is required to make ground lease
payments in the amount of $186,368 annually.
Since the ASML Building was purchased in March of 2000, comparable income and
expense figures for the prior year are not available.
-33-
<PAGE>
The Motorola Building
<TABLE>
<CAPTION>
One Month
Ended
March 31, 2000
----------------
<S> <C>
Revenues:
Rental income $14,870
----------------
Expenses:
Depreciation 5,789
Other operating expenses 1,967
----------------
7,756
----------------
Net income 7,114
================
Occupied percentage 100%
================
Company's ownership percentage 100%
================
Cash generated to the Company $12,903
================
Net income generated to the Company $ 7,114
================
</TABLE>
On March 29, 2000, Wells OP acquired a two-story office building containing
approximately 133,225 rentable square feet on a 12.44-acre tract of land in
Tempe, Arizona, for a purchase price of $16,000,000, excluding acquisition
costs.
The building is 100% leased by Motorola, Inc. ("Motorola"), with a lease
expiration of August 31, 2005. The current annual base rent payable under the
Motorola Lease is $1,843,834, out of which Wells OP is required to make ground
lease payments in the amount of $243,825 annually.
Since the Motorola Building was purchased in March of 2000, comparable income
and expense figures for the prior year are not available.
-34-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 (b.) During the first quarter of 2000, the Registrant filed a Current
Report on Form 8-K dated March 29,2000 describing the acquisition of the Dial,
ASML and Motorola Buildings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Wells real estate INVESTMENT TRUST, INC.
(Registrant)
Dated: May 11, 2000 By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III
President, Director, and Chief Financial Officer
-35-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-2000
<PERIOD-START> JAN-01-2000
<PERIOD-END> MAR-31-2000
<CASH> 4,259,855
<SECURITIES> 29,341,630
<RECEIVABLES> 671,307
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 5,355,973
<PP&E> 176,374,723
<DEPRECIATION> 2,906,361
<TOTAL-ASSETS> 212,997,127
<CURRENT-LIABILITIES> 74,406,068
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 138,591,059
<TOTAL-LIABILITY-AND-EQUITY> 212,997,127
<SALES> 0
<TOTAL-REVENUES> 3,710,409
<CGS> 0
<TOTAL-COSTS> 2,019,121
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 354,052
<INCOME-PRETAX> 1,691,288
<INCOME-TAX> 1,691,288
<INCOME-CONTINUING> 1,691,288
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,691,288
<EPS-BASIC> 0
<EPS-DILUTED> .11
</TABLE>
