<PAGE>
As filed with the Securities and Exchange Commission on December 1, 2000
Registration No. 333-44900
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
______________________
AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
______________________
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Exact name of registrant as specified in governing instruments)
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
(770) 449-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3400
(404) 817-8500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Agent for Service)
______________________
Maryland 58-2328421
(State or other (I.R.S. Employer
Jurisdiction of Incorporation) Identification Number)
______________________
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. _____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. _____________
Approximate date of commencement of proposed sale to the public: As soon
as practicable following effectiveness of this Registration Statement.
______________________
<TABLE>
<CAPTION>
CALCULATION OF REGISTRATION FEE
-------------------------------------------------------------------------------------------------------------
Proposed
Maximum Proposed
Amount Offering Maximum Amount of
Title of Being Price Aggregate Registration
Securities Being Registered Registered Per Share Offering Price Fee(3)
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, $.01 par value 135,000,000 $ 10.00 $1,350,000,000
Common Stock, $.01 par value/(1)/ 5,000,000 $ 12.00 $ 60,000,000 $372,241
Soliciting Dealer Warrants/(2)/ 5,000,000 $0.0008 $ 4,000
-------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Represents shares which are issuable upon exercise of warrants issuable to
Wells Investment Securities, Inc. (the Dealer Manager) or its assignees
pursuant to that certain Warrant Purchase Agreement between the Registrant
and the Dealer Manager.
(2) Represents warrants issuable to the Dealer Manager to purchase 5,000,000
shares pursuant to the Warrant Purchase Agreement.
(3) The Registrant previously paid a registration fee of $372,241 upon its
initial filing of the Registration Statement, so no amounts are being
remitted with this filing.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
Up to 125,000,000 shares offered to the public
----------------------------------------
Wells Real Estate Investment Trust, Inc. (Wells REIT) is a real estate
investment trust. We invest in commercial real estate properties primarily
consisting of high grade office buildings which are leased to large corporate
tenants. We currently own interests in 27 office buildings located in 15 states.
We are offering and selling to the public up to 125,000,000 shares for $10
per share and up to 10,000,000 shares to be issued pursuant to our dividend
reinvestment plan at a purchase price of $10 per share. An additional 5,000,000
shares are being registered which are reserved for issuance at $12 per share to
participating broker-dealers upon their exercise of warrants.
You must purchase at least 100 shares for $1,000.
--------------------------------------------------------------------------------
The most significant risks relating to your investment include the following:
. lack of a public trading market for the shares
. reliance on Wells Capital, Inc., our advisor, to select properties and
conduct our operations
. authorization of substantial fees to the advisor and its affiliates
. borrowing - which increases the risk of loss of our investments
. conflicts of interest facing the advisor and its affiliates
You should see the complete discussion of the risk factors beginning on page 16.
--------------------------------------------------------------------------------
The Offering:
. The shares will be offered on a best efforts basis to investors at $10 per
share.
. We will pay selling commissions to broker-dealers of 7% and a dealer
manager fee for reimbursement of marketing expenses of 2.5% out of the
offering proceeds raised.
. We will invest approximately 84% of the offering proceeds raised in real
estate properties, and the balance will be used to pay fees and expenses.
. The offering will terminate on or before December 19, 2002.
Neither the Securities and Exchange Commission, the Attorney General of the
State of New York nor any other state securities regulator has approved or
disapproved of these securities or determined if this prospectus is truthful or
complete. It is a criminal offense if someone tells you otherwise.
The use of projections or forecasts in this offering is prohibited. No one
is permitted to make any oral or written predictions about the cash benefits or
tax consequences you will receive from your investment.
WELLS INVESTMENT SECURITIES, INC.
December 20, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
Questions and Answers About this Offering.................................................. 1
Prospectus Summary......................................................................... 9
Risk Factors............................................................................... 16
Investment Risks.......................................................................... 16
Real Estate Risks......................................................................... 20
Federal Income Tax Risks.................................................................. 24
Retirement Plan Risks..................................................................... 24
Suitability Standards...................................................................... 25
Estimated Use of Proceeds.................................................................. 26
Management................................................................................. 28
General................................................................................... 28
Committees of the Board of Directors...................................................... 30
Executive Officers and Directors.......................................................... 30
Compensation of Directors................................................................. 34
Independent Director Stock Option Plan.................................................... 34
Independent Director Warrant Plan......................................................... 36
2000 Employee Stock Option Plan........................................................... 36
Limited Liability and Indemnification of Directors, Officers, Employees and other Agents.. 37
The Advisor............................................................................... 39
The Advisory Agreement.................................................................... 40
Shareholdings............................................................................. 42
Affiliated Companies...................................................................... 43
Management Decisions...................................................................... 44
Management Compensation.................................................................... 45
Stock Ownership............................................................................ 48
Conflicts of Interest...................................................................... 50
Interests in Other Real Estate Programs................................................... 50
Other Activities of the Advisor and its Affiliates........................................ 51
Competition............................................................................... 52
Affiliated Dealer Manager................................................................. 52
Affiliated Property Manager............................................................... 52
Lack of Separate Representation........................................................... 52
Joint Ventures with Affiliates of the Advisor............................................. 52
Receipt of Fees and Other Compensation by the Advisor and its Affiliates.................. 53
Certain Conflict Resolution Procedures.................................................... 53
Investment Objectives and Criteria......................................................... 55
General................................................................................... 55
Acquisition and Investment Policies....................................................... 55
Development and Construction of Properties................................................ 57
Acquisition of Properties from Wells Development Corporation.............................. 58
Terms of Leases and Tenant Creditworthiness............................................... 59
Joint Venture Investments................................................................. 60
Borrowing Policies........................................................................ 61
Disposition Policies...................................................................... 62
Investment Limitations.................................................................... 63
Change in Investment Objectives and Limitations........................................... 64
Description of Properties.................................................................. 65
</TABLE>
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<TABLE>
<S> <C>
General................................................................................. 65
Joint Ventures with Affiliates.......................................................... 66
The Motorola Plainfield Building........................................................ 69
The Quest Building...................................................................... 70
The Delphi Building..................................................................... 70
The Avnet Building...................................................................... 71
The Siemens Building.................................................................... 72
The Motorola Tempe Building............................................................. 73
The ASML Building....................................................................... 74
The Dial Building....................................................................... 75
The Metris Building..................................................................... 75
The Cinemark Building................................................................... 76
The Gartner Building.................................................................... 78
The Marconi Building.................................................................... 79
The Johnson Matthey Building............................................................ 79
The Alstom Power Building............................................................... 80
The Sprint Building..................................................................... 82
The EYBL CarTex Building................................................................ 83
The Matsushita Building................................................................. 84
The AT&T Building....................................................................... 85
The PwC Building........................................................................ 87
The Cort Furniture Building............................................................. 89
The Fairchild Building.................................................................. 89
The Iomega Building..................................................................... 90
The Interlocken Building................................................................ 91
The Ohmeda Building..................................................................... 92
The ABB Knoxville Building.............................................................. 93
The Avaya Building...................................................................... 94
Property Management Fees................................................................ 95
Real Estate Loans....................................................................... 96
Management's Discussion and Analysis of Financial Condition and Results of Operations.... 97
Liquidity and Capital Resources......................................................... 98
Cash Flows from Operating Activities.................................................... 99
Cash Flow From Investing Activities..................................................... 99
Cash Flows from Financing Activities.................................................... 99
Results of Operations................................................................... 100
Subsequent Events....................................................................... 100
Property Operations..................................................................... 100
Inflation............................................................................... 114
Prior Performance Summary................................................................ 114
Publicly Offered Unspecified Real Estate Programs....................................... 115
Federal Income Tax Considerations........................................................ 123
General................................................................................. 123
Requirements for Qualification as a REIT................................................ 125
Failure to Qualify as a REIT............................................................ 130
Sale-Leaseback Transactions............................................................. 130
Taxation of U.S. Shareholders........................................................... 130
Treatment of Tax-Exempt Shareholders.................................................... 132
Special Tax Considerations for Non-U.S. Shareholders.................................... 133
Statement of Stock Ownership............................................................ 135
State and Local Taxation................................................................ 135
</TABLE>
ii
<PAGE>
<TABLE>
<S> <C>
Tax Aspects of Our Operating Partnership.................................................. 135
ERISA Considerations....................................................................... 139
Plan Asset Considerations................................................................. 140
Other Prohibited Transactions............................................................. 141
Annual Valuation.......................................................................... 142
Description of Shares...................................................................... 143
Common Stock.............................................................................. 143
Preferred Stock........................................................................... 143
Meetings and Special Voting Requirements.................................................. 143
Restriction on Ownership of Shares........................................................ 144
Dividends................................................................................. 145
Dividend Reinvestment Plan................................................................ 146
Share Redemption Program.................................................................. 147
Restrictions on Roll-Up Transactions...................................................... 148
Business Combinations..................................................................... 149
Control Share Acquisitions................................................................ 150
The Operating Partnership Agreement........................................................ 151
General................................................................................... 151
Capital Contributions..................................................................... 151
Operations................................................................................ 151
Exchange Rights........................................................................... 152
Transferability of Interests.............................................................. 153
Plan of Distribution....................................................................... 153
Supplemental Sales Material................................................................ 159
Legal Opinions............................................................................. 159
Experts.................................................................................... 159
Audited Financial Statements.............................................................. 159
Unaudited Financial Statements............................................................ 159
Additional Information..................................................................... 160
Glossary................................................................................... 160
Financial Statements....................................................................... 161
Prior Performance Tables................................................................... 215
Subscription Agreement..................................................................... Exhibit A
Amended and Restated Dividend Reinvestment Plan............................................ Exhibit B
</TABLE>
iii
<PAGE>
Questions and Answers About this Offering
Below we have provided some of the more frequently asked questions and
answers relating to an offering of this type. Please see the "Prospectus
Summary" and the remainder of this prospectus for more detailed information
about this offering.
--------------------------------------------------------------------------------
Q: What is a REIT?
A: In general, a REIT is a company that:
. pays dividends to investors of at least 90% of its taxable income;
. avoids the "double taxation" treatment of income that generally
results from investments in a corporation because a REIT is not
generally subject to federal corporate income taxes on its net income,
provided certain income tax requirements are satisfied;
. combines the capital of many investors to acquire or provide financing
for real estate properties; and
. offers the benefit of a diversified real estate portfolio under
professional management.
--------------------------------------------------------------------------------
Q: What is Wells Real Estate Investment Trust, Inc.?
A: Our REIT is structured as a Maryland corporation formed in 1997 to acquire
commercial real estate properties such as high grade office buildings and
lease them on a triple-net basis to companies that typically have a net
worth in excess of $100,000,000.
--------------------------------------------------------------------------------
Q: Who will choose which real estate properties to invest in?
A: Wells Capital, Inc. (Wells Capital) is our advisor and makes
recommendations on all property acquisitions to our board of directors. Our
board of directors must approve all of our acquisitions.
--------------------------------------------------------------------------------
Q: Who is Wells Capital?
A: Wells Capital is a Georgia corporation formed in 1984. As of September 30,
2000, Wells Capital had sponsored public real estate programs which have
raised in excess of $567,927,422 from approximately 32,868 investors and
which own and operate a total of 52 commercial real estate properties.
--------------------------------------------------------------------------------
Q: Does Wells Capital use any specific criteria when selecting a potential
property acquisition?
A: Yes. Wells Capital generally seeks to acquire office buildings located in
densely populated suburban markets leased to large corporations on a
triple-net basis. Typically, each of our corporate tenants have a net
worth in excess of $100,000,000. Current tenants of public real estate
programs sponsored by Wells Capital include The Coca-Cola Company,
Motorola,
1
<PAGE>
Fairchild Technologies, Siemens Automotive, IBM, Dial Corporation and
PricewaterhouseCoopers.
--------------------------------------------------------------------------------
Q. Do you currently own any real estate properties?
A. Yes. As of the date of this prospectus, our REIT has acquired and owns
interests in 27 real estate properties.
We own the following properties directly:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Tenant Building Type Location
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Motorola, Inc. Office Building Plainfield, New Jersey
---------------------------------------------------------------------------------------------------------
Delphi Automotive Systems, Inc. Office Building Troy, Michigan
---------------------------------------------------------------------------------------------------------
Avnet, Inc. Office Building Tempe, Arizona
---------------------------------------------------------------------------------------------------------
Motorola, Inc. Office Building Tempe, Arizona
---------------------------------------------------------------------------------------------------------
ASM Lithography, Inc. Office and Warehouse Building Tempe, Arizona
---------------------------------------------------------------------------------------------------------
Dial Corporation Office Building Scottsdale, Arizona
---------------------------------------------------------------------------------------------------------
Metris Direct, Inc. Office Building Tulsa, Oklahoma
---------------------------------------------------------------------------------------------------------
Cinemark USA, Inc. and Office Building Plano, Texas
The Coca-Cola Company
---------------------------------------------------------------------------------------------------------
Marconi Data Systems, Office, Assembly and Wood Dale, Illinois
Inc. Manufacturing Building
---------------------------------------------------------------------------------------------------------
Alstom Power, Inc. Office Building Richmond, Virginia
---------------------------------------------------------------------------------------------------------
Matsushita Avionics Office Building Lake Forest, California
Systems Corporation
---------------------------------------------------------------------------------------------------------
Pennsylvania Cellular Office Building Harrisburg, Pennsylvania
Telephone Corp.
---------------------------------------------------------------------------------------------------------
PricewaterhouseCoopers Office Building Tampa, Florida
---------------------------------------------------------------------------------------------------------
</TABLE>
We own interests in the following real estate properties through joint ventures
with affiliates:
<TABLE>
<CAPTION>
---------------------------------------------------------------------------------------------------------
Tenant Building Type Location
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
Quest Software, Inc. Office Building Irvine, California
---------------------------------------------------------------------------------------------------------
Siemens Automotive Corporation Office Building Troy, Michigan
---------------------------------------------------------------------------------------------------------
Gartner Group, Inc. Office Building Ft. Myers, Florida
---------------------------------------------------------------------------------------------------------
Johnson Matthey, Inc. Research and Development, Tredyffrin Township, Pennsylvania
Office and Warehouse
Building
---------------------------------------------------------------------------------------------------------
Sprint Communications Office Building Leawood, Kansas
Company L.P.
---------------------------------------------------------------------------------------------------------
EYBL CarTex, Inc. Manufacturing and Office Fountain Inn, South Carolina
Building
---------------------------------------------------------------------------------------------------------
Cort Furniture Rental Office and Warehouse Building Fountain Valley, California
Corporation
---------------------------------------------------------------------------------------------------------
Fairchild Technologies Manufacturing and Office Fremont, California
U.S.A., Inc. Building
---------------------------------------------------------------------------------------------------------
Iomega Corporation Office Building Ogden City, Utah
---------------------------------------------------------------------------------------------------------
</TABLE>
2
<PAGE>
<TABLE>
---------------------------------------------------------------------------------------------------------
<S> <C> <C>
ODS Technologies, L.P. and Office Building Broomfield, Colorado
GAIAM, Inc.
---------------------------------------------------------------------------------------------------------
Ohmeda, Inc. Office Building Louisville, Colorado
---------------------------------------------------------------------------------------------------------
ABB Flakt, Inc. Office Building Knoxville, Tennessee
---------------------------------------------------------------------------------------------------------
Avaya, Inc. Office Building Oklahoma City, Oklahoma
---------------------------------------------------------------------------------------------------------
</TABLE>
If you want to read more detailed information about each of these
properties, see the "Description of Properties" section of this prospectus.
--------------------------------------------------------------------------------
Q: Why do you acquire properties in joint ventures?
A: We acquire some of our properties in joint ventures in order to diversity
our portfolio of properties in terms of geographic region, property type
and industry group of our tenants.
--------------------------------------------------------------------------------
Q: What steps do you take to make sure you purchase environmentally compliant
property?
A: We always obtain a Phase I environmental assessment of each property
purchased. In addition, we generally obtain a representation from the
seller that, to its knowledge, the property is not contaminated with
hazardous materials.
--------------------------------------------------------------------------------
Q: What are the terms of your leases?
A: Our leases are "triple-net" leases, generally having terms of seven to ten
years, many of which have renewal options for an additional five to ten
years. "Triple-net" means that the tenant is responsible for repairs,
maintenance, property taxes, utilities and insurance. We often enter into
leases where we have responsibility for replacement of specific structural
components of a property such as the roof of the building or the parking
lot.
--------------------------------------------------------------------------------
Q: How does the Wells REIT own its real estate properties?
A: We own all of our real estate properties through an "UPREIT" called Wells
Operating Partnership, L.P. (Wells OP). Wells OP was organized to own,
operate and manage real properties on our behalf. The Wells REIT is the
sole general partner of Wells OP.
--------------------------------------------------------------------------------
Q: What is an "UPREIT"?
A: UPREIT stands for "Umbrella Partnership Real Estate Investment Trust." We
use this structure because a sale of property directly to the REIT is
generally a taxable transaction to the property owner. In an UPREIT
structure, a seller of a property who desires to defer taxable gain on the
sale of his property may transfer the property to the UPREIT in exchange
for limited partnership units in the UPREIT and defer taxation of gain
until the seller later exchanges his UPREIT units on a one-for-one basis
for REIT shares. If the REIT shares are publicly traded, the former
property owner will achieve liquidity for his investment. Using an UPREIT
structure gives us an advantage in acquiring desired properties from
persons who may not otherwise sell their properties because of unfavorable
tax results.
3
<PAGE>
--------------------------------------------------------------------------------
Q: If I buy shares, will I receive dividends and how often?
A: We have been making and intend to continue to make dividend distributions
on a quarterly basis to our shareholders. The amount of each dividend
distribution is determined by the board of directors and typically depends
on the amount of distributable funds, current and projected cash
requirements, tax considerations and other factors. However, in order to
remain qualified as a REIT, we must make distributions of at least 95% of
our REIT taxable income each year for years prior to 2001 and 90% of our
REIT taxable income for all future years beginning with the year 2001.
--------------------------------------------------------------------------------
Q: How do you calculate the payment of dividends to shareholders?
A: We calculate our quarterly dividends using daily record and declaration
dates so your dividend benefits will begin to accrue immediately upon
becoming a shareholder.
--------------------------------------------------------------------------------
Q: What have your dividend payments been since you began operations on June 5,
1998?
A: We have paid the following dividends since we began operations:
Annualized
Percentage Return
on an Investment
Quarter Amount of $10 per Share
------- ------ ----------------
3/rd/ Qtr. 1998 $0.15 per share 6.00%
4/th/ Qtr. 1998 $0.16 per share 6.50%
1/st/ Qtr. 1999 $0.17 per share 7.00%
2/nd/ Qtr. 1999 $0.17 per share 7.00%
3/rd/ Qtr. 1999 $0.17 per share 7.00%
4/th/ Qtr. 1999 $0.17 per share 7.00%
1/st/ Qtr. 2000 $0.17 per share 7.00%
2/nd/ Qtr. 2000 $0.18 per share 7.25%
3/rd/ Qtr. 2000 $0.19 per share 7.50%
--------------------------------------------------------------------------------
Q: May I reinvest the dividends I am supposed to receive in shares of the
Wells REIT?
A: Yes. You may participate in our dividend reinvestment plan by checking the
appropriate box on the Subscription Agreement or by filling out an
enrollment form we will provide to you at your request. The purchase price
for shares purchased under the dividend reinvestment plan is currently $10
per share.
4
<PAGE>
--------------------------------------------------------------------------------
Q: Will the dividends I receive be taxable as ordinary income?
A: Yes and No. Generally, dividends that you receive, including dividends that
are reinvested pursuant to our dividend reinvestment plan, will be taxed as
ordinary income to the extent they are from current or accumulated earnings
and profits. We expect that some portion of your dividends will not be
subject to tax in the year received due to the fact that depreciation
expenses reduce taxable income but do not reduce cash available for
distribution. Amounts not subject to tax immediately will reduce the tax
basis of your investment. This, in effect, defers a portion of your tax
until your investment is sold or the Wells REIT is liquidated, at which time
you will be taxed at capital gains rates. However, because each investor's
tax considerations are different, we suggest that you consult with your tax
advisor. You should also review the section of the prospectus entitled
"Federal Income Tax Considerations."
--------------------------------------------------------------------------------
Q: What will you do with the money raised in this offering?
A: We will use your investment proceeds to purchase commercial real estate such
as high grade office buildings. We intend to invest a minimum of 84% of the
proceeds from this offering to acquire real estate properties, and the
remaining proceeds will be used to pay fees and expenses of this offering
and acquisition-related expenses. The payment of these fees and expenses
will not reduce your invested capital. Your initial invested capital amount
will remain $10 per share, and your dividend yield will be based on your $10
per share investment.
Until we invest the proceeds of this offering in real estate, we may invest
in short-term, highly liquid investments. These short-term investments will
not earn as high of a return as we expect to earn on our real estate
investments, and we cannot guarantee how long it will take to fully invest
the proceeds in real estate.
We received approximately $132,181,919 in gross offering proceeds from the
sale of 13,218,192 shares of common stock in our initial public offering,
which commenced on January 30, 1998 and was terminated on December 19, 1999.
Of the $132,181,919 raised in the initial offering, we invested a total of
$111,032,812 in real estate properties. As of December 15, 2000, we had
received approximately $__________ in gross offering proceeds from the sale
of ________ shares of common stock in our second offering, which commenced
on December 20, 1999 and was terminated on December 19, 2000. Of this
additional $__________ raised in the second offering, we invested or expect
to invest approximately $____________ in real estate properties.
--------------------------------------------------------------------------------
Q: What kind of offering is this?
A: We are offering the public up to 125,000,000 shares of common stock on a
"best efforts" basis.
--------------------------------------------------------------------------------
Q: How does a "best efforts" offering work?
A: When shares are offered to the public on a "best efforts" basis, the brokers
participating in the offering are only required to use their best efforts to
sell the shares and have no firm commitment or obligation to purchase any of
the shares.
5
<PAGE>
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Q: How long will this offering last?
A: The offering will not last beyond December 19, 2002.
--------------------------------------------------------------------------------
Q: Who can buy shares?
A: You can buy shares pursuant to this prospectus provided that you have either
(1) a net worth of at least $45,000 and an annual gross income of at least
$45,000, or (2) a net worth of at least $150,000. For this purpose, net
worth does not include your home, home furnishings and personal automobiles.
These minimum levels may be higher in certain states, so you should
carefully read the more detailed description in the "Suitability Standards"
section of this prospectus.
--------------------------------------------------------------------------------
Q: Is there any minimum investment required?
A: Yes. Generally, you must invest at least $1,000. Except in Maine, Minnesota
and Washington, investors who already own our shares or who have purchased
units from an affiliated Wells public real estate program can make purchases
for less than the minimum investment. These minimum investment levels may be
higher in certain states, so you should carefully read the more detailed
description of the minimum investment requirements appearing later in the
"Suitability Standards" section of this prospectus.
--------------------------------------------------------------------------------
Q: How do I subscribe for shares?
A: If you choose to purchase shares in this offering, you will need to fill out
a Subscription Agreement, like the one contained in this prospectus as
Exhibit A, for a specific number of shares and pay for the shares at the
time you subscribe. The purchase price will be placed into an account with
Bank of America, N.A., where your funds will be held, along with those of
other subscribers, until we withdraw funds for the acquisition of real
estate properties or the payment of fees and expenses.
--------------------------------------------------------------------------------
Q: If I buy shares in this offering, how may I later sell them?
A: At the time you purchase the shares, they will not be listed for trading on
any national securities exchange or over-the-counter market. In fact, we
expect that there will not be any public market for the shares when you
purchase them, and we cannot be sure if one will ever develop. As a result,
you may find it difficult to find a buyer for your shares and realize a
return on your investment. You may sell your shares to any buyer unless such
sale would cause the buyer to own more than 9.8% of the outstanding stock.
See "Description of Shares -- Restriction on Ownership of Shares."
In addition, after you have held your shares for at least one year, you may
be able to have your shares repurchased by the Company pursuant to our share
repurchase program. See the "Description of Shares -- Share Redemption
Program" section of the prospectus.
6
<PAGE>
If we have not listed the shares on a national securities exchange or over-
the-counter market by January 30, 2008, our articles of incorporation
require us to begin selling our properties and other assets and return the
proceeds from these sales to our shareholders through distributions.
--------------------------------------------------------------------------------
Q: What is the experience of your officers and directors?
A: Our management team has extensive previous experience investing in and
managing commercial real estate. Below is a short description of the
background of each of our directors. See the "Management -- Executive
Officers and Directors" section on page __ of this prospectus for a more
detailed description of the background and experience of each of our
directors.
. Leo F. Wells, III - President of the Wells REIT and founder of Wells
Real Estate Funds in 1985 and has been involved in real estate sales,
management and brokerage services for over 27 years;
. Douglas P. Williams - Executive Vice President, Secretary and
Treasurer of the Wells REIT and former accounting executive at
OneSource, Inc., a supplier of janitorial and landscape services;
. John L. Bell - Former owner and Chairman of Bell-Mann, Inc., the
largest flooring contractor in the Southeast;
. Richard W. Carpenter - President and a director of Realmark Holdings
Corp., a residential and commercial real estate developer;
. Bud Carter - Former broadcast news director and anchorman and current
Senior Vice President for the Executive Committee, an organization
established to aid corporate presidents and CEOs;
. William H. Keogler, Jr. - Founder and former executive officer and
director of Keogler, Morgan & Company, Inc., a full service brokerage
firm;
. Donald S. Moss - Former executive officer of Avon Products, Inc.;
. Walter W. Sessoms - Former executive officer of BellSouth
Telecommunications, Inc.; and
. Neil H. Strickland - Founder of Strickland General Agency, Inc., a
property and casualty general insurance agency concentrating on
commercial customers.
--------------------------------------------------------------------------------
Q: Will I be notified of how my investment is doing?
A: You will receive periodic updates on the performance of your investment with
us, including:
. Four detailed quarterly dividend reports;
. Three quarterly financial reports;
7
<PAGE>
. An annual report; and
. An annual IRS Form 1099.
--------------------------------------------------------------------------------
Q: When will I get my detailed tax information?
A: Your Form 1099 tax information will be placed in the mail by January 31 of
each year.
--------------------------------------------------------------------------------
Q: Who can help answer my questions?
A: If you have more questions about the offering or if you would like
additional copies of this prospectus, you should contact your registered
representative or contact:
Investor Services Department
Wells Capital, Inc.
Suite 250
6200 The Corners Parkway
Norcross, Georgia 30092
(800) 448-1010 or (770) 449-7800
www.wellsref.com
8
<PAGE>
================================================================================
Prospectus Summary
This prospectus summary highlights selected information contained elsewhere
in this prospectus. It is not complete and does not contain all of the
information that is important to your decision whether to invest in the Wells
REIT. To understand this offering fully, you should read the entire prospectus
carefully, including the "Risk Factors" section and the financial statements.
Wells Real Estate Investment Trust, Inc.
Wells Real Estate Investment Trust, Inc. is a REIT that owns net leased
commercial real estate properties. We currently own interests in 27 commercial
real estate properties located in 15 states. Our office is located at 6200 The
Corners Parkway, Suite 250, Norcross, Georgia 30092. Our telephone number
outside the State of Georgia is 800-448-1010 (770-449-7800 in Georgia). We refer
to Wells Real Estate Investment Trust, Inc. as the Wells REIT in this
prospectus.
Our Advisor
Our advisor is Wells Capital, Inc., which is responsible for managing our
affairs on a day-to-day basis and for identifying and making acquisitions on our
behalf. We refer to Wells Capital, Inc. as Wells Capital in this prospectus.
Our Management
Our board of directors must approve each real property acquisition proposed
by Wells Capital, as well as certain other matters set forth in our articles of
incorporation. We have nine members on our board of directors. Seven of the
directors are independent of Wells Capital and have responsibility for reviewing
its performance. Our directors are elected annually by the shareholders.
Our REIT Status
As a REIT, we generally are not subject to federal income tax on income
that we distribute to our shareholders. Under the Internal Revenue Code, REITs
are subject to numerous organizational and operational requirements, including a
requirement that they distribute at least 95% of their taxable income for years
prior to 2001 and at least 90% of their taxable income for all future years
beginning with the year 2001. If we fail to qualify for taxation as a REIT in
any year, our income will be taxed at regular corporate rates, and we may be
precluded from qualifying for treatment as a REIT for the four year period
following our failure to qualify. Even if we qualify as a REIT for federal
income tax purposes, we may still be subject to state and local taxes on our
income and property and to federal income and excise taxes on our undistributed
income.
Summary Risk Factors
Following are the most significant risks relating to your investment:
. There is no public trading market for the shares, and we cannot assure
you that one will ever develop. Until the shares are publicly traded,
you will have a difficult time trying to sell your shares.
. You must rely on Wells Capital, our advisor, for the day-to-day
management of our business and the selection of our real estate
properties.
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. To ensure that we continue to qualify as a REIT, our articles of
incorporation prohibit any shareholder from owning more than 9.8% of
our outstanding shares.
. We may not remain qualified as a REIT for federal income tax purposes,
which would subject us to the payment of tax on our income at
corporate rates and reduce the amount of funds available for payment
of dividends to our shareholders.
. You will not have preemptive rights as a shareholder so any shares we
issue in the future may dilute your interest in the Wells REIT.
. We will pay significant fees to Wells Capital and its affiliates.
. Real estate investments are subject to cyclical trends which are out
of our control.
. You will not have an opportunity to evaluate all of the properties
that will be in our portfolio prior to investing.
. Loans we obtain will be secured by some of our properties, which will
put those properties at risk of forfeiture if we are unable to pay our
debts.
. Our investment in vacant land to be developed may create risks
relating to the builder's ability to control construction costs,
failure to perform or failure to build in conformity with plans,
specifications and timetables.
. The vote of shareholders owning at least a majority of the shares will
bind all of the shareholders as to certain matters such as the
election of directors and amendment of our articles of incorporation.
. If we do not obtain listing of the shares on a national exchange by
January 30, 2008, our articles of incorporation provide that we must
begin to sell all of our properties and distribute the net proceeds to
our shareholders.
. Our advisor will face various conflicts of interest resulting from its
activities with affiliated entities.
Before you invest in the Wells REIT, you should see the complete discussion
of the "Risk Factors" beginning on page 16 of this prospectus.
Description of Properties
Please refer to the "Description of Properties" section of this prospectus
for a description of the real estate properties we have purchased to date and
the various real estate loans we have outstanding. Wells Capital is currently
evaluating additional potential property acquisitions. When we either acquire a
property or believe that there is a reasonable probability that we will acquire
a particular property, we will provide a supplement to this prospectus to
describe the property. You should not assume that we will actually acquire any
property that we describe in a supplement as a reasonable probability
acquisition because one or more contingencies to the purchase may prevent the
acquisition.
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Estimated Use of Proceeds of Offering
We anticipate that we will invest at least 84% of the proceeds of this
offering in real estate properties. We will use the remainder of the offering
proceeds to pay selling commissions, fees and expenses relating to the selection
and acquisition of properties and the costs of the offering.
Investment Objectives
Our investment objectives are:
. to maximize cash dividends paid to you;
. to preserve, protect and return your capital contribution;
. to realize growth in the value of our properties upon our ultimate
sale of such properties; and
. to provide you with liquidity of your investment by listing the shares
on a national exchange or, if we do not obtain listing of the shares
by January 30, 2008, by selling our properties and distributing the
cash to you.
We may only change these investment objectives upon a majority vote of the
shareholders. See the "Investment Objectives and Criteria" section of this
prospectus for a more complete description of our business and objectives.
Conflicts of Interest
Wells Capital, as our advisor, will experience conflicts of interest in
connection with the management of our business affairs, including the following:
. Wells Capital will have to allocate its time between the Wells REIT
and other real estate programs and activities in which it is involved;
. Wells Capital must determine which Wells program or other entity
should enter into a joint venture with the Wells REIT for the
acquisition and operation of specific properties;
. Wells Capital may compete with other Wells programs for the same
tenants in negotiating leases or in selling similar properties at the
same time; and
. Wells Capital and its affiliates will receive fees in connection with
transactions involving the purchase, management and sale of our
properties regardless of the quality of the property acquired or the
services provided to us.
See the "Conflicts of Interest" section of this prospectus on page ___ for a
detailed discussion of the various conflicts of interest relating to your
investment, as well as the procedures that we have established to resolve a
number of these potential conflicts.
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The following chart shows the ownership structure of the various Wells
entities that are affiliated with Wells Capital.
-----------------------
LEO F. WELLS, III
(President)
-----------------------
100%
-----------------------------------------------------------
Wells Real Estate Funds, Inc.
-----------------------------------------------------------
100% 100% 100%
--------------- ----------------------- ---------------
Wells
Management Wells Wells Capital,
Company, Investment Inc.
Inc. Securities, Inc. (Advisor)
(Property (Dealer Manager)
Manager)
--------------- ----------------------- ---------------
100% Advisory
Agreement
--------------- ---------------
Wells
Development Wells REIT
Corporation
--------------- ---------------
Prior Offering Summary
Wells Capital and its affiliates have previously sponsored 13 publicly
offered real estate limited partnerships and the Wells REIT on an unspecified
property or "blind pool" basis. As of September 30, 2000, they have raised
approximately $567,927,422 from approximately 36,868 investors in these 14
public real estate programs. The "Prior Performance Summary" on page ___ of this
prospectus contains a discussion of the Wells programs sponsored to date.
Certain statistical data relating to the Wells programs with investment
objectives similar to ours is also provided in the "Prior Performance Tables"
included at the end of this prospectus.
The Offering
We are offering up to 125,000,000 shares to the public at $10 per share. We
are also offering up to 10,000,000 shares pursuant to our dividend reinvestment
plan at $10 per share, and up to 5,000,000 shares to broker-dealers pursuant to
warrants whereby participating broker-dealers will have the right to purchase
one share for every 25 shares they sell in this offering. The exercise price for
shares purchased pursuant to the warrants is $12 per share.
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Terms of the Offering
We will begin selling shares in this offering upon the effective date of
this prospectus and the offering will terminate on or before December 19, 2002.
However, we may terminate this offering at any time prior to such termination
date. We will hold your investment proceeds in our account until we withdraw
funds for the acquisition of real estate properties or the payment of fees and
expenses. We generally admit shareholders to the Wells REIT on a daily basis.
Compensation to Wells Capital
Wells Capital and its affiliates will receive compensation and fees for
services relating to this offering and the investment and management of our
assets. The most significant items of compensation are included in the following
table:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------
Estimated $$ Amount
for Maximum Offering
Type of Compensation Form of Compensation (135,000,000 shares)
------------------------------------------------------------------------------------------------------
Offering Stage
------------------------------------------------------------------------------------------------------
<S> <C> <C>
Sales Commission 7.0% of gross offering proceeds $94,500,000
------------------------------------------------------------------------------------------------------
Dealer Manager Fee 2.5% of gross offering proceeds $33,750,000
------------------------------------------------------------------------------------------------------
Offering Expenses 3.0% of gross offering proceeds $18,600,000
------------------------------------------------------------------------------------------------------
Acquisition and Development Stage
------------------------------------------------------------------------------------------------------
Acquisition and 3.0% of gross offering proceeds $40,500,000
Advisory Fees
------------------------------------------------------------------------------------------------------
Acquisition Expenses 0.5% of gross offering proceeds $ 6,750,000
------------------------------------------------------------------------------------------------------
Operational Stage
------------------------------------------------------------------------------------------------------
Property Management Fees 2.5% of gross revenues N/A
------------------------------------------------------------------------------------------------------
Leasing Fees 2.0% of gross revenues N/A
------------------------------------------------------------------------------------------------------
Initial Lease-Up Fee for Competitive fee for geographic N/A
Newly Constructed Property location of property based on a
survey of brokers and agents
(customarily equal to the first
month's rent)
------------------------------------------------------------------------------------------------------
Real Estate Commission 3.0% of sale price after investors N/A
receive a return of capital plus a
8.0% return on capital
------------------------------------------------------------------------------------------------------
Subordinated Participation in 10.0% of remaining amounts of net N/A
Net Sale Proceeds (Payable sale proceeds after return of capital
Only if the Wells REIT is not plus payment to investors of an 8.0%
Listed on an exchange) cumulative non-compounded return on
------------------------------------------------------------------------------------------------------
Subordinated Incentive Listing 10.0% of the amount by which the N/A
Fee (Payable only if the Wells adjusted market value of the Wells
REIT is listed on an exchange) REIT exceeds the aggregate capital
contributions contributed by investors
------------------------------------------------------------------------------------------------------
</TABLE>
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There are many additional conditions and restrictions on the amount of
compensation Wells Capital may receive. There are also some smaller items of
compensation and expense reimbursements that Wells Capital may receive. For a
more detailed explanation of these fees and expenses payable to Wells Capital
and its affiliates, please see the "Management Compensation" section of this
prospectus on page __.
Dividend Policy
In order to remain qualified as a REIT, we are required to distribute 95%
of our annual taxable income to our shareholders in all years prior to 2001 and
90% of our annual taxable income for all future years beginning with the year
2001. We have paid dividends to our shareholders at least quarterly since the
first quarter after we commenced operations on June 5, 1998. We calculate our
quarterly dividends based upon daily record and dividend declaration dates so
investors will be entitled to dividends immediately upon purchasing shares. We
expect to pay dividends to you on a quarterly basis.
Listing
We anticipate listing our shares on a national securities exchange on or
before January 30, 2008. In the event we do not obtain listing prior to that
date, our articles of incorporation require us to begin the sale of our
properties and liquidate our assets.
Dividend Reinvestment Plan
You may participate in our dividend reinvestment plan pursuant to which you
may have the dividends you receive reinvested in shares of the Wells REIT. If
you participate, you will be taxed on your share of our taxable income even
though you will not receive the cash from your dividends. As a result, you may
have a tax liability without receiving cash dividends to pay such liability. We
may terminate the dividend reinvestment plan in our discretion at any time upon
10 days notice to you. (See "Description of Shares -- Dividend Reinvestment
Plan.")
Share Redemption Program
We may use proceeds received from the sale of shares pursuant to our
dividend reinvestment plan to redeem your shares. After you have held your
shares for a minimum of one year, our share redemption program provides an
opportunity for you to redeem your shares, subject to certain restrictions and
limitations, for the lesser of (1) $10 per share, or (2) the price you actually
paid for your shares. The board of directors reserves the right to reject any
request for redemption of shares or to amend or terminate the share redemption
program at any time. You will have no right to request redemption of your shares
after the shares are listed on a national exchange. (See "Description of
Shares - Share Redemption Program.")
Wells Operating Partnership, L.P.
We own all of our real estate properties through Wells Operating
Partnership, L.P. (Wells OP), our operating partnership. We are the sole general
partner of Wells OP. Wells Capital is currently the only limited partner based
on its initial contribution of $200,000. Our ownership of properties in Wells OP
is referred to as an "UPREIT." The UPREIT structure allows us to acquire real
estate properties in exchange for limited partnership units in Wells OP. This
structure will also allow sellers of properties to transfer their properties to
Wells OP in exchange for units of Wells OP and defer gain recognition for tax
purposes with respect to such transfers of properties. At present, we have no
plans to acquire any specific
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properties in exchange for units of Wells OP. The holders of units in Wells OP
may have their units redeemed for cash under certain circumstances. (See "The
Operating Partnership Agreement.")
ERISA Considerations
The section of this prospectus entitled "ERISA Considerations" describes
the effect the purchase of shares will have on individual retirement accounts
(IRAs) and retirement plans subject to the Employee Retirement Income Security
Act of 1974, as amended (ERISA), and/or the Internal Revenue Code. ERISA is a
federal law that regulates the operation of certain tax-advantaged retirement
plans. Any retirement plan trustee or individual considering purchasing shares
for a retirement plan or an IRA should read this section of the prospectus very
carefully.
Description of Shares
General
-------
Your investment will be recorded on our books only. We will not issue stock
certificates. If you wish to transfer your shares, you will be required to send
an executed transfer form to us. We will provide the required form to you upon
request.
Shareholder Voting Rights and Limitations
-----------------------------------------
We hold annual meetings of our shareholders for the purpose of electing our
directors or conducting other business matters that may be presented at such
meetings. We may also call a special meeting of shareholders from time to time
for the purpose of conducting certain matters. You are entitled to one vote for
each share you own at any of these meetings.
Restriction on Share Ownership
------------------------------
Our articles of incorporation contain a restriction on ownership of the
shares that prevents one person from owning more than 9.8% of the outstanding
shares. (See "Description of Shares -- Restriction on Ownership of Shares.")
These restrictions are designed to enable us to comply with share accumulation
restrictions imposed on REITs by the Internal Revenue Code.
For a more complete description of the shares, including restrictions on
the ownership of shares, please see the "Description of Shares" section of this
prospectus on page ___.
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Risk Factors
Your purchase of shares involves a number of risks. In addition to other
risks discussed in this prospectus, you should specifically consider the
following:
Investment Risks
Marketability Risk
There is no public trading market for your shares.
There is no current public market for the shares and, therefore, it will be
difficult for you to sell your shares promptly. In addition, the price received
for any shares sold is likely to be less than the proportionate value of the
real estate we own. Therefore, you should purchase our shares only as a long-
term investment. See "Description of Shares - Share Redemption Program" for a
description of our share redemption program.
Management Risks
You must rely on Wells Capital for selection of properties.
Our ability to achieve our investment objectives and to pay dividends is
dependent upon the performance of Wells Capital, our advisor, in the acquisition
of real estate properties, the selection of tenants and the determination of any
financing arrangements. Except for the investments described in this prospectus,
you will have no opportunity to evaluate the terms of transactions or other
economic or financial data concerning our investments. You must rely entirely on
the management ability of Wells Capital and the oversight of the board of
directors.
We depend on key personnel.
Our success depends to a significant degree upon the continued
contributions of certain key personnel, including Leo F. Wells, III, who would
be difficult to replace. If Mr. Wells were to cease his employment with us, our
operating results could suffer. We also believe that our future success depends,
in large part, upon our ability to hire and retain highly skilled managerial,
operational and marketing personnel. Competition for such personnel is intense,
and we cannot assure you that we will be successful in attracting and retaining
such skilled personnel.
Conflicts of Interest Risks
Wells Capital will face conflicts of interest relating to time management.
Wells Capital and its affiliates are general partners and sponsors of other
real estate programs having investment objectives and legal and financial
obligations similar to the Wells REIT. Because Wells Capital and its affiliates
have interests in other real estate programs and also engage in other business
activities, they may have conflicts of interest in allocating their time between
our business and these other activities. During times of intense activity in
other programs and ventures, they may devote less time and resources to our
business than is necessary or appropriate. (See "Conflicts of Interest.")
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Wells Capital will face conflicts of interest relating to the purchase and
leasing of properties.
We may be buying properties at the same time as one or more of the other
Wells programs are buying properties. There is a risk that Wells Capital will
choose a property that provides lower returns to us than a property purchased by
another Wells program. We may acquire properties in geographic areas where other
Wells programs own properties. If one of the Wells programs attracts a tenant
that we are competing for, we could suffer a loss of revenue due to delays in
locating another suitable tenant. (See "Conflicts of Interest.")
Wells Capital will face conflicts of interest relating to joint ventures
with affiliates.
We have entered into joint ventures in the past and are likely to continue
in the future to enter into joint ventures with other Wells programs for the
acquisition, development or improvement of properties, including Wells Real
Estate Fund XII, L.P. (Wells Fund XII) or Wells Real Estate Fund XIII, L.P.
(Wells Fund XIII). We may also purchase and develop properties in joint ventures
or in partnerships, co-tenancies or other co-ownership arrangements with the
sellers of the properties, affiliates of the sellers, developers or other
persons. Such investments may involve risks not otherwise present with an
investment in real estate, including, for example:
. the possibility that our co-venturer, co-tenant or partner in an
investment might become bankrupt;
. that such co-venturer, co-tenant or partner may at any time have
economic or business interests or goals which are or which become
inconsistent with our business interests or goals; or
. that such co-venturer, co-tenant or partner may be in a position to
take action contrary to our instructions or requests or contrary to
our policies or objectives.
Actions by such a co-venturer, co-tenant or partner might have the result of
subjecting the property to liabilities in excess of those contemplated and may
have the effect of reducing your returns.
Affiliates of Wells Capital are currently sponsoring a public offering on
behalf of Wells Fund XII and are currently in the process of registering a
public offering on behalf of Wells Fund XIII, both of which are or will be
unspecified property real estate programs. (See "Prior Performance Summary.") In
the event that we enter into a joint venture with Wells Fund XII, Wells Fund
XIII or any other Wells program or joint venture, we may face certain additional
risks and potential conflicts of interest. For example, Wells Fund XII, Wells
Fund XIII and the other Wells public limited partnerships will never have an
active trading market. Therefore, if we become listed on a national exchange, we
may no longer have similar goals and objectives with respect to the resale of
properties in the future. In addition, in the event that the Wells REIT is not
listed on a securities exchange by January 30, 2008, our organizational
documents provide for an orderly liquidation of our assets. In the event of such
liquidation, any joint venture between the Wells REIT and another Wells program
may be required to sell its properties at such time. The Wells program we have
entered into a joint venture with may not desire to sell the properties at that
time. Although the terms of any joint venture agreement between the Wells REIT
and another Wells program would grant the other Wells program a right of first
refusal to buy such properties, it is unlikely that they would have sufficient
funds to exercise the right of first refusal under these circumstances.
Under certain joint venture arrangements, neither co-venturer may have the
power to control the venture, and an impasse could be reached regarding matters
pertaining to the joint venture, which might have a negative influence on the
joint venture and decrease potential returns to you. In the event that a
17
<PAGE>
co-venturer has a right of first refusal to buy out the other co-venturer, it
may be unable to finance such buy-out at that time. It may also be difficult for
us to sell our interest in any such joint venture or partnership or as a co-
tenant in property. In addition, to the extent that our co-venturer, partner or
co-tenant is an affiliate of Wells Capital, certain conflicts of interest will
exist. (See "Conflicts of Interest -- Joint Ventures with Affiliates of Wells
Capital.")
General Investment Risks
Maryland Corporation Law may prevent a business combination involving the
Wells REIT.
Provisions of Maryland Corporation Law applicable to us prohibit business
combinations with:
. any person who beneficially owns 10% or more of the voting power of
our outstanding shares;
. any of our affiliates who, at any time within the two year period
prior to the date in question, was the beneficial owner of 10% or more
of the voting power of our outstanding shares (interested
shareholder); or
. an affiliate of an interested shareholder.
These prohibitions last for five years after the most recent date on which
the interested shareholder became an interested shareholder. Thereafter, any
business combination must be recommended by our board of directors and approved
by the affirmative vote of at least 80% of the votes entitled to be cast by
holders of our outstanding shares and two-thirds of the votes entitled to be
cast by holders of our shares other than shares held by the interested
shareholder. These requirements could have the effect of inhibiting a change in
control even if a change in control were in your best interest. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by our board of directors prior to the time that someone
becomes an interested shareholder.
A limit on the number of shares a person may own may discourage a takeover.
Our articles of incorporation restrict ownership by one person to no more
than 9.8% of the outstanding shares. This restriction may discourage a change of
control of the Wells REIT and may deter individuals or entities from making
tender offers for shares, which offers might be financially attractive to
shareholders or which may cause a change in the management of the Wells REIT.
(See "Description of Shares -- Restriction on Ownership of Shares.")
You are bound by the majority vote on matters on which you are entitled to
vote.
You may vote on certain matters at any annual or special meeting of
shareholders, including the election of directors. However, you will be bound by
the majority vote on matters requiring approval of a majority of the
shareholders even if you do not vote with the majority on any such matter.
You are limited in your ability to sell your shares pursuant to the share
redemption program.
Even though our share redemption program provides you with the opportunity
to redeem your shares for $10 per share (or the price you paid for the shares,
if lower than $10) after you have held them for a period of one year, you should
be fully aware that our share redemption program contains certain restrictions
and limitations. Shares will be redeemed on a first-come, first-served basis and
will be limited to the lesser of (1) during any calendar year, three percent
(3%) of the weighted average number
18
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of shares outstanding during the prior calendar year, or (2) the proceeds we
receive from the sale of shares under our dividend reinvestment plan such that
in no event shall the aggregate amount of redemptions under our share redemption
program exceed aggregate proceeds received from the sale of shares pursuant to
our dividend reinvestment plan. In addition, the board of directors reserves the
right to reject any request for redemption or to amend or terminate the share
redemption program at any time. Therefore, in making a decision to purchase
shares of the Wells REIT, you should not assume that you will be able to sell
any of your shares back to us pursuant to our share redemption program. (See
"Description of Shares - Share Redemption Program.")
We established the offering price on an arbitrary basis.
Our board of directors has arbitrarily determined the selling price of the
shares and such price bears no relationship to any established criteria for
valuing issued or outstanding shares.
Your interest in the Wells REIT may be diluted if we issue additional
shares.
Existing shareholders and potential investors in this offering do not have
preemptive rights to any shares issued by the Wells REIT in the future.
Therefore, in the event that we (1) sell shares in this offering or sell
additional shares in the future, including those issued pursuant to the dividend
reinvestment plan, (2) sell securities that are convertible into shares, (3)
issue shares in a private offering of securities to institutional investors, (4)
issue shares of common stock upon the exercise of the options granted to our
independent directors or employees of Wells Capital and Wells Management or the
warrants issued and to be issued to participating broker-dealers or our
independent directors, or (5) issue shares to sellers of properties acquired by
us in connection with an exchange of limited partnership units from Wells OP,
existing shareholders and investors purchasing shares in this offering may
experience dilution of their equity investment in the Wells REIT.
Payment of fees to Wells Capital and its affiliates will reduce cash
available for investment and distribution.
Wells Capital and its affiliates will perform services for us in connection
with the offer and sale of the shares, the selection and acquisition of our
properties, and the management and leasing of our properties. They will be paid
substantial fees for these services, which will reduce the amount of cash
available for investment in properties or distribution to shareholders. (See
"Management Compensation.")
The availability and timing of cash dividends is uncertain.
We bear all expenses incurred in our operations, which are deducted from
cash funds generated by operations prior to computing the amount of cash
dividends to be distributed to the shareholders. In addition, our board of
directors, in its discretion, may retain any portion of such funds for working
capital. We cannot assure you that sufficient cash will be available to pay
dividends to you.
We are uncertain of our sources for funding of future capital needs.
Substantially all of the gross proceeds of the offering will be used for
investment in properties and for payment of various fees and expenses. (See
"Estimated Use of Proceeds.") In addition, we do not anticipate that we will
maintain any permanent working capital reserves. Accordingly, in the event that
we develop a need for additional capital in the future for the improvement of
our properties or for any other reason, we have not identified any sources for
such funding, and we cannot assure you that such sources of funding will be
available to us for potential capital needs in the future.
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Real Estate Risks
General Real Estate Risks
Your investment will be affected by adverse economic and regulatory
changes.
We will be subject to risks generally incident to the ownership of real
estate, including:
. changes in general economic or local conditions;
. changes in supply of or demand for similar or competing properties in
an area;
. changes in interest rates and availability of permanent mortgage funds
which may render the sale of a property difficult or unattractive;
. changes in tax, real estate, environmental and zoning laws; and
. periods of high interest rates and tight money supply.
For these and other reasons, we cannot assure you that we will be profitable or
that we will realize growth in the value of our real estate properties.
A property that incurs a vacancy could be difficult to sell or re-lease.
A property may incur a vacancy either by the continued default of a tenant
under its lease or the expiration of one of our leases. Most of our properties
are specifically suited to the particular needs of our tenants. Therefore, we
may have difficulty obtaining a new tenant for any vacant space we have in our
properties. If the vacancy continues for a long period of time, we may suffer
reduced revenues resulting in less cash dividends to be distributed to
shareholders. In addition, the resale value of the property could be diminished
because the market value of a particular property will depend principally upon
the value of the leases of such property.
We are dependent on tenants for our revenue.
Most of our properties are occupied by a single tenant and, therefore, the
success of our investments are materially dependant on the financial stability
of our tenants. Lease payment defaults by tenants could cause us to reduce the
amount of distributions to shareholders. A default of a tenant on its lease
payments to us would cause us to lose the revenue from the property and cause us
to have to find an alternative source of revenue to meet the mortgage payment
and prevent a foreclosure if the property is subject to a mortgage. In the event
of a default, we may experience delays in enforcing our rights as landlord and
may incur substantial costs in protecting our investment and re-letting our
property. If a lease is terminated, we cannot assure you that we will be able to
lease the property for the rent previously received or sell the property without
incurring a loss.
We may not have funding for future tenant improvements.
When a tenant at one of our properties does not renew its lease or
otherwise vacates its space in one of our buildings, it is likely that, in order
to attract one or more new tenants, we will be required to expend substantial
funds for tenant improvements and tenant refurbishments to the vacated space.
Substantially all of our net offering proceeds will be invested in real estate
properties, and we do not anticipate that we will maintain permanent working
capital reserves. We also have no identified funding
20
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source to provide funds which may be required in the future for tenant
improvements and tenant refurbishments in order to attract new tenants. We
cannot assure you that we will have any sources of funding available to us for
such purposes in the future.
Uninsured losses relating to real property may adversely affect your
returns.
Wells Capital will attempt to ensure that all of our properties are
adequately insured to cover casualty losses. However, in the event that any of
our properties incurs a casualty loss which is not fully covered by insurance,
the value of our assets will be reduced by any such uninsured loss. In addition,
we have no source of funding to repair or reconstruct the damaged property, and
we cannot assure you that any such sources of funding will be available to us
for such purposes in the future.
Development and construction of properties may result in delays and
increased costs and risks.
We may invest some or all of the proceeds available for investment in the
acquisition and development of properties upon which we will develop and
construct improvements at a fixed contract price. We will be subject to risks
relating to the builder's ability to control construction costs or to build in
conformity with plans, specifications and timetables. The builder's failure to
perform may necessitate legal action by us to rescind the purchase or the
construction contract or to compel performance. Performance may also be affected
or delayed by conditions beyond the builder's control. Delays in completion of
construction could also give tenants the right to terminate preconstruction
leases for space at a newly developed project. We may incur additional risks
when we make periodic progress payments or other advances to such builders prior
to completion of construction. Factors such as those discussed above can result
in increased costs of a project or loss of our investment. In addition, we will
be subject to normal lease-up risks relating to newly constructed projects.
Furthermore, we must rely upon projections of rental income and expenses and
estimates of the fair market value of property upon completion of construction
when agreeing upon a price to be paid for the property at the time of
acquisition of the property. If our projections are inaccurate, we may pay too
much for a property.
If we contract with Wells Development Corporation for newly developed
property, we cannot guarantee that our earnest money deposit made to Wells
Development Corporation will be fully refunded.
We may enter into one or more contracts, either directly or indirectly
through joint ventures with affiliates, to acquire real property from Wells
Development Corporation (Wells Development), an affiliate of Wells Capital.
Properties acquired from Wells Development may be either existing income-
producing properties or properties to be developed or under development. We
anticipate that we will be obligated to pay a substantial earnest money deposit
at the time of contracting to acquire such properties. In the case of properties
to be developed by Wells Development, we anticipate we will be required to close
the purchase of the property upon completion of the development of the property
by Wells Development and the tenant taking possession of the property. At the
time of contracting and the payment of the earnest money deposit by us, Wells
Development typically will not have acquired title to any real property. Wells
Development will only have a contract to acquire land, a development agreement
to develop a building on the land and an agreement with a tenant to lease the
property upon its completion. We may enter into such a contract with Wells
Development even if at the time of contracting we have not yet raised sufficient
proceeds in our offering to enable us to close the purchase of such property.
However, we will not be required to close a purchase from Wells Development, and
will be entitled to a refund of our earnest money, in the following
circumstances:
. Wells Development fails to develop the property;
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<PAGE>
. the tenant fails to take possession under its lease for any reason; or
. we are unable to raise sufficient proceeds from our offering to pay
the purchase price at closing.
The obligation of Wells Development to refund our earnest money is
unsecured, and it is unlikely that we would be able to obtain a refund of such
earnest money deposit from it under these circumstances since Wells Development
is an entity without substantial assets or operations. Although Wells
Development's obligation to refund the earnest money deposit to us under these
circumstances will be guaranteed by Wells Management Company, Inc., an
affiliated entity (Wells Management), Wells Management has no substantial assets
other than contracts for property management and leasing services pursuant to
which it receives substantial monthly fees. Therefore, we cannot assure you that
Wells Management would be able to refund all of our earnest money deposit in a
lump sum. If we were forced to collect our earnest money deposit by enforcing
the guaranty of Wells Management, we will likely be required to accept
installment payments over time payable out of the revenues of Wells Management's
property management and leasing operations. We cannot assure you that we would
be able to collect the entire amount of our earnest money deposit under such
circumstances. (See "Investment Objectives and Criteria -- Acquisition of
Properties from Wells Development Corporation.")
Competition for investments may increase costs and reduce returns.
We will experience competition for real property investments from
individuals, corporations and bank and insurance company investment accounts, as
well as other real estate investment trusts, real estate limited partnerships,
and other entities engaged in real estate investment activities. Competition for
investments may have the effect of increasing costs and reducing your returns.
Delays in acquisitions of properties may have adverse effects on your
investment.
Delays we encounter in the selection, acquisition and development of
properties could adversely affect your returns. Where properties are acquired
prior to the start of construction or during the early stages of construction,
it will typically take several months to complete construction and rent
available space. Therefore, you could suffer delays in the distribution of cash
dividends attributable to those particular properties.
Uncertain market conditions and the broad discretion of Wells Capital
relating to the future disposition of properties could adversely affect the
return on your investment.
We generally will hold the various real properties in which we invest until
such time as Wells Capital determines that a sale or other disposition appears
to be advantageous to achieve our investment objectives or until it appears that
such objectives will not be met. Otherwise, Wells Capital, subject to approval
of the board, may exercise its discretion as to whether and when to sell a
property, and we will have no obligation to sell properties at any particular
time, except upon a liquidation of the Wells REIT if we do not list the shares
by January 30, 2008. We cannot predict with any certainty the various market
conditions affecting real estate investments which will exist at any particular
time in the future. Due to the uncertainty of market conditions which may affect
the future disposition of our properties, we cannot assure you that we will be
able to sell our properties at a profit in the future. Accordingly, the extent
to which you will receive cash distributions and realize potential appreciation
on our real estate investments will be dependent upon fluctuating market
conditions.
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<PAGE>
Discovery of previously undetected environmentally hazardous conditions may
adversely affect our operating results.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the cost of removal or remediation of hazardous or toxic substances
on such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. Environmental laws also may impose restrictions on the manner
in which property may be used or businesses may be operated, and these
restrictions may require expenditures. Environmental laws provide for sanctions
in the event of noncompliance and may be enforced by governmental agencies or,
in certain circumstances, by private parties. In connection with the acquisition
and ownership of our properties, we may be potentially liable for such costs.
The cost of defending against claims of liability, of compliance with
environmental regulatory requirements or of remediating any contaminated
property could materially adversely affect the business, assets or results of
operations of the Wells REIT and, consequently, amounts available for
distribution to you.
Financing Risks
If we fail to make our debt payments, we could lose our investment in a
property.
Loans obtained to fund property acquisitions will generally be secured by
mortgages on some of our properties. If we are unable to make our debt payments
as required, a lender could foreclose on the property or properties securing its
debt. This could cause us to lose part or all of our investment which in turn
could cause the value of the shares and the dividends payable to shareholders to
be reduced.
Lenders may require us to enter into restrictive covenants relating to our
operations.
In connection with obtaining certain financing, a lender could impose
restrictions on us which affect our ability to incur additional debt and our
distribution and operating policies. Loan documents we enter into may contain
customary negative covenants which may limit our ability to further mortgage the
property, to discontinue insurance coverage, replace Wells Capital as our
advisor or impose other limitations.
If we enter into financing arrangements involving balloon payment
obligations, it may adversely affect our ability to pay dividends.
Some of our financing arrangements may require us to make a lump-sum or
"balloon" payment at maturity. We may finance more properties in this manner.
Our ability to make a balloon payment at maturity is uncertain and may depend
upon our ability to obtain additional financing or our ability to sell the
property. At the time the balloon payment is due, we may or may not be able to
refinance the balloon payment on terms as favorable as the original loan or sell
the property at a price sufficient to make the balloon payment. The effect of a
refinancing or sale could affect the rate of return to shareholders and the
projected time of disposition of our assets. In addition, payments of principal
and interest made to service our debts may leave us with insufficient cash to
pay the distributions that we are required to pay to maintain our qualification
as a REIT.
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<PAGE>
Federal Income Tax Risks
Failure to qualify as a REIT could adversely affect our operations and our
ability to make distributions.
If we fail to qualify as a REIT for any taxable year, we will be subject to
federal income tax on our taxable income at corporate rates. In addition, we
would generally be disqualified from treatment as a REIT for the four taxable
years following the year of losing our REIT status. Losing our REIT status would
reduce our net earnings available for investment or distribution to shareholders
because of the additional tax liability. In addition, distributions to
shareholders would no longer qualify for the distributions paid deduction and we
would no longer be required to make distributions. We might be required to
borrow funds or liquidate some investments in order to pay the applicable tax.
Qualification as a REIT is subject to the satisfaction of tax requirements
and various factual matters and circumstances which are not entirely within our
control. New legislation, regulations, administrative interpretations or court
decisions could change the tax laws with respect to qualification as a REIT or
the federal income tax consequences of being a REIT.
Legislative or regulatory action could adversely affect investors.
In recent years, numerous legislative, judicial and administrative changes
have been made in the provisions of the federal income tax laws applicable to
investments similar to an investment in shares of the Wells REIT. Additional
changes to tax laws are likely to continue to occur in the future, and we cannot
assure you that any such changes will not adversely affect the taxation of a
shareholder. Any such changes could have an adverse effect on an investment in
shares or on the market value or the resale potential of our properties. You are
urged to consult with your own tax advisor with respect to the impact of recent
legislation on your investment in shares and the status of legislative,
regulatory or administrative developments and proposals and their potential
effect on an investment in shares.
Retirement Plan Risks
There are special considerations that apply to pension or profit sharing
trusts or IRAs investing in shares.
If you are investing the assets of a pension, profit sharing, 401(k), Keogh
or other qualified retirement plan or the assets of an IRA in the Wells REIT,
you should satisfy yourself that:
. your investment is consistent with your fiduciary obligations under
ERISA and the Internal Revenue Code;
. your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your plan's
investment policy;
. your investment satisfies the prudence and diversification
requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
. your investment will not impair the liquidity of the plan or IRA;
. your investment will not produce "unrelated business taxable income"
for the plan or IRA;
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<PAGE>
. you will be able to value the assets of the plan annually in
accordance with ERISA requirements; and
. your investment will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
For a more complete discussion of the foregoing issues and other risks
associated with an investment in shares by retirement plans, please see the
"ERISA Considerations" section of this prospectus on page ___.
Suitability Standards
The shares we are offering are suitable only as a long-term investment for
persons of adequate financial means. Initially, we do not expect to have a
public market for the shares, which means that it may be difficult for you to
sell your shares. You should not buy these shares if you need to sell them
immediately or will need to sell them quickly in the future.
In consideration of these factors, we have established suitability
standards for initial shareholders and subsequent transferees. These suitability
standards require that a purchaser of shares have either:
. a net worth of at least $150,000; or
. a gross annual income of at least $45,000 and a net worth, excluding
the value of a purchaser's home, furnishings and automobiles of at
least $45,000.
The minimum purchase is 100 shares ($1,000), except in certain states as
described below. You may not transfer less shares than the minimum purchase
requirement. In addition, you may not transfer, fractionalize or subdivide your
shares so as to retain less than the number of shares required for the minimum
purchase. In order to satisfy the minimum purchase requirements for retirement
plans, unless otherwise prohibited by state law, a husband and wife may jointly
contribute funds from their separate IRAs, provided that each such contribution
is made in increments of $100. You should note that an investment in shares of
the Wells REIT will not, in itself, create a retirement plan and that, in order
to create a retirement plan, you must comply with all applicable provisions of
the Internal Revenue Code.
The minimum purchase for Maine, New York and North Carolina residents is
250 shares ($2,500), except for IRAs which must purchase a minimum of 100 shares
($1,000). The minimum purchase for Minnesota residents is 250 shares ($2,500),
except for IRAs and other qualified retirement plans which must purchase a
minimum of 200 shares ($2,000).
Except in the states of Maine, Minnesota, Nebraska and Washington, if you
have satisfied the minimum purchase requirements and have purchased units in
other Wells programs or units or shares in other public real estate programs,
you may purchase less than the minimum number of shares set forth above, but in
no event less than 2.5 shares ($25). After you have purchased the minimum
investment, any additional purchase must be in increments of at least 2.5 shares
($25), except for (1) purchases made by residents of Maine and Minnesota, who
must still meet the minimum investment requirements set forth above, and (2)
purchases of shares pursuant to the dividend reinvestment plan of the Wells REIT
or reinvestment plans of other public real estate programs, which may be in
lesser amounts.
Several states have established suitability standards different from those
we have established. Shares will be sold only to investors in these states who
meet the special suitability standards set forth below.
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<PAGE>
Arizona, Iowa, Massachusetts, Missouri, North Carolina and Tennessee -
Investors must have either (1) a net worth of at least $225,000 or (2) gross
annual income of $60,000 and a net worth of at least $60,000.
Maine - Investors must have either (1) a net worth of at least $200,000, or
(2) gross annual income of $50,000 and a net worth of at least $50,000.
Michigan, Ohio, Oregon and Pennsylvania - In addition to our suitability
requirements, investors must have a net worth of at least ten times their
investment in the Wells REIT.
Missouri - Investors must have either (1) a net worth of at least $250,000
or (2) gross annual income of $75,000 and a net worth of at least $75,000.
New Hampshire - Investors must have either (1) a net worth of at least
$250,000, or (2) taxable income of $50,000 and a net worth of at least $125,000.
In the case of sales to fiduciary accounts, these suitability standards
must be met by the fiduciary account, by the person who directly or indirectly
supplied the funds for the purchase of the shares or by the beneficiary of the
account. These suitability standards are intended to help ensure that, given the
long-term nature of an investment in our shares, our investment objectives and
the relative illiquidity of our shares, shares of the Wells REIT are an
appropriate investment for those of you who become investors. Each selected
dealer must make every reasonable effort to determine that the purchase of
shares is a suitable and appropriate investment for each shareholder based on
information provided by the shareholder in the Subscription Agreement. Each
selected dealer is required to maintain for six years records of the information
used to determine that an investment in the shares is suitable and appropriate
for a shareholder.
Estimated Use of Proceeds
The following tables set forth information about how we intend to use the
proceeds raised in this offering assuming that we sell 62,000,000 shares and
135,000,000 shares, respectively, pursuant to this offering. Many of the figures
set forth below represent management's best estimate since they cannot be
precisely calculated at this time. We expect that at least 84.0% of the money
you invest will be used to buy real estate, while the remaining up to 16.0% will
be used for working capital and to pay expenses and fees including the payment
of fees to Wells Capital, our advisor, and Wells Investment Securities, our
Dealer Manager.
<TABLE>
<CAPTION>
62,000,000 Shares 135,000,000 Shares
----------------- ------------------
Amount(1) Percent Amount(2) Percent
--------- ------- --------- -------
<S> <C> <C> <C> <C>
Gross Offering Proceeds $620,000,000 100% $1,350,000,000 100.0%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (3) 58,900,000 9.5% 128,250,000 9.5%
Organization and Offering Expenses (4) 18,600,000 3.0% 18,600,000 1.4%
------------ ---- -------------- -----
Amount Available for Investment (5) $542,500,000 87.5% $1,203,150,000 89.1%
Acquisition and Development:
Acquisition and Advisory Fees (6) 18,600,000 3.0% 40,500,000 3.0%
Acquisition Expenses (7) 3,100,000 0.5% 6,750,000 0.5%
Initial Working Capital Reserve (8) (8) -- (8) --
------------ ---- -------------- -----
Amount Invested in Properties (5)(9) $520,800,000 84.0% $1,155,900,000 85.6%
============ ==== ============== =====
</TABLE>
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<PAGE>
_________________________
(Footnotes to "Estimated Use of Proceeds")
1. Assumes that an aggregate of $620,000,000 will be raised in this offering
for purposes of illustrating the percentage of estimated organization and
offering expenses at two different sales levels. See Note 4 below.
2. Assumes the maximum offering is sold which includes 125,000,000 shares
offered to the public at $10 per share and 10,000,000 shares offered
pursuant to our dividend reinvestment plan at $10 per share. Excludes
5,000,000 shares to be issued upon exercise of the soliciting dealer
warrants.
3. Includes selling commissions equal to 7.0% of aggregate gross offering
proceeds which commissions may be reduced under certain circumstances and a
dealer manager fee equal to 2.5% of aggregate gross offering proceeds, both
of which are payable to the Dealer Manager, an affiliate of the advisor. The
Dealer Manager, in its sole discretion, may reallow selling commissions of
up to 7.0% of gross offering proceeds to other broker-dealers participating
in this offering attributable to the units sold by them and may reallow out
of its dealer manager fee up to 1.5% of gross offering proceeds in marketing
fees and due diligence expenses to broker-dealers participating in this
offering based on such factors as the volume of units sold by such
participating broker-dealers, marketing support provided by such
participating broker-dealers and bona fide conference fees incurred. The
amount of selling commissions may often be reduced under certain
circumstances for volume discounts. See the "Plan of Distribution" section
of this prospectus for a description of such provisions.
4. Organization and offering expenses consist of reimbursement of actual legal,
accounting, printing and other accountable offering expenses, including
amounts to reimburse Wells Capital, our advisor, for marketing, salaries and
direct expenses of its employees while engaged in registering and marketing
the shares and other marketing and organization costs, other than selling
commissions and the dealer manager fee. Wells Capital and its affiliates
will be responsible for the payment of organization and offering expenses,
other than selling commissions and the dealer manager fee, to the extent
they exceed 3.0% of gross offering proceeds without recourse against or
reimbursement by the Wells REIT. We currently estimate that approximately
$18,600,000 of organization and offering costs will be incurred if the
maximum offering of 135,000,000 shares is sold.
5. Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the offering and,
thereafter, the working capital reserves of the Wells REIT, may be invested
in short-term, highly-liquid investments including government obligations,
bank certificates of deposit, short-term debt obligations and interest-
bearing accounts.
6. Acquisition and advisory fees are defined generally as fees and commissions
paid by any party to any person in connection with the purchase, development
or construction of properties. We will pay Wells Capital, as our advisor,
acquisition and advisory fees up to a maximum amount of 3.0% of gross
offering proceeds in connection with the acquisition of the real estate
properties. Acquisition and advisory fees do not include acquisition
expenses.
7. Acquisition expenses include legal fees and expenses, travel expenses, costs
of appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, title insurance premiums and other closing
costs and miscellaneous expenses relating to the selection, acquisition and
development of real estate properties.
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<PAGE>
8. Because the vast majority of leases for the properties acquired by the Wells
REIT will provide for tenant reimbursement of operating expenses, we do not
anticipate that a permanent reserve for maintenance and repairs of real
estate properties will be established. However, to the extent that the we
have insufficient funds for such purposes, we may apply an amount of up to
1.0% of gross offering proceeds for maintenance and repairs of real estate
properties. We also may, but are not required to, establish reserves from
gross offering proceeds, out of cash flow generated by operating properties
or out of nonliquidating net sale proceeds, defined generally to mean the
net cash proceeds received by the Wells REIT from any sale or exchange of
properties.
9. Includes amounts anticipated to be invested in properties net of fees and
expenses. We estimate that at least approximately 84.0% of the proceeds
received from the sale of shares will be used to acquire properties.
Management
General
We operate under the direction of our board of directors, the members of
which are accountable to us and our shareholders as fiduciaries. The board is
responsible for the management and control of our affairs. The board has
retained Wells Capital to manage our day-to-day affairs and the acquisition and
disposition of our investments, subject to the board's supervision. The articles
of incorporation of the Wells REIT were reviewed and ratified by the board of
directors, including the independent directors, at their initial meeting. This
ratification by the board of directors was required by the NASAA Guidelines.
Our articles of incorporation and bylaws provide that the number of
directors of the Wells REIT may be established by a majority of the entire board
of directors but may not be fewer than three nor more than 15. We currently have
a total of nine directors. The articles of incorporation also provide that a
majority of the directors must be independent directors. An "independent
director" is a person who is not an officer or employee of the Wells REIT, Wells
Capital or their affiliates and has not otherwise been affiliated with such
entities for the previous two years. Of the nine current directors, seven of our
directors are considered independent directors.
Proposed transactions are often discussed before being brought to a final
board vote. During these discussions, independent directors often offer ideas
for ways in which deals can be changed to make them acceptable and these
suggestions are taken into consideration when structuring transactions. Each
director will serve until the next annual meeting of shareholders or until his
successor has been duly elected and qualified. Although the number of directors
may be increased or decreased, a decrease shall not have the effect of
shortening the term of any incumbent director.
Any director may resign at any time and may be removed with or without cause
by the shareholders upon the affirmative vote of at least a majority of all the
votes entitled to be cast at a meeting called for the purpose of the proposed
removal. The notice of the meeting shall indicate that the purpose, or one of
the purposes, of the meeting is to determine if the director shall be removed.
The term "cause" as used in this context is a term used in the Maryland
Corporation Law. Since the Maryland Corporation Law does not define the term
"cause," shareholders may not know exactly what actions by a director may be
grounds for removal.
Unless filled by a vote of the shareholders as permitted by Maryland
Corporation Law, a vacancy created by an increase in the number of directors or
the death, resignation, removal, adjudicated incompetence or other incapacity of
a director shall be filled by a vote of a majority of the remaining directors
and,
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<PAGE>
. in the case of a director who is not an independent director
(affiliated director), by a vote of a majority of the remaining
affiliated directors, or
. in the case of an independent director, by a vote of a majority of the
remaining independent directors,
unless there are no remaining affiliated directors or independent directors, as
the case may be. In such case a majority vote of the remaining directors shall
be sufficient. If at any time there are no independent or affiliated directors
in office, successor directors shall be elected by the shareholders. Each
director will be bound by the articles of incorporation and the bylaws.
The directors are not required to devote all of their time to our business
and are only required to devote the time to our affairs as their duties require.
The directors will meet quarterly or more frequently if necessary. We do not
expect that the directors will be required to devote a substantial portion of
their time to discharge their duties as our directors. Consequently, in the
exercise of their fiduciary responsibilities, the directors will be relying
heavily on Wells Capital. The board is empowered to fix the compensation of all
officers that it selects and may pay compensation to directors for services
rendered to us in any other capacity.
Our general investment and borrowing policies are set forth in this
prospectus. The directors may establish further written policies on investments
and borrowings and shall monitor our administrative procedures, investment
operations and performance to ensure that the policies are fulfilled and are in
the best interest of the shareholders. We will follow the policies on
investments and borrowings set forth in this prospectus unless and until they
are modified by the directors.
The board is also responsible for reviewing our fees and expenses on at
least an annual basis and with sufficient frequency to determine that the
expenses incurred are in the best interest of the shareholders. In addition, a
majority of the independent directors and a majority of directors not otherwise
interested in the transaction must approve all transactions with Wells Capital
or its affiliates. The independent directors will also be responsible for
reviewing the performance of Wells Capital and determining that the compensation
to be paid to Wells Capital is reasonable in relation to the nature and quality
of services to be performed and that the provisions of the advisory agreement
are being carried out. Specifically, the independent directors will consider
factors such as:
. the amount of the fee paid to Wells Capital in relation to the size,
composition and performance of our investments;
. the success of Wells Capital in generating appropriate investment
opportunities;
. rates charged to other REITs and other investors by advisors
performing similar services;
. additional revenues realized by Wells Capital and its affiliates
through their relationship with us, whether we pay them or they are
paid by others with whom we do business;
. the quality and extent of service and advice furnished by Wells
Capital and the performance of our investment portfolio; and
. the quality of our portfolio relative to the investments generated by
Wells Capital for its other clients.
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<PAGE>
Neither the directors nor their affiliates will vote or consent to the
voting of shares they now own or hereafter acquire on matters submitted to the
shareholders regarding either (1) the removal of Wells Capital, any director or
any affiliate, or (2) any transaction between us and Wells Capital, any director
or any affiliate.
Committees of the Board of Directors
Our entire board of directors considers all major decisions concerning our
business, including any property acquisitions. However, our board has
established an Audit Committee and a Compensation Committee so that these
important areas can be addressed in more depth than may be possible at a full
board meeting.
Audit Committee
The Audit Committee held its first meeting in November 1999 and meets on a
regular basis at least three times a year. The Audit Committee members are
Messrs. Bell, Carpenter, Carter, Keogler, Moss, Sessoms and Strickland. The
Audit Committee's primary function is to assist the board of directors in
fulfilling its oversight responsibilities by reviewing the financial information
to be provided to the shareholders and others, the system of internal controls
which management has established, and the audit and financial reporting process.
Compensation Committee
Our board of directors has also established a Compensation Committee to
administer the 2000 Employee Stock Option Plan, as described below, which was
approved by the shareholders at our annual shareholders meeting held June 28,
2000. The Compensation Committee is comprised of Messrs. Bell, Carpenter,
Carter, Keogler, Moss, Sessoms and Strickland. The primary function of the
Compensation Committee is to administer the granting of stock options to
selected employees of Wells Capital and Wells Management based upon
recommendations from Wells Capital, and to set the terms and conditions of such
options in accordance with the 2000 Employee Stock Option Plan.
Executive Officers and Directors
We have provided below certain information about our executive officers and
directors.
<TABLE>
<CAPTION>
Name Position(s) Age
---- ----------- ---
<S> <C> <C>
Leo F. Wells, III President and Director 56
Douglas P. Williams Executive Vice President, Secretary, Treasurer 50
and Director
John L. Bell/(1)/ Director 60
Richard W. Carpenter/(1)/ Director 63
Bud Carter/(1)/ Director 62
William H. Keogler, Jr./(1)/ Director 55
Donald S. Moss/(1)/ Director 64
Walter W. Sessoms/(1)/ Director 66
Neil H. Strickland/(1)/ Director 64
</TABLE>
_________
(1) Messrs. Bell, Carpenter, Carter, Keogler, Moss, Sessoms and Strickland
also serve on our Audit Committee and our Compensation Committee.
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<PAGE>
Leo F. Wells, III is the President and a director of the Wells REIT and the
President, Treasurer and sole director of Wells Capital, our advisor. He is also
the sole shareholder and sole director of Wells Real Estate Funds, Inc., the
parent corporation of Wells Capital. Mr. Wells is President of Wells &
Associates, Inc., a real estate brokerage and investment company formed in 1976
and incorporated in 1978, for which he serves as principal broker. He is also
the President, Treasurer and sole director of:
. Wells Management Company, Inc., our Property Manager;
. Wells Investment Securities, Inc., our Dealer Manager;
. Wells Advisors, Inc., a company he organized in 1991 to act as a non-
bank custodian for IRAs; and
. Wells Development Corporation, a company he organized in 1997 to
develop real properties.
Mr. Wells was a real estate salesman and property manager from 1970 to 1973
for Roy D. Warren & Company, an Atlanta real estate company, and he was
associated from 1973 to 1976 with Sax Gaskin Real Estate Company, during which
time he became a Life Member of the Atlanta Board of Realtors Million Dollar
Club. From 1980 to February 1985 he served as Vice President of Hill-Johnson,
Inc., a Georgia corporation engaged in the construction business. Mr. Wells
holds a Bachelor of Business Administration degree in economics from the
University of Georgia. Mr. Wells is a member of the International Association
for Financial Planning (IAFP) and a registered NASD principal.
Mr. Wells has over 26 years of experience in real estate sales, management
and brokerage services. In addition to being the President and a director of the
Wells REIT, he is currently a co-general partner in a total of 26 real estate
limited partnerships formed for the purpose of acquiring, developing and
operating office buildings and other commercial properties. As of September 30,
2000, these 26 real estate limited partnerships represented investments totaling
approximately $313,562,916 from approximately 27,322 investors.
Douglas P. Williams is the Executive Vice President, Secretary, Treasurer
and a director of the Wells REIT. He is also a Senior Vice President of Wells
Capital, our advisor, and is also a Vice President of:
. Wells Investment Securities, Inc., our Dealer Manager;
. Wells Real Estate Funds, Inc.; and
. Wells Advisors, Inc.
Mr. Williams previously served as Vice President, Controller of OneSource,
Inc., a leading supplier of janitorial and landscape services, from 1996 to 1999
where he was responsible for corporate-wide accounting activities and financial
analysis. Mr. Williams was employed by ECC International Inc. ("ECC"), a
supplier to the paper industry and to the paint, rubber and plastic industries,
from 1982 to 1995. While at ECC, Mr. Williams served in a number of key
accounting positions, including Corporate Accounting Manager, U.S. Operations,
Division Controller, Americas Region and Corporate Controller, America/Pacific
Division. Prior to joining ECC and for one year after leaving ECC, Mr. Williams
was employed by Lithonia Lighting, a manufacturer of lighting fixtures, as a
Cost and General Accounting Manager and Director of Planning and Control. Mr.
Williams started his professional career as an auditor for KPMG Peat Marwick
LLP.
Mr. Williams is a member of the American Institute of Certified Public
Accountants and the Georgia Society of Certified Public Accountants. Mr.
Williams received a bachelor of arts degree from Dartmouth College and a Masters
of Business Administration degree from the Amos Tuck School of Graduate Business
Administration at Dartmouth College.
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John L. Bell was the owner and Chairman of Bell-Mann, Inc., the largest
commercial flooring contractor in the Southeast from February 1971 to February
1996. Mr. Bell also served on the Board of Directors of Realty South Investors,
a REIT traded on the American Stock Exchange, and was the founder and served as
a director of both the Chattahoochee Bank and the Buckhead Bank. In 1997, Mr.
Bell initiated and implemented a "Dealer Acquisition Plan" for Shaw Industries,
Inc., a floor covering manufacturer and distributor, which plan included the
acquisition of Bell-Mann.
Mr. Bell currently serves on the Board of Directors of Electronic Commerce
Systems, Inc. and the Cullasaja Club of Highlands, North Carolina. Mr. Bell is
also extensively involved in buying and selling real estate both individually
and in partnership with others. Mr. Bell graduated from Florida State University
majoring in accounting and marketing.
Richard W. Carpenter served as General Vice President of Real Estate Finance
of The Citizens and Southern National Bank from 1975 to 1979, during which time
his duties included the establishment and supervision of the United Kingdom
Pension Fund, U.K.-American Properties, Inc. which was established primarily for
investment in commercial real estate within the United States.
Mr. Carpenter is currently President and director of Realmark Holdings
Corp., a residential and commercial real estate developer, and has served in
that position since October 1983. Mr. Carpenter is also a managing partner of
Carpenter Properties, L.P., a real estate limited partnership. He is also
President and director of Commonwealth Oil Refining Company, Inc., a position he
has held since 1984.
Mr. Carpenter previously served as Vice Chairman of the Board of Directors
of both First Liberty Financial Corp. and Liberty Savings Bank, F.S.B. and
Chairman of the Audit Committee of First Liberty Financial Corp. He has been a
member of The National Association of Real Estate Investment Trusts and served
as President and Chairman of the Board of Southmark Properties, an Atlanta-based
REIT investing in commercial properties. Mr. Carpenter is a past Chairman of the
American Bankers Association Housing and Real Estate Finance Division Executive
Committee. Mr. Carpenter holds a Bachelor of Science degree from Florida State
University, where he was named the outstanding alumnus of the School of Business
in 1973.
Bud Carter was an award-winning broadcast news director and anchorman for
several radio and television stations in the Midwest for over 20 years. From
1975 to 1980, Mr. Carter served as General Manager of WTAZ-FM, a radio station
in Peoria, Illinois and served as editor and publisher of The Peoria Press, a
weekly business and political journal in Peoria, Illinois. From 1981 until 1989,
Mr. Carter was also an owner and General Manager of Transitions, Inc., a
corporate outplacement company in Atlanta, Georgia.
Mr. Carter currently serves as Senior Vice President for The Executive
Committee, a 43-year old international organization established to aid
presidents and CEOs share ideas on ways to improve the management and
profitability of their respective companies. The Executive Committee operates in
numerous large cities throughout the United States, Canada, Australia, France,
Italy, Malaysia, Brazil, the United Kingdom and Japan. The Executive Committee
has more than 7,000 presidents and CEOs who are members. In addition, Mr. Carter
was the first Chairman of the organization recruited in Atlanta and still serves
as Chairman of the first two groups formed in Atlanta, each comprised of 14
noncompeting CEOs and presidents. Mr. Carter is a graduate of the University of
Missouri where he earned degrees in journalism and social psychology.
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William H. Keogler, Jr. was employed by Brooke Bond Foods, Inc. as a Sales
Manager from June 1965 to September 1968. From July 1968 to December 1974, Mr.
Keogler was employed by Kidder Peabody & Company, Inc. and Dupont, Glore, Forgan
as a corporate bond salesman responsible for managing the industrial corporate
bond desk and the utility bond area. From December 1974 to July 1982, Mr.
Keogler was employed by Robinson-Humphrey, Inc. as the Director of Fixed Income
Trading Departments responsible for all municipal bond trading and municipal
research, corporate and government bond trading, unit trusts and SBA/FHA loans,
as well as the oversight of the publishing of the Robinson-Humphrey Southeast
Unit Trust, a quarterly newsletter. Mr. Keogler was elected to the Board of
Directors of Robinson-Humphrey, Inc. in 1982. From July 1982 to October 1984,
Mr. Keogler was Executive Vice President, Chief Operating Officer, Chairman of
the Executive Investment Committee and member of the Board of Directors and
Chairman of the MFA Advisory Board for the Financial Service Corporation. He was
responsible for the creation of a full service trading department specializing
in general securities with emphasis on municipal bonds and municipal trusts.
Under his leadership, Financial Service Corporation grew to over 1,000
registered representatives and over 650 branch offices. In March 1985, Mr.
Keogler founded Keogler, Morgan & Company, Inc., a full service brokerage firm,
and Keogler Investment Advisory, Inc., in which he served as Chairman of the
Board of Directors, President and Chief Executive Officer. In January 1997, both
companies were sold to SunAmerica, Inc., a publicly traded New York Stock
Exchange company. Mr. Keogler continued to serve as President and Chief
Executive Officer of these companies until his retirement in January 1998.
Mr. Keogler serves on the Board of Trustees of Senior Citizens Services of
Atlanta. He graduated from Adelphi University in New York where he earned a
degree in psychology.
Donald S. Moss was employed by Avon Products, Inc. from 1957 until his
retirement in 1986. While at Avon, Mr. Moss served in a number of key positions,
including Vice President and Controller from 1973 to 1976, Group Vice President
of Operations-Worldwide from 1976 to 1979, Group Vice President of Sales-
Worldwide from 1979 to 1980, Senior Vice President-International from 1980 to
1983 and Group Vice President-Human Resources and Administration from 1983 until
his retirement in 1986. Mr. Moss was also a member of the board of directors of
Avon Canada, Avon Japan, Avon Thailand, and Avon Malaysia from 1980-1983.
Mr. Moss is currently a director of The Atlanta Athletic Club. He formerly
was the National Treasurer and a director of the Girls Clubs of America from
1973 to 1976. Mr. Moss graduated from the University of Illinois where he
received a degree in business.
Walter W. Sessoms was employed by Southern Bell and its successor company,
BellSouth, from 1956 until his retirement in June 1997. While at BellSouth, Mr.
Sessoms served in a number of key positions, including Vice President-Residence
for the State of Georgia from June 1979 to July 1981, Vice President-
Transitional Planning Officer from July 1981 to February 1982, Vice President-
Georgia from February 1982 to June 1989, Senior Vice President-Regulatory and
External Affairs from June 1989 to November 1991, and Group President-Services
from December 1991 until his retirement on June 30, 1997.
Mr. Sessoms currently serves as a director of the Georgia Chamber of
Commerce for which he is a past Chairman of the Board, the Atlanta Civic
Enterprises and the Salvation Army's Board of Visitors of the Southeast Region.
Mr. Sessoms is also a past executive advisory council member for the University
of Georgia College of Business Administration and past member of the executive
committee of the Atlanta Chamber of Commerce. Mr. Sessoms is a graduate of
Wofford College where he earned a degree in economics and business
administration. He is a member of the Governor's Education Reform Commission.
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<PAGE>
Neil H. Strickland was employed by Loyalty Group Insurance (which
subsequently merged with America Fore Loyalty Group and is now known as The
Continental Group) as an automobile insurance underwriter. From 1957 to 1961,
Mr. Strickland served as Assistant Supervisor of the Casualty Large Lines
Retrospective Rating Department. From 1961 to 1964, Mr. Strickland served as
Branch Manager of Wolverine Insurance Company, a full service property and
casualty service company, where he had full responsibility for underwriting of
insurance and office administration in the State of Georgia. In 1964, Mr.
Strickland and a non-active partner started Superior Insurance Service, Inc., a
property and casualty wholesale general insurance agency. Mr. Strickland served
as President and was responsible for the underwriting and all other operations
of the agency. In 1967, Mr. Strickland sold his interest in Superior Insurance
Service, Inc. and started Strickland General Agency, Inc., a property and
casualty general insurance agency concentrating on commercial customers. Mr.
Strickland is currently the Senior Operation Executive of Strickland General
Agency, Inc. and devotes most of his time to long-term planning, policy
development and senior administration.
Mr. Strickland is a past President of the Norcross Kiwanis Club and served
as both Vice President and President of the Georgia Surplus Lines Association.
He also served as President and a director of the National Association of
Professional Surplus Lines Offices. Mr. Strickland currently serves as a
director of First Capital Bank, a community bank located in the State of
Georgia. Mr. Strickland attended Georgia State University where he majored in
business administration. He received his L.L.B. degree from Atlanta Law School.
Compensation of Directors
We pay our independent directors $500 per month plus $125 for each board
meeting they attend. In addition, we have reserved 100,000 shares of common
stock for future issuance upon the exercise of stock options granted to the
independent directors pursuant to our Independent Director Stock Option Plan and
500,000 shares for future issuance upon the exercise of warrants to be granted
to the independent directors pursuant to our Independent Director Warrant Plan.
All directors receive reimbursement of reasonable out-of-pocket expenses
incurred in connection with attendance at meetings of the board of directors. If
a director also is an officer of the Wells REIT, we do not pay separate
compensation for services rendered as a director.
Independent Director Stock Option Plan
Our Independent Director Stock Option Plan (Director Option Plan) was
approved by our shareholders at our annual shareholders meeting held June 16,
1999. We issued non-qualified stock options to purchase 2,500 shares (Initial
Options) to each independent director pursuant to our Director Option Plan. In
addition, we issued options to purchase 1,000 shares to each independent
director in connection with the 2000 annual meeting of stockholders and will
continue to issue options to purchase 1,000 shares (Subsequent Options) to each
independent director then in office on the date of each annual stockholder's
meeting. The Initial Options and the Subsequent Options are collectively
referred to as the "Director Options." Director Options may not be granted at
any time when the grant, along with grants to other independent directors, would
exceed 10% of our issued and outstanding shares. As of October 1, 2000, each
independent director had been granted options to purchase a total of 3,500
shares under the Director Option Plan, of which 1,000 of those shares were
exercisable. The exercise price for the Initial Options is $12.00 per share. The
exercise price for the Subsequent Options is the greater of (1) $12.00 per share
or (2) the fair market value of the shares on the date they are granted. Fair
market value is defined generally to mean:
. the average closing price for the five consecutive trading days ending
on such date if the shares are traded on a national exchange;
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. the average of the high bid and low asked prices if the shares are
quoted on NASDAQ;
. the average of the last 10 sales made pursuant to a public offering if
there is a current public offering and no market maker for the shares;
. the average of the last 10 purchases (or fewer if less than 10
purchases) under our share redemption program if there is no current
public offering; or
. the price per share under the dividend reinvestment plan if there are
no purchases under the share redemption program.
One-fifth of the Initial Options were exercisable beginning on the date we
granted them, one-fifth of the Initial Options became exercisable beginning in
July 2000 and an additional one-fifth of the Initial Options will become
exercisable on each anniversary of the date we granted them for a period of four
years until 100% of the shares become exercisable. The Subsequent Options
granted under the Plan will become exercisable on the second anniversary of the
date we grant them.
A total of 100,000 shares have been authorized and reserved for issuance
under the Director Option Plan. If the number of outstanding shares is changed
into a different number or kind of shares or securities through a reorganization
or merger in which the Wells REIT is the surviving entity, or through a
combination, recapitalization or otherwise, an appropriate adjustment will be
made in the number and kind of shares that may be issued pursuant to exercise of
the Director Options. A corresponding adjustment to the exercise price of the
Director Options granted prior to any change will also be made. Any such
adjustment, however, will not change the total payment, if any, applicable to
the portion of the Director Options not exercised, but will change only the
exercise price for each share.
Options granted under the Director Option Plan shall lapse on the first to
occur of (1) the tenth anniversary of the date we grant them, (2) the removal
for cause of the independent director as a member of the board of directors, or
(3) three months following the date the independent director ceases to be a
director for any reason other than death or disability, and may be exercised by
payment of cash or through the delivery of common stock. Director Options
granted under the Director Option Plan are generally exercisable in the case of
death or disability for a period of one year after death or the disabling event.
No Director Option issued may be exercised if such exercise would jeopardize our
status as a REIT under the Internal Revenue Code.
The independent directors may not sell pledge, assign or transfer their
options other than by will or the laws of descent or distribution.
Upon the dissolution or liquidation of the Wells REIT, upon our
reorganization, merger or consolidation with one or more corporations as a
result of which we are not the surviving corporation or upon sale of all or
substantially all of our properties, the Director Option Plan will terminate,
and any outstanding Director Options will terminate and be forfeited. The board
of directors may provide in writing in connection with any such transaction for
any or all of the following alternatives:
. for the assumption by the successor corporation of the Director
Options granted or the replacement of the Director Options with
options covering the stock of the successor corporation, or a parent
or subsidiary of such corporation, with appropriate adjustments as to
the number and kind of shares and exercise prices;
. for the continuance of the Director Option Plan and the Director
Options by such successor corporation under the original terms; or
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<PAGE>
. for the payment in cash or shares of common stock in lieu of and in
complete satisfaction of such options.
Independent Director Warrant Plan
Our Independent Director Warrant Plan of the Wells REIT (Director Warrant
Plan) was approved by our shareholders at our annual shareholders meeting held
June 28, 2000. Our Director Warrant Plan provides for the issuance of warrants
to purchase shares of our common stock (Warrants) to independent directors based
on the number of shares of common stock that they purchase in the future. The
purpose of the Director Warrant Plan is to encourage our independent directors
to purchase shares of our common stock. Beginning on the effective date of the
Director Warrant Plan and continuing until the earlier to occur of (1) the
termination of the Director Warrant Plan by action of the board of directors or
otherwise, or (2) 5:00 p.m. EST on the date of listing of our shares on a
national securities exchange, each independent director will receive one Warrant
for every 25 shares of common stock he purchases. The exercise price of the
Warrants will be $12.00 per share.
A total of 500,000 Warrants have been authorized and reserved for issuance
under the Director Warrant Plan, each of which will be redeemable for one share
of our common stock. Upon our dissolution or liquidation, or upon a
reorganization, merger or consolidation, where we are not the surviving
corporation, or upon our sale of all or substantially all of our properties, the
Director Warrant Plan shall terminate, and any outstanding Warrants shall
terminate and be forfeited; provided, however, that holders of Warrants may
exercise any Warrants that are otherwise exercisable immediately prior to the
effective date of the dissolution, liquidation, consolidation or merger.
Notwithstanding the above, the board of directors may provide in writing in
connection with any such transaction for any or all of the following
alternatives: (1) for the assumption by the successor corporation of the
Warrants theretofore granted or the substitution by such corporation for such
Warrants of awards covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (2) for the continuance of the Director Warrant Plan by such
successor corporation in which event the Director Warrant Plan and the Warrants
shall continue in the manner and under the terms so provided; or (3) for the
payment in cash or shares in lieu of and in complete satisfaction of such
Warrants.
No Warrant may be sold, pledged, assigned or transferred by an independent
director in any manner other than by will or the laws of descent or
distribution. All Warrants exercised during the independent director's lifetime
shall be exercised only by the independent director or his legal representative.
Any transfer contrary to the Director Warrant Plan will nullify and render void
the Warrant. Notwithstanding any other provisions of the Director Warrant Plan,
Warrants granted under the Director Warrant Plan shall continue to be
exercisable in the case of death or disability of the independent director for a
period of one year after the death or disabling event, provided that the death
or disabling event occurs while the person is an independent director. No
Warrant issued may be exercised if such exercise would jeopardize our status as
a REIT under the Internal Revenue Code.
2000 Employee Stock Option Plan
Our 2000 Employee Stock Option Plan of the Wells REIT (Employee Option Plan)
was approved by our shareholders at our annual meeting held June 28, 2000. Our
Employee Option Plan is designed to enable Wells Capital and Wells Management to
obtain or retain the services of employees considered essential to our long
range success and the success of Wells Capital and Wells Management by offering
such employees an opportunity to participate in the growth of the Wells REIT
through ownership of our common stock.
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<PAGE>
The Employee Option Plan provides for the formation of a Compensation
Committee consisting of two or more of our independent directors. The
Compensation Committee shall conduct the general administration of the Employee
Option Plan. The Compensation Committee is authorized to grant "non-qualified"
stock options (Employee Options) to selected employees of Wells Capital and
Wells Management based upon the recommendation of Wells Capital and subject to
the absolute discretion of the Compensation Committee and applicable limitations
of the Employee Option Plan. The exercise price for the Employee Options shall
be the greater of (1) $11.00 per share or (2) the fair market value of the
shares on the date the option is granted. A total of 750,000 shares have been
authorized and reserved for issuance under the Employee Option Plan.
The Compensation Committee shall set the term of the Employee Options in its
discretion, although no Employee Option shall have a term greater than five
years from the later of (i) the date our shares become listed on a national
securities exchange, or (ii) the date the Employee option is granted. The
employee receiving Employee Options shall agree to remain in employment with its
employer for a period of one year after the Employee Option is granted. The
Compensation Committee shall set the period during which the right to exercise
an option vests in the holder of the option. No Employee Option issued may be
exercised, however, if such exercise would jeopardize our status as a REIT under
the Internal Revenue Code. In addition, no option may be sold, pledged, assigned
or transferred by an employee in any manner other than by will or the laws of
descent or distribution.
In the event that the Compensation Committee determines that any dividend or
other distribution, recapitalization, stock split, reorganization, merger,
liquidation, dissolution, or sale, transfer, exchange or other disposition of
all or substantially all of our assets, or other similar corporate transaction
or event, affects the shares such that an adjustment is determined by the
Compensation Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Employee Option Plan or with respect to an Employee Option, then the
Compensation Committee shall, in such manner as it may deem equitable, adjust
the number and kind of shares or the exercise price with respect to any option.
Limited Liability and Indemnification of Directors, Officers, Employees and
Other Agents
Our organizational documents limit the personal liability of our
shareholders, directors and officers for monetary damages to the fullest extent
permitted under current Maryland Corporation Law. We also maintain a directors
and officers liability insurance policy. Maryland Corporation Law allows
directors and officers to be indemnified against judgments, penalties, fines,
settlements and expenses actually incurred in a proceeding unless the following
can be established:
. an act or omission of the director or officer was material to the
cause of action adjudicated in the proceeding, and was committed in
bad faith or was the result of active and deliberate dishonesty;
. the director or officer actually received an improper personal benefit
in money, property or services; or
. with respect to any criminal proceeding, the director or officer had
reasonable cause to believe his act or omission was unlawful.
Any indemnification or any agreement to hold harmless is recoverable only out of
our assets and not from the shareholders. Indemnification could reduce the legal
remedies available to us and the shareholders against the indemnified
individuals, however.
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This provision does not reduce the exposure of directors and officers to
liability under federal or state securities laws, nor does it limit the
shareholder's ability to obtain injunctive relief or other equitable remedies
for a violation of a director's or an officer's duties to us or our
shareholders, although the equitable remedies may not be an effective remedy in
some circumstances.
In spite of the above provisions of Maryland Corporation Law, our articles
of incorporation provide that the directors, Wells Capital and its affiliates
will be indemnified by us for losses arising from our operation only if all of
the following conditions are met:
. the directors, Wells Capital or its affiliates have determined, in
good faith, that the course of conduct which caused the loss or
liability was in our best interests;
. the directors, Wells Capital or its affiliates were acting on our
behalf or performing services for us;
. in the case of affiliated directors, Wells Capital or its affiliates,
the liability or loss was not the result of negligence or misconduct
by the party seeking indemnification;
. in the case of independent directors, the liability or loss was not
the result of gross negligence or willful misconduct by the party
seeking indemnification; and
. the indemnification or agreement to hold harmless is recoverable only
out of our net assets and not from the shareholders.
We have agreed to indemnify and hold harmless Wells Capital and its
affiliates performing services for us from specific claims and liabilities
arising out of the performance of its obligations under the advisory agreement.
As a result, we and our shareholders may be entitled to a more limited right of
action than they would otherwise have if these indemnification rights were not
included in the advisory agreement.
The general effect to investors of any arrangement under which any of our
controlling persons, directors or officers are insured or indemnified against
liability is a potential reduction in distributions resulting from our payment
of premiums associated with insurance. In addition, indemnification could
reduce the legal remedies available to the Wells REIT and our shareholders
against the officers and directors.
The Securities and Exchange Commission takes the position that
indemnification against liabilities arising under the Securities Act of 1933 is
against public policy and unenforceable. Indemnification of the directors,
officers, Wells Capital or its affiliates will not be allowed for liabilities
arising from or out of a violation of state or federal securities laws, unless
one or more of the following conditions are met:
. there has been a successful adjudication on the merits of each count
involving alleged securities law violations;
. such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction; or
. a court of competent jurisdiction approves a settlement of the claims
against the indemnitee and finds that indemnification of the
settlement and the related costs should be made, and the court
considering the request for indemnification has been advised of
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the position of the Securities and Exchange Commission and of the
published position of any state securities regulatory authority in
which the securities were offered as to indemnification for violations
of securities laws.
Indemnification will be allowed for settlements and related expenses of
lawsuits alleging securities laws violations and for expenses incurred in
successfully defending any lawsuits, provided that a court either:
. approves the settlement and finds that indemnification of the
settlement and related costs should be made; or
. dismisses with prejudice or there is a successful adjudication on the
merits of each count involving alleged securities law violations as to
the particular indemnitee and a court approves the indemnification.
The Advisor
The advisor of the Wells REIT is Wells Capital. Some of our officers and
directors are also officers and directors of Wells Capital. Wells Capital has
contractual responsibility to the Wells REIT and its stockholders pursuant to
the advisory agreement.
The directors and executive officers of Wells Capital are as follows:
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Leo F. Wells, III 56 President, Treasurer and sole director
Douglas P. Williams 50 Senior Vice President and Assistant Secretary
Stephen G. Franklin 53 Senior Vice President
Kim R. Comer 45 Vice President
Linda L. Carson 57 Vice President
</TABLE>
The backgrounds of Messrs. Wells and Williams are described in the
"Management -- Executive Officers and Directors" section of this prospectus.
Below is a brief description of the other executive officers of Wells Capital.
Stephen G. Franklin, Ph.D. is a Senior Vice President of Wells Capital. Mr.
Franklin is responsible for marketing, sales and coordination of broker-dealer
relations. Mr. Franklin also serves as Vice President of Wells Real Estate
Funds, Inc. Prior to joining Wells Capital, Mr. Franklin served as President of
Global Access Learning, an international executive education and management
development firm. From 1997 to 1999, Mr. Franklin served as President, Chief
Academic Officer and Director of EduTrek International, a publicly traded
provider of international post-secondary education that owns the American
InterContinental University, with campuses in Atlanta, Ft. Lauderdale, Los
Angeles, Washington, D.C., London and Dubai. While at EduTrek, he was
instrumental in developing the Masters and Bachelors of Information Technology,
International MBA and Adult Evening BBA programs. Prior to joining EduTrek, Mr.
Franklin was Associate Dean of the Goizueta Business School at Emory University
and a former tenured Associate Professor of Business Administration. He served
on the founding Executive MBA faculty, and has taught graduate, undergraduate
and executive courses in Management and Organizational Behavior, Human Resources
Management and Entrepreneurship. He is also co-founder and Director of the
Center for Healthcare Leadership in the Emory University School of Medicine. Mr.
Franklin was a frequent guest lecturer at universities throughout North America,
Europe and South Africa.
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In 1984, Mr. Franklin took a sabbatical from Emory University and became
Executive Vice President and a principal shareholder of Financial Service
Corporation ("FSC"), an independent financial planning broker-dealer. Mr.
Franklin and the other shareholders of FSC later sold their interests in FSC to
Mutual of New York Life Insurance Company.
Kim R. Comer rejoined Wells Capital as National Vice President of Marketing
in April 1997 after working for Wells Capital in similar capacities from January
1992 through September 1995. Mr. Comer currently serves as Vice President and
Director of Customer Care Services. In prior positions with Wells Capital, he
served as Vice President of Marketing for the southeast and northeast regions.
Mr. Comer has over ten years experience in the securities industry and is a
registered representative and financial principal with the NASD. Additionally,
he has substantial financial experience including experience as controller and
chief financial officer of two regional broker-dealers. In 1976, Mr. Comer
graduated with honors from Georgia State University with a BBA degree in
accounting.
Linda L. Carson is a Vice President of Wells Capital. She is primarily
responsible for fund, property and corporate accounting, SEC reporting and
coordination of all audits by the independent public accountants. Ms. Carson
also serves as Secretary of Wells Investment Securities, Inc., our Dealer
Manager. Ms. Carson joined Wells Capital in 1989 as Staff Accountant, became
Controller in 1991 and assumed her current position in 1996. Prior to joining
Wells Capital, Ms. Carson was an accountant with an electrical distributor. She
is a graduate of City College of New York and has completed additional
accounting courses at Kennesaw State. She is also a member of the National
Society of Accountants.
Wells Capital employs personnel, in addition to the directors and executive
officers listed above, who have extensive experience in selecting and managing
commercial properties similar to the properties sought to be acquired by the
Wells REIT.
The Advisory Agreement
Many of the services to be performed by Wells Capital in managing our day-
to-day activities are summarized below. This summary is provided to illustrate
the material functions which Wells Capital will perform for us as our advisor
and it is not intended to include all of the services which may be provided to
us by third parties. Under the terms of the advisory agreement, Wells Capital
undertakes to use its best efforts to present to us investment opportunities
consistent with our investment policies and objectives as adopted by the board
of directors. In its performance of this undertaking, Wells Capital, either
directly or indirectly by engaging an affiliate, shall, subject to the authority
of the board:
. find, present and recommend to us real estate investment opportunities
consistent with our investment policies and objectives;
. structure the terms and conditions of transactions pursuant to which
acquisitions of properties will be made;
. acquire properties on our behalf in compliance with our investment
objectives and policies;
. arrange for financing and refinancing of properties; and
. enter into leases and service contracts for the properties acquired.
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The term of the current advisory agreement ends on January 30, 2001 and may
be renewed for an unlimited number of successive one year periods.
Additionally, the advisory agreement may be terminated:
. immediately by us for "cause" or upon the bankruptcy of Wells Capital
or a material breach of the advisory agreement by Wells Capital;
. without cause by a majority of the independent directors of the Wells
REIT or a majority of the directors of Wells Capital upon 60 days'
written notice; or
. immediately with "good reason" by Wells Capital.
"Good reason" is defined in the advisory agreement to mean either:
. any failure by us to obtain a satisfactory agreement from our
successor to assume and agree to perform our obligations under the
advisory agreement; or
. any material breach of the advisory agreement of any nature whatsoever
by us.
"Cause" is defined in the advisory agreement to mean fraud, criminal
conduct, willful misconduct or willful or negligent breach of fiduciary duty by
Wells Capital or a breach of the advisory agreement by Wells Capital.
Wells Capital and its affiliates expect to engage in other business
ventures and, as a result, their resources will not be dedicated exclusively to
our business. However, pursuant to the advisory agreement, Wells Capital must
devote sufficient resources to the administration of the Wells REIT to discharge
its obligations. Wells Capital may assign the advisory agreement to an affiliate
upon approval of a majority of the independent directors. We may assign or
transfer the advisory agreement to a successor entity.
Wells Capital may not make any acquisition of property or financing of such
acquisition on our behalf without the prior approval of a majority of our
independent directors. The actual terms and conditions of transactions
involving investments in properties shall be determined in the sole discretion
of Wells Capital, subject at all times to such board approval.
We will reimburse Wells Capital for all of the costs it incurs in
connection with the services it provides to us, including, but not limited to:
. organization and offering expenses in an amount up to 3.0% of gross
offering proceeds, which include actual legal, accounting, printing
and expenses attributable to preparing the SEC registration statement,
qualification of the shares for sale in the states and filing fees
incurred by Wells Capital, as well as reimbursements for marketing,
salaries and direct expenses of its employees while engaged in
registering and marketing the shares and other marketing and
organization costs, other than selling commissions and the dealer
manager fee;
. the annual cost of goods and materials used by us and obtained from
entities not affiliated with Wells Capital, including brokerage fees
paid in connection with the purchase and sale of securities;
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. administrative services including personnel costs; provided, however,
that no reimbursement shall be made for costs of personnel to the
extent that personnel are used in transactions for which Wells Capital
receives a separate fee; and
. acquisition expenses, which are defined to include expenses related to
the selection and acquisition of properties, at the lesser of actual
cost or 90% of competitive rates charged by unaffiliated persons
providing similar services.
Wells Capital must reimburse us at least annually for reimbursements paid
to Wells Capital in any year to the extent that such reimbursements to Wells
Capital cause our operating expenses to exceed the greater of (1) 2% of our
average invested assets, which generally consists of the average book value of
our real estate properties before reserves for depreciation or bad debts, or (2)
25% of our net income, which is defined as our total revenues less total
expenses for any given period excluding reserves for depreciation and bad debt.
Such operating expenses do not include amounts payable out of capital
contributions which are capitalized for tax and accounting purposes such as the
acquisition and advisory fees payable to Wells Capital. To the extent that
operating expenses payable or reimbursable by us exceed this limit and the
independent directors determine that the excess expenses were justified based on
unusual and nonrecurring factors which they deem sufficient, Wells Capital may
be reimbursed in future years for the full amount of the excess expenses, or any
portion thereof, but only to the extent the reimbursement would not cause our
operating expenses to exceed the limitation in any year. Within 60 days after
the end of any of our fiscal quarters for which total operating expenses for the
12 months then ended exceed the limitation, there shall be sent to the
shareholders a written disclosure, together with an explanation of the factors
the independent directors considered in arriving at the conclusion that the
excess expenses were justified.
Wells Capital and its affiliates will be paid fees in connection with
services provided to us. (See "Management Compensation.") In the event the
advisory agreement is terminated, Wells Capital will be paid all accrued and
unpaid fees and expense reimbursements, and any subordinated acquisition fees
earned prior to the termination. We will not reimburse Wells Capital or its
affiliates for services for which Wells Capital or its affiliates are entitled
to compensation in the form of a separate fee.
Shareholdings
Wells Capital currently owns 20,000 limited partnership units of Wells OP,
our operating partnership, for which it contributed $200,000 and which
constitutes 100% of the limited partner units outstanding at this time. Wells
Capital may not sell any of these units during the period it serves as our
advisor. Wells Capital, also owns 100 shares of the Wells REIT, which it
acquired upon the initial formation of the Wells REIT. (See "The Operating
Partnership Agreement.") Any resale of the shares that Wells Capital currently
owns and the resale of any shares which may be acquired by our affiliates are
subject to the provisions of Rule 144 promulgated under the Securities Act of
1933, which rule limits the number of shares that may be sold at any one time
and the manner of such resale. Although Wells Capital and its affiliates are
not prohibited from acquiring additional shares, Wells Capital has no options or
warrants to acquire any additional shares and has no current plans to acquire
additional shares. Wells Capital has agreed to abstain from voting any shares
it now owns or hereafter acquires in any vote for the election of directors or
any vote regarding the approval or termination of any contract with Wells
Capital or any of its affiliates.
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<PAGE>
Affiliated Companies
Property Manager
Our properties will be managed and leased initially by Wells Management
Company, Inc. (Wells Management), our Property Manager. Wells Real Estate
Funds, Inc. is the sole shareholder of Wells Management, and Mr. Wells is the
President, Treasurer and sole director of Wells Management. (See "Conflicts of
Interest.") The other principal officers of Wells Management are as follows:
Name Age Positions
---- --- ---------
M. Scott Meadows 36 Senior Vice President and Secretary
Michael C. Berndt 53 Vice President and Chief Investment Officer
Michael L. Watson 55 Vice President
Wells Management is engaged in the business of real estate management. It
was organized and commenced active operations in 1983 to lease and manage real
estate projects which Wells Capital and its affiliates operate or in which they
own an interest. As of September 30, 2000, Wells Management was managing in
excess of 4,293,000 square feet of office buildings and shopping centers. We
will pay Wells Management property management and leasing fees not exceeding the
lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the net asset value of
the properties (excluding vacant properties) owned by the Wells REIT, calculated
on an annual basis. For purposes of this calculation, net asset value shall be
defined as the excess of (1) the aggregate of the fair market value of all
properties owned by the Wells REIT (excluding vacant properties), over (2) the
aggregate outstanding debt of the Wells REIT (excluding debts having maturities
of one year or less). In addition, we may pay Wells Management a separate fee
for the one-time initial rent-up or leasing-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 as determined by a survey of brokers and agents in such
area (customarily equal to the first month's rent).
In the event that Wells Management assists a tenant with tenant
improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5.0% of the cost of the tenant improvements.
Wells Management derives all of its income from its property management and
leasing operations. For the fiscal year ended December 31, 1999, Wells
Management reported $1,983,066 in gross operating revenues and $400,937 in net
income.
Wells Management will hire, direct and establish policies for employees who
will have direct responsibility for each property's operations, including
resident managers and assistant managers, as well as building and maintenance
personnel. Some or all of the other employees may be employed on a part-time
basis and may also be employed by one or more of the following:
. Wells Capital;
. Wells Management;
. partnerships organized by Wells Management and its affiliates; and
. other persons or entities owning properties managed by Wells
Management.
Wells Management will also direct the purchase of equipment and supplies and
will supervise all maintenance activity.
43
<PAGE>
The management fees to be paid to Wells Management will cover, without
additional expense to the Wells REIT, the property manager's general overhead
costs such as its expenses for rent and utilities.
The principal office of Wells Management is located at 6200 The Corners
Parkway, Suite 250, Norcross, Georgia 30092.
Dealer Manager
Wells Investment Securities, Inc. (Wells Investment Securities), our Dealer
Manager, is a member firm of the National Association of Securities Dealers,
Inc. (NASD). Wells Investment Securities was organized in May 1984 for the
purpose of participating in and facilitating the distribution of securities of
Wells programs.
Wells Investment Securities will provide certain wholesaling, sales
promotional and marketing assistance services to the Wells REIT in connection
with the distribution of the shares offered pursuant to this prospectus. It may
also sell a limited number of shares at the retail level. (See "Plan of
Distribution.")
Wells Real Estate Funds, Inc. is the sole shareholder of Wells Investment
Securities, and Mr. Wells is the President, Treasurer and sole director of Wells
Investment Securities. (See "Conflicts of Interest.")
IRA Custodian
Wells Advisors, Inc. (Wells Advisors) was organized in 1991 for the purpose
of acting as a non-bank custodian for IRAs investing in the securities of Wells
real estate programs. Wells Advisors currently charges no fees for such
services. Wells Advisors was approved by the Internal Revenue Service to act as
a qualified non-bank custodian for IRAs on March 20, 1992. In circumstances
where Wells Advisors acts as an IRA custodian, the authority of Wells Advisors
is limited to holding limited partnership units or REIT shares on behalf of the
beneficiary of the IRA and making distributions or reinvestments in such units
or shares solely at the direction of the beneficiary of the IRA. Well Advisors
is not authorized to vote any of such units or shares held in any IRA except in
accordance with the written instructions of the beneficiary of the IRA. Mr.
Wells is the President and sole director and owns 50% of the common stock and
all of the preferred stock of Wells Advisors. As of September 30, 2000, Wells
Advisors was acting as the IRA custodian for in excess of $85,843,000 in Wells
real estate program investments.
Management Decisions
The primary responsibility for the management decisions of Wells Capital,
our advisor, including the selection of our investments and the negotiation for
these investments, will reside in Leo F. Wells, III. Wells Capital seeks to
invest in commercial properties that satisfy our investment objectives,
typically office buildings located in densely populated suburban markets in
which the major tenant is a company with a net worth of in excess of
$100,000,000. The board of directors must approve all acquisitions of real
estate properties.
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<PAGE>
Management Compensation
The following table summarizes and discloses all of the compensation and
fees, including reimbursement of expenses, to be paid by the Wells REIT to Wells
Capital and its affiliates.
<TABLE>
<CAPTION>
Form of
Compensation Estimated
and Entity Determination Maximum
Receiving of Amount Dollar Amount(1)
--------- --------- ----------------
<S> <C> <C>
Organizational and Offering Stage
Selling Up to 7.0% of gross offering proceeds before reallowance $94,500,000
Commissions - of commissions earned by participating broker-dealers.
Wells Investment Wells Investment Securities, our Dealer Manager, intends
Securities to reallow 100% of commissions earned to participating
broker-dealers.
Dealer Manager Up to 2.5% of gross offering proceeds before reallowance $33,750,000
Fee - Wells to participating broker-dealers. Wells Investment
Investment Securities, in its sole discretion, may reallow a portion
Securities of its dealer manager fee of up to 1.5% of the gross
offering proceeds to be paid to such participating
broker-dealers as a marketing fee and due diligence
expense reimbursement, based on such factors as the
volume of shares sold by such participating
broker-dealers, marketing support and bona fide
conference fees incurred.
Reimbursement Up to 3.0% of gross offering proceeds. All organization $18,600,000
of Organization and offering expenses (excluding selling commissions and
and Offering the dealer manager fee) will be advanced by Wells Capital
Expenses - Wells or its affiliates and reimbursed by the Wells REIT up to
Capital or its 3.0% of gross offering proceeds. We currently estimate
Affiliates that approximately $18,600,000 of organization and
offering costs will be incurred if the maximum offering
of 135,000,000 shares is sold.
Acquisition and Development Stage
Acquisition Up to 3.0% of gross offering proceeds for the review and $40,500,000
and Advisory evaluation of potential real property acquisitions.
Fees - Wells
Capital or its
Affiliates (2)
Reimbursement Up to 0.5% of gross offering proceeds for reimbursement $ 6,750,000
of Acquisition of expenses related to real property acquisitions, such
Expenses - Wells as legal fees, travel expenses, property appraisals,
Capital or its title insurance premium expenses and other closing costs.
Affiliates (2)
</TABLE>
45
<PAGE>
<TABLE>
<S> <C> <C>
Operational Stage
Property For the management and leasing of our properties, we will Actual amounts
Management and pay Wells Management, our Property Manager, property are dependent
Leasing Fees - management fees equal to 2.5% of gross revenues and upon results of
Wells Management leasing fees equal to 2.0% of gross revenues; provided, operations and
however, that aggregate property management and leasing therefore cannot
fees payable to Wells Management shall not exceed the be determined at
lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the present time.
the net asset value of the properties (excluding vacant
properties) owned by the Wells REIT, calculated on an
annual basis. For purposes of this calculation, net
asset value shall be defined as the excess of (1) the
aggregate of the fair market value of all properties
owned by the Wells REIT (excluding vacant properties),
over (2) the aggregate outstanding debt of the Wells REIT
(excluding debts having maturities of one year or less).
In addition, we may pay Wells Management a separate fee
for the one-time initial rent-up or leasing-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 as determined by a survey of
brokers and agents in such area (customarily equal to the
first month's rent).
Real Estate In connection with the sale of properties, an amount not Actual amounts
Commissions - exceeding the lesser of: (A) 50% of the reasonable, are dependent
Wells Capital or customary and competitive real estate brokerage upon results of
its Affiliates commissions customarily paid for the sale of a comparable operations and
property in light of the size, type and location of the therefore cannot
property, or (B) 3.0% of the contract price of each be determined at
property sold, subordinated to distributions to the present time.
investors from sale proceeds of an amount which, together
with prior distributions to the investors, will equal (1)
100% of their capital contributions plus (2) an 8.0%
annual cumulative, noncompounded return on their net
capital contributions.
Subordinated After investors have received a return of their net Actual amounts
Participation in capital contributions and an 8.0% per year cumulative, are dependent
Net Sale noncompounded return, then Wells Capital is entitled to upon results of
Proceeds - Wells receive 10.0% of remaining net sales proceeds. operations and
Capital (3) therefore cannot
be determined at
the present time.
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C>
Subordinated Upon listing, a fee equal to 10.0% of the amount by which Actual amounts are
Incentive (1) the market value of the outstanding stock of the dependent upon
Listing Fee - Wells REIT plus distributions paid by the Wells REIT results of
Wells Capital prior to listing, exceeds (2) the sum of the total amount operations and
(4)(5) of capital raised from investors and the amount cash flow therefore cannot be
necessary to generate an 8.0% per year cumulative, determined at the
noncompounded return to investors. present time.
The Wells REIT may not reimburse any entity for operating
expenses in excess of the greater of 2% of our average
invested assets or 25% of our net income for the year.
</TABLE>
_________________________
(Footnotes to "Management Compensation")
1. The estimated maximum dollar amounts are based on the sale of a maximum of
125,000,000 shares to the public at $10 per share and the sale of
10,000,000 shares at $10 per share pursuant to our dividend reinvestment
plan.
2. Notwithstanding the method by which we calculate the payment of acquisition
fees and expenses, as described in the table, the total of all such
acquisition fees and acquisition expenses shall not exceed, in the
aggregate, an amount equal to 6.0% of the contract price of all of the
properties which we will purchase, as required by the NASAA Guidelines.
3. The subordinated participation in net sale proceeds and the subordinated
incentive listing fee to be received by Wells Capital are mutually
exclusive of each other. In the event that the Wells REIT becomes listed
and Wells Capital receives the subordinated incentive listing fee prior to
its receipt of the subordinated participation in net sale proceeds, Wells
Capital shall not be entitled to any such participation in net sale
proceeds.
4. If at any time the shares become listed on a national securities exchange
or included for quotation on Nasdaq, we will negotiate in good faith with
Wells Capital a fee structure appropriate for an entity with a perpetual
life. A majority of the independent directors must approve the new fee
structure negotiated with Wells Capital. In negotiating a new fee
structure, the independent directors shall consider all of the factors they
deem relevant, including but not limited to:
. the size of the advisory fee in relation to the size, composition and
profitability of our portfolio;
. the success of Wells Capital in generating opportunities that meet our
investment objectives;
. the rates charged to other REITs and to investors other than REITs by
advisors performing similar services;
. additional revenues realized by Wells Capital through their
relationship with us;
. the quality and extent of service and advice furnished by Wells
Capital;
47
<PAGE>
. the performance of our investment portfolio, including income,
conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations; and
. the quality of our portfolio in relationship to the investments
generated by Wells Capital for the account of other clients.
The board, including a majority of the independent directors, may not
approve a new fee structure that is, in its judgment, more favorable to
Wells Capital than the current fee structure.
5. The market value of the outstanding stock of the Wells REIT will be
calculated based on the average market value of the shares issued and
outstanding at listing over the 30 trading days beginning 180 days after
the shares are first listed on a stock exchange.
We have the option to pay the listing fee in the form of stock, cash, a
promissory note or any combination thereof. In the event the subordinated
incentive listing fee is paid to Wells Capital as a result of the listing
of the shares, we will not be required to pay Wells Capital any further
subordinated participation in net sales proceeds.
In addition, Wells Capital and its affiliates will be reimbursed only for
the actual cost of goods, services and materials used for or by the Wells REIT.
Wells Capital may be reimbursed for the administrative services necessary to the
prudent operation of the Wells REIT provided that the reimbursement shall be at
the lower of the advisor's actual cost or the amount the Wells REIT would be
required to pay to independent parties for comparable administrative services in
the same geographic location. We will not reimburse Wells Capital or its
affiliates for services for which they are entitled to compensation by way of a
separate fee. Excluded from allowable reimbursement shall be: (1) rent or
depreciation, utilities, capital equipment, other administrative items; and (2)
salaries, fringe benefits, travel expenses and other administrative items
incurred by or allocated to any controlling persons of Wells Capital or its
affiliates.
Since Wells Capital and its affiliates are entitled to differing levels of
compensation for undertaking different transactions on behalf of the Wells REIT
such as the property management fees for operating the properties and the
subordinated participation in net sale proceeds, the advisor has the ability to
affect the nature of the compensation it receives by undertaking different
transactions. However, Wells Capital is obligated to exercise good faith and
integrity in all its dealings with respect to our affairs pursuant to the
advisory agreement. (See "Management -- The Advisory Agreement.") Because
these fees or expenses are payable only with respect to certain transactions or
services, they may not be recovered by Wells Capital or its affiliates by
reclassifying them under a different category.
Stock Ownership
The following table shows, as of September 30, 2000, the amount of our
common stock beneficially owned (unless otherwise indicated) by (1) any person
who is known by us to be the beneficial owner of more than 5% of the outstanding
shares of common stock, (2) our directors, (3) our executive officers, and (4)
all of our directors and executive officers as a group.
48
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Shares Beneficially Owned
-------------------------------------------------------------------------------------------------------
Shares Percentage
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Name and Address of Beneficial Owner
-------------------------------------------------------------------------------------------------------
Leo F. Wells, III (1) 344 *
6200 The Corners Parkway, Suite 250
Norcross, GA 30092
-------------------------------------------------------------------------------------------------------
Douglas P. Williams (1) 100 *
6200 The Corners Parkway, Suite 250
Norcross, GA 30092
-------------------------------------------------------------------------------------------------------
John L. Bell (2) 1,000 *
800 Mt. Vernon Highway, Suite 230
Atlanta, GA 30328
-------------------------------------------------------------------------------------------------------
Richard W. Carpenter (2) 1,000 *
Realmark Holdings Corporation
P.O. Box 421669 (30342)
5570 Glenridge Drive
Atlanta, GA 30342
-------------------------------------------------------------------------------------------------------
Bud Carter (2) 1,000 *
The Executive Committee
100 Mount Shasta Lane
Alpharetta, GA 30022-5440
-------------------------------------------------------------------------------------------------------
William H. Keogler, Jr. (2) 1,000 *
469 Atlanta Country Club Drive
Marietta, GA 30067
-------------------------------------------------------------------------------------------------------
Donald S. Moss (2) 12,150 *
114 Summerour Vale
Duluth, GA 30097
-------------------------------------------------------------------------------------------------------
Walter W. Sessoms (2) 2,075 *
5995 River Chase Circle NW
Atlanta, GA 30328
-------------------------------------------------------------------------------------------------------
Neil H. Strickland (2) 1,000 *
Strickland General Agency, Inc.
3109 Crossing Park
P.O. Box 129
Norcross, GA 30091
-------------------------------------------------------------------------------------------------------
Northern Trust Co., Custodian for 2,230,262 8.52%
Wayne County Employees'
Retirement System
Attn: Laura Santiago
P.O. Box 92996
Chicago, IL 60675
-------------------------------------------------------------------------------------------------------
Luzerne County Employees Retirement 1,043,259 3.99%
Plan and Trust Dated 1/1/42
Attn: Retirement Office
North River & West Jackson Street
Courthouse Annex
Wilkes-Barre, PA 18711
-------------------------------------------------------------------------------------------------------
</TABLE>
49
<PAGE>
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------------------
Shares Beneficially Owned
-------------------------------------------------------------------------------------------------------
Shares Percentage
-------------------------------------------------------------------------------------------------------
<S> <C> <C>
Police & Fireman Retirement System 2,083,333 7.96%
City of Detroit
Attn: ________________
908 Coleman A. Young Municipal Center
Detroit, MI 48226
-------------------------------------------------------------------------------------------------------
All directors and executive officers 19,669 *
as a group/(1)(3)/
-------------------------------------------------------------------------------------------------------
</TABLE>
* Less than 1% of the outstanding common stock.
(1) Includes 100 shares owned by Wells Capital, which is a wholly-owned
subsidiary of Wells Real Estate Funds, Inc. Messrs. Wells and Williams are
both control persons of Wells Capital, and Mr. Wells is a control person of
Wells Real Estate Funds, Inc. Mr. Williams disclaims beneficial ownership
of the shares owned by Wells Capital.
(2) Includes options to purchase up to 1,000 shares of common stock, which are
exercisable within 60 days of September 30, 2000.
(3) Includes options to purchase an aggregate of up to 7,000 shares of common
stock, which are exercisable within 60 days of September 30, 2000.
Conflicts of Interest
We are subject to various conflicts of interest arising out of our
relationship with Wells Capital, our advisor, and its affiliates, including
conflicts related to the arrangements pursuant to which Wells Capital and its
affiliates will be compensated by the Wells REIT. (See "Management
Compensation.")
The independent directors have an obligation to function on our behalf in
all situations in which a conflict of interest may arise and will have a
fiduciary obligation to act on behalf of the shareholders. These conflicts
include, but are not limited to, the following:
Interests in Other Real Estate Programs
Wells Capital and its affiliates are general partners of other Wells
programs, including partnerships which have investment objectives similar to
those of the Wells REIT, and we expect that they will organize other such
partnerships in the future. Wells Capital and such affiliates have legal and
financial obligations with respect to these partnerships which are similar to
their obligations to the Wells REIT. As general partners, they may have
contingent liability for the obligations of such partnerships as well as those
of the Wells REIT which, if such obligations were enforced against them, could
result in substantial reduction of their net worth.
In addition, Wells Capital and its affiliates are currently sponsoring a
real estate program known as Wells Real Estate Fund XII, L.P. The registration
statement of Wells Real Estate Fund XII, L.P. was declared effective by the
Securities and Exchange Commission on March 22, 1999 for the offer and sale to
the public of up to 7,000,000 units of limited partnership interest at a price
of $10.00 per unit.
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<PAGE>
As described in the "Prior Performance Summary," Wells Capital and its
affiliates have sponsored the following 13 other public real estate programs
with substantially identical investment objectives as those of the Wells REIT:
1. Wells Real Estate Fund I (Wells Fund I),
2. Wells Real Estate Fund II (Wells Fund II),
3. Wells Real Estate Fund II-OW (Wells Fund II-OW),
4. Wells Real Estate Fund III, L.P. (Wells Fund III),
5. Wells Real Estate Fund IV, L.P. (Wells Fund IV),
6. Wells Real Estate Fund V, L.P. (Wells Fund V),
7. Wells Real Estate Fund VI, L.P. (Wells Fund VI),
8. Wells Real Estate Fund VII, L.P. (Wells Fund VII),
9. Wells Real Estate Fund VIII, L.P. (Wells Fund VIII),
10. Wells Real Estate Fund IX, L.P. (Wells Fund IX),
11. Wells Real Estate Fund X, L.P. (Wells Fund X),
12. Wells Real Estate Fund XI, L.P. (Wells Fund XI), and
13. Wells Real Estate Fund XII, L.P. (Wells Fund XII)
In the event that the Wells REIT, or any other Wells program or other
entity formed or managed by Wells Capital or its affiliates is in the market for
similar properties, Wells Capital will review the investment portfolio of each
such affiliated entity prior to making a decision as to which Wells program will
purchase such properties. (See "Certain Conflict Resolution Procedures.")
Wells Capital may acquire, for its own account or for private placement,
properties which it deems not suitable for purchase by the Wells REIT, whether
because of the greater degree of risk, the complexity of structuring inherent in
such transactions, financing considerations or for other reasons, including
properties with potential for attractive investment returns.
Other Activities of Wells Capital and its Affiliates
We rely on Wells Capital for the day-to-day operation of our business. As
a result of its interests in other Wells programs and the fact that it has also
engaged and will continue to engage in other business activities, Wells Capital
and its affiliates will have conflicts of interest in allocating their time
between the Wells REIT and other Wells programs and activities in which they are
involved. (See "Risk Factors -- Investment Risks.") However, Wells Capital
believes that it and its affiliates have sufficient personnel to discharge fully
their responsibilities to all of the Wells programs and ventures in which they
are involved.
In addition to the real estate programs sponsored by Wells Capital and its
affiliates discussed above, they are also sponsoring an index mutual fund which
invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT
Fund). The REIT Fund is a mutual fund which seeks to provide investment results
corresponding to the performance of the S&P REIT Index by investing in the REIT
stocks included in the S&P REIT Index.
Wells Capital or any of its affiliates may temporarily enter into contracts
relating to investment in properties to be assigned to the Wells REIT prior to
closing or may purchase property in their own name and temporarily hold title
for the Wells REIT provided that such property is purchased by the Wells REIT at
a price no greater than the cost of such property, including acquisition and
carrying costs, to Wells Capital or the affiliate. Further, Wells Capital or
such affiliate may not have held title to any such property on our behalf for
more than 12 months prior to the commencement of this offering; Wells Capital or
its affiliates shall not sell property to the Wells REIT if the cost of the
property exceeds the funds reasonably anticipated to be available for the Wells
REIT to purchase any such property; and all
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<PAGE>
profits and losses during the period any such property is held by the Wells REIT
or its affiliates will accrue to the Wells REIT. In no event may the Wells REIT:
. loan funds to Wells Capital or any of its affiliates; or
. enter into agreements with Wells Capital or its affiliates for the
provision of insurance covering the Wells REIT or any of our
properties.
Competition
Conflicts of interest will exist to the extent that we may acquire
properties in the same geographic areas where properties owned by other Wells
programs are located. In such a case, a conflict could arise in the leasing of
properties in the event that the Wells REIT and another Wells program were to
compete for the same tenants in negotiating leases, or a conflict could arise in
connection with the resale of properties in the event that the Wells REIT and
another Wells program were to attempt to sell similar properties at the same
time. (See "Risk Factors -- Investment Risks"). Conflicts of interest may also
exist at such time as the Wells REIT or our affiliates managing property on our
behalf seek to employ developers, contractors or building managers as well as
under other circumstances. Wells Capital will seek to reduce conflicts relating
to the employment of developers, contractors or building managers by making
prospective employees aware of all such properties seeking to employ such
persons. In addition, Wells Capital will seek to reduce conflicts which may
arise with respect to properties available for sale or rent by making
prospective purchasers or tenants aware of all such properties. However, these
conflicts cannot be fully avoided in that Wells Capital may establish differing
compensation arrangements for employees at different properties or differing
terms for resales or leasing of the various properties.
Affiliated Dealer Manager
Since Wells Investment Securities, our Dealer Manager, is an affiliate of
Wells Capital, we will not have the benefit of an independent due diligence
review and investigation of the type normally performed by an unaffiliated,
independent underwriter in connection with the offering of securities. (See
"Plan of Distribution.")
Affiliated Property Manager
Since we anticipate that properties we acquire will be managed and leased
by Wells Management, our Property Manager, we will not have the benefit of
independent property management. (See "Management -- Affiliated Companies.")
Lack of Separate Representation
Holland & Knight LLP is counsel to the Wells REIT, Wells Capital, Wells
Investment Securities and their affiliates in connection with this offering and
may in the future act as counsel to the Wells REIT, Wells Capital, Wells
Investment Securities and their affiliates. There is a possibility that in the
future the interests of the various parties may become adverse. In the event
that a dispute were to arise between the Wells REIT and Wells Capital, Wells
Investment Securities or any of their affiliates, separate counsel for such
matters will be retained as and when appropriate.
Joint Ventures with Affiliates of Wells Capital
We have entered into joint ventures with other Wells programs to acquire
and own properties and are likely to enter into one or more joint venture
agreements with other Wells programs for the
52
<PAGE>
acquisition, development or improvement of properties. (See "Investment
Objectives and Criteria -- Joint Venture Investments.") Wells Capital and its
affiliates may have conflicts of interest in determining which Wells program
should enter into any particular joint venture agreement. The co-venturer may
have economic or business interests or goals which are or which may become
inconsistent with our business interests or goals. In addition, should any such
joint venture be consummated, Wells Capital may face a conflict in structuring
the terms of the relationship between our interests and the interest of the
affiliated co-venturer and in managing the joint venture. Since Wells Capital
and its affiliates will control both the Wells REIT and the affiliated co-
venturer, agreements and transactions between the co-venturers with respect to
any such joint venture will not have the benefit of arm's-length negotiation of
the type normally conducted between unrelated co-venturers. (See "Risk Factors--
Investment Risks.")
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates
A transaction involving the purchase and sale of properties may result in
the receipt of commissions, fees and other compensation by Wells Capital and its
affiliates, including acquisition and advisory fees, the dealer manager fee,
property management and leasing fees, real estate brokerage commissions, and
participation in nonliquidating net sale proceeds. However, the fees and
compensation payable to Wells Capital and its affiliates relating to the sale of
properties are subordinated to the return to the shareholders of their capital
contributions plus cumulative returns on such capital. Subject to oversight by
the board of directors, Wells Capital has considerable discretion with respect
to all decisions relating to the terms and timing of all transactions.
Therefore, Wells Capital may have conflicts of interest concerning certain
actions taken on our behalf, particularly due to the fact that such fees will
generally be payable to Wells Capital and its affiliates regardless of the
quality of the properties acquired or the services provided to the Wells REIT.
(See "Management Compensation.")
Every transaction we enter into with Wells Capital or its affiliates is
subject to an inherent conflict of interest. The board may encounter conflicts
of interest in enforcing our rights against any affiliate in the event of a
default by or disagreement with an affiliate or in invoking powers, rights or
options pursuant to any agreement between us and any affiliate. A majority of
the independent directors who are otherwise disinterested in the transaction
must approve each transaction between us and Wells Capital or any of its
affiliates as being fair and reasonable to us and on terms and conditions no
less favorable to us than those available from unaffiliated third parties.
Certain Conflict Resolution Procedures
In order to reduce or eliminate certain potential conflicts of interest,
our articles of incorporation contain a number of restrictions relating to (1)
transactions we enter into with Wells Capital and its affiliates, (2) certain
future offerings, and (3) allocation of properties among affiliated entities.
These restrictions include, among others, the following:
. We will not accept goods or services from Wells Capital or its
affiliates unless a majority of the directors, including a majority of
the independent directors, not otherwise interested in the
transactions approve such transactions as fair and reasonable to the
Wells REIT and on terms and conditions not less favorable to the Wells
REIT than those available from unaffiliated third parties.
. We will not purchase or lease properties in which Wells Capital or its
affiliates has an interest without a determination by a majority of
the directors, including a majority of the independent directors, not
otherwise interested in such transaction, that such transaction is
competitive and commercially reasonable to the Wells REIT and at a
price to the Wells REIT no greater than the cost of the property to
Wells Capital or its affiliates unless there
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is substantial justification for any amount that exceeds such cost and
such excess amount is determined to be reasonable. In no event will we
acquire any such property at an amount in excess of its appraised
value. We will not sell or lease properties to Wells Capital or its
affiliates or to our directors unless a majority of the directors,
including a majority of the independent directors, not otherwise
interested in the transaction, determine the transaction is fair and
reasonable to the Wells REIT.
. We will not make any loans to Wells Capital or its affiliates or to
our directors. In addition, Wells Capital and its affiliates will not
make loans to us or to joint ventures in which we are a joint venture
partner for the purpose of acquiring properties. Any loans made to us
by Wells Capital or its affiliates or to our directors for other
purposes must be approved by a majority of the directors, including a
majority of the independent directors, not otherwise interested in the
transaction, as fair, competitive and commercially reasonable, and no
less favorable to the Wells REIT than comparable loans between
unaffiliated parties. Wells Capital and its affiliates shall be
entitled to reimbursement, at cost, for actual expenses incurred by
them on behalf of the Wells REIT or joint ventures in which we are a
joint venture partner, subject to the limitation on reimbursement of
operating expenses to the extent that they exceed the greater of 2% of
our average invested assets or 25% of our net income, as described in
the "Management -- The Advisory Agreement" section of this prospectus.
. In the event that an investment opportunity becomes available which is
suitable, under all of the factors considered by Wells Capital, for
the Wells REIT and one or more other public or private entities
affiliated with Wells Capital and its affiliates, then the entity
which has had the longest period of time elapse since it was offered
an investment opportunity will first be offered such investment
opportunity. In determining whether or not an investment opportunity
is suitable for more than one program, Wells Capital, subject to
approval by the board of directors, shall examine, among others, the
following factors:
. the cash requirements of each program;
. the effect of the acquisition both on diversification of each
program's investments by type of commercial property and
geographic area, and on diversification of the tenants of its
properties;
. the policy of each program relating to leverage of properties;
. the anticipated cash flow of each program;
. the income tax effects of the purchase of each program;
. the size of the investment; and
. the amount of funds available to each program and the length of
time such funds have been available for investment.
If a subsequent development, such as a delay in the closing of a property
or a delay in the construction of a property, causes any such investment, in the
opinion of our board of directors and Wells Capital, to be more appropriate for
a program other than the program that committed to make the investment, Wells
Capital may determine that another program affiliated with Wells Capital or its
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affiliates will make the investment. Our board of directors has a duty to ensure
that the method used by Wells Capital for the allocation of the acquisition of
properties by two or more affiliated programs seeking to acquire similar types
of properties shall be reasonable.
Investment Objectives and Criteria
General
We invest in commercial real estate properties, including properties which
are under development or construction, are newly constructed or have been
constructed and have operating histories. Our investment objectives are:
. to maximize cash dividends paid to you;
. to preserve, protect and return your capital contributions;
. to realize growth in the value of our properties upon our ultimate sale
of such properties; and
. to provide you with liquidity of your investment by listing the shares
on a national exchange or, if we do not obtain listing of the shares by
January 30, 2008, by selling our properties and distributing the net
proceeds from such sales to you.
We cannot assure you that we will attain these objectives or that our capital
will not decrease. We may not change our investment objectives, except upon
approval of shareholders holding a majority of the shares.
Decisions relating to the purchase or sale of properties will be made by
Wells Capital, as our advisor, subject to approval by the board of directors.
See "Management" for a description of the background and experience of the
directors and executive officers.
Acquisition and Investment Policies
We will seek to invest substantially all of the offering proceeds available
for investment after the payment of fees and expenses in the acquisition of high
grade commercial office buildings, which are newly constructed, under
construction, or which have been previously constructed and have operating
histories. We are not limited to such investments, however. We may invest in
other commercial properties such as shopping centers, business and industrial
parks, manufacturing facilities and warehouse and distribution facilities. We
will primarily attempt to acquire commercial properties which are less than five
years old, the space in which has been leased or preleased to one or more large
corporate tenants who satisfy our standards of creditworthiness. (See "Terms of
Leases and Tenant Creditworthiness.") The trend of Wells Capital and its
affiliates in the most recently sponsored Wells programs, including the Wells
REIT, has been to invest primarily in office buildings located in densely
populated suburban markets. (See "Description of Properties" and "Prior
Performance Summary.")
We will seek to invest in properties that will satisfy the primary
objective of providing cash dividends to shareholders. However, because a
significant factor in the valuation of income-producing real properties is their
potential for future income, we anticipate that the majority of properties we
acquire will have both the potential for growth in value and providing cash
dividends to shareholders. To the extent feasible, we will strive to invest in a
diversified portfolio of properties, in terms of geography, type of property and
industry group of our tenants, that will satisfy our investment objectives of
maximizing
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cash available for payment of dividends, preserving our capital and realizing
growth in value upon the ultimate sale of our properties.
We anticipate that a minimum of 84% of the proceeds from the sale of shares
will be used to acquire real estate properties and the balance will be used to
pay various fees and expenses. (See "Estimated Use of Proceeds.")
We will not invest more than 10% of the net offering proceeds available for
investment in properties in unimproved or non-income producing properties. A
property which is expected to produce income within two years of its acquisition
will not be considered a non-income producing property.
Our investment in real estate generally will take the form of holding fee
title or a long-term leasehold estate. We will acquire such interests either
directly in Wells OP (See "The Operating Partnership Agreement") or indirectly
through limited liability companies or through investments in joint ventures,
general partnerships, co-tenancies or other co-ownership arrangements with the
developers of the properties, affiliates of Wells Capital or other persons. (See
"Joint Venture Investments" below.) In addition, we may purchase properties and
lease them back to the sellers of such properties. While we will use our best
efforts to structure any such sale-leaseback transaction such that the lease
will be characterized as a "true lease" so that we will be treated as the owner
of the property for federal income tax purposes, we cannot assure you that the
IRS will not challenge such characterization. In the event that any such sale-
leaseback transaction is recharacterized as a financing transaction for federal
income tax purposes, deductions for depreciation and cost recovery relating to
such property would be disallowed. (See "Federal Income Tax Considerations --
Sale-Leaseback Transactions.")
Although we are not limited as to the geographic area where we may conduct
our operations, we intend to invest in properties located in the United States.
We are not specifically limited in the number or size of properties we may
acquire or on the percentage of net proceeds of this offering which we may
invest in a single property. The number and mix of properties we acquire will
depend upon real estate and market conditions and other circumstances existing
at the time we are acquiring our properties and the amount of proceeds we raise
in this offering.
In making investment decisions for us, Wells Capital will consider relevant
real estate property and financial factors, including the location of the
property, its suitability for any development contemplated or in progress, its
income-producing capacity, the prospects for long-range appreciation, its
liquidity and income tax considerations. In this regard, Wells Capital will have
substantial discretion with respect to the selection of specific investments.
Our obligation to close the purchase of any investment will generally be
conditioned upon the delivery and verification of certain documents from the
seller or developer, including, where appropriate:
. plans and specifications;
. environmental reports;
. surveys;
. evidence of marketable title subject to such liens and encumbrances as
are acceptable to Wells Capital;
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. audited financial statements covering recent operations of properties
having operating histories unless such statements are not required to
be filed with the Securities and Exchange Commission and delivered to
shareholders; and
. title and liability insurance policies.
We will not close the purchase of any property unless and until we obtain
an environmental assessment, a minimum of a Phase I review, for each property
purchased and are generally satisfied with the environmental status of the
property.
We may also enter into arrangements with the seller or developer of a
property whereby the seller or developer agrees that if during a stated period
the property does not generate a specified cash flow, the seller or developer
will pay in cash to the Wells REIT a sum necessary to reach the specified cash
flow level, subject in some cases to negotiated dollar limitations.
In determining whether to purchase a particular property, we may, in
accordance with customary practices, obtain an option on such property. The
amount paid for an option, if any, is normally surrendered if the property is
not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real estate properties, we will be
subject to risks generally incident to the ownership of real estate, including:
. changes in general economic or local conditions;
. changes in supply of or demand for similar or competing properties in an
area;
. changes in interest rates and availability of permanent mortgage funds
which may render the sale of a property difficult or unattractive;
. changes in tax, real estate, environmental and zoning laws;
. periods of high interest rates and tight money supply which may make the
sale of properties more difficult;
. tenant turnover; and
. general overbuilding or excess supply in the market area.
Development and Construction of Properties
We may invest substantially all of the proceeds available for investment in
properties on which improvements are to be constructed or completed although we
may not invest in excess of 10% of the offering proceeds available for
investment in properties which are not expected to produce income within two
years of their acquisition. To help ensure performance by the builders of
properties which are under construction, completion of properties under
construction shall be guaranteed at the price contracted either by an adequate
completion bond or performance bond. Wells Capital may rely upon the substantial
net worth of the contractor or developer or a personal guarantee accompanied by
financial statements showing a substantial net worth provided by an affiliate of
the person entering into the construction or development contract as an
alternative to a completion bond or performance bond. Development of real
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estate properties is subject to risks relating to a builder's ability to control
construction costs or to build in conformity with plans, specifications and
timetables. (See "Risk Factors -- Real Estate Risks.")
We may directly employ one or more project managers to plan, supervise and
implement the development of any unimproved properties which we may acquire.
Such persons would be compensated directly by the Wells REIT.
Acquisition of Properties from Wells Development Corporation
Although we have rarely done so in the past, we may acquire properties,
directly or through joint ventures with affiliated entities, from Wells
Development Corporation (Wells Development), a corporation formed by Wells
Management as a wholly owned subsidiary for the purposes of (1) acquiring
existing income-producing commercial real estate properties, and (2) acquiring
land, developing commercial real properties, securing tenants for such
properties, and selling such properties upon completion to the Wells REIT or
other Wells programs. In the case of properties to be developed by Wells
Development and sold to the Wells REIT, we anticipate that Wells Development
will:
. acquire a parcel of land;
. enter into contracts for the construction and development of a
commercial building thereon;
. enter into an agreement with one or more tenants to lease all or a
majority of the property upon its completion; and
. secure a financing commitment from a commercial bank or other
institutional lender to finance the acquisition and development of the
property.
Contracts between Wells Development and the Wells REIT will generally
provide for the Wells REIT to acquire the developed property upon its completion
and upon the tenant taking possession under its lease.
We will be required to pay a substantial sum to Wells Development at the
time of entering into the contract as a refundable earnest money deposit to be
credited against the purchase price at closing, which Wells Development will
apply to the cost of acquiring the land and initial development costs. We expect
that the earnest money deposit will represent approximately twenty to thirty
percent (20-30%) of the purchase price of the developed property set forth in
the purchase contract.
In the case of properties we acquire from Wells Development that have
already been developed, Wells Development will be required to obtain an
appraisal for the property prior to our contracting with them, and the purchase
price we will pay under the purchase contract will not exceed the fair market
value of the property as determined by the appraisal. In the case of properties
we acquire from Wells Development which have not yet been constructed at the
time of contracting, Wells Development will be required to obtain an independent
"as built" appraisal for the property prior to our contracting with them, and
the purchase price we will pay under the purchase contract will not exceed the
anticipated fair market value of the developed property as determined by the
appraisal.
We anticipate that Wells Development will use the earnest money deposit
received from the Wells REIT upon execution of a purchase contract as partial
payment for the cost of the acquisition of the land and construction
expenditures. Wells Development will borrow the remaining funds necessary to
complete the development of the property from an independent commercial bank or
other institutional
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lender by pledging the real property, development contracts, leases and all
other contract rights relating to the project as security for such borrowing.
Our contract with Wells Development will require it to deliver to us at closing
title to the property, as well as an assignment of leases. Wells Development
will hold the title to the property on a temporary basis only for the purpose of
facilitating the acquisition and development of the property prior to its resale
to the Wells REIT and other affiliates of Wells Capital.
We may enter into a contract to acquire property from Wells Development
notwithstanding the fact that at the time of contracting, we have not yet raised
sufficient proceeds to enable us to pay the full amount of the purchase price at
closing. We anticipate that we will be able to raise sufficient additional
proceeds from the offering during the period between execution of the contract
and the date provided in the contract for closing. In the case of properties to
be developed by Wells Development, the contract will likely provide that the
closing will occur immediately following the completion of the development by
Wells Development. However, the contract may also provide that we may elect to
close the purchase of the property before the development has been completed, in
which case we would obtain an assignment of the construction and development
contracts from Wells Development and would complete the construction either
directly or through a joint venture with an affiliate. Any contract between the
Wells REIT, directly or indirectly through a joint venture with an affiliate,
and Wells Development for the purchase of property to be developed by Wells
Development will provide that we will be obligated to purchase the property only
if:
. Wells Development completes the development of the improvements in
accordance with the specifications of the contract, and an approved
tenant takes possession of the building under a lease satisfactory to
our advisor; and
. we have sufficient proceeds available for investment in properties at
closing to pay the balance of the purchase price remaining after
payment of the earnest money deposit.
Wells Capital will not cause the Wells REIT to enter into a contract to
acquire property from Wells Development if it does not reasonably anticipate
that funds will be available to purchase the property at the time of closing.
If we enter into a contract to acquire property from Wells Development and, at
the time for closing, are unable to purchase the property because we do not have
sufficient proceeds available for investment, we will not be required to close
the purchase of the property and will be entitled to a refund of our earnest
money deposit from Wells Development. Because Wells Development is an entity
without substantial assets or operations, however, Wells Development's
obligation to refund our earnest money deposit will be guaranteed by Wells
Management. See the "Management -- Affiliated Companies" section of this
prospectus for a description of Wells Management.
If Wells Management is required to make good on its guaranty, we may not be
able to obtain the earnest money deposit from Wells Management in a lump sum
since Wells Management's only significant assets are its contracts for property
management and leasing services, in which case we would more than likely be
required to accept installment payments over some period of time out of Wells
Management's operating revenues. (See "Risk Factors -- Real Estate Risks.")
Terms of Leases and Tenant Creditworthiness
The terms and conditions of any lease we enter into with our tenants may
vary substantially from those we describe in this prospectus. However, we expect
that a majority of our leases will be what is generally referred to as "triple
net" leases. A "triple net" lease provides that the tenant will be required to
pay or reimburse the Wells REIT for all real estate taxes, sales and use taxes,
special assessments,
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utilities, insurance and building repairs, and other building operation and
management costs, in addition to making its lease payments.
Wells Capital has developed specific standards for determining the
creditworthiness of potential tenants of our properties. While authorized to
enter into leases with any type of tenant, we anticipate that a majority of our
tenants will be large corporations or other entities which have a net worth in
excess of $100,000,000 or whose lease obligations are guaranteed by another
corporation or entity with a net worth in excess of $100,000,000. As of
September 30, 2000, approximately 75% of the aggregate gross rental income of
the Wells REIT was derived from tenants which are corporations, each of which at
the time of lease execution had a net worth of at least $100,000,000 or whose
lease obligations were guaranteed by another corporation having a net worth of
at least $100,000,000.
In an attempt to limit or avoid speculative purchases, to the extent
possible, Wells Capital will seek to secure, on our behalf, leases with tenants
at or prior to the closing of our acquisitions of properties.
We anticipate that tenant improvements required to be funded by the
landlord in connection with newly acquired properties will be funded from our
offering proceeds. However, at such time as a tenant at one of our properties
does not renew its lease or otherwise vacates its space in one of our buildings,
it is likely that, in order to attract new tenants, we will be required to
expend substantial funds for tenant improvements and tenant refurbishments to
the vacated space. Since we do not anticipate maintaining permanent working
capital reserves, we may not have access to funds required in the future for
tenant improvements and tenant refurbishments in order to attract new tenants to
lease vacated space. (See "Risk Factors -- Real Estate Risks.")
Joint Venture Investments
We have entered into joint ventures in the past, and are likely to enter
into joint ventures in the future with affiliated entities for the acquisition,
development or improvement of properties for the purpose of diversifying our
portfolio of assets. (See "Description of Properties -- Joint Ventures with
Affiliates.") In this connection, we will likely enter into joint ventures with
Wells Fund XII, Wells Fund XIII or other Wells programs. Wells Capital also has
the authority to cause us to enter into joint ventures, general partnerships,
co-tenancies and other participations with real estate developers, owners and
others for the purpose of developing, owning and operating real properties.
(See "Conflicts of Interest.") In determining whether to invest in a particular
joint venture, Wells Capital will evaluate the real property which such joint
venture owns or is being formed to own under the same criteria described
elsewhere in this prospectus for the selection of real estate property
investments of the Wells REIT. (See generally "Investment Objectives and
Criteria.")
At such time as Wells Capital believes that a reasonable probability exists
that we will enter into a joint venture with another Wells program for the
acquisition or development of a specific property, this prospectus will be
supplemented to disclose the terms of such proposed investment transaction.
Based upon Wells Capital's experience, in connection with the development of a
property which is currently owned by a Wells program, this would normally occur
upon the signing of legally binding purchase agreement for the acquisition of a
specific property or leases with one or more major tenants for occupancy at a
particular property and the satisfaction of all major contingencies contained in
such purchase agreement, but may occur before or after any such time, depending
upon the particular circumstances surrounding each potential investment. You
should not rely upon such initial disclosure of any proposed transaction as an
assurance that we will ultimately consummate the proposed transaction or that
the information we provide in any supplement to this prospectus concerning any
proposed transaction will not change after the date of the supplement.
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We intend to enter into joint ventures with other Wells programs for the
acquisition of properties, but we may only do so provided that:
. a majority of our directors, including a majority of the independent
directors, approve the transaction as being fair and reasonable to the
Wells REIT;
. the investment by the Wells REIT and such affiliate are on
substantially the same terms and conditions; and
. we will have a right of first refusal to buy if such co-venturer
elects to sell its interest in the property held by the joint venture.
In the event that the co-venturer were to elect to sell property held in any
such joint venture, however, we may not have sufficient funds to exercise our
right of first refusal to buy the other co-venturer's interest in the property
held by the joint venture. In the event that any joint venture with an
affiliated entity holds interests in more than one property, the interest in
each such property may be specially allocated based upon the respective
proportion of funds invested by each co-venturer in each such property. Entering
into joint ventures with other Wells programs will result in certain conflicts
of interest. (See "Conflicts of Interest -- Joint Ventures with Affiliates of
Wells Capital.")
Borrowing Policies
While we strive for diversification, the number of different properties we
can acquire will be affected by the amount of funds available to us. See
"Description of Properties -- Real Estate Loans" for a description of our
existing loans and the outstanding loan balances.
Our ability to increase our diversification through borrowing could be
adversely impacted by banks and other lending institutions reducing the amount
of funds available for loans secured by real estate. When interest rates on
mortgage loans are high or financing is otherwise unavailable on a timely basis,
we may purchase certain properties for cash with the intention of obtaining a
mortgage loan for a portion of the purchase price at a later time.
There is no limitation on the amount we may invest in any single improved
property or on the amount we can borrow for the purchase of any property. The
NASAA Guidelines only limit our borrowing to 75% of the value of all properties
unless any excess borrowing is approved by a majority of the independent
directors and is disclosed to shareholders in our next quarterly report.
However, under our articles of incorporation, we have a self-imposed limitation
on borrowing which precludes us from borrowing in the aggregate in excess of 50%
of the value of all of our properties. As of November 30, 2000, we had an
aggregate debt leverage ratio of 20% of the value of our properties.
By operating on a leveraged basis, we will have more funds available for
investment in properties. This will allow us to make more investments than
would otherwise be possible, resulting in a more diversified portfolio.
Although our liability for the repayment of indebtedness is expected to be
limited to the value of the property securing the liability and the rents or
profits derived therefrom, our use of leveraging increases the risk of default
on the mortgage payments and a resulting foreclosure of a particular property.
(See "Risk Factors -- Real Estate Risks.") To the extent that we do not obtain
mortgage loans on our properties, our ability to acquire additional properties
will be restricted. Wells Capital will use its best efforts to obtain financing
on the most favorable terms available to us. Lenders may have recourse to
assets not securing the repayment of the indebtedness.
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Wells Capital will refinance properties during the term of a loan only in
limited circumstances, such as when a decline in interest rates makes it
beneficial to prepay an existing mortgage, when an existing mortgage matures or
if an attractive investment becomes available and the proceeds from the
refinancing can be used to purchase such investment. The benefits of the
refinancing may include an increased cash flow resulting from reduced debt
service requirements, an increase in dividend distributions from proceeds of the
refinancing, if any, and/or an increase in property ownership if some
refinancing proceeds are reinvested in real estate.
We may not borrow money from any of our directors or from Wells Capital and
its affiliates for the purpose of acquiring real properties. Any loans by such
parties for other purposes must be approved by a majority of the directors,
including a majority of the independent directors, not otherwise interested in
the transaction, as fair, competitive and commercially reasonable and no less
favorable to the Wells REIT than comparable loans between unaffiliated parties.
Disposition Policies
We intend to hold each property we acquire for an extended period. However,
circumstances might arise which could result in the early sale of some
properties. A property may be sold before the end of the expected holding period
if:
. the tenant has involuntarily liquidated;
. in the judgment of Wells Capital, the value of a property might decline
substantially;
. an opportunity has arisen to improve other properties;
. we can increase cash flow through the disposition of the property;
. the tenant is in default under the lease; or
. in our judgment, the sale of the property is in our best interests.
The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of relevant factors,
including prevailing economic conditions, with a view to achieving maximum
capital appreciation. We cannot assure you that this objective will be
realized. The selling price of a property which is net leased will be
determined in large part by the amount of rent payable under the lease. If a
tenant has a repurchase option at a formula price, we may be limited in
realizing any appreciation. In connection with our sales of properties we may
lend the purchaser all or a portion of the purchase price. In these instances,
our taxable income may exceed the cash received in the sale. (See "Federal
Income Considerations -- Failure to Qualify as a REIT.") The terms of payment
will be affected by custom in the area in which the property being sold is
located and the then prevailing economic conditions.
If our shares are not listed for trading on a national securities exchange
or included for quotation on Nasdaq by January 30, 2008, our articles of
incorporation require us to begin the sale of all of our properties and
distribute the net sale proceeds to you in liquidation of the Wells REIT. In
making the decision to apply for listing of our shares, the directors will try
to determine whether listing our shares or liquidating our assets will result in
greater value for the shareholders. It cannot be determined at this time the
circumstances, if any, under which the directors will agree to list our shares.
Even if our shares are not listed or included for quotation, we are under no
obligation to actually sell our portfolio within this period since the precise
timing will depend on real estate and financial markets, economic conditions of
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the areas in which the properties are located and federal income tax effects on
shareholders which may prevail in the future. Furthermore, we cannot assure you
that we will be able to liquidate our assets, and it should be noted that we
will continue in existence until all properties are sold and our other assets
are liquidated.
Investment Limitations
Our articles of incorporation place numerous limitations on us with respect
to the manner in which we may invest our funds. These limitations cannot be
changed unless our articles of incorporation are amended, which requires the
approval of the shareholders. Unless the articles are amended, we will not:
. invest in commodities or commodity futures contracts, except for
futures contracts when used solely for the purpose of hedging in
connection with our ordinary business of investing in real estate
assets and mortgages;
. invest in real estate contracts of sale, otherwise known as land sale
contracts, unless the contract is in recordable form and is
appropriately recorded in the chain of title;
. make or invest in mortgage loans except in connection with a sale or
other disposition of a property;
. make or invest in mortgage loans unless an appraisal is obtained
concerning the underlying property except for those mortgage loans
insured or guaranteed by a government or government agency. Mortgage
debt on any property shall not exceed such property's appraised value.
In cases where the board of directors determines, and in all cases in
which the transaction is with any of our directors or Wells Capital
and its affiliates, such appraisal shall be obtained from an
independent appraiser. We will maintain such appraisal in our records
for at least five years and it will be available for your inspection
and duplication. We will also obtain a mortgagee's or owner's title
insurance policy as to the priority of the mortgage;
. make or invest in mortgage loans that are subordinate to any mortgage
or equity interest of any of our directors, Wells Capital or its
affiliates;
. make or invest in mortgage loans, including construction loans, on any
one property if the aggregate amount of all mortgage loans on such
property would exceed an amount equal to 85% of the appraised value of
such property as determined by appraisal unless substantial
justification exists because of the presence of other underwriting
criteria;
. invest in junior debt secured by a mortgage on real property which is
subordinate to the lien or other senior debt except where the amount
of such junior debt plus any senior debt exceeds 90% of the appraised
value of such property, if after giving effect thereto, the value of
all such mortgage loans of the Wells REIT would not then exceed 25% of
our net assets, which shall mean our total assets less our total
liabilities;
. borrow in excess of 50% of the aggregate value of all properties owned
by us, provided that we may borrow in excess of 50% of the value of an
individual property;
. engage in any short sale or borrow on an unsecured basis, if the
borrowing will result in asset coverage of less than 300%. "Asset
coverage," for the purpose of this clause, means
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the ratio which the value of our total assets, less all liabilities
and indebtedness for unsecured borrowings, bears to the aggregate
amount of all of our unsecured borrowings;
. make investments in unimproved property or indebtedness secured by a
deed of trust or mortgage loans on unimproved property in excess of
10% of our total assets;
. issue equity securities on a deferred payment basis or other similar
arrangement;
. issue debt securities in the absence of adequate cash flow to cover
debt service;
. issue equity securities which are non-voting or assessable;
. issue "redeemable securities" as defined in Section 2(a)(32) of the
Investment Company Act of 1940;
. grant warrants or options to purchase shares to officers or affiliated
directors or to Wells Capital or its affiliates except on the same
terms as the options or warrants are sold to the general public and
the amount of the options or warrants does not exceed an amount equal
to 10% of the outstanding shares on the date of grant of the warrants
and options;
. engage in trading, as compared with investment activities, or engage
in the business of underwriting or the agency distribution of
securities issued by other persons;
. invest more than 5% of the value of our assets in the securities of
any one issuer if the investment would cause us to fail to qualify as
a REIT;
. invest in securities representing more than 10% of the outstanding
voting securities of any one issuer if the investment would cause us
to fail to qualify as a REIT; or
. lend money to Wells Capital or its affiliates.
Wells Capital will continually review our investment activity to attempt to
ensure that we do not come within the application of the Investment Company Act
of 1940. Among other things, Wells Capital will attempt to monitor the
proportion of our portfolio that is placed in various investments so that we do
not come within the definition of an "investment company" under the act. If at
any time the character of our investments could cause us to be deemed an
investment company for purposes of the Investment Company Act of 1940, we will
take the necessary action to attempt to ensure that we are not deemed to be an
"investment company."
Change in Investment Objectives and Limitations
Our articles of incorporation require that the independent directors review
our investment policies at least annually to determine that the policies we are
following are in the best interest of the shareholders. Each determination and
the basis therefor shall be set forth in our minutes. The methods of
implementing our investment policies also may vary as new investment techniques
are developed. The methods of implementing our investment objectives and
policies, except as otherwise provided in the organizational documents, may be
altered by a majority of the directors, including a majority of the independent
directors, without the approval of the shareholders.
64
<PAGE>
Description of Properties
General
As of December 15, 2000, we had purchased interests in 27 real estate
properties located in 15 states, all of which are leased to tenants on a triple-
net basis. The cost of each of the properties will be depreciated for tax
purposes over a 40 year period on a straight-line basis. We believe all of the
properties are adequately covered by insurance and are suitable for their
intended purposes. The following table provides certain additional information
about these properties.
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Property % Purchase Square Annual Lease
Tenant Location Owned Price Feet Rent Expiration
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Motorola, Inc. Plainfield, NJ 100% $33,648,156 236,710 $ 3,324,428 10/2010
--------------------------------------------------------------------------------------------------------------
Quest Software, Irvine, CA 7% $ 7,193,000 65,006 $ 1,287,119 12/2003
Inc.
--------------------------------------------------------------------------------------------------------------
Delphi Automotive Troy, MI 100% $19,800,000 107,152 $ 1,848,372 04/2007
Systems, LLC
--------------------------------------------------------------------------------------------------------------
Avnet, Inc. Tempe, AZ 100% $13,250,000 132,070 $ 1,516,164 04/2010
--------------------------------------------------------------------------------------------------------------
Siemens Automotive Troy, MI 50% $14,265,000 77,054 $ 1,309,918 08/2010
Corp.
--------------------------------------------------------------------------------------------------------------
Motorola, Inc. Tempe, AZ 100% $16,000,000 133,225 $ 1,843,834 08/2005
--------------------------------------------------------------------------------------------------------------
ASM Lithography, Tempe, AZ 100% $17,355,000 95,133 $ 1,927,788 06/2013
Inc.
--------------------------------------------------------------------------------------------------------------
Dial Corporation Scottsdale, AZ 100% $14,250,000 129,689 $ 1,387,672 08/2008
--------------------------------------------------------------------------------------------------------------
Metris Direct, Inc. Tulsa, OK 100% $12,700,000 101,100 $ 1,187,925 01/2010
--------------------------------------------------------------------------------------------------------------
Cinemark USA, Plano, TX 100% $21,800,000 66,024/ $ 1,366,491/ 12/2009
Inc./ The 52,084 $ 1,250,016 11/2006
Coca Cola Co.
--------------------------------------------------------------------------------------------------------------
The Gartner Group, Ft. Myers, FL 57% $ 8,320,000 62,400 $ 790,642 12/2008
Inc.
--------------------------------------------------------------------------------------------------------------
Marconi Data Wood Dale, IL 100% $32,630,940 250,354 $ 2,838,952 11/2011
Systems, Inc.
--------------------------------------------------------------------------------------------------------------
Johnson Matthey, Tredyffrin 57% $ 8,000,000 130,000 $ 789,750 6/2007
Inc. Township, PA
--------------------------------------------------------------------------------------------------------------
Alstom Power, Richmond, VA 100% $11,400,000 102,000 $ 1,183,731 7/2007
Inc.(1)
--------------------------------------------------------------------------------------------------------------
Sprint Leawood, KA 57% $9,9500,000 68,900 $ 999,048 5/2007
Communications
Company, L.P.
--------------------------------------------------------------------------------------------------------------
EYBL Cartex, Inc. Greenville, SC 57% $ 5,085,000 169,510 $ 508,530 2/2008
--------------------------------------------------------------------------------------------------------------
</TABLE>
65
<PAGE>
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------
Property % Purchase Square Annual Lease
Tenant Location Owned Price Feet Rent Expiration
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Matsushita Lake Forest, 100% $18,400,000 150,000 $ 1,830,000 1/2007
Avionics Systems CA
Corporation(1)
--------------------------------------------------------------------------------------------------------------
Pennsylvania Harrisburg, PA 100% $12,291,200 81,859 $ 1,416,221 11/2007
Cellular Telephone
Corp.
--------------------------------------------------------------------------------------------------------------
Pricewaterhouse- Tampa, FL 100% $21,127,854 130,091 $ 1,915,741 12/2008
Coopers, LLP
--------------------------------------------------------------------------------------------------------------
Cort Furniture Fountain 43.7% $ 6,400,000 52,000 $ 758,964 10/2003
Rental Corporation Valley, CA
--------------------------------------------------------------------------------------------------------------
Fairchild Fremont, CA 77.5% $ 8,900,000 58,424 $ 842,062 11/2004
Technologies
U.S.A., Inc.
--------------------------------------------------------------------------------------------------------------
Iomega Corporation Ogden City, UT 3.7% $ 5,025,000 108,000 $ 480,000 07/2006
--------------------------------------------------------------------------------------------------------------
ODS Technologies, Broomfield, CO 3.7% $ 8,275,000 51,974 $ 839,400 10/2001
L.P. and GAIAM,
Inc.
--------------------------------------------------------------------------------------------------------------
Ohmeda, Inc. Louisville, CO 3.7% $10,325,000 106,750 $ 1,004,520 01/2005
--------------------------------------------------------------------------------------------------------------
ABB Flakt, Inc. Knoxville, TN 3.7% $ 7,900,000 87,000 $ 881,150 12/2007
--------------------------------------------------------------------------------------------------------------
Avaya, Inc. Oklahoma 3.7% $ 5,504,276 55,017 $ 508,383 01/2008
City, OK
--------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes the actual costs incurred by Wells OP to develop and construct the
building in addition to the purchase price of the land.
Joint Ventures with Affiliates
The Wells Fund VIII-Fund IX-REIT Joint Venture
Wells OP entered into a Joint Venture Agreement with the Fund VIII-IX Joint
Venture known as the Wells Fund VIII-Fund IX-REIT Joint Venture (VIII-IX-REIT
Joint Venture) for the purpose of the ownership, leasing, operation, sale and
management of the Quest Building. The investment objectives of Wells Fund VIII
and Wells Fund IX are substantially identical to our investment objectives.
The Quest Building was originally purchased by the Fund VIII-IX Joint
Venture in January 1997. On June 9, 2000, the Fund VIII-IX Joint Venture
entered into a lease for the Quest Building with Quest Software, Inc. (Quest)
and subsequently contributed the Quest Building to the VIII-IX-REIT Joint
Venture as its capital contribution at an agreed upon value of $7,612,733.
Wells OP is anticipated to contribute a total of approximately $1,250,000 as its
capital contribution to the VIII-IX-REIT Joint Venture to fund the necessary
tenant improvements required under the lease with Quest Software, Inc., leasing
commissions and costs and expenses associated with the transfer of the Quest
Building to the VIII-IX-REIT Joint Venture.
66
<PAGE>
The VIII-IX-REIT Joint Venture Agreement provides that all income,
loss, profit, net cash flow, resale gain and sale proceeds of the VIII-IX-REIT
Joint Venture are to be allocated and distributed between Wells OP, Wells Fund
VIII and Wells Fund IX based upon their respective capital contributions to the
joint venture. As of September 30, 2000, the joint venture partners of the VIII-
IX-REIT Joint Venture had made the following contributions and held the
following equity percentage interests:
<TABLE>
<CAPTION>
---------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
---------------------------------------------------------------------
<S> <C> <C>
Wells OP $ 515,760 7.00%
---------------------------------------------------------------------
Wells Fund VIII $3,757,897 50.96%
---------------------------------------------------------------------
Wells Fund IX $3,099,992 42.04%
---------------------------------------------------------------------
</TABLE>
The Wells Fund XII-REIT Joint Venture
Wells Fund XII and Wells OP entered into a Joint Venture Partnership
Agreement for the purpose of acquiring, owning, leasing, operating and managing
real properties. The joint venture partnership is known as the Wells Fund XII-
REIT Joint Venture Partnership (XII-REIT Joint Venture). The investment
objectives of Wells Fund XII are substantially identical to our investment
objectives.
The XII-REIT Joint Venture Agreement provides that all income, loss,
profit, net cash flow, resale gain and sale proceeds of the XII-REIT Joint
Venture are to be allocated and distributed between Wells OP and Wells Fund XII
based upon their respective capital contributions to the joint venture. As of
September 30, 2000, the joint venture partners of the XII-REIT Joint Venture had
made the following contributions and held the following equity percentage
interests:
<TABLE>
<CAPTION>
-------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
-------------------------------------------------------------------
<S> <C> <C>
Wells OP $7,096,245 50.00%
-------------------------------------------------------------------
Wells Fund XII $7,096,245 50.00%
-------------------------------------------------------------------
</TABLE>
The XII-REIT Joint Venture owns the Siemens Building, which is
described below.
The Wells Fund XI-Fund XII-REIT Joint Venture
Wells OP entered into an Amended and Restated Joint Venture
Partnership Agreement with Wells Fund XI and Wells Fund XII for the purpose of
the acquisition, ownership, development, leasing, operation, sale and management
of real properties known as The Wells Fund XI-Fund XII-REIT Joint Venture (XI-
XII-REIT Joint Venture). The XI-XII-REIT Joint Venture was originally formed on
May 1, 1999 between Wells OP and Wells Fund XI. On June 21, 1999, Wells Fund XII
was admitted to the XI-XII-REIT Joint Venture as a joint venture partner. The
investment objectives of Wells Fund XI and Wells Fund XII are substantially
identical to our investment objectives.
The XI-XII-REIT Joint Venture Agreement provides that all income,
profit, loss, cash flow, resale gain, resale loss and sale proceeds of the XI-
XII-REIT Joint Venture will be allocated and distributed among Wells OP, Wells
Fund XI and Wells Fund XII based on their respective capital contributions to
the joint venture. As of September 30, 2000, the joint venture partners of the
XI-XII-REIT Joint Venture had made the following contributions and held the
following equity percentage interests:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
--------------------------------------------------------------------
<S> <C> <C>
Wells OP $17,641,211 56.77%
--------------------------------------------------------------------
Wells Fund XI $ 8,131,351 26.17%
--------------------------------------------------------------------
Wells Fund XII $ 5,300,000 17.06%
--------------------------------------------------------------------
</TABLE>
67
<PAGE>
The XI-XII-REIT Joint Venture owns the EYBL CarTex Building, the Sprint
Building, the Johnson Matthey Building and the Gartner Building, which are
described below.
The Fund IX, Fund X, Fund XI and REIT Joint Venture
Wells OP entered into an Amended and Restated Joint Venture Agreement
with Wells Fund IX, Wells Fund X and Wells Fund XI, known as The Fund IX, Fund
X, Fund XI and REIT Joint Venture (IX-X-XI-REIT Joint Venture) for the purpose
of the acquisition, ownership, development, leasing, operation, sale and
management of real properties. The IX-X-XI-REIT Joint Venture, formerly known as
Fund IX and X Associates, was originally formed on March 20, 1997 between Wells
Fund IX and Wells Fund X. On June 11, 1998, Wells OP and Wells Fund XI were
admitted as joint venture partners to the IX-X-XI-REIT Joint Venture. The
investment objectives of Wells Fund IX, Wells Fund X and Wells Fund XI are
substantially identical to our investment objectives.
The IX-X-XI-REIT Joint Venture Agreement provides that all income,
profit, loss, cash flow, resale gain, resale loss and sale proceeds of the IX-X-
XI-REIT Joint Venture will be allocated and distributed among Wells OP, Wells
Fund IX, Wells Fund X and Wells Fund XI based on their respective capital
contributions to the IX-X-XI-REIT Joint Venture. As of September 30, 2000, the
joint venture partners of the IX-X-XI-REIT Joint Venture had made the following
contributions and held the following equity percentage interests:
<TABLE>
<CAPTION>
-----------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
-----------------------------------------------------------------------
<S> <C> <C>
Wells OP $ 1,421,466 3.74%
-----------------------------------------------------------------------
Wells Fund IX $14,833,708 39.00%
-----------------------------------------------------------------------
Wells Fund X $18,420,162 48.43%
-----------------------------------------------------------------------
Wells Fund XI $ 3,357,436 8.83%
-----------------------------------------------------------------------
</TABLE>
The IX-X-XI-REIT Joint Venture owns the Avaya Building, the ABB
Knoxville Building, the Ohmeda Building, the Interlocken Building and the Iomega
Building, which are described below.
The Fremont Joint Venture
Wells OP entered into a Joint Venture Agreement known as Wells/Fremont
Associates (Fremont Joint Venture) with Fund X and Fund XI Associates (X-XI
Joint Venture), a joint venture between Wells Fund X and Wells Fund XI. The
purpose of the Fremont Joint Venture is the acquisition, ownership, leasing,
operation, sale and management of real properties, including, but not limited
to, the Fairchild Building.
As of September 30, 2000, Wells OP had made total capital contributions
to the Fremont Joint Venture of $6,983,110 and held an equity percentage
interest in the Fremont Joint Venture of 77.50%, and the Fund X-XI Joint Venture
had made total capital contributions to the Fremont Joint Venture of $2,000,000
and held an equity percentage interest in the Fremont Joint Venture of 22.50%.
The Cort Joint Venture
Wells OP entered into a Joint Venture Agreement with the X-XI Joint
Venture known as Wells/Orange County Associates (Cort Joint Venture) for the
purpose of the acquisition, ownership, leasing, operation, sale and management
of real properties, including, but not limited to, the Cort Furniture Building.
68
<PAGE>
As of September 30, 2000, Wells OP had made total capital contributions
to the Cort Joint Venture of $2,871,430 and held an equity percentage interest
in the Cort Joint Venture of 43.67%, and the Fund X-XI Joint Venture made total
capital contributions to the Cort Joint Venture of $3,695,000 and held an equity
percentage interest in the Cort Joint Venture of 56.33%.
General Provisions of Joint Venture Agreements
Wells OP is acting as the initial Administrative Venturer of the
VIII-IX-REIT Joint Venture, the XII-REIT Joint Venture, the XI-XII-REIT Joint
Venture, the IX-X-XI-REIT Joint Venture, the Fremont Joint Venture and the Cort
Joint Venture and, as such, is responsible for establishing policies and
operating procedures with respect to the business and affairs of each of these
joint ventures. However, approval of the other joint venture partners will be
required for any major decision or any action which materially affects these
joint ventures or their real property investments.
The XII-REIT Joint Venture Agreement, the XI-XII-REIT Joint Venture
Agreement and the IX-X-XI-REIT Joint Venture Agreement each allow any joint
venture partner to make a buy/sell election upon receipt by any other joint
venture partner of a bona fide third-party offer to purchase all or
substantially all of the properties or the last remaining property of the
respective joint venture. Upon receipt of notice of such third-party offer, each
joint venture partner must elect within 30 days after receipt of the notice to
either (1) purchase the entire interest of each venture partner that wishes to
accept the offer on the same terms and conditions as the third-party offer to
purchase, or (2) consent to the sale of the properties or last remaining
property pursuant to such third-party offer.
The Motorola Plainfield Building
The Motorola Plainfield Building is a three-story office building
containing approximately 236,710 rentable square feet on a 34.5 acre tract of
land. Wells OP purchased the Motorola Plainfield Building on November 1, 2000
for a purchase price of $33,648,156. In exchange for a reduction of the purchase
price and immediate occupancy in the Motorola Plainfield Building, Wells OP
agreed to assume a liability in the amount of $424,760 in the form of a rental
guaranty from Motorola, Inc. (Motorola) on the remainder of Motorola's previous
lease. Construction of the Motorola Plainfield Building was completed in 1976.
The Motorola Plainfield Building is located near Rutgers University in
Middlesex County, partially in the Borough of South Plainfield and partially in
the Township of Edison.
The Motorola Plainfield Building is leased to Motorola. Motorola is a
global leader in providing integrated communications solutions and embedded
electronic solutions, including software-enhanced wireless telephones, two-way
radios and digital and analog systems and set-top terminals for broadband cable
television operators.
The initial term of the Motorola lease is ten years which commenced on
November 1, 2000 and expires on October 31, 2010. Motorola has the right to
extend the Motorola lease for two additional five-year periods of time for a
base rent equal to the greater of (i) the last year's rent, or (ii) 95% of the
then-current "fair market rental rate." The base rent payable for the initial
lease term is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------
Lease Years Annual Rent Monthly Rent
------------------------------------------------------
<S> <C> <C>
Years 1-5 $3,324,428 $277,036
------------------------------------------------------
Years 6-10 $3,557,819 $296,485
------------------------------------------------------
</TABLE>
The Motorola lease grants Motorola a right of first refusal to purchase
the Motorola Plainfield Building if Wells OP attempts to sell the property
during the term of the lease.
69
<PAGE>
Additionally, upon giving written notice to Wells OP, Motorola has an
expansion right for an additional 143,000 rentable square feet. Upon completion
of the expansion, the term of the Motorola lease shall be extended an additional
ten years after Motorola occupies the expansion space. The base rent for the
expansion space shall be determined by the construction costs and fees for the
expansion. The base rent for the original building for the extended ten year
period shall be the greater of (i) the then-current base rent, or (ii) 95% of
the then-current "fair market rental rate."
The Quest Building
The Quest Building (formerly the Bake Parkway Building) is a two-story
office building containing approximately 65,006 rentable square feet on a 4.4
acre tract of land in Irvine, California. (See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources.") Construction of the Quest Building was completed in 1984
and the building was refurbished in 1996. The VIII-IX Joint Venture purchased
the Quest Building on January 10, 1997 for a purchase price of $7,193,000. On
July 1, 2000, the VIII-IX Joint Venture contributed the Quest Building to the
VIII-IX-REIT Joint Venture and was credited with making a capital contribution
to the joint venture in the amount of $7,612,733.
The Quest Building is currently leased to Quest Software, Inc. (Quest).
Quest is a publicly traded corporation that provides software database
management and disaster recovery services for its clients. Quest was established
in April 1987 to develop and market software products to help insure
uninterrupted, high performance access to enterprise and custom computing
applications and databases. Quest has organized their product offerings to
target application development and deployment, performance and availability, and
information delivery needs of the Oracle and other open systems markets. Quest
has grown to more than 1,000 people worldwide and has more than 5,000 installed
customer sites.
The initial term of the lease is forty-two (42) months which commenced
on June 9, 2000 and expires on December 31, 2003. The base rent payable for the
initial six months of the lease is $653,400. The annual base rent payable for
the remaining portion of the initial lease term is $1,287,119. Quest has the
right to extend the lease for two additional one year periods of time at an
annual base rent of $1,365,126.
The Delphi Building
The Delphi Building is a three-story office building containing
approximately 107,152 rentable square feet on a 5.52 acre tract of land. Wells
OP purchased the Delphi Building on June 29, 2000 for a purchase price of
$19,800,000. Construction of the Delphi Building was completed in May 2000.
The Delphi Building is located in Troy, Oakland County, Michigan, in the
heart of what is generally called "Automation Alley."
The Delphi Building is leased to Delphi Automotive Systems LLC (Delphi
LLC). Delphi LLC is a wholly owned subsidiary of Delphi Automotive Systems
Corporation (Delphi), formally the Automotive Components Group of General
Motors, which was spun off from General Motors in May 1999. Delphi is the
world's largest automotive components supplier and sells its products to almost
every major manufacturer of light vehicles in the world.
The initial term of the Delphi lease is seven years which commenced on
May 1, 2000 and expires on April 30, 2007. Delphi LLC has the right to extend
the Delphi lease for two additional five year
70
<PAGE>
periods of time at 95% of the then current fair market rental rate. The base
rent payable for the initial lease term is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
----------------------------------------------------------------------
<S> <C> <C>
Year 1 $1,848,372 $154,031
----------------------------------------------------------------------
Year 2 $1,901,948 $158,496
----------------------------------------------------------------------
Year 3 $1,955,524 $162,960
----------------------------------------------------------------------
Year 4 $2,009,100 $167,425
----------------------------------------------------------------------
Year 5 $2,062,676 $171,890
----------------------------------------------------------------------
Year 6 $2,116,252 $176,354
----------------------------------------------------------------------
Year 7 $2,169,828 $180,819
----------------------------------------------------------------------
</TABLE>
The Avnet Building
The Avnet Building is a two-story office building containing
approximately 132,070 rentable square feet on a 9.63 acre tract of land located
in Tempe, Arizona. Wells OP purchased the Avnet Building on June 12, 2000 for a
purchase price of $13,250,000. Construction of the Avnet Building was completed
in April 2000.
The Avnet Building is located on a 9.63 acre tract of land within the
Arizona State University Research Park. The land upon which the Avnet Building
is situated is subject to a long-term ground lease with Price-Elliott Research
Park, Inc.
The Avnet Building is leased to Avnet, Inc. (Avnet). Avnet is a Fortune
300 company and one of the world's largest industrial distributors of electronic
components and computer products, including microprocessors, semi-conductors and
electromechanical devices, serving customers in sixty countries. Additionally,
Avnet distributes a variety of computer products to consumers and resellers.
Avnet sells products of more than one hundred of the world's leading component
manufacturers to customers around the world.
The initial term of the Avnet lease is ten years which commenced on May
1, 2000 and expires on April 30, 2010. Avnet has the right to extend the Avnet
lease for two additional five year periods of time. The yearly rent payable for
the first three years of each extension period will be at the current fair
market rental rate at the end of the preceding term. The yearly rent payable for
the fourth and fifth years of each extension period will be the current fair
market rental rate at the end of the preceding term multiplied by a factor of
1.093.
The base rent payable for the initial lease term is as follows:
<TABLE>
<CAPTION>
----------------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
----------------------------------------------------------------------
<S> <C> <C>
Years 1-3 $1,516,164 $126,347
----------------------------------------------------------------------
Years 4-6 $1,657,479 $138,123
----------------------------------------------------------------------
Years 7-10 $1,812,000 $151,000
----------------------------------------------------------------------
</TABLE>
Avnet has a right of first refusal to purchase the Avnet Building if
Wells OP attempts to sell the Avnet Building during the term of the Avnet lease.
Avnet also has an expansion option which allows Avnet the ability to
expand the Avnet Building during the term of the Avnet lease. Wells OP has the
option to undertake the expansion or allow Avnet to undertake the expansion at
its own expense, subject to certain terms and conditions.
71
<PAGE>
The Avnet ground lease commenced on April 5, 1999 and expires on September
30, 2083. The ground lease payments required pursuant to the Avnet ground lease
are as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------------
Lease Years Annual Rent
--------------------------------------------------------------------
<S> <C>
Years 1-10 $230,777
--------------------------------------------------------------------
Years 11-20 $302,108
--------------------------------------------------------------------
Years 21-30 $390,223
--------------------------------------------------------------------
Years 31-40 10% of fair market value of land in year 30
--------------------------------------------------------------------
Years 41-50 Rent from year 45 plus 3% per year increase
--------------------------------------------------------------------
Years 51-60 Rent from year 55 plus 3% per year increase
--------------------------------------------------------------------
Years 61-70 10% of fair market value of land in Year 65
--------------------------------------------------------------------
Years 71-85 Rent from year 75 plus 3% per year increase
--------------------------------------------------------------------
</TABLE>
Wells OP has the right to terminate the Avnet ground lease prior to the
expiration of the 30/th/ year.
The Siemens Building
The Siemens Building is a three-story office building containing
approximately 77,054 rentable square feet on a 5.3 acre tract of land located in
Troy, Michigan. The XII-REIT Joint Venture purchased the Siemens Building on May
10, 2000 for a purchase price of $14,265,000. The Siemens Building is located at
4685 Investment Drive in Troy Michigan in the heart of "Automation Alley."
The Siemens Building is leased to Siemens Automotive Corporation (Siemens).
Siemens is a subsidiary of Siemens Corporation USA, a domestic corporation which
conducts the American operations of Siemens AG, the world's second largest
manufacturer of electronic capital goods. Siemens, part of the worldwide
Automotive Systems Group of Siemens AG, is a supplier of advanced electronic and
electrical products and systems to automobile manufacturers.
The initial term of the Siemens lease is ten years which commenced on March
3, 2000 and expires on August 31, 2010. Siemens has the right to extend the
Siemens lease for two additional five year periods of time at 95% of the then
current fair market rental rate. The base rent payable for the initial lease
term is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------
Lease Year Annual Rent Monthly Rent
--------------------------------------------------------
<S> <C> <C>
Year 1 $1,309,918 $109,160
--------------------------------------------------------
Year 2 $1,342,281 $111,857
--------------------------------------------------------
Year 3 $1,374,643 $114,554
--------------------------------------------------------
Year 4 $1,407,006 $117,251
--------------------------------------------------------
Year 5 $1,439,369 $119,947
--------------------------------------------------------
Year 6 $1,471,731 $122,644
--------------------------------------------------------
Year 7 $1,504,094 $125,341
--------------------------------------------------------
Year 8 $1,536,457 $128,038
--------------------------------------------------------
Year 9 $1,568,819 $130,735
--------------------------------------------------------
Year 10 and first $1,601,182 $133,432
6 months of Year 11
---------------------------------------------------------
</TABLE>
Siemens has a one-time right to cancel the Siemens lease effective after
the 90/th/ month of the lease term if Siemens (a) provides written notice of
such cancellation on or before the last day of the 78/th/ month, and (b) pays a
cancellation fee to the XII-REIT Joint Venture currently calculated to be
approximately $1,234,160.
72
<PAGE>
The Motorola Tempe Building
The Motorola Tempe Building is a two-story office building containing
approximately 133,225 rentable square feet in Tempe, Arizona. Wells OP
purchased the Motorola Tempe Building on March 29, 2000 for a purchase price of
$16,000,000. Construction of the Motorola Tempe Building was completed in July
1998.
The Motorola Tempe Building is located on a 12.44 acre tract of land at
8075 South River Parkway within the Arizona State University Research Park. The
land upon which the Motorola Tempe Building is situated is subject to a long-
term ground lease with Price-Elliott Research Park, Inc.
The purchase of the Motorola Tempe Building was partially financed with
$5,000,000 in loan proceeds provided by Ryan Companies US, Inc. as seller
financing in connection with the purchase of the Motorola Tempe Building
(Motorola Loan). The Motorola Loan, which is more particularly described in the
"Real Estate Loans" section of the prospectus, is secured by a first mortgage
against the Motorola Tempe Building.
The Motorola Tempe Building is leased to Motorola, Inc. (Motorola). The
Motorola Tempe 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. SATCOM is the prime contractor
for the Iridium System and is primarily engaged in computer design and
development functions.
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
then prevailing market rental rate. The rent payable under the Motorola lease,
out of which Wells OP will be required to make the ground lease payments
described below, is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
--------------------------------------------------------------
<S> <C> <C>
Years 1-4 $1,843,834 $153,653
--------------------------------------------------------------
Years 5-7 $2,054,329 $171,194
--------------------------------------------------------------
</TABLE>
Motorola has an expansion option which allows Motorola the ability to
expand the building between 21,000 and 40,000 rentable square feet with
additional parking spaces to be constructed by Wells OP. Motorola must exercise
its expansion right before August 17, 2001. In the event that Motorola exercises
its expansion option, the rent on the expansion space will be calculated based
upon a 10.5% return on costs of the expansion, including construction costs, and
Wells OP will be entitled to a development fee in an amount equal to 8% of the
cost of the construction of the expansion building shell.
The Motorola ground lease commenced November 19, 1997 and expires on
December 31, 2082. The ground lease payments required pursuant to the Motorola
ground lease are as follows:
<TABLE>
<CAPTION>
---------------------------------------------------------------
Lease Years Annual Rent
---------------------------------------------------------------
<S> <C>
Years 1-15 $243,825
---------------------------------------------------------------
Years 16-25 $357,240
---------------------------------------------------------------
Years 26-35 $466,015
---------------------------------------------------------------
Years 36-45 10% of Fair Market Value of Land in year 35
---------------------------------------------------------------
Years 46-55 Rent from year 45 plus 3% per year increase
---------------------------------------------------------------
Years 56-65 Rent from year 55 plus 3% per year increase
---------------------------------------------------------------
Years 66-75 10% of Fair Market Value in year 65
---------------------------------------------------------------
Years 76-85 Rent from year 75 plus 3% per year increase
---------------------------------------------------------------
</TABLE>
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<PAGE>
Wells OP has the right to terminate the Motorola ground lease prior to
the expiration of the 30th year and prior to the expiration of each subsequent
ten-year period thereafter.
The ASML Building
The ASML Building is a two-story office and warehouse building containing
approximately 95,133 rentable square feet located in Tempe, Arizona. Wells OP
purchased the ASML Building on March 29, 2000 for a purchase price of
$17,355,000. Construction on the ASML Building was completed in June 1995.
The ASML Building is subject to a first priority mortgage interest in favor
of SouthTrust securing the SouthTrust Line of Credit, which is more particularly
described in the "Real Estate Loans" section of the prospectus.
The ASML Building is located on a 9.51 acre tract of land at 8555 South
River Parkway within the Arizona State University Research Park. The land upon
which the ASML Building is situated is subject to a long-term ground lease with
Price-Elliott Research Park, Inc.
The ASML Building is leased to ASM Lithography, Inc. (ASML). 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. These systems are supplied to integrated circuit manufacturers
throughout the United States, Asia, and Western Europe. ASML Holdings is 24%
owned by Philips Electronics and has strategic partnerships with a number of
major companies including Lucent Technologies, Applied Materials, Samsung,
Hyundai and Motorola.
The initial term of the ASML lease is 15 years which commenced on June 4,
1998 and expires on June 30, 2013. The base rent payable for the ASML Building,
out of which Wells OP will be required to make the ground lease payments
described below, is as follows:
<TABLE>
<CAPTION>
------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
------------------------------------------------------------
<S> <C> <C>
1-5 $1,927,788 $160,649
------------------------------------------------------------
6-10 $2,130,124 $177,510
------------------------------------------------------------
11-15 $2,354,021 $196,168
------------------------------------------------------------
</TABLE>
ASML has an expansion option which allows ASML the ability to expand the
building into at least an additional 30,000 rentable square feet, to be
constructed by Wells OP. If the expansion option exercised is for less than
30,000 square feet, Wells OP may reject the exercise at its sole discretion. In
the event that ASML exercises its expansion option after the first five years of
the initial lease term, such lease term will be extended to ten years from the
date of such expansion.
The ASML ground lease commenced on August 22, 1997 and expires on December
31, 2082. The ground lease payments required pursuant to the ASML ground lease
are as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------------
Lease Years Annual Rent
-----------------------------------------------------------------
<S> <C>
Years 1-15 $186,368
-----------------------------------------------------------------
Years 16-25 $273,340
-----------------------------------------------------------------
Years 26-35 $356,170
-----------------------------------------------------------------
Years 36-45 10% of Fair Market Value of Land in year 35
-----------------------------------------------------------------
Years 46-55 Rent from year 45 plus 3% per year increase
-----------------------------------------------------------------
</TABLE>
74
<PAGE>
<TABLE>
-----------------------------------------------------------------
Lease Years Annual Rent
-----------------------------------------------------------------
<S> <C>
Years 56-65 Rent from year 55 plus 3% per year increase
-----------------------------------------------------------------
Years 66-75 10% of Fair Market Value in Year 65
-----------------------------------------------------------------
Years 76-85 Rent from year 75 plus 3% per year increase
-----------------------------------------------------------------
</TABLE>
Wells OP has the right to terminate the ASML ground lease prior to the
expiration of the 30/th/ year, and prior to the expiration of each subsequent
ten-year period thereafter.
The Dial Building
The Dial Building is a two-story office building containing approximately
129,689 rentable square feet located in Scottsdale, Arizona. Wells OP purchased
the Dial Building on March 29, 2000 for a purchase price of $14,250,000.
Construction of the Dial Building was completed in 1997.
The Dial Building is subject to a first priority mortgage interest in favor
of SouthTrust securing the SouthTrust Line of Credit, which is more particularly
described in the "Real Estate Loans" section of the prospectus.
The Dial Building is located at 15501 N. Dial Boulevard within the
Scottsdale Airpark Development in the City of Scottsdale which is eight miles
northeast of the center of Phoenix and is an integral part of metropolitan
Phoenix.
The Dial Building is leased to Dial Corporation (Dial). Dial currently has
its headquarters in the Dial Building and is one of the leading consumer product
manufacturers in the United States. Dial's brands include Dial soap, Purex
detergents, Renuzit air fresheners, Armour canned meats, and a variety of other
leading consumer products.
The initial term of the Dial lease is 11 years which commenced on August
14, 1997 and 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
Dial lease is $1,387,672.
The Metris Building
The Metris Building is a three-story office building containing
approximately 101,100 rentable square feet located in Tulsa, Oklahoma. Wells OP
purchased the Metris Building on February 11, 2000 for a purchase price of
$12,740,000. Construction of the Metris Building was completed on January 14,
2000.
Wells OP borrowed $8,000,000 from an existing revolving credit facility
(Metris Loan) at the time it purchased the Metris Building. The Metris Loan,
which is more particularly described in the "Real Estate Loans" section of the
prospectus, is secured by a first mortgage against the Metris Building.
The Metris Building is located on a 14.6 acre tract of land located at 4848
South 129/th/ East Avenue in the Silos Corporate Center, a prominent 126 acre
mixed-use park owned by State Farm Insurance Companies. The site is about 11
miles southeast of the Tulsa Commercial Business District and is bordered by the
Broken Arrow Expressway, the primary east-west thoroughfare linking the suburb
of Broken Arrow to downtown Tulsa.
The Metris Building is leased to Metris Direct, Inc. (Metris). Metris is a
principal subsidiary of Metris Companies Inc. (Metris Companies), 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
75
<PAGE>
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 company's
customers and prospects include individuals for whom credit bureau information
is available and existing customers of a former affiliate, Fingerhut
Corporation.
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 extend
the Metris lease for two additional five year periods of time. The base rent
payable for the Metris lease is as follows:
<TABLE>
<CAPTION>
-----------------------------------------------------------
Lease Years Annual Rent Monthly Rent
-----------------------------------------------------------
<S> <C> <C>
Years 1-5 $1,187,925 $ 98,994
-----------------------------------------------------------
Years 6-10 $1,306,718 $108,893
-----------------------------------------------------------
</TABLE>
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 building, size of premises and
any other relevant term or condition in making such fair market value rental
rate determination as of 12 months prior to commencement of the renewal term. If
the parties are unable to agree upon the market rate within 11 months prior to
commencement of the renewal term, the market rate shall then be determined by
arbitration.
The Cinemark Building
The Cinemark Building is a five-story office building containing
approximately 118,108 rentable square feet located in Plano, Texas. Wells OP
purchased the Cinemark Building on December 21, 1999 for a purchase price of
$21,800,000. Construction of the Cinemark Building was completed in September
1999.
The Cinemark Building is subject to a first priority mortgage interest in
favor of SouthTrust securing the SouthTrust Line of Credit, which is more
particularly described in the "Real Estate Loans" section of the prospectus.
The Cinemark Building is located on a 3.52-acre tract of land located at
3900 Dallas Parkway in Plano, Texas. The site is in a good location with quick
access to and visibility from the toll road. The City of Plano is located
approximately 20 miles north of downtown Dallas and is the largest city in
Collin County with a population of nearly 200,000 people.
The entire 118,108 rentable square feet of the Cinemark Building is
currently leased to two tenants. Cinemark USA, Inc. (Cinemark) occupies 66,024
rentable square feet of the Cinemark Building, and The Coca-Cola Company (Coca-
Cola) occupies the remaining 52,084 rentable square feet of the Cinemark
Building.
Cinemark, a privately owned company, is one of the largest motion picture
exhibitors in North and South America. Cinemark currently operates in excess of
2,575 screens in 32 states within the United States and internationally in
countries such as Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, El
Salvador, Honduras, Nicaragua, Mexico and Peru.
The initial term of the Cinemark lease is ten years which commenced on
December 21, 1999 and expires on December 20, 2009. Cinemark has the right to
extend the Cinemark lease for two additional five year periods of time. The
base rent payable for the Cinemark lease and first renewal term is as follows:
76
<PAGE>
<TABLE>
<CAPTION>
------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
------------------------------------------------------------
<S> <C> <C>
Years 1-7 $1,366,491 $113,874
------------------------------------------------------------
Years 8-10 $1,481,738 $123,478
------------------------------------------------------------
Years 11-15 $1,567,349 $130,612
------------------------------------------------------------
</TABLE>
The monthly base rent payable for the second renewal term of the Cinemark
lease shall be equal to 95% of the then current market rate based on the then
existing rates for comparable space of equivalent quality in Plano, Texas taking
into account location, quality, age of the office building, size of premises and
any other relevant term or condition in making such fair market value rental
rate determination. If the parties are unable to agree upon the market rate
within 15 business days after receipt of the renewal notice, each party shall
appoint a real estate appraiser to determine the market rate. If the two
appraisers cannot agree upon the market rate within 15 days of the commencement
of their deliberation, they shall appoint a third appraiser. The market rate
shall then be determined by the agreement of any two of the appraisers or the
average of the two closest rates if two appraisers cannot agree.
Cinemark shall have a right of first refusal to lease any of the remaining
rentable area of the Cinemark Building which subsequently becomes vacant and in
which Wells OP receives or makes an acceptable offer or proposal to lease such
vacant space to a bona fide third party. Wells OP shall offer to Cinemark in
writing the right to include the vacant space under its lease at the rental rate
set forth in the third party offer. Cinemark shall then have 15 days to
exercise this right of first refusal.
Coca-Cola is the global soft-drink industry leader with world headquarters
in Atlanta, Georgia. Coca-Cola manufactures and sells syrups, concentrates and
beverage bases for Coca-Cola, the company's flagship brand, and over 160 other
soft drink brands in nearly 200 countries around the world.
The initial term of the Coca-Cola lease is seven years which commenced on
December 1, 1999 and expires on November 30, 2006. The base rent payable for
the Coca-Cola lease term is as follows:
<TABLE>
<CAPTION>
--------------------------------------------------------
Lease Year Annual Rent Monthly Rent
--------------------------------------------------------
<S> <C> <C>
Year 1 $1,250,016 $104,168
--------------------------------------------------------
Year 2 $1,302,100 $108,508
--------------------------------------------------------
Year 3 $1,354,184 $112,848
--------------------------------------------------------
Year 4 $1,406,268 $117,189
--------------------------------------------------------
Year 5 $1,458,352 $121,529
--------------------------------------------------------
Year 6 $1,510,436 $125,870
--------------------------------------------------------
Year 7 $1,562,520 $130,210
--------------------------------------------------------
</TABLE>
Coca-Cola has the right to extend the lease for two additional five
year periods of time upon 240 days advance notice prior to the end of the term.
Within 30 days of the delivery of the renewal notice by Coca-Cola, Wells OP
shall deliver a rental notice to Coca-Cola stating the base rent payable during
the renewal term, which base rent shall be based upon the prevailing rental
rates for space of similar quality, size, utility, location, length of renewal
term and credit standing of the tenant. Coca-Cola must then notify Wells OP of
its intent to renew the lease on such terms within 30 days of delivery of the
rental notice by Wells OP.
77
<PAGE>
The Gartner Building
The Gartner Building is a two-story office building containing
approximately 62,400 rentable square feet located in Fort Myers, Florida. The
XI-XII-REIT Joint Venture purchased the Gartner Building on September 20, 1999
for a purchase price of $8,320,000. Construction of the Gartner Building was
completed in 1998.
The site is a 4.9 acre tract of land within the Gateway development at
12600 Gateway Boulevard. Gateway is a mixed use development with over 3,000
acres planned for residential purposes and over 800 acres planned for commercial
purposes. Sony Electronics and Ford Motor Credit Company are two of the
commercial tenants in this development.
The Gartner Building is currently leased to The Gartner Group, Inc.
(Gartner). The Gartner Building will be occupied by Gartner's Financial Services
Division. Gartner, which was founded in 1979, is one of the world's leading
independent providers of research and analysis related to information and
technology solutions. Gartner serves as a consultant to business clients for
their information technology purchasing decisions. Gartner has over 80 locations
worldwide and over 12,000 clients.
The initial term of the Gartner lease is ten years which commenced on
February 1, 1998 and expires on January 31, 2008. Gartner has the right to
extend the lease for two additional five year periods of time. The base rent
payable for the remainder of the lease term is as follows:
-------------------------------------------------------
Lease Year Annual Rent Monthly Rent
-------------------------------------------------------
Year 3 $790,642 $65,887
-------------------------------------------------------
Year 4 $810,408 $67,534
-------------------------------------------------------
Year 5 $830,668 $69,222
-------------------------------------------------------
Year 6 $851,435 $70,953
-------------------------------------------------------
Year 7 $872,721 $72,727
-------------------------------------------------------
Year 8 $894,539 $74,545
-------------------------------------------------------
Year 9 $916,902 $76,409
-------------------------------------------------------
Year 10 $939,825 $78,319
-------------------------------------------------------
The monthly base rent payable for each extended term of the lease will be
equal to the lesser of (i) the prior rate increased by 2.5%, or (ii) 95% of the
then current market rate which is calculated as a full-service rental rate less
anticipated annual operating expenses on a rentable square foot basis charged
for space of comparable location, size and conditions in comparable office
buildings in the Fort Myers area.
Gartner also has two expansion options for additional buildings under the
Gartner lease. The two option plans are described in the lease as the "Small
Option Building" and the "Large Option Building".
The "Small Option Building" and the "Large Option Building" expansion
options allow Gartner the ability to expand into separate, free standing
facilities of 30,000 to 32,000 rentable square feet and 60,000 to 75,000
rentable square feet respectively. Gartner may exercise its rights for either
expansion option by providing notice in writing to the joint venture on or
before February 15, 2002. In the event that Gartner exercises either expansion
option, the parties shall enter into a separate lease within 30 days of such
notice by Gartner with a guaranteed ten year lease term and yearly base rent to
be determined by mutual agreement of the parties.
78
<PAGE>
The Marconi Building
The Marconi Building (formerly known as the Viedojet Building) is a two-
story office, assembly and manufacturing building containing approximately
250,354 rentable square located in Wood Dale, Illinois. Wells OP purchased the
Marconi Building on September 10, 1999 for a purchase price of $32,630,940.
Construction of the Marconi Building was completed in 1991.
The site is a 15.3 acre tract of land located within the Chancellory
Business Park which is adjacent to the western entrance to O'Hare International
Airport. The site is also situated very convenient to most of Chicago's major
interstates, including the Elgin/O'Hare Expressway which, when finished, will
extend along Thorndale Road adjacent to the main entrance to the Chancellory
Business Park. The Chancellory Business Park consists of good quality office,
manufacturing and warehouse buildings mostly occupied by national tenants such
as Sony, Mitsubishi, NEC Minolta and United Airlines.
The Marconi Building is leased to Marconi Data Systems, Inc. (formerly
known as Videojet Systems International, Inc. until a December 1999 name
change). Marconi Data Systems, Inc. (Marconi) is the world's leading producer
of state-of-the-art industrial ink jet marking and coding products. Marconi
manufactures and distributes industrial ink jet printers, digital imaging
systems, laser coding systems, inks and fluids to customers worldwide. The
Marconi lease is guaranteed by GEC Incorporated, a Delaware corporation which is
a wholly-owned subsidiary of Marconi, p.l.c. (formerly known as General Electric
Company, p.l.c.), a publicly traded United Kingdom corporation that ranks among
the largest electronic system and equipment manufacturers in the world.
The initial term of the Marconi lease is 20 years which commenced in
November 1991 and expires in November 2011. Marconi has the right to extend the
Marconi lease for one additional five year period of time. The base rent payable
for the remainder of the lease term is as follows:
-----------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
-----------------------------------------------------------------
Year 9-10 $2,838,952 $236,579
-----------------------------------------------------------------
Years 11-20 $3,376,746 $281,396
-----------------------------------------------------------------
Extension Term $4,667,439 $388,953
-----------------------------------------------------------------
The Johnson Matthey Building
The Johnson Matthey Building is a 130,000 square foot research and
development, office and warehouse building. The XI-XII-REIT Joint Venture
purchased the Johnson Matthey Building on August 17, 1999 for a purchase price
of $8,000,000. The Johnson Matthey Building was first constructed in 1973 as a
multi-tenant facility and it was subsequently converted into a single-tenant
facility in 1998.
The site consists of a 10.0 acre tract of land located at 434-436 Devon
Park Drive in Tredyffrin Township, Chester County, Pennsylvania. The site is
located along the Route 202 "high tech" corridor close to King of Prussia and is
considered a suburb of Philadelphia. The site is within five minutes of Route
422, the Pennsylvania Turnpike and Interstate 76.
The Johnson Matthey Building is currently leased to Johnson Matthey, Inc.
(Johnson Matthey). Johnson Matthey is a wholly owned subsidiary of Johnson
Matthey, PLC of the United Kingdom, a world leader in advanced materials
technology. Johnson Matthey, PLC applies the latest technology to add value to
precious metals and other specialized materials. Johnson Matthey, PLC is a
publicly traded company that is over 175 years old, has operations in 38
countries and employs 12,000 people.
79
<PAGE>
Johnson Matthey is one of the parent company's primary operating companies
in the U.S. and includes the Catalytic Systems Division (CSD). The CSD is the
world's leading supplier of catalytic converters for automotive exhaust emission
and air pollution control. In addition, Johnson Matthey is the largest U.S.
supplier of diesel catalytic converters, which enable customers to meet
constantly tightening regulatory requirements.
The lease term of the Johnson Matthey lease is ten years which commenced in
July 1998 and expires in June 2007. Johnson Matthey has the right to extend the
lease for two additional three year periods of time. The base rent payable under
the Johnson Matthey lease for the remainder of the lease term is as follows:
---------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------------------------------------------------------------
Year 3 $789,750 $65,813
---------------------------------------------------------------
Year 4 $809,250 $67,438
---------------------------------------------------------------
Year 5 $828,750 $69,063
---------------------------------------------------------------
Year 6 $854,750 $71,229
---------------------------------------------------------------
Year 7 $874,250 $72,854
---------------------------------------------------------------
Year 8 $897,000 $74,750
---------------------------------------------------------------
Year 9 $916,500 $76,375
---------------------------------------------------------------
Year 10 $939,250 $78,271
---------------------------------------------------------------
The monthly base rent payable for each extension term will be equal to the
fair market rent taking into consideration rental rates for comparable
industrial and research and development properties in the local market area. If
the parties cannot agree upon the fair market rent, the matter shall be
submitted to arbitration.
Johnson Matthey has a right of first refusal to purchase the Johnson
Matthey Building in the event that the XI-XII-REIT Joint Venture desires to sell
the building to an unrelated third-party. The XI-XII-REIT Joint Venture must
give Johnson Matthey written notice of its intent to sell the Johnson Matthey
Building, and Johnson Matthey will have ten days from the date of such notice to
provide written notice of its intent to purchase the building. If Johnson
Matthey exercises its right of first refusal, it must purchase the Johnson
Matthey Building on the same terms contained in the offer.
The Alstom Power Building
The Alstom Power Building (formerly known as the ABB Richmond Building) is
a four-story brick office building containing 102,000 gross square feet located
in Midlothian, Virginia. Wells REIT, LLC - VA I (Wells LLC VA), a limited
liability company wholly owned by Wells OP, purchased a 7.49 acre tract of land
on July 22, 1999 for a purchase price of $936,250. Wells LLC VA completed
construction of the Alstom Power Building in July 2000 at an aggregate cost of
approximately $11,400,000, including the cost of the land.
Wells OP obtained a construction loan (Alstom Power Loan) from SouthTrust
Bank, N.A. in the maximum principal amount of $9,280,000, the proceeds of which
was used to fund the development and construction of the Alstom Power Building.
The Alstom Power Loan, which is more specifically detailed in the "Real Estate
Loans" section of the Prospectus, is secured by a pledge of the real estate, an
assignment of the landlord's interest in the Alstom Power lease and a $4,000,000
letter of credit issued by Unibank.
80
<PAGE>
The Alstom Power Building is part of a 250-acre office park in the Clover
Hill District of Chesterfield County, one of the fastest growing counties in
Virginia. Midlothian is located approximately nine miles southwest of the
Richmond central business district.
The Alstom Power Building is leased to Alstom Power, Inc. (Alstom Power).
Alstom Power is the result of the December 30, 1999, merger between ABB Power
Generation, Inc. (ABB Power) and ABB Alstom Power, Inc. As of June 22, 2000, ABB
Alstom Power, Inc. changed its name to Alstom Power, Inc. ABB Power was a
subsidiary of Asea Brown Boveri, Inc., a large multi-national engineering and
construction company headquartered in Switzerland.
The initial term of the Alstom Power lease is seven years which commenced
on July 24, 2000 and expires on July 23, 2007. Alstom Power has the right to
extend the lease for two additional five year periods of time. Each extension
option must be exercised by giving notice to the landlord at least 12 months
prior to the expiration of the then-current lease term. The base rent payable
under the Alstom Power lease will be as follows:
------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
------------------------------------------------------------------
Year 1 $1,183,731 $ 98,644
------------------------------------------------------------------
Year 2 $1,213,324 $101,110
------------------------------------------------------------------
Year 3 $1,243,657 $103,638
------------------------------------------------------------------
Year 4 $1,274,748 $106,229
------------------------------------------------------------------
Year 5 $1,306,618 $108,885
------------------------------------------------------------------
Year 6 $1,339,283 $111,607
------------------------------------------------------------------
Year 7 $1,372,765 $114,397
------------------------------------------------------------------
The monthly base rent payable for each extended term of the Alstom Power
lease will be equal to the "Market Rate" for new leases of office space in that
portion of the Richmond, Virginia market that is located south of the James
River and west of I-95 for space similar to the premises. In the event the
parties are unable to agree upon the Market Rate, then each party shall appoint
a real estate appraiser. If the appraisers are unable to agree upon the Market
Rate, they shall appoint a third appraiser and each shall make a determination
of the Market Rate. The appraisal that is farthest from the middle appraisal
shall be disregarded and the remaining two appraisals shall be averaged to
establish the Market Rate.
Alstom Power has a one-time option to terminate the Alstom Power lease as
to a portion of the premises containing between 12,500 and 13,000 rentable
square feet as of the third anniversary of the rental commencement date. If
Alstom Power elects to exercise this termination option, Alstom Power is
required to pay a termination fee equal to eight times the sum of the next due
installments of rent plus the unamortized portions of the base improvement
allowance, additional allowance and broker commission, each being amortized in
equal monthly installments of principal and interest over the initial term of
the lease at a rate of ten percent (10%) per annum. Alstom Power must give
notice of its intent to exercise such option to terminate at least seven months
in advance of the third anniversary; provided, however, that Alstom Power may
pay a penalty, as stipulated in the lease, to provide less than seven months
notice.
In the event that Alstom Power exercises its termination option as of the
third anniversary of the rental commencement date, Alstom Power has a one-time
option to terminate the Alstom Power lease as to a portion of the premises
containing between 12,500 and 13,000 rentable square feet as of the fifth
anniversary of the rental commencement date. If Alstom Power elects to exercise
this termination option, Alstom Power is required to pay a termination fee equal
to six times the sum of the next due installments of rent plus the unamortized
portions of the base improvement allowance, additional allowance and broker
commission, each being amortized in equal monthly installments of principal and
interest over the initial term of the lease at a rate of ten percent (10%) per
annum. Alstom Power must give notice of its
81
<PAGE>
intent to exercise such option to terminate at least seven months in advance of
the fifth anniversary; provided, however, that Alstom Power may pay a penalty,
as stipulated in the lease, to provide less than seven months notice.
In the event that Alstom Power does not exercise its termination option as
of the third anniversary of the rental commencement date, Alstom Power has a
one-time option to terminate the Alstom Power lease as to a portion of the
premises containing between 24,500 and 25,500 rentable square feet as of the
fifth anniversary of the rental commencement date. If Alstom Power elects to
exercise this termination option, Alstom Power is required to pay a termination
fee equal to six times the sum of the next due installments of rent plus the
unamortized portions of the base improvement allowance, additional allowance and
broker commission, each being amortized in equal monthly installments of
principal and interest over the initial term of the lease at a rate of ten
percent (10%) per annum. Alstom Power must give notice of its intent to exercise
such option to terminate at least nine months in advance of the fifth
anniversary; provided, however, that Alstom Power may pay a penalty, as
stipulated in the lease, to provide less than seven months notice.
The Sprint Building
The Sprint Building is a three-story office building with approximately
68,900 rentable square feet. The XI-XII-REIT Joint Venture purchased the Sprint
Building on July 2, 1999 for a purchase price of $9,500,000. Construction of the
Sprint Building was completed in 1992.
The Sprint Building is located on a 7.1 acre tract of land located adjacent
to the Leawood Country Club in Leawood, Kansas near the affluent Overland Park
suburb of Kansas City. The site is within walking distance of Ward Parkway Mall
and is convenient to downtown Kansas City and I-435, the interstate loop around
Kansas City.
The Sprint Building is leased to Sprint Communications Company L.P.
(Sprint). Sprint is the nation's third largest long distance phone company,
which operates on an all-digital long distance telecommunications network using
state-of-the-art fiber optic and electronic technology. Sprint provides domestic
and international voice, video and data communications services as well as
integration management and support services for computer networks.
The initial term of the Sprint lease is ten years which commenced on May
19, 1997 and expires in May 2007, subject to Sprint's right to extend the lease
for two additional five year periods of time. The monthly base rent payable
under the Sprint lease is $83,254 through May 18, 2002 and $91,867 for the
remainder of the lease term. The monthly base rent payable for each extended
term of the Sprint lease will be equal to 95% of the then-current market rate
for comparable office buildings in the suburban south Kansas City, Missouri and
south Johnson County, Kansas areas. If the parties are unable to agree upon the
current market rate within 30 days of the date negotiations begin, the current
market rate shall be determined by three licensed real estate brokers, one of
which will be selected by Sprint, one of which will be selected by the XI-XII-
REIT Joint Venture and the final appraiser will be selected by the two
appraisers previously selected.
The Sprint lease contains a termination option which may be exercised by
Sprint effective as of May 18, 2004 provided that Sprint has not exercised
either expansion option, as described below. Sprint must provide notice to the
XI-XII-REIT Joint Venture of its intent to exercise its termination option on or
before August 21, 2003. If Sprint exercises its termination option, it will be
required to pay the joint venture a termination payment equal to $6.53 per
square foot, or $450,199.
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<PAGE>
Sprint also has an expansion option for an additional 20,000 square feet of
office space which may be exercised in two expansion phases. Sprint's expansion
rights involve building on unfinished ground level space that is currently used
as covered parking within the existing building footprint and shell. At each
exercise of an expansion option, the remaining lease term will be extended to be
a minimum of an additional five years from the date of the completion of such
expansion space.
Sprint must give written notice to the XI-XII-REIT Joint Venture of its
election to exercise each expansion option at least 270 days prior to the date
Sprint will require delivery of the expansion space.
If Sprint exercises either expansion option, the XI-XII-REIT Joint Venture
will be required to construct the expansion improvements in accordance with the
specific drawings and plans attached as an exhibit to the Sprint lease. The
joint venture will be required to fund the expansion improvements and to fund to
Sprint a tenant finish allowance of $10 per square foot for the expansion space.
The base rental per square foot for the expansion space shall be determined
by the XI-XII-REIT Joint Venture taking into consideration the value of the
joint venture's work related to such expansion space and the base rental rate
increase per square foot applicable at the end of year five of the lease term.
The expansion space base rental rate shall be presented to Sprint no later than
45 days after delivery to the XI-XII-REIT Joint Venture of each expansion
notice. In no event shall such rental rate be greater than the base rental rate
for the Sprint Building as of the date of the expansion space commencement date.
The EYBL CarTex Building
The EYBL CarTex Building is a manufacturing and office building consisting
of a total of 169,510 square feet located in Greenville, South Carolina. The XI-
XII-REIT Joint Venture purchased the EYBL CarTex Building on May 18, 1999 for a
purchase price of $5,085,000. Construction of the EYBL CarTex Building was
originally completed in the early 1980s and an addition was completed in 1989.
The EYBL CarTex Building is located on an 11.9 acre tract of land at 111
SouthChase Boulevard in the SouthChase Industrial Park, which is located
adjacent to I-385 in southwest Greenville, South Carolina.
The EYBL CarTex Building is leased to EYBL CarTex, Inc. (EYBL CarTex). EYBL
CarTex produces automotive textiles for BMW, Mercedes, GM Bali, VW Mexico and
Golf A4. EYBL CarTex is a wholly-owned subsidiary of EYBL International, AG,
Krems/Austria. EYBL International is the world's largest producer of circular
knit textile products and loop pile plushes for the automotive industry. It has
plants in Austria, Germany, Hungary, Slovakia, Brazil and the United States.
The initial term of the EYBL CarTex lease is ten years which commenced on
March 1, 1998 and expires in February 2008, subject to EYBL CarTex's right to
extend the lease for two additional five year periods of time. The base rent
payable under the EYBL CarTex lease for the remainder of the lease term shall be
as follows:
----------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
----------------------------------------------------------------
Year 3 $508,530 $42,378
----------------------------------------------------------------
Year 4 $508,530 $42,378
----------------------------------------------------------------
Year 5 $550,908 $45,909
----------------------------------------------------------------
Year 6 $550,908 $45,909
----------------------------------------------------------------
Year 7 $593,285 $49,440
----------------------------------------------------------------
Year 8 $593,285 $49,440
----------------------------------------------------------------
Year 9 $610,236 $50,853
----------------------------------------------------------------
Year 10 $610,236 $50,853
----------------------------------------------------------------
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The monthly base rent payable for each extended term of the lease will be
equal to the fair market rent as submitted by the landlord. If the tenant does
not agree to the proposed rent by the landlord for the extension term, tenant
may require the fair market rent be determined by three appraisers, one of which
will be selected by the tenant, one by the landlord and the final appraiser
shall be selected by the first two appraisers.
Under the lease, EYBL CarTex has an option to purchase the EYBL CarTex
Building at the expiration of the initial lease term by giving notice to the
landlord by March 1, 2007. Within 30 days after landlord receives notice of
tenant's intent to exercise its purchase option, landlord shall submit a
proposed purchase price for the EYBL CarTex Building based upon its good faith
estimate of the fair market value of the building. If tenant does not agree to
the purchase price, tenant may require that the purchase price be established by
three appraisers, one of which will be selected by the tenant, one of which will
be selected by the landlord and the final appraiser shall be selected by the
first two appraisers. In no event, however, will the purchase price under the
purchase option be less than $5,500,000.
The Matsushita Building
The Matsushita Building is a two-story office building containing 150,000
rentable square feet. Wells OP purchased an 8.8 acre tract of land on March 15,
1999, for a purchase price of $4,450,230. Wells OP completed construction of the
Matsushita Building on January 4, 2000 at an aggregate cost of approximately
$18,400,000, including the cost of the land.
Wells OP obtained a construction loan (Matsushita Loan) from Bank of
America, N.A. in the maximum principal amount of $15,375,000, the proceeds of
which was used to fund the development and construction of the Matsushita
Building. The Matsushita Loan, which is more specifically detailed in the "Real
Estate Loans" section of the prospectus, is secured by a first priority mortgage
against the Matsushita Building.
The site is located in the Pacific Commercentre, which is a 33 acre master-
planned business park positioned near the Irvine Spectrum in the heart of
Southern California's Technology Coast. Pacific Commercentre is a nine building
complex featuring office, technology, and light manufacturing uses, and is
located in the city of Lake Forest in Southern Orange County.
The Matsushita Building is leased to Matsushita Avionics Systems
Corporation (Matsushita Avionics). Matsushita Avionics is a wholly owned
subsidiary of Matsushita Electric Corporation of America (Matsushita Electric).
Matsushita Avionics manufactures and sells audio-visual products to the airline
industry for passenger use in airplanes. Matsushita Electric is a wholly-owned
subsidiary of Matsushita Electric Industrial Co., Ltd. (Matsushita Industrial),
a Japanese company which is the world's largest consumer electronics
manufacturer. Matsushita Electric has guaranteed the obligations of Matsushita
Avionics under the Matsushita lease.
The initial term of the Matsushita lease is seven years which commenced on
January 4, 2000 and expires in January 2007. Matsushita Avionics has the option
to extend the initial term of the Matsushita lease for two successive five-year
periods. Each extension option must be exercised not more than 19 months and not
less than 15 months prior to the expiration of the then-current lease term. The
base rent payable under the Matsushita lease shall be as follows:
------------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
------------------------------------------------------------------
Years 1-2 $1,830,000 $152,500
------------------------------------------------------------------
Years 3-4 $1,947,120 $162,260
------------------------------------------------------------------
Years 5-6 $2,064,240 $172,020
------------------------------------------------------------------
Year 7 $2,181,360 $181,780
------------------------------------------------------------------
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The monthly base rent payable during the option term shall be 95% of the
stated rental rate at which, as of the commencement of the option term, tenants
are leasing non-expansion, non-affiliated, non-sublease, non-encumbered, non-
equity space comparable in size, location and quality to the Matsushita project
for a term of five years in the Lake Forest and Irvine area of Southern
California. The monthly base rent during the option term shall be adjusted
upward during the option term at the beginning of the 24/th/ and 48/th/ month of
each option term by an amount equal to 6% of the monthly base rent payable
immediately preceding such period. Within 30 days of tenant providing written
notice of its intent to exercise a renewal option, Wells OP shall deliver to
Matsushita Avionics notice containing the proposed rent for the option term. If,
after reasonable good faith efforts, landlord and tenant are unable to agree
upon the option rent before the 13/th/ month prior to the expiration of the
appropriate lease term, option rent shall be determined by arbitration.
The AT&T Building
The AT&T Building (formerly known as the Vanguard Building) is a four-story
office building containing approximately 81,859 rentable square feet located in
Harrisburg, Pennsylvania. Wells OP purchased the AT&T Building on February 4,
1999 for a purchase price of $12,291,200. Construction of the AT&T Building was
completed in November 1998.
Wells OP obtained a loan from Bank of America, N.A. (BOA Loan) in
connection with its original purchase of the AT&T Building. The BOA Loan, which
is more particularly described in the "Real Estate Loans" section of the
prospectus, is secured in part by a first mortgage against the AT&T Building.
The AT&T Building is located on 10.5 acres of land in Commerce Park, which
is located in the Lower Paxton Township, a planned business park, at the
intersection of Progress Avenue and Interstate Drive just off of the Progress
Avenue exit of Interstate 81.
The AT&T Building is leased to Pennsylvania Cellular Telephone Corp.
(Pennsylvania Telephone), a subsidiary of Vanguard Cellular Systems, Inc.
(Vanguard Cellular), and the obligations of Pennsylvania Telephone under the
Vanguard Cellular lease are guaranteed by Vanguard Cellular. Vanguard Cellular
is an independent operator of cellular telephone systems in the United States
with over 664,000 subscribers located in 26 markets in the Mid-Atlantic, Ohio
Valley and New England regions of the United States. Vanguard Cellular markets
its wireless products and services under the name CellularOne, a nationally
recognized brand name partially owned by Vanguard Cellular. Vanguard Cellular
operates primarily in suburban and rural areas that are close in proximity to
major urban areas, which it believes affords several advantages over its
traditional urban competitors, including (1) greater network capacity, (2)
greater roaming revenue opportunities, (3) lower distribution costs, and (4)
higher barriers to entry by competitors.
On May 3, 1999, Vanguard Cellular was merged with and became a wholly-owned
subsidiary of AT&T Corp.
The initial term of the Vanguard Cellular lease is ten years which
commenced on November 16, 1998 and expires in November 2007. Vanguard has the
option to extend the initial term of the Vanguard Cellular lease for three
additional five year periods and one additional four year and 11 month period.
Each extension option must be exercised by giving written notice to the landlord
at least 12 months prior to the expiration date of the then-current lease term.
The following table summarizes the annual base rent payable during the remainder
of the initial term of the Vanguard Cellular lease:
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----------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
----------------------------------------------------------------
Year 3 $1,416,221 $118,018
----------------------------------------------------------------
Year 4 $1,442,116 $120,176
----------------------------------------------------------------
Year 5 $1,468,529 $122,377
----------------------------------------------------------------
Year 6 $1,374,011 $114,501
----------------------------------------------------------------
Year 7 $1,401,491 $116,791
----------------------------------------------------------------
Year 8 $1,429,521 $119,127
----------------------------------------------------------------
Year 9 $1,458,111 $121,509
----------------------------------------------------------------
Year 10 $1,487,274 $123,939
----------------------------------------------------------------
The annual base rent for each extended term under the lease will be equal
to 93% of the "fair market rent" determined either (1) as agreed upon by the
parties, or (2) as determined by appraisal pursuant to the terms and conditions
of the Vanguard Cellular lease. The fair market rent shall be multiplied by the
"fair market escalator" (which represents the yearly rate of increases in the
fair market rent for the entire renewal term), if any. If the fair market rent
is to be determined by appraisal, both the landlord and the tenant shall
designate an independent appraiser, and both appraisers shall mutually designate
a third appraiser. After their appointment, the appraisers shall determine the
fair market rent and the fair market escalator by submitting independent
appraisals. The fair market rent and fair market escalator shall be deemed to be
the middle appraisal of the three submitted.
In addition, the Vanguard Cellular lease contains an option to expand the
premises to create additional office space of not less than 40,000 gross square
feet and not more than 90,000 gross square feet, as well as additional parking
to accommodate such office space. If Pennsylvania Telephone exercises its option
for the expansion improvements, Wells OP will be obligated to expend the funds
necessary to construct the expansion improvements. Pennsylvania Telephone may
exercise its expansion option by delivering written notice to Wells OP at any
time before the last business day of the 96th month of the initial term of the
Vanguard Cellular lease.
Within 60 days after Wells OP's receipt of the expansion notice, Wells OP
shall consult with Pennsylvania Telephone concerning Pennsylvania Telephone's
specific requirements with regard to the expansion improvements and, within such
60 day period, Wells OP shall notify Pennsylvania Telephone in writing of the
total estimated expansion costs to be incurred in planning and constructing the
expansion improvements. Within 60 days after Pennsylvania Telephone receives
Wells OP's written notification of the costs for the expansion improvements,
Pennsylvania Telephone shall notify Wells OP in writing either (1) that
Pennsylvania Telephone authorizes Wells OP to proceed with the construction of
the expansion improvements, (2) that Pennsylvania Telephone intends to submit
revised specifications within 60 days to reduce the estimated costs of the
expansion improvements to an amount satisfactory to Pennsylvania Telephone, or
(3) that Pennsylvania Telephone elects not to expand the premises. If
Pennsylvania Telephone fails to deliver its notice to proceed within the above
mentioned 60 day period, then Pennsylvania Telephone shall be deemed to have
elected not to expand.
If Pennsylvania Telephone delivers its notice to proceed with the expansion
improvements, Pennsylvania Telephone shall be deemed to have exercised its
option for such full or partial renewal terms such that, as of the date of
substantial completion of the expansion improvements, the remaining lease term
shall be ten years from such date of substantial completion. Pennsylvania
Telephone shall continue to have the right to exercise its option for any of the
renewal terms discussed above which remain beyond the ten year additional term;
provided that, if the remaining portion of a renewal term after the ten year
extension shall be less than one year, then the ten year term shall be further
extended to include the remaining portion of the renewal term which is less than
one year.
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The annual base rent for the expansion improvements for the first twelve
months shall be equal to the product of (a) the expansion costs, multiplied by
(b) a factor of 1.07, multiplied by (c) the greater of (X) 10.50%, or (Y) an
annual interest rate equal to 375 basis points in excess of the ten year United
States Treasury Note Rate then most recently announced by the United States
Treasury as of the commencement date of the expansion improvements. Thereafter,
the annual base rent for the expansion improvements shall be increased annually
by the lesser of (1) 5%, or (2) 75% of the percentage by which the United
States, Bureau of Labor Statistics, Consumer Price Index for All Items - All
Urban Wage Earners and Clerical Workers for the Philadelphia Area published
nearest to the expiration date of each 12 month period subsequent to the
expansion commencement date is greater than the CPI Index most recently
published prior to the commencement date.
The PwC Building
The PwC Building is a four-story office building containing approximately
130,090 rentable square feet located in Tampa, Florida. Wells OP purchased the
PwC Building on December 31, 1998 for a purchase price of $21,127,854.
Construction of the PwC Building was completed in 1998.
Wells OP purchased the PwC Building subject to a loan from SouthTrust Bank,
N.A. (SouthTrust Loan). The SouthTrust Loan, which is more particularly
described in the "Real Estate Loans" section of the prospectus, is secured by a
first mortgage against the PwC Building.
The PwC Building is located on approximately 9 acres of land located in
Sunforest Business Park between Eisenhower Boulevard and George Road
approximately 1,250 feet south of West Hillsborough Avenue. The Sunforest
Business Park is located in the Westshore Business District, which is a suburban
business center surrounding Tampa International Airport.
The PwC Building is leased to PricewaterhouseCoopers (PwC). 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 resource
consulting; financial advisory 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 initial term of the PwC lease is ten years which commenced on December
28, 1998 and expires in December 2008, subject to PwC's right to extend the
lease for two additional five year periods of time. The annual base rent payable
under the PwC lease is $1,973,213 ($15.17 per square foot) payable in equal
monthly installments of $164,434 during 2000. 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 $13,009 ($.10 per square foot) as additional
rent.
The annual base rent for each renewal term under the lease will be equal to
the greater of (a) 90% of the "market rent rate" for such space multiplied by
the rentable area of the leased premises, or (b) 100% of the base rent paid
during the last lease year of the initial term, or the then-current renewal
term, as the case may be. If the base rent for the first lease year under the
renewal term is determined pursuant to clause (a) above, then the base rent for
each lease year of such renewal term after the first lease year shall be 103% of
the base rent for the immediately preceding lease year. If the base rent for the
first lease year of a renewal term is determined pursuant to clause (b) above,
then there shall be no escalation of the base rent until such time that the
total base rent paid during the renewal term is equal to the total base rent
that would have been paid during such renewal term if the base rent had been
determined pursuant to clause (a) above; and thereafter, the base rent for each
subsequent lease year of such renewal term shall be 103% of the base rent for
the immediately preceding lease year.
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The "market rent rate" under the PwC lease shall be determined by agreement
of the parties within 30 days after the date on which PwC delivers its notice of
renewal. If Wells OP and PwC are unable to reach agreement on the market rent
rate within said 30 day period, then each party shall simultaneously submit to
the other in a sealed envelope its good faith estimate of the market rent rate
within seven days of expiration of the 30 day period. If the higher of such
estimates is not more than 105% of the lower of such estimates then the market
rent rate shall be the average of the two estimates. Otherwise, within five days
either party may request in writing to resolve the dispute by arbitration. The
"market rate rent" shall be based upon the fair market rent then being charged
by landlords under new leases of office space in the Westshore Business District
for similar space in a building of comparable quality with comparable amenities.
In addition, the PwC lease contains an option to expand the premises to
include a second three or four-story building with an amount of square feet up
to a total of 132,000 square feet which, if exercised by PwC, will require Wells
OP to expend funds necessary to construct the expansion building. PwC may
exercise its expansion option by delivering written notice to Wells OP at any
time between the 60th day after the rental commencement date and the expiration
of the initial term of the lease. If PwC for any reason fails to deliver the
expansion notice on or prior to the last day of the initial term, the expansion
option shall automatically expire. Upon PwC's delivery of the expansion notice
and commencement of construction of the improvements by Wells OP, the term of
the lease shall automatically be extended for an additional period of ten years
from the date of substantial completion of the expansion building, without
further action by either PwC or Wells OP. During the first five lease years of
the initial term, Wells OP shall be obligated to construct the expansion
building if PwC delivers the expansion notice. Wells OP and PwC have agreed that
Wells OP shall not be required to construct the expansion building, however, if
PwC delivers the expansion notice after the end of the fifth lease year and,
following delivery of such expansion notice, Wells OP determines not to
construct the expansion building based upon the base rent it would receive for
the expansion building. If Wells OP notifies PwC in writing of such
determination within 30 days after Wells OP's receipt of the expansion notice,
PwC shall have the right to exercise its option to purchase the PwC building.
If PwC elects to exercise its expansion option, in addition to the
construction of a second building which is of a quality equal to or better than
the PwC building, Wells OP will be required to expand the parking garage such
that a sufficient number of parking spaces, at least equal to four parking
spaces per 1,000 square feet of rentable area, is maintained. Wells OP agrees to
fund the cost of the design, development and construction of the expansion
building up to a maximum of $150.00 per square foot of rentable area, as
increased by increases in the Consumer Price Index between the rental
commencement date and the date of expansion notice. PwC shall be responsible for
the payment of any costs of the expansion building in excess of the maximum
expansion cost.
The base rent per square foot of rentable area payable for the expansion
building in the first lease year of such building shall be an amount equal to
the product of (a) the expansion building cost per square foot of rentable area
multiplied by (b) the sum of 300 basis points plus the weekly average yield on
United States Treasury Obligations, amortized on an annual basis over a period
of 20 years. The base rent for each subsequent lease year shall be 103% of the
base rent for the immediately preceding lease year.
In the event that PwC elects to exercise its expansion option and Wells OP
determines not to proceed with the construction of the expansion building as
described above, or if Wells OP is otherwise required to construct the expansion
building and fails to do so in a timely basis pursuant to the PwC lease, PwC may
exercise its purchase option by giving Wells OP written notice of such exercise
within 30 days after either such event. If PwC properly exercises its purchase
option, PwC must simultaneously deliver a deposit in the amount of $50,000. The
purchase price for the PwC Building pursuant to the purchase option shall be
equal to (a) the average of the monthly base rent for each month remaining in
the initial
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term as of the closing date on the Purchase Option multiplied by 12, and (b)
such average annual base rent shall be multiplied by 11.
The Fairchild Building
The Fairchild Building is a two-story manufacturing and office building
with 58,424 rentable square feet located in Fremont, Alameda County, California.
The Fremont Joint Venture purchased the Fairchild Building on July 21, 1998 for
a purchase price of $8,900,000. Construction of the Fairchild Building was
completed in 1985.
The Fairchild Building is located on approximately 3 acres at 47320 Kato
Road on the corner of Kato Road and Auburn Road in the City of Fremont,
California.
The Fairchild Building is leased to Fairchild Technologies U.S.A., Inc.
(Fairchild). Fairchild is a global leader in the design and manufacture of
production equipment for semiconductor and compact disk manufacturing. The
semiconductor equipment group recently unveiled a new line of semiconductor
wafer processing equipment which will provide alternatives to the traditional
semiconductor chip production methods.
Fairchild is a wholly-owned subsidiary of the Fairchild Corporation
(Fairchild Corp). Fairchild Corp is the largest aerospace fastener and fastening
system manufacturer and is one of the largest independent aerospace parts
distributors in the world. Fairchild Corp is a leading supplier to aircraft
manufacturers such as Boeing, Airbus, Lockheed Martin, British Aerospace and
Bombardier and to airlines such as Delta Airlines and U.S. Airways. The
obligations of Fairchild under the Fairchild lease are guaranteed by Fairchild
Corp.
The initial term of the Fairchild lease is seven years which commenced on
December 1, 1997 and expires in November 2004, subject to Fairchild's right to
extend the Fairchild lease for an additional five year period. The base rent
payable under the remainder of the Fairchild lease is as follows:
--------------------------------------------------------------
Year Annual Rent Monthly Rent
--------------------------------------------------------------
Year 4 $867,324 $72,277
--------------------------------------------------------------
Year 5 $893,340 $74,445
--------------------------------------------------------------
Year 6 $920,136 $76,678
--------------------------------------------------------------
Year 7 $947,736 $78,978
--------------------------------------------------------------
The base rent during the first year of the extended term of the Fairchild
lease, if exercised by Fairchild, shall be 95% of the then fair market rental
value of the Fairchild Building subject to the annual 3% increase adjustments.
If Fairchild and the Fremont Joint Venture are unable to agree upon the fair
rental value for the extended lease term, each party shall select an appraiser
and the two appraisers shall establish the rent by agreement.
The Cort Furniture Building
The Cort Furniture Building is a one-story office, showroom and warehouse
building with 52,000 rentable square feet located in Fountain Valley,
California. The Cort Joint Venture purchased the Cort Furniture Building on July
31, 1998 for a purchase price of $6,400,000. Construction of the Cort Furniture
Building was completed in 1975.
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The Cort Furniture Building is located on two parcels of land totaling
approximately 3.6 acres at 10700 Spencer Street on the southeast corner of
Spencer Avenue and Mt. Langley Street adjacent on the south side to Interstate
405.
The Cort Furniture Building is leased to Cort Furniture Rental Corporation
(Cort). Cort uses the Cort Furniture Building as its regional corporate
headquarters with an attached clearance showroom and warehouse storage areas.
Cort is a wholly-owned subsidiary of Cort Business Services Corporation, a New
York Stock Exchange Company trading under the symbol CBZ (Cort Business
Services). Cort Business Services is the largest and only national provider of
high-quality office and residential rental furniture and related accessories.
Cort Business Services has operations that cover 32 states and the District of
Columbia and includes 119 rental showrooms. The obligations of Cort under the
Cort Furniture lease are guaranteed by Cort Business Services.
The initial term of the Cort lease is 15 years which commenced on November
1, 1988 and expires in October 2003. Cort has an option to extend the Cort lease
for an additional five year period of time. The monthly base rent payable under
the Cort 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
monthly base rent during the first year of the extended term shall be 90% of the
then fair market rental value of the Cort Furniture Building, but will be no
less than the rent in the 15th year of the Cort lease. If Cort and the Cort
Joint Venture are unable to agree upon a fair rental value for the extended
lease term, each party shall select an appraiser and the two appraisers shall
provide appraisals on the Cort Furniture Building. If the appraisal values
established are within 10% of each other, the average of such appraised value
shall be the fair market rental value. If said appraisals are varied by more
than 10%, the two appraisers shall appoint a third appraiser and the middle
appraisal of the three shall be the fair rental value.
The Iomega Building
The Iomega Building is a warehouse and office building with 108,000
rentable square feet located in Ogden City, Utah. Wells Fund X originally
purchased the Iomega Building on April 1, 1998 for a purchase price of
$5,025,000 and contributed the Iomega Building to the IX-X-XI-REIT Joint Venture
on July 1, 1998.
The Iomega Building is located on an approximately 8 acre tract of land at
2976 South Commerce Way in the Ogden Commercial and Industrial Park, which is
one mile north of Roy City, one mile northwest of Riverdale City and three miles
southwest of the Ogden central business district.
The Iomega Building is leased to Iomega Corporation (Iomega). Iomega, a New
York Stock Exchange company, is a manufacturer of computer storage devices used
by individuals, businesses, government and educational institutions, including
"Zip" drives and disks, "Jaz" one gigabyte drives and disks, and tape backup
drives and cartridges.
The initial term of the Iomega lease is ten years which commenced on August
1, 1996 and expires in July 2006. In March 1999, the IX-X-XI-REIT Joint Venture
acquired an adjacent parcel of land and constructed additional parking at the
site at an aggregate cost of $874,625. As a result, Iomega increased its monthly
base rent and extended the term of its lease until April 30, 2009. The Iomega
lease contains no further extension provisions. Iomega's world headquarters are
located within one mile of the Iomega Building. The monthly base rent payable
under the Iomega lease is $54,989. On March 1, 2003 and July 1, 2006, the
monthly base rent payable under the Iomega lease will be increased to reflect an
amount equal to 100% of the increase in the Consumer Price Index 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
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by less than 3% per year, compounded annually, on a cumulative basis from the
beginning of the lease term.
The Interlocken Building
The Interlocken Building is a three-story multi-tenant office building with
51,974 rentable square feet located in Broomfield, Colorado. The IX-X-XI-REIT
Joint Venture purchased the Interlocken Building on March 20, 1998 for a
purchase price of $8,275,000. Construction of the Interlocken Building was
completed in December 1996.
The Interlocken Building is located on a 5.1 acre tract of land in the
Interlocken Business Park on Highway 36, the Boulder-Denver Turnpike, which is
the main thoroughfare between Boulder and Denver. The Interlocken Building is
located approximately eight miles southeast of Boulder and approximately 15
miles northwest of Denver. The Interlocken Building is currently leased as
follows:
---------------------------------------------------------------
Floor Tenant Rentable Sq. Ft.
---------------------------------------------------------------
1 Multiple 15,599
---------------------------------------------------------------
2 ODS Technologies, L.P. 17,146
---------------------------------------------------------------
3 GAIAM, Inc. 19,229
---------------------------------------------------------------
The entire third floor of the Interlocken Building containing 19,229
rentable square feet (37% of the total rentable square feet) is currently under
lease to GAIAM, Inc. (GAIAM). GAIAM, formerly known as Transecom, Inc., is a
consumer distributor of environmental friendly products, including on-site video
and audio production of environmental and alternative health videos using state-
of-the-art electronics and sound stage. GAIAM was founded in 1988 and currently
employs approximately 60 people.
The GAIAM lease currently expires in October 2001, subject to GAIAM's right
to extend for one additional term of five years upon 180 days' notice. The
monthly base rent payable under the GAIAM lease is approximately $26,150 for the
initial term of the lease. In accordance with the GAIAM lease, Golden Rule,
Inc., an affiliate of GAIAM, occupies 6,621 rentable square feet of the third
floor. GAIAM guarantees the entire payment due under the GAIAM lease. GAIAM also
leases 1,510 rentable square feet on the first floor. The base rent payable for
this space for the remainder of the lease term is as follows:
-------------------------------------------------------------
Year Annual Rent Monthly Rent
-------------------------------------------------------------
Year 2 $25,800 $2,150
-------------------------------------------------------------
Year 3 $26,400 $2,200
-------------------------------------------------------------
GAIAM currently subleases 2,910 rentable square feet on the first floor
from TECWorks, Inc./Enterprise Bank. The monthly base rent payable for this
space is $4,001.
The entire second floor of the Interlocken Building containing 17,146
rentable square feet (34% of total rentable square feet) is currently under
lease to ODS Technologies, L.P. (ODS). ODS provides in-home financial
transaction services via telephone and television, and it has developed
interactive computer-based applications for such in-home purchasing. Originally
based in Tulsa, Oklahoma, ODS relocated its business to the Interlocken
Building.
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The ODS lease expires in September 2003, subject to ODS's right to extend
for one additional term of three years upon 180 days' notice. The base rent
payable for the remainder of the ODS lease is as follows:
---------------------------------------------------------------
Year Annual Rent Monthly Rent
---------------------------------------------------------------
Year 2 $277,200 $23,100
---------------------------------------------------------------
Year 3 $282,600 $23,550
---------------------------------------------------------------
Year 4 $288,600 $24,050
---------------------------------------------------------------
Year 5 $294,600 $24,550
---------------------------------------------------------------
The rental payments to be made by the tenant under the ODS lease are also
secured by the assignment of a $275,000 letter of credit which may be drawn upon
by the landlord in the event of a tenant default under the lease.
The first floor of the Interlocken Building containing 15,599 rentable
square feet is occupied by several tenants, in addition to GAIAM, whose leases
expire in 2002. The aggregate monthly base rent payable under these leases for
2000 is approximately $20,308.
The Ohmeda Building
The Ohmeda Building is a two-story office building with approximately
106,750 rentable square feet located in Louisville, Colorado. The IX-X-XI-REIT
Joint Venture purchased the Ohmeda Building on February 13, 1998 for a purchase
price of $10,325,000. Construction of the Ohmeda Building was completed in
January 1988.
The Ohmeda Building is located on a 15 acre tract of land in the Centennial
Valley Business Park approximately five miles southeast of Boulder and
approximately 17 miles northwest of Denver. The Ohmeda Building is situated near
Highway 36, which is the main thoroughfare between Boulder and Denver.
The Ohmeda Building is leased to Ohmeda, Inc. (Ohmeda). Ohmeda is a medical
supply firm based in Boulder, Colorado and is a worldwide leader in vascular
access and hemodynamic monitoring for hospital patients. Ohmeda also has a
special products division, which produces neonatal and other oxygen care
products. Ohmeda recently extended an agreement with Hewlett-Packard to include
co-marketing and promotion of combined Ohmeda/H-P neonatal products.
On April 13, 1998, Instrumentarium Corporation, a Finnish company, acquired
the division of Ohmeda that occupies the Ohmeda Building. Instrumentarium is an
international health care company concentrating on selected fields of medical
technology manufacturing, marketing and distribution.
The Ohmeda lease currently expires in January 2005, subject to (1) Ohmeda's
right to effectuate an early termination of the Ohmeda lease under the terms and
conditions described below, and (2) Ohmeda's right to extend the Ohmeda Lease
for two additional five year periods of time. The base rent payable under the
Ohmeda lease is as follows:
---------------------------------------------------------------
Years Annual Rent Monthly Rent
---------------------------------------------------------------
Years 1-5 $1,004,520 $83,710
---------------------------------------------------------------
Year 6 $1,054,692 $87,891
---------------------------------------------------------------
Year 7 $1,107,000 $92,250
---------------------------------------------------------------
The Ohmeda lease contains an early termination clause that allows Ohmeda
the right to terminate the Ohmeda lease, subject to certain conditions, on
either January 31, 2001 or January 31, 2002. In order
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to exercise this early termination clause, Ohmeda must give the IX-X-XI-REIT
Joint Venture notice on or before 5:00 p.m. MST, January 31, 2000, and said
notice must identify which early termination date Ohmeda is exercising. If
Ohmeda exercises its right to terminate on January 31, 2001, then Ohmeda must
tender $753,388 plus an amount equal to the amount of real property taxes
estimated to be payable to the landlord in 2002 for the tax year 2001 based on
the most recent assessment information available on the early termination date.
If Ohmeda exercises its right to terminate on January 31, 2002, then Ohmeda must
tender $502,259 plus an amount equal to the amount of real property taxes
estimated to be payable to the landlord in 2003 for the tax year 2002 based on
the most recent assessment information available on the early termination date.
At the present time, real property taxes relating to this property are
approximately $135,500 per year. The payment of these amounts by Ohmeda for
early termination must be made on or before the 180th day prior to the
appropriate early termination date. If the amount of the real property taxes
actually assessed is greater or lesser than the amount paid by Ohmeda on the
early termination date, then the difference shall be adjusted accordingly within
30 days of notice of such difference.
In addition, the Ohmeda Lease contains an option to expand the premises by
an amount of square feet up to a total of 200,000 square feet which, if
exercised by Ohmeda, will require the IX-X-XI-REIT Joint Venture to expend funds
necessary to acquire additional land, if necessary, and to construct the
expansion space. Ohmeda's option to expand the premises is subject to
deliverance of at least four months' prior written notice to the IX-X-XI-REIT
Joint Venture. During the four months subsequent to the notice of Ohmeda's
intention to expand the premises, Ohmeda and the IX-X-XI-REIT Joint Venture
shall negotiate in good faith and enter into an amendment to the Ohmeda lease
for the construction and rental of the expansion space. If Ohmeda exercises its
option to expand the premises, the right to terminate clause described above
will automatically be canceled, and the primary lease term shall be extended for
a period of ten years from the date on which a certificate of occupancy is
issued by the City of Louisville with respect to the expansion space.
The base rental for the expansion space payable under the Ohmeda lease
shall be calculated to generate a rate of return to the IX-X-XI-REIT Joint
Venture on its project costs and any retrofit expenses with respect to the
existing premises incurred by landlord over the new, ten year extended primary
lease term, equal to the prime lending rate published by Norwest Bank, N.A. on
the first day of such extended primary lease term, plus 3%, plus full
amortization of the tenant finish costs with respect to the expansion space and
the existing premises. This base rental shall be payable through January 31,
2005. The base rental payable under the Ohmeda lease from February 1, 2005
through the remaining balance of the new, extended ten year primary lease term,
shall be based on a combined rental rate equal to the sum of (1) the base rental
payable by Ohmeda during lease year number seven for the existing premises, plus
(2) the base rent payable by Ohmeda during lease year number seven for the
expansion space, plus an amount equal to 2% of the combined rental rate.
Thereafter, the base rent payable for the entire premises shall be the base rent
payable during the previous lease year plus an amount equal to 2% of the base
rent payable during such previous lease year.
The ABB Knoxville Building
The ABB Knoxville Building is a three-story multi-tenant steel-framed
office building containing approximately 84,404 square feet located in
Knoxville, Tennessee. Wells Fund IX purchased the land and constructed the ABB
Knoxville Building. Wells Fund IX contributed the ABB Knoxville Building to the
IX-X-XI-REIT Joint Venture on March 26, 1997 and was credited with making a
$7,900,000 capital contribution. Construction of the ABB Knoxville Building was
completed in December 1997.
The ABB Knoxville Building is located on approximately 5.6 acres located in
an office park known as Center Point Business Park on Pellissippi Parkway just
north of the intersection of Interstates
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40 and 75, in Knox County, Tennessee approximately 10 miles west of the
Knoxville central business district.
The ABB Knoxville Building is currently leased to ABB Flakt, Inc. (ABB).
ABB is principally engaged in the business of pollution control engineering and
consulting. ABB will use the leased area as office space for approximately 220
employees. ABB Asea Brown Boveri, Ltd., a Swiss corporation based in Zurich, is
the holding company of the ABB Asea Brown Boveri Group which is comprised of
approximately 1,000 companies around the world, including ABB. The ABB Group
revenue is predominately provided by contracts with utilities and independent
power producers for the design and engineering, construction, manufacture and
marketing of products, services and systems in connection with the generation,
transmission and distribution of electricity. In addition, the ABB Group
generates a significant portion of its revenues from the sale of industrial
automation products, systems and services to pulp and paper, automotive and
other manufacturers.
As security for ABB's obligations under its lease, ABB has provided to the
IX-X-XI-REIT Joint Venture an irrevocable standby letter of credit in accordance
with the terms and conditions set forth in the ABB lease. The letter of credit
maintained by ABB is required to be in the amount of $4,000,000 until the
seventh anniversary of the rental commencement date, at which time it will be
reduced by $1,000,000 each year until the end of the lease term.
The initial term of the ABB lease is nine years and 11 months which
commenced on January 1, 1998 and expires in December 2007. The annual base rent
payable under the ABB lease is $1,106,520 payable in equal monthly installments
of $92,210 during the first five years of the initial lease term, $1,233,120
payable in equal monthly installments of $102,760 during the next 2 years of the
initial lease term, and $1,220,484 payable in equal monthly installments of
$101,707 during the last 2 years and 11 months of the initial lease term.
The IX-X-XI-REIT Joint Venture has agreed to provide ABB on the fifth
anniversary of the rental commencement date a redecoration allowance of an
amount equal to (1) $5.00 per square foot of useable area of the premises leased
which has been leased and occupied by ABB for at least three consecutive years
ending with such fifth anniversary reduced by (2) $177,000.
ABB has a one-time option to terminate the ABB lease as of the seventh
anniversary of the rental commencement date which is exercisable by written
notice to the IX-X-XI-REIT Joint Venture at least 12 months in advance of such
seventh anniversary. If ABB elects to exercise this termination option, ABB is
required to pay to the IX-X-XI-REIT Joint Venture, on or before 90 days prior to
the seventh anniversary of the rental commencement date, a termination payment
intended to compensate the IX-X-XI-REIT Joint Venture for the present value of
certain sums which the joint venture has expended in connection with the ABB
lease amortized over and attributable to the remaining lease term and a rent
payment equal to approximately 15 months of monthly base rental payments. We
currently anticipate that the termination payment required to be paid by ABB in
the event it exercises its option to terminate the ABB lease on the seventh
anniversary would be approximately $1,800,000 based upon certain assumptions.
The Avaya Building
The Avaya Building (formerly known as the Lucent Technologies Building) is
a one-story office building containing approximately 57,186 rentable square feet
which was developed and constructed on certain real property located in Oklahoma
City, Oklahoma by Wells Development. The Avaya Building was purchased by the IX-
X-XI-REIT Joint Venture on June 24, 1998 for a purchase price of $5,504,276,
which was equal to the aggregate cost to Wells Development of the acquisition,
construction and development of the Avaya Building, including interest and other
carrying costs, and accordingly, Wells
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Development made no profit from the sale of the Avaya Building to the IX-X-XI-
REIT Joint Venture. Construction of the Avaya Building was completed in January
1998.
The Avaya Building is located on approximately 5.3 acres located in the
Quail Springs Office Park, 1400 Hertz Quail Springs Parkway, in the northwest
sector of Oklahoma City.
The Avaya Building is leased to Avaya, Inc. (Avaya), the former Enterprise
Networks Group of Lucent Technologies Inc. (Lucent Technologies). Lucent
Technologies, the former tenant, assigned the lease to Avaya on September 30,
2000. Lucent Technologies, who remains liable on the lease, is a
telecommunications company which was spun off by AT&T in April 1996. Lucent
Technologies, which is traded on the New York Stock Exchange, is in the business
of designing, developing and marketing communications systems and technologies
ranging from microchips to whole networks and is one of the world's leading
designers, developers and manufacturers of telecommunications system software
and products.
The initial term of the Avaya lease is ten years which commenced on January
5, 1998 and expires in January 2008. Avaya has the option to extend the initial
term of the Avaya lease for two additional five year periods. The annual base
rent payable under the Avaya lease will be $508,383 payable in equal monthly
installments of $42,365 during the first five years of the initial lease term,
and $594,152 payable in equal monthly installments of $49,513 during the second
five years of the initial lease term. The annual base rent for each extended
term under the lease will be based upon the fair market rent then being charged
by landlords under new leases of office space in the metropolitan Oklahoma City
market for similar space in a building of comparable quality with comparable
amenities. The Avaya lease provides that if the parties cannot agree upon the
appropriate fair market value rate, the rate will be established by real estate
appraisers.
Under the Avaya lease, Avaya also has a one-time option to terminate the
Avaya lease on the seventh anniversary of the rental commencement date, which is
exercisable by written notice to the landlord at least 12 months in advance of
such seventh anniversary. If Avaya elects to exercise its option to terminate
the Avaya lease, Avaya would be required to pay a termination payment intended
to compensate the landlord for the present value of funds expended as a
construction allowance and leasing commissions relating to the Avaya lease,
amortized over and attributable to the remaining lease term, and a rental
payment equal to approximately 18 months of monthly rental payments. We
currently anticipate that the termination payment required to be paid by Avaya,
in the event it exercises its option to terminate the Avaya lease on the seventh
anniversary, would be approximately $1,339,000 based upon certain assumptions.
Property Management Fees
Wells Management, our Property Manager, has been retained to manage and
lease all of the properties currently owned by the IX-X-XI-REIT Joint Venture
and the VIII-IX-REIT Joint Venture. While Wells Fund XI and the Wells REIT are
authorized to pay aggregate management and leasing fees to Wells Management in
the amount of 4.5% of gross revenues, Wells Fund VIII, Wells Fund IX and Wells
Fund X are authorized to pay aggregate management and leasing fees to Wells
Management in the amount of 6% of gross revenues. Accordingly, a portion of the
gross revenues of these joint ventures will be subject to a 6% management and
leasing fee and a portion of gross revenues will be subject to a 4.5% management
and leasing fee based upon the respective ownership percentages in the joint
ventures.
Wells Management has been retained to manage and lease each of the
remaining buildings for fees not exceeding the lesser of: (A) 4.5% of gross
revenues, or (B) 0.6% of the net asset value of the properties (excluding vacant
properties) owned by the Wells REIT, calculated on an annual basis. For
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purposes of this calculation, net asset value shall be defined as the excess of
(1) the aggregate of the fair market value of all properties owned by the Wells
REIT (excluding vacant properties), over (2) the aggregate outstanding debt of
the Wells REIT (excluding debts having maturities of one year or less). In
addition, we may pay Wells Management a separate fee for the one-time initial
rent-up or leasing-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 as
determined by a survey of brokers and agents in such area (customarily equal to
the first month's rent).
Wells Management received a one-time initial lease-up fee equal to the
first month's rent for the leasing of the ABB Knoxville Building and the Avaya
Building. In addition, Wells Management will receive a one-time initial lease-up
fee equal to the first month's rent for the leasing of the Matsushita Building
and the Alstom Power Building.
Real Estate Loans
The SouthTrust Loan
Wells OP has established a revolving credit facility from SouthTrust Bank,
N.A. (SouthTrust Loan) whereby SouthTrust agreed to loan up to $15.2 million to
Wells OP in connection with its purchase of real properties. The SouthTrust Loan
was originally obtained in connection with the acquisition of the PwC Building.
The SouthTrust Loan requires monthly payments of interest only and matures on
December 31, 2000. The interest rate on the SouthTrust Loan is an annual
variable rate equal to the London InterBank Offered Rate for a thirty day period
plus 200 basis points. The current interest rate on the SouthTrust Loan is 8.62%
per annum. The SouthTrust Loan is secured by a first mortgage against the PwC
Building located in Tampa, Florida, which was purchased by Wells OP on December
31, 1998. As of September 30, 2000, there was no outstanding principal balance
on the SouthTrust Loan.
The SouthTrust Line of Credit
Wells OP has established a line of credit from SouthTrust Bank, N.A.
(SouthTrust Line of Credit) whereby SouthTrust agreed to loan up to $35 million
to Wells OP in connection with its purchase of real properties. The SouthTrust
Line of Credit requires monthly payments of interest only and matures on June
10, 2002. The interest rate on the SouthTrust Line of Credit is an annual
variable rate equal to the London InterBank Offered Rate for a thirty day period
plus 200 basis points. The current interest rate on the SouthTrust Line of
Credit is 8.62% per annum. The SouthTrust Line of Credit is secured by first
mortgages against the Cinemark Building, the Dial Building and the ASML
Building. As of September 30, 2000, the outstanding principal balance of the
SouthTrust Line of Credit was $100.
The BOA Loan
Wells OP originally obtained a loan in the amount of $6,425,000 from Bank
of America, N.A. (BOA Loan), to fund a portion of the purchase price of the AT&T
Building located in Harrisburg, Pennsylvania. On November 23, 1999, the BOA Loan
was converted to a revolving credit loan in the maximum principal amount of
$9,825,000 for the acquisition of real properties by Wells OP. On February 24,
2000, the credit limit of the BOA Loan was increased further to $26,725,000. The
BOA Loan requires monthly payments of interest only and matures on February 1,
2001. The interest rate on the BOA Loan is a variable rate per annum equal to
the London InterBank Offered Rate for a thirty day period plus 200 basis points.
The current interest rate on the BOA Loan is 8.62% per annum. The BOA Loan is
secured by first mortgages against both the AT&T Building and the Marconi
Building. As of September 30, 2000, the outstanding principal balance of the BOA
Loan was $21,500,000.
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The Motorola Loan
Wells OP obtained $5,000,000 in financing from Ryan Companies US, Inc. in
connection with the purchase of the Motorola Building (Motorola Loan). The
Motorola Loan requires monthly payments of interest only and matures on April 1,
2001. The interest rate on the Motorola Loan is 9.00% per annum, and is secured
by a first mortgage against the Motorola Building. As of September 30, 2000, the
outstanding principal balance of the Motorola Loan was $100,000.
The Metris Loan
Wells OP assumed a loan (Metris Loan) with Richter-Schroeder Company, Inc.
in connection with its purchase of the Metris Building. Wells OP extended the
Metris Loan which matures on February 11, 2003. The Metris Loan requires monthly
payments of interest only. The interest rate on the Metris Loan is an annual
variable rate equal to the LIBOR for a thirty day period plus 175 basis points.
The current interest rate on the Metris Loan is 8.38% per annum. The Metris Loan
is secured by a first mortgage against the Metris Building. As of September 30,
2000, the outstanding principal balance of the Metris Loan is $8,000,000.
The Matsushita Loan
Wells OP obtained the Matsushita Loan from Bank of America, N.A. in the
maximum principal amount of $15,375,000, the proceeds of which were used to fund
the development and construction of the Matsushita Building. The Matsushita Loan
matures on May 9, 2001. The interest rate on the Matsushita loan is a variable
rate equal to either (1) the Bank of America "prime rate," or (2) at the option
of Wells OP, the rate per annum appearing on Telerate Page 3750 as the London
Inter Bank Offered Rate for a 30 day period, plus 200 basis points. Wells OP is
making monthly installments of principal in the amount of $10,703 plus accrued
and unpaid interest until maturity. On the maturity date, the entire outstanding
principal balance plus any accrued but unpaid interest shall be due and payable.
The Matsushita Loan is secured by a first mortgage against the Matsushita
Building. As of September 30, 2000, the outstanding principal balance of the
Matsushita Loan was $9,181,877.
The Alstom Power Loan
Wells LLC VA obtained the Alstom Power Loan from SouthTrust Bank, N.A. in
the maximum principal amount of $9,280,000, the proceeds of which were used to
fund the development and construction of the Alstom Power Building (formerly
known as the ABB Richmond Building). The Alstom Power Loan matures on July 10,
2002. The interest rate on the Alstom Power Loan is 225 basis points over the
London Inter Bank Offered Rate. The loan is secured by a pledge of the real
estate, the Alstom Power lease and a $4,000,000 letter of credit issued by
Unibank. As of September 30, 2000, there was no outstanding principal balance on
the Alstom Power Loan.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction with
our accompanying financial statements and the notes thereto.
This section and other sections of the prospectus contain 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 Wells REIT, 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 prospectus should be
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aware that there are various factors that could cause actual results to differ
materially from any forward-looking statement made in this prospectus, 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, lack of availability of financing and
the potential need to fund tenant improvements or other capital expenditures out
of operating cash flow.
Liquidity and Capital Resources
We began active operations on June 5, 1998, when we received and accepted
subscriptions for 125,000 shares pursuant to our initial public offering, which
commenced on January 30, 1998. We terminated our initial public offering on
December 19, 1999, and on December 20, 1999, we 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, we had raised an aggregate of $134,710,850 in offering
proceeds through the sale of 13,471,085 shares. As of December 31, 1999, we had
paid $4,714,880 in acquisition and advisory fees and acquisition expenses,
$16,838,857 in selling commissions and organizational and offering expenses, and
$112,287,969 in capital contributions to Wells OP for investments in joint
ventures and acquisitions of real properties. As of December 31, 1999, we were
holding net offering proceeds of approximately $869,144 available for investment
in additional properties.
Between December 31, 1999, and September 30, 2000, we raised an additional
$127,695,246 in offering proceeds through the sale of an additional 12,769,524
shares. Accordingly, as of September 30, 2000, we had raised a total of
$262,406,096 in offering proceeds through the sale of 26,240,610 shares of
common stock. As of September 30, 2000, we had paid a total of $9,161,189 in
acquisition and advisory fees and acquisition expenses, had paid a total of
$32,718,532 in selling commissions and organizational and offering expenses, had
made capital contributions of $211,641,497 to Wells OP for investments in joint
ventures and acquisitions of real property, had utilized $657,844 for the
redemption of stock pursuant to our share redemption program, and were holding
net offering proceeds of $8,227,034 available for investment in additional
properties.
Cash and cash equivalents at September 30, 2000 and 1999 were $12,257,161
and $2,850,263, respectively. The increase in cash and cash equivalents resulted
primarily from raising additional capital which was offset by increased
investments in real property acquisitions.
Operating cash flows are expected to increase as additional properties are
added to our 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 Wells REIT, including funds available for
payment of dividends, financial condition, capital expenditure requirements and
annual distribution requirements in order to maintain our status as a REIT under
the Internal Revenue Code.
As of September 30, 2000, we had acquired interests in 25 real estate
properties. These properties are generating sufficient cash flow to cover our
operating expenses and pay quarterly dividends. Dividends declared for the third
quarter of 2000 and the third quarter of 1999 totaled $0.188 and $0.175 per
share, respectively, which were declared on a daily record date basis in the
amount of $0.2038 and $0.1902, respectively, per share payable to the
shareholders of record at the close of business of each day during the quarter.
On February 18, 1999, Wells OP entered into a Rental Income Guaranty
Agreement with Fund VIII and Fund IX Associates, a Georgia joint venture
partnership between Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund
IX, L.P. (VIII-IX Joint Venture), whereby Wells OP guaranteed the VIII-IX Joint
Venture that it would receive rental income on the Quest Building (formerly
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known as the Bake Parkway Building) previously leased to Matsushita Avionics at
least equal to the rental and building expenses that the VIII-IX Joint Venture
would have received over the remaining term of its original lease with
Matsushita Avionics. Matsushita Avionics vacated the Quest Building in December
1999, with the existing lease term ending in September 2003. On June 15, 2000,
the VIII-IX-REIT Joint Venture was formed between Wells OP and the VIII-IX Joint
Venture for purposes of owning and operating the Quest Building. On July 1,
2000, the VIII-IX Joint Venture transferred the Quest Building to the VIII-IX-
REIT Joint Venture as its capital contribution. (See "Description of
Properties -- Joint Ventures with Affiliates.") Under the Rental Income Guaranty
Agreement, Wells OP also guaranteed that, if a joint venture such as the VIII-
IX-REIT Joint Venture was ever formed by the parties for the ownership and
operation of the Quest Building, Wells OP would guaranty to the VIII-IX Joint
Venture that it would receive monthly cash flow distributions from such joint
venture at least equal to the rent and building expenses guaranteed under the
Rental Income Guaranty Agreement. Currently the Quest Building is leased by
Quest Software, Inc. (Quest) pursuant to a 42 month lease that expires on
December 31, 2003. (See "Description of Properties -- Quest Building.")
Wells OP had paid approximately $542,645 in rental income guaranty payments
to the VIII-IX Joint Venture through September 30, 2000, and will continue
making payments in the amount of $6,656 per month until the Quest Building is
fully leased to Quest. Our maximum liability exposure to the VIII-IX Joint
Venture for rental income and building expenses potentially payable under this
Rental Income Guaranty Agreement of approximately $3,000,000 was taken into
account in the economic analysis performed in making the determination to go
forward with the development of the Matsushita Building. Although the lease of
the Quest Building by Quest has, at least temporarily, relieved Wells OP of its
obligations under the Rental Income Guaranty Agreement, we cannot, at this time,
determine the amount of any future liability if Quest defaults or otherwise
fails to make the required payments under its lease. Wells OP continues to
guaranty payment under the Rental Income Guaranty Agreement and, consequently,
continues to bear some risk, even though their risk has been substantially
minimized by the lease with Quest. Any payment made to the VIII-IX Joint Venture
under the Rental Income Guaranty Agreement will be made from the operating cash
flow of Wells OP and may reduce the amount of cash available for payment of
dividends.
Cash Flows From Operating Activities
Net cash provided by operating activities was $4,737,973 for the nine
months ended September 30, 2000 and $2,273,102 for the nine months ended
September 30, 1999. The increase in net cash provided by operating activities
was due primarily to the purchase of additional properties in late 1999 and
2000.
Cash Flows From Investing Activities
The increase in net cash used in investing activities from $75,420,671 for
the nine months ended September 30, 1999 to $113,424,119 for the nine months
ended September 30, 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 $68,018,429
for the nine months ended September 30, 1999 to $118,013,503 for the nine months
ended September 30, 2000 was due primarily to the raising of additional capital
and the corresponding increase in funds borrowed to purchase additional
properties. We raised $127,695,243 in offering proceeds for the nine months
ended September 30, 2000, as compared to $76,927,944 for the nine months ended
September 30, 1999. In addition, we
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received loan proceeds from financing secured by properties of $67,883,130 and
repaid notes payable in the amount of $52,903,328.
Results of Operations
As of September 30, 2000, our real estate properties were 100% occupied by
tenants. Gross revenues for the nine months ended September 30, 1999 and for the
nine months ended September 30, 2000 were $3,996,290 and $15,734,638,
respectively. This increase in revenues was due to the purchase of additional
properties during late 1999 and 2000. The purchase of interests in additional
properties also resulted in an increase in operating expenses, management and
leasing fees, and depreciation expense. Our net income increased to $5,737,537
for the first nine months of 2000 as compared to $2,272,432 for the first nine
months of 1999.
Subsequent Events
On November 1, 2000, Wells OP acquired a three-story 236,710 square foot
office building (Motorola Plainfield Building) located at Durham Avenue on
Interstate 287 in South Plainfield, New Jersey for a purchase price of
$34,150,000 plus closing costs of $141,598. The Motorola Plainfield Building is
100% leased to Motorola, Inc.
Property Operations
As of September 30, 2000, we have provided the following operational
information relating to our real estate properties:
The ABB Building/The IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------ ----------- ---------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $288,969 $261,986 $895,551 $784,065
Interest income 19,871 15,024 53,575 46,765
---------- ---------- ---------- ----------
308,840 277,010 949,126 830,830
---------- ---------- ---------- ----------
Expenses:
Depreciation 98,454 135,499 295,362 403,699
Management and leasing expenses 36,277 32,260 112,232 93,666
Other operating expenses (26,544) (17,097) (69,178) (13,390)
---------- ---------- ---------- ----------
108,187 150,662 338,416 483,975
---------- ---------- ---------- ----------
Net income $200,653 $126,348 $610,710 $346,855
========== ========== ========== ==========
Occupied percentage 100% 98.28% 100% 98.28%
========== ========== ========== ==========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========== ========== ========== ==========
Cash distributed to the Wells REIT $ 11,074 $ 9,855 $ 33,513 $ 28,263
========== ========== ========== ==========
Net income allocated to the Wells REIT $ 7,451 $ 4,721 $ 22,700 $ 13,043
========== ========== ========== ==========
</TABLE>
Rental income increased in 2000, over 1999, due primarily to the increased
occupancy level of the property. Total expenses decreased due to a decrease in
depreciation expense. This decrease resulted from an accelerated depreciation on
tenant improvements for a short-term lease in 1999 for 23,092 square feet. 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
100
<PAGE>
current year common area maintenance (CAM) which is then reconciled the
following year and the difference billed to the tenant. Net income and cash
distributions increased in 2000, over 1999, due to a combination of increased
rental income and decreased operating expenses.
Our ownership percentage interest in the IX-X-XI-REIT Joint Venture
decreased slightly due to additional capital contributions made by Wells Fund IX
and Wells Fund X, respectively, to the IX-X-XI-REIT Joint Venture in the first
and second quarters of 2000 for funding of capital improvements.
The Ohmeda Building/The IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------- ---------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $256,829 $256,829 $770,486 $770,486
-------- -------- -------- --------
Expenses:
Depreciation 81,576 81,576 244,728 244,728
Management and leasing expenses 12,826 11,618 41,656 35,293
Other operating expenses (7,585) 3,899 73,410 (188)
-------- -------- -------- --------
86,817 97,093 359,794 279,833
-------- -------- -------- --------
Net income $170,012 $159,736 $410,692 $490,653
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
======== ======== ======== ========
Cash distributed to the Wells REIT $ 9,130 $ 8,804 $ 23,726 $ 26,992
======== ======== ======== ========
Net income allocated to the Wells REIT $ 6,312 $ 5,969 $ 15,265 $ 18,438
======== ======== ======== ========
</TABLE>
Net income decreased in 2000, as compared to 1999, due to an overall
increase in expenses. Operating expenses increased significantly due, in part,
to a significant rise in real estate taxes, which resulted from the revaluation
of the property by Boulder County authorities in 1999. A later reduction in
taxes resulting from an appeal in 2000 was offset by a CAM credit to the tenant.
Rental income remained stable for the three months ended September 30,
2000, as compared to the same period in 1999. Total expenses decreased for the
three month period ended September 30, 2000, as compared to the same period for
1999, due largely to other operating expenses being negative. This was due to an
offset of tenant reimbursements in operating costs, as well as management and
leasing fee reimbursements. Cash distributions and net income allocated to the
Wells REIT for the three month period ended September 30, 2000 increased
slightly as compared to 1999.
101
<PAGE>
The Interlocken Building/The IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 207,454 $ 207,791 $ 635,898 $ 622,070
--------- --------- --------- ---------
Expenses:
Depreciation 71,670 71,670 215,010 215,010
Management and leasing expenses 27,019 18,899 83,736 54,518
Other operating costs (2,165) (5,291) (54,699) 5,342
--------- --------- --------- ---------
96,524 85,278 244,047 274,870
--------- --------- --------- ---------
Net income $ 110,930 $ 122,513 $ 391,851 $ 347,200
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 6,800 $ 7,200 $ 22,679 $ 20,952
========= ========= ========= =========
Net income allocated to the Wells REIT $ 4,119 $ 4,578 $ 14,566 $ 13,041
========= ========= ========= =========
</TABLE>
Rental income increased due to a tenant occupying additional space
previously leased to another tenant at a lower rate. 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 current year CAM which is then reconciled the following
year and the difference billed to the tenants. Due to these CAM reimbursements,
management and leasing fees increased since these fees are charged based on
actual receipts.
Cash distributions and net income allocated to the Wells REIT for the
quarter ended September 30, 2000 decreased in 2000, as compared to 1999, due to
a decrease in net income.
The Avaya Building (formerly the Lucent Technologies Building)/The IX-X-XI-
REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 145,752 $ 145,752 $ 437,256 $ 437,256
--------- --------- --------- ---------
Expenses:
Depreciation 45,801 45,801 137,403 137,403
Management and leasing expenses 5,369 5,370 16,109 16,109
Other operating expenses 1,669 1,766 9,688 13,964
--------- --------- --------- ---------
52,839 52,937 163,200 167,476
--------- --------- --------- ---------
Net income $ 92,913 $ 92,815 $ 274,056 $ 269,780
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 4,723 $ 4,750 $ 14,048 $ 14,006
========= ========= ========= =========
Net income allocated to the Wells REIT $ 3,450 $ 3,468 $ 10,187 $ 10,140
========= ========= ========= =========
</TABLE>
102
<PAGE>
Rental income, depreciation, and management and leasing expenses remained
stable in 2000, as compared to 1999, while other operating expenses were
slightly lower, due primarily to a one-time charge for consulting fees in 1999
which did not occur in 2000.
On September 30, 2000, Lucent Technologies, Inc. assigned its interest in
the lease as tenant to Avaya, Inc., the former Enterprise Networks Group of
Lucent Technologies.
The Iomega Building/The IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 168,250 $ 150,009 $ 504,750 $ 397,755
--------- --------- --------- ---------
Expenses:
Depreciation 55,062 48,495 165,186 145,485
Management and leasing expenses 7,319 8,291 21,879 17,629
Other operating expenses 2,253 1,290 12,620 3,815
--------- --------- --------- ---------
64,634 58,076 199,685 166,929
--------- --------- --------- ---------
Net income $ 103,616 $ 91,933 $ 305,065 $ 230,826
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 5,713 $ 5,103 $ 16,940 $ 13,702
========= ========= ========= =========
Net income allocated to the Wells REIT $ 3,848 $ 3,435 $ 11,339 $ 8,672
========= ========= ========= =========
</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 Cort Building/The Cort Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 198,885 $ 198,885 $ 596,656 $ 596,656
--------- --------- --------- ---------
Expenses:
Depreciation 46,641 46,641 139,923 139,923
Management and leasing expenses 8,701 7,590 23,881 22,770
Other operating expenses 6,445 5,993 10,375 19,446
--------- --------- --------- ---------
61,787 60,224 174,179 182,139
--------- --------- --------- ---------
Net income $ 137,098 $ 138,661 $ 422,477 $ 414,517
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 43.7% 43.7% 43.7% 43.7%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 76,243 $ 76,926 $ 233,613 $ 230,137
========= ========= ========= =========
Net income allocated to the Wells REIT $ 59,867 $ 60,550 $ 184,484 $ 181,008
========= ========= ========= =========
</TABLE>
103
<PAGE>
Rental income, depreciation, and management and leasing expenses remained
stable in 2000, as compared to 1999, while other operating expenses are lower
due to common area maintenance (CAM) reimbursements billed in 2000 to the
tenants. Tenants are billed an estimated amount for CAM which is then reconciled
the following year, and the difference is billed to the tenant. No CAM was
charged to the tenant in 1999.
The Fairchild Building/The Fremont Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- --------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---------- ----------- --------- ------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $225,195 $225,210 $675,585 $675,631
---------- ----------- --------- ------------
Expenses:
Depreciation 71,382 71,382 214,146 214,146
Management and leasing expenses 9,175 9,303 27,525 27,970
Other operating expenses 3,244 6,457 9,856 13,772
---------- ----------- --------- ------------
83,801 87,142 251,527 255,888
---------- ----------- --------- ------------
Net income $141,394 $138,068 $424,058 $419,743
========== =========== ========= ============
Occupied percentage 100% 100% 100% 100%
========== =========== ========= ============
Our ownership percentage 77.5% 77.5% 77.5% 77.5%
========== =========== ========= ============
Cash distributed to the Wells REIT $158,817 $151,627 $476,354 $459,174
========== =========== ========= ============
Net income allocated to the Wells REIT $109,587 $107,009 $328,663 $325,318
========== =========== ========= ============
</TABLE>
Rental income, net income and cash distributions to the Wells REIT
remained stable in 2000, as compared to 1999.
The PwC Building
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------- -----------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---------- ---------- ----------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $552,298 $552,297 $1,656,894 $1,656,637
---------- ---------- ----------- -----------
Expenses:
Depreciation 206,037 205,236 618,111 616,257
Management and leasing expenses 37,760 37,612 116,142 111,147
Other operating expenses (28,672) (77,618) (134,352) 103,599
---------- ---------- ----------- -----------
215,125 165,230 599,901 831,003
---------- ---------- ----------- -----------
Net income $337,173 $387,067 $1,056,993 $ 825,634
========== ========== =========== ===========
Occupied percentage 100% 100% 100% 100%
========== ========== =========== ===========
Our ownership percentage 100% 100% 100% 100%
========== ========== =========== ===========
Cash distributed to the Wells REIT $488,547 $526,399 $1,512,625 $1,244,179
========== ========== =========== ===========
Net income allocated to the Wells REIT $337,173 $387,067 $1,056,993 $ 825,634
========== ========== =========== ===========
</TABLE>
Rental income has remained stable. Other operating expenses are negative
due to increased CMA billings in 2000. Management and leasing fee reimbursements
are also included in other operating expenses. Tenants are billed an estimated
amount for current year CAM which is then reconciled the following year, and the
difference billed to the tenants.
104
<PAGE>
The AT&T Building
<TABLE>
<CAPTION>
Nine Eight
Three Months Ended Months Months
-------------------------- Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
---------- --------- ----------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $340,832 $455,471 $1,022,497 $930,145
---------- --------- ----------- ----------
Expenses:
Depreciation 120,744 120,750 362,232 321,972
Management and leasing expenses 15,525 20,532 46,201 29,082
Other operating expenses 831 3,362 6,941 12,931
Interest expense 2,915 27,470 9,331 206,046
---------- --------- ----------- ----------
140,015 172,114 424,705 570,031
---------- --------- ----------- ----------
Net income $200,817 $283,357 $ 597,792 $360,114
========== ========= =========== ==========
Occupied percentage 100% 100% 100% 100%
========== ========= =========== ==========
Our ownership percentage 100% 100% 100% 100%
========== ========= =========== ==========
Cash distributed to the Wells REIT $314,681 $300,004 $ 953,280 $579,189
========== ========= =========== ==========
Net income allocated to the Wells REIT $200,817 $283,357 $ 597,792 $360,114
========== ========= =========== ==========
</TABLE>
Rental income decreased for the three months ended September 30, 2000, as
compared to the three months ended September 30, 1999, due to an understatement
of straight line rent in that was adjusted in the third quarter of 1999.
Interest expense has decreased in 2000 due to a substantial decrease in the note
payable related to this property.
Since the AT&T Building was purchased in February 1999, comparable income
and expenses figures for the prior period ended September 30, 1999 covered only
eight months. Accordingly, the prior period is not comparable to the nine
months ended September 30, 2000.
The EYBL CarTex Building/The XI-XII-REIT Joint Venture
<TABLE>
Three Months Three Months Nine Months Five Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------ ------------ ------------ -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $142,207 $140,048 $422,385 $210,173
----------- ----------- ------------ -----------
Expenses:
Depreciation 49,902 49,902 149,702 83,170
Management and leasing expenses 16,197 3,814 27,415 14,663
Other operating expenses 3,416 5,165 16,163 5,165
----------- ----------- ------------ -----------
69,515 58,881 193,280 102,998
----------- ----------- ------------ -----------
Net income $ 72,692 $ 81,167 $229,105 $107,175
=========== =========== ============ ===========
Occupied percentage 100% 100% 100% 100%
=========== =========== ============ ===========
Our ownership percentage 56.8% 56.8% 56.8% 70.1%
=========== =========== ============ ===========
Cash distributed to the Wells REIT $ 67,917 $ 68,084 $190,825 $103,599
=========== =========== ============ ===========
Net income allocated to the Wells REIT $ 44,820 $ 46,791 $130,047 $ 65,039
=========== =========== ============ ===========
</TABLE>
105
<PAGE>
Since the acquisition of the property by the XI-XII-REIT Joint Venture,
the property has remained 100% occupied, and no significant changes have
occurred to its operations.
Rental income increased slightly for the three month period ended
September 30, 2000, as compared to the same period in 1999. Total expenses
increased for the three month period ended September 30, 2000, as compared to
the same period in 1999, due to an annual leasing commission paid to an outside
broker pursuant to the terms of the purchase agreement. Cash distributions and
net income allocated to the Wells REIT decreased for the three month period
ended September 30, 2000 because of the decrease in net income.
Since the EYBL CarTex Building was purchased in May 1999, comparable
income and expense figures for the prior period ended September 30, 1999 covered
only five months. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
Our ownership interest in the XI-XII-REIT Joint Venture decreased due to
the admittance of Wells Fund XII to the XI-REIT Joint Venture on June 21, 1999.
Our ownership interest was 70.1% for May and June of 1999 and 56.8% for July
through September of 1999.
The Sprint Building/The XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Three Months Nine Months Three Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $265,997 $264,654 $797,991 $264,654
------------- -------------- ----------- ------------
Expenses:
Depreciation 81,779 81,776 245,336 81,776
Management and leasing expenses 11,239 7,493 33,718 7,493
Other operating expenses 3,306 1,283 13,964 1,283
------------- -------------- ----------- ------------
96,324 90,552 293,018 90,552
------------- -------------- ----------- ------------
Net income $169,673 $174,102 $504,973 $174,102
============= ============== =========== ============
Occupied percentage 100% 100% 100% 100%
============= ============== =========== ============
Our ownership percentage 56.8% 56.8% 56.8% 56.8%
============= ============== =========== ============
Cash distributed to the Wells REIT $133,516 $137,150 $398,252 $137,150
============= ============== =========== ============
Net income allocated to the Wells REIT $ 96,311 $100,192 $286,638 $100,192
============= ============== =========== ============
</TABLE>
Since the acquisition of the property by the XI-XII-REIT Joint Venture,
the property has remained 100% occupied, and no significant changes have
occurred to its operations.
Rental income increased slightly for the three months ended September 30,
2000, as compared to the same period in 1999. Total expenses increased for the
three months ended September 30, 2000, as compared to the same period in 1999,
due largely to the increase in management and leasing fees as well as other
operating expenses. Cash distributions and net income allocated to the Company
decreased for the three months ended September 30, 2000 due to a decrease in net
income.
Since the Sprint Building was purchased in July 1999, comparative income
and expense figures for the prior period ended September 30, 1999 covered only
three months. Accordingly, the prior period is not comparable to the nine month
period ended September 30, 2000.
106
<PAGE>
The Johnson Matthey Building/The XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Two Months Nine Months
Ended Ended Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000
<S> <C> <C> <C>
Revenues:
Rental income $219,349 $123,566 $648,297
---------------- ----------------- ---------------
Expenses:
Depreciation 63,869 42,567 191,606
Management and leasing expenses 9,230 0 27,089
Other operating expenses (1,535) 470 8,594
---------------- ----------------- ---------------
71,564 43,037 227,289
---------------- ----------------- ---------------
Net income $147,785 $ 80,529 $421,008
================ ================= ===============
Occupied percentage 100% 100% 100%
================ ================= ===============
Our ownership percentage 56.8% 56.8% 56.8%
================ ================= ===============
Cash distributed to the Wells REIT $110,419 $ 66,517 $318,504
================ ================= ===============
Net income allocated to the Wells REIT $ 83,836 $ 44,409 $238,977
================ ================= ===============
</TABLE>
Since the acquisition of the property by the XI-XII-REIT Joint Venture, the
property has remained 100% occupied, and no significant changes have occurred to
its operations.
Since the Johnson Matthey Building was purchased in August 1999,
comparative income and expense figures for the prior period covered only two
months. Accordingly, the prior period cannot be compared to the nine months
ended September 30, 2000.
The Gartner Building/The XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months One Month Nine Months
Ended Ended Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000
<S> <C> <C> <C>
Revenues:
Rental income $216,567 $32,502 $637,375
-------------- --------------- ---------------
Expenses:
Depreciation 77,623 25,874 232,868
Management and leasing expenses 9,970 0 29,218
Other oserating expenses (7,603) 0 (27,396)
-------------- --------------- ---------------
79,990 25,874 234,690
-------------- --------------- ---------------
Net income $136,577 $ 6,628 $402,685
============== =============== ===============
Occupied percentage 100% 100% 100%
============== =============== ===============
Our ownership percentage 56.8% 56.8% 56.8%
============== =============== ===============
Cash distributed to the Wells REIT $110,861 $10,374 $328,570
============== =============== ===============
Net income allocated to the Wells REIT $ 77,525 $ 3,763 $228,574
============== =============== ===============
</TABLE>
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, we were not able to estimate the amount to be billed for 1999 until the
first quarter of 2000.
107
<PAGE>
Since the acquisition of the property by the XI-XII-REIT Joint Venture,
the property has remained 100% occupied, and no significant changes have
occurred to its operations.
Since the Gartner Building was purchased in September 1999, comparative
income and expense figures for the prior period ended September 30, 1999 covered
only one month. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
The Marconi Building
<TABLE>
<CAPTION>
Three Months One Month Nine Months
Ended Ended Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000
<S> <C> <C> <C>
Revenues:
Rental income $817,819 $219,376 $2,453,457
---------------- ---------------- ----------------
Expenses:
Depreciation 293,352 97,774 880,056
Management and leasing expenses 35,510 10,679 108,472
Other operating expenses 4,433 254 16,928
---------------- ---------------- ----------------
333,295 108,707 1,005,456
---------------- ---------------- ----------------
Net income $484,524 $110,669 $1,448,001
================ ================ ================
Occupied percentage 100% 100% 100%
================ ================ ================
Our ownership percentage 100% 100% 100%
================ ================ ================
Cash distributed to the Wells REIT $673,367 $157,899 $2,016,472
================ ================ ================
Net income allocated to the Wells REIT $484,524 $110,669 $1,448,001
================ ================ ================
</TABLE>
Since the Marconi Building was purchased in September 1999, comparable
income and expense figures for the prior period ended September 30, 1999 covered
only one month. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
The Matsushita Building
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
---------------- ----------------
<S> <C> <C>
Revenues:
Rental income $492,420 $1,509,449
---------------- ----------------
Expenses:
Depreciation 244,909 754,423
Management and leasing expenses 48,022 138,940
Other operating expenses 17,211 51,891
---------------- ----------------
310,142 945,254
---------------- ----------------
Net income $182,278 $ 564,195
================ ================
Occupied percentage 100% 100%
================ ================
Our ownership percentage 100% 100%
================ ================
Cash distributed to the Wells REIT $441,254 $1,156,810
================ ================
Net income generated to the Wells REIT $182,278 $ 564,195
================ ================
</TABLE>
108
<PAGE>
Construction of the Matsushita Building is complete, and the aggregate
of all costs and expenses incurred by Wells OP with respect to the acquisition
and construction of the Matsushita Building was $18,576,701. The monthly base
rent for the Matsushita Building is $154,602.
Since the Matsushita Building opened in January 2000, comparable income
and expense figures for the prior period are not available.
The Cinemark Building
<TABLE>
<CAPTION>
Three Months Nine Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
---------------- ----------------
<S> <C> <C>
Revenues:
Rental income $701,262 $ 2,104,128
Interest income 3,084 $ 4,332
---------------- ----------------
704,346 2,108,460
---------------- ----------------
Expenses:
Depreciation 212,310 636,896
Management and leasing expenses 38,127 100,167
Other operating expenses 144,809 453,912
---------------- ----------------
395,246 1,190,975
---------------- ----------------
Net income $309,100 $ 917,485
---------------- ----------------
Occupied percentage 100% 100%
================ ================
Our ownership percentage 100% 100%
================ ================
Cash distributed to the Wells REIT $474,274 $1,412,711
================ ================
Net income allocated to the Wells REIT $309,100 $ 917,485
================ ================
</TABLE>
Since the Cinemark Building was purchased in December 1999, comparable
income and expense figures for the prior period are not available.
The Metris Building
<TABLE>
<CAPTION>
Three Months Eight Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
---------------- ----------------
<S> <C> <C>
Revenues:
Rental income $308,459 $790,503
---------------- ----------------
Expenses:
Depreciation 120,792 318,298
Management and leasing expenses 13,365 34,102
Other operating expenses 3,892 10,970
---------------- ----------------
138,049 363,370
---------------- ----------------
Net income $170,410 $427,133
================ ================
Occupied percentage 100% 100%
================ ================
Our ownership percentage 100% 100%
================ ================
Cash distributed to the Wells REIT $281,392 $717,190
================ ================
Net income allocated to the Wells REIT $170,410 $427,133
================ ================
</TABLE>
Since the Metris Building was purchased in February 2000, comparable
income and expense figures for the prior period are not available.
109
<PAGE>
The Dial Building
<TABLE>
<CAPTION>
Three Months Seven Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
------------------ -------------------
<S> <C> <C>
Revenues:
Rental income $346,918 $705,027
------------------ ------------------
Expenses:
Depreciation 120,591 251,094
Management and leasing expenses 15,710 32,122
Other operating expenses 19,459 32,400
------------------ ------------------
155,760 315,616
------------------ ------------------
Net income $191,158 $389,411
================== ==================
Occupied percentage 100% 100%
================== ==================
Our ownership percentage 100% 100%
================== ==================
Cash distributed to the Wells REIT $325,069 $667,145
================== ==================
Net income allocated to the Wells REIT $191,158 $389,411
================== ==================
</TABLE>
Since the Dial Building was purchased in March 2000, comparable income and
expense figures for the prior period are not available.
The ASML Building
<TABLE>
<CAPTION>
Three Months Seven Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
------------------ --------------------
<S> <C> <C>
Revenues:
Rental income $586,875 $1,189,297
------------------ ------------------
Expenses:
Depreciation 193,620 391,056
Management and leasing expenses 26,366 54,688
Other operating expenses 75,823 131,993
------------------ ------------------
295,809 577,737
------------------ ------------------
Net income $291,066 $ 611,560
================== ==================
Occupied percentage 100% 100%
================== ==================
Our ownership percentage 100% 100%
================== ==================
Cash distributed to the Wells REIT $401,031 $ 835,306
================== ==================
Net income allocated to the Wells REIT $291,066 $ 611,560
================== ==================
</TABLE>
Since the ASML Building was purchased in March 2000, comparable income and
expense figures for the prior period are not available.
110
<PAGE>
The Motorola Building
<TABLE>
<CAPTION>
Three Months Seven Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
------------------ -------------------
<S> <C> <C>
Revenues:
Rental income $485,835 $986,539
------------------ ------------------
Expenses:
Depreciation 184,064 366,103
Management and leasing expenses 20,654 42,352
Other operating expenses 84,162 150,817
------------------ ------------------
288,880 559,272
------------------ ------------------
Net income $196,955 $427,267
================== ==================
Occupied percentage 100% 100%
================== ==================
Our ownership percentage 100% 100%
================== ==================
Cash distributed to the Wells REIT $366,882 $764,851
================== ==================
Net income allocated to the Wells REIT $196,955 $427,267
================== ==================
</TABLE>
Since the Motorola Building was purchased in March 2000, comparable income
and expense figures for the prior period are not available.
The Siemens Building/The XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Five Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
------------------ -------------------
<S> <C> <C>
Revenues:
Rental income $376,103 $598,678
------------------ -------------------
Expenses:
Depreciation 106,736 176,070
Management and leasing expenses 14,736 18,020
Other operating expenses 1,805 2,032
------------------ -------------------
123,277 196,122
------------------ -------------------
Net income $252,826 $402,556
================== ==================
Occupied percentage 100% 100%
================== ==================
Our ownership percentage 50% 50%
================== ==================
Cash distributed to the Wells REIT $155,462 $248,781
================== ==================
Net income allocated to the Wells REIT $126,413 $201,278
================== ==================
</TABLE>
Since the Siemens Building was purchased in May 2000, comparative income
and expense figures for the prior period are not available.
111
<PAGE>
The Avnet Building
<TABLE>
<CAPTION>
Three Months Four Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
------------------ ------------------
<S> <C> <C>
Revenues:
Rental income $442,449 $533,037
------------------ ------------------
Expenses:
Depreciation 132,714 176,952
Management and leasing expenses 21,008 21,008
Other operating expenses 59,576 72,007
------------------ ------------------
213,298 269,967
------------------ ------------------
Net income $229,151 $263,070
================== ==================
Occupied percentage 100% 100%
================== ==================
Our ownership percentage 100% 100%
================== ==================
Cash distributed to the Wells REIT $298,703 $366,292
================== ==================
Net income allocated to the Wells REIT $229,151 $263,070
================== ==================
</TABLE>
Since the Avnet Building was purchased in June 2000, comparable income and
expense figures for the prior period are not available.
The Delphi Building
<TABLE>
<CAPTION>
Three Months Four Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
------------------ ------------------
<S> <C> <C>
Revenues:
Rental income $516,205 $532,947
------------------ ------------------
Expenses:
Depreciation 216,137 219,372
Management and leasing expenses 22,167 22,167
Other operating expenses 1,650 8,782
------------------ ------------------
239,954 250,321
------------------ ------------------
Net income $276,251 $282,626
================== ==================
Occupied percentage 100% 100%
================== ==================
Our ownership percentage 100% 100%
================== ==================
Cash distributed to the Wells REIT $458,077 $461,653
================== ==================
Net income allocated to the Wells REIT $276,251 $282,626
================== ==================
</TABLE>
Since the Delphi Building was purchased in June 2000, comparable income and
expense figures for the prior period are not available.
112
<PAGE>
The Alstom Power Building (formerly the ABB-Richmond Building)
<TABLE>
<CAPTION>
Three Months
Ended
Sept. 30, 2000
------------------
<S> <C>
Revenues:
Rental income $228,597
------------------
Expenses:
Depreciation 110,097
Management and leasing expenses 29,694
Other operating expenses (34,658)
------------------
105,133
------------------
Net income $123,634
==================
Occupied percentage 100%
==================
Our ownership percentage 100%
==================
Cash distributed to the Wells REIT $243,186
==================
Net income allocated to the Wells REIT $123,464
==================
</TABLE>
On July 24, 2000, Wells OP completed a build-to-suit four-story office
building containing approximately 99,057 rentable square feet on a 7.49 acre
tract of land in Richmond, Virginia (Alstom Power Building). The aggregate of
all costs and expenses incurred by Wells OP with respect to the acquisition and
construction of the Alstom Power Building was $11,654,666.
The building is 100% leased to Alstom Power, Inc. with a lease
expiration of July 31, 2007. The monthly base rent for the Alstom Power Building
is $98,644. On December 30, 1999, ABB Power Generation, Inc. merged into ABB
Alstom Power, Inc., and on June 22, 2000, ABB Alstom Power, Inc. changed its
name to Alstom Power, Inc.
Since the Alstom Power Building was completed in July 2000, comparable
income and expense figures for the prior period are not available.
The Quest Building/VIII-IX-REIT Joint Venture
<TABLE>
Three Months
Ended
Sept. 30,
2000
-------------------
<S> <C>
Revenues:
Rental income $259,148
-------------------
Expenses:
Depreciation 46,368
Management and leasing expenses 0
Other operating expenses 16,283
-------------------
62,651
-------------------
Net income $196,497
-------------------
Occupied percentage 100%
-------------------
Our ownership percentage 7%
-------------------
Cash distributed to the Wells REIT $ 8,842
-------------------
Net income allocated to the Wells REIT $ 11,529
-------------------
</TABLE>
113
<PAGE>
On June 15, 2000, the VIII-IX-REIT Joint Venture was formed between Wells
OP and Fund VIII and IX Associates, a Georgia joint venture between Wells Fund
VIII and Wells Fund IX. On July 1, 2000, Fund VIII and IX Associates contributed
its interest in the two story office building containing approximately 65,006
rentable square feet on a 4.4 acre tract of land located in Irvine, California
(Quest Building), formerly known as the Bake Parkway Building, to the VIII-IX-
REIT Joint Venture.
On August 1, 2000, Quest Software, Inc. commenced a 42 month lease for 100%
of the Quest Building.
Construction of tenant improvements to the Quest Building required under
the Quest lease are being funded by capital contributions from Wells OP and are
anticipated to cost approximately $1,250,000 in the aggregate.
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 a majority of our tenant leases to protect us from the impact of
inflation. These leases contain common area maintenance charges, real estate
tax and insurance reimbursements on a per square foot basis, or in some cases,
annual reimbursement of operating expenses above a certain per square foot
allowance. These provisions should reduce our exposure to increases in costs
and operating expenses resulting from inflation.
Prior Performance Summary
The information presented in this section represents the historical
experience of real estate programs managed by Wells Capital and its affiliates.
Investors in the Wells REIT should not assume that they will experience returns,
if any, comparable to those experienced by investors in such prior Wells real
estate programs.
Of the 13 publicly offered real estate limited partnerships in which Leo F.
Wells, III has served as a general partner, 12 of such limited partnerships have
completed their respective offerings. These 12 limited partnerships and the
year in which each of their offerings was completed are:
1. Wells Real Estate Fund I (1986)
2. Wells Real Estate Fund II (1988)
3. Wells Real Estate Fund II-OW (1988)
4. Wells Real Estate Fund III, L.P. (1990)
5. Wells Real Estate Fund IV, L.P. (1992)
6. Wells Real Estate Fund V, L.P. (1993)
7. Wells Real Estate Fund VI, L.P. (1994)
8. Wells Real Estate Fund VII, L.P. (1995)
9. Wells Real Estate Fund VIII, L.P. (1996)
10. Wells Real Estate Fund IX, L.P. (1996)
11. Wells Real Estate Fund X, L.P. (1997)
12. Wells Real Estate Fund XI, L.P. (1998).
In addition to the foregoing real estate limited partnerships, Wells
Capital and its affiliates sponsored the initial public offering of shares of
common stock of the Wells REIT. The initial public offering began on January 30,
1998 and was terminated on December 19, 1999. We received gross
114
<PAGE>
proceeds of approximately $132,181,919 from the sale of approximately 13,218,192
shares from our initial public offering.
Wells Capital and its affiliates sponsored a second public offering of
shares of common stock of the Wells REIT. The second public offering began on
December 20, 1999 and was terminated on December 19, 2000. As of December 15,
2000, we had received gross proceeds of approximately $____________ from the
sale of approximately ____________ shares from our second public offering.
Wells Capital and its affiliates are currently also sponsoring a public
offering of 7,000,000 units on behalf of Wells Real Estate Fund XII, L.P., a
public limited partnership. Wells Fund XII began its offering on March 22, 1999,
and as of September 30, 2000, Wells Fund XII had raised $20,618,517 from 1,082
investors.
The Prior Performance Tables included in the back of this prospectus set
forth information as of the dates indicated regarding certain of these Wells
programs as to (1) experience in raising and investing funds (Table I); (2)
compensation to sponsor (Table II); and (3) annual operating results of prior
programs (Table III). No information is given as to results of completed
programs or sales or disposals of property because, to date, none of the Wells
programs have sold any of their properties.
In addition to the real estate programs sponsored by Wells Capital and its
affiliates discussed above, they are also sponsoring an index mutual fund which
invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT
Fund). The REIT Fund is a mutual fund which seeks to provide investment results
corresponding to the performance of the S&P REIT Index by investing in the REIT
stocks included in the S&P REIT Index. The REIT Fund began its offering on
January 12, 1998, and as of September 30, 2000, the REIT Fund had raised
$48,330,317 from 2,080 investors.
Publicly Offered Unspecified Real Estate Programs
Wells Capital and its affiliates have previously sponsored the above listed
12 publicly offered real estate limited partnerships and are currently
sponsoring Wells Fund XII offered on an unspecified property or "blind pool"
basis. The total amount of funds raised from investors in the offerings of
these 13 publicly offered limited partnerships, as of September 30, 2000, was
approximately $284,902,809, and the total number of investors in such programs
was approximately 25,627.
The investment objectives of each of the other Wells programs are
substantially identical to the investment objectives of the Wells REIT. All of
the proceeds of the offerings of Wells Fund I, Wells Fund II, Wells Fund II-OW,
Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII,
Wells Fund VIII, Wells Fund IX, Wells Fund X and Wells Fund XI available for
investment in real properties have been invested in properties. As of September
30, 2000, approximately 65% of the aggregate gross rental income of the 12
publicly offered programs listed above was derived from tenants which are
corporations, each of which at the time of lease execution had a net worth of at
least $100,000,000 or whose lease obligations were guaranteed by another
corporation with a net worth of at least $100,000,000.
Because of the cyclical nature of the real estate market, decreases in net
income of the public partnerships could occur at any time in the future when
economic conditions decline. Wells Fund I recently sold one of its buildings
and is in the process of marketing the remainder of its properties for sale.
However, none of the other Wells programs has liquidated its real estate
portfolio or, except for the one building recently sold by Wells Fund I, sold
any of its real properties to date. Accordingly, no assurance can be made that
Wells programs will ultimately be successful in meeting their investment
objectives. (See "Risk Factors.")
115
<PAGE>
The aggregate dollar amount of the acquisition and development costs of the
properties purchased by the previously sponsored Wells programs, as of December
31, 1999, was $370,247,877 of which $332,000 (or approximately .09%) had not yet
been expended on the development of certain of the projects which are still
under construction. Of the aggregate amount, approximately 82% was or will be
spent on acquiring or developing office buildings, and approximately 18% was or
will be spent on acquiring or developing shopping centers. Of the aggregate
amount, approximately 9% was or will be spent on new properties, 58% on existing
or used properties and 33% on construction properties. Following is a table
showing a breakdown of the aggregate amount of the acquisition and development
costs of the properties purchased by the Wells REIT, Wells Fund XII and the 12
Wells programs listed above as of September 30, 2000:
Type of Property New Used Construction
---------------- --- ---- ------------
Office Buildings 29.0% 38.2% 19.1%
Shopping Centers 0% 4.5% 9.2%
Wells Fund I terminated its offering on September 5, 1986, and received
gross proceeds of $35,321,000 representing subscriptions from 4,895 limited
partners. $24,679,000 of the gross proceeds were attributable to sales of Class
A Units, and $10,642,000 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund I have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund I owns
interests in the following properties:
. a three-story medical office building in Atlanta, Georgia;
. a commercial office building in Atlanta, Georgia;
. a shopping center in DeKalb County, Georgia having Kroger as the
anchor tenant;
. a shopping center in Knoxville, Tennessee;
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant; and
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia.
The prospectus of Wells Fund I provided that the properties purchased by
Wells Fund I would typically be held for a period of eight to 12 years, but that
the general partners may exercise their discretion as to whether and when to
sell the properties owned by Wells Fund I and that the general partners were
under no obligation to sell the properties at any particular time. Wells Fund I
recently sold one of two commercial office buildings known as Peachtree Place
located in a suburb of Atlanta, Georgia. Wells Fund I is in the process of
marketing the remainder of its properties for sale pending the outcome of a
proxy solicitation recommending that the Class A Limited Partners vote in favor
of an amendment to the Partnership Agreement to change the method of
distribution of net sale proceeds.
Wells Fund II and Wells Fund II-OW terminated their offerings on September
7, 1988, and received aggregate gross proceeds of $36,870,250 representing
subscriptions from 4,659 limited partners. $28,829,000 of the gross proceeds
were attributable to sales of Class A Units, and $8,041,250 of the gross
proceeds were attributable to sales of Class B Units. Limited partners in Wells
Fund II and Wells Fund II-OW have no right to change the status of their units
from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW own
all of their properties through a joint venture, which owns interests in the
following properties:
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant;
116
<PAGE>
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia;
. a two-story office building in Charlotte, North Carolina leased to
First Union Bank;
. a four-story office building in Houston, Texas leased to The Boeing
Company;
. a restaurant property in Roswell, Georgia leased to Brookwood Grill of
Roswell, Inc.; and
. a combined retail and office development in Roswell, Georgia.
The prospectus of Wells Fund II and Wells Fund II-OW provided that the
properties purchased by Wells Fund II and Wells Fund II-OW would typically be
held for a period of eight to 12 years, but that the general partners may
exercise their discretion as to whether and when to sell the properties owned by
Wells Fund II and Wells Fund II-OW and that the partnerships were under no
obligation to sell their properties at any particular time. Wells Fund II and
Wells Fund II-OW acquired their properties between 1987 and 1989, and have not
yet liquidated or sold any of their properties.
Wells Fund III terminated its offering on October 23, 1990, and received
gross proceeds of $22,206,310 representing subscriptions from 2,700 limited
partners. $19,661,770 of the gross proceeds were attributable to sales of Class
A Units, and $2,544,540 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund III have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund III
owns interests in the following properties:
. a four-story office building in Houston, Texas leased to The Boeing
Company;
. a restaurant property in Roswell, Georgia leased to Brookwood Grill of
Roswell, Inc.;
. a combined retail and office development in Roswell, Georgia;
. a two-story office building in Greenville, North Carolina leased to
International Business Machines Corporation (IBM);
. a shopping center in Stockbridge, Georgia having Kroger as the anchor
tenant; and
. a two-story office building in Richmond, Virginia leased to General
Electric.
Wells Fund IV terminated its offering on February 29, 1992, and received
gross proceeds of $13,614,655 representing subscriptions from 1,286 limited
partners. $13,229,150 of the gross proceeds were attributable to sales of Class
A Units, and $385,505 of the gross proceeds were attributable to sales of Class
B Units. Limited partners in Wells Fund IV have no right to change the status
of their units from Class A to Class B or vice versa. Wells Fund IV owns
interests in the following properties:
. a shopping center in Stockbridge, Georgia having Kroger as the anchor
tenant;
. a four-story office building in Jacksonville, Florida leased to IBM
and Customized Transportation Inc. (CTI);
. a two-story office building in Richmond, Virginia leased to General
Electric; and
. two-story office buildings in Stockbridge, Georgia, a substantial
portion of which is leased to Georgia Baptist Hospital.
117
<PAGE>
Wells Fund V terminated its offering on March 3, 1993, and received gross
proceeds of $17,006,020 representing subscriptions from 1,667 limited partners.
$15,209,666 of the gross proceeds were attributable to sales of Class A Units,
and $1,796,354 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund V who purchased Class B Units are
entitled to change the status of their units to Class A, but limited partners
who purchased Class A Units are not entitled to change the status of their units
to Class B. After taking into effect conversion elections made by limited
partners subsequent to their subscription for units, as of December 31, 1998,
$15,590,210 of units of Wells Fund V were treated as Class A Units, and
$1,415,810 of units were treated as Class B Units. Wells Fund V owns interests
in the following properties:
. a four-story office building in Jacksonville, Florida leased to IBM
and CTI;
. two-story office buildings in Stockbridge, Georgia, a substantial
portion of which is leased to Georgia Baptist Hospital;
. a four-story office building in Hartford, Connecticut leased to
Hartford Fire Insurance Company;
. two restaurant properties in Stockbridge, Georgia leased to Apple
Restaurants, Inc. and Glenn's Open Pit Bar-B-Que; and
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel.
Wells Fund VI terminated its offering on April 4, 1994, and received gross
proceeds of $25,000,000 representing subscriptions from 1,793 limited partners.
$19,332,176 of the gross proceeds were attributable to sales of Class A Units,
and $5,667,824 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund VI are entitled to change the status of
their units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscription
for units, as of December 31, 1998, $21,877,575 of units of Wells Fund VI were
treated as Class A Units, and $3,122,425 of units were treated as Class B Units.
Wells Fund VI owns interests in the following properties:
. a four-story office building in Hartford, Connecticut leased to
Hartford Fire Insurance Company;
. two restaurant properties in Stockbridge, Georgia leased to Apple
Restaurants, Inc. and Glenn's Open Pit Bar-B-Que;
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel;
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant;
. a combined retail and office development in Roswell, Georgia;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.; and
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant.
118
<PAGE>
Wells Fund VII terminated its offering on January 5, 1995, and received
gross proceeds of $24,180,174 representing subscriptions from 1,910 limited
partners. $16,788,095 of the gross proceeds were attributable to sales of Class
A Units, and $7,392,079 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund VII are entitled to change the
status of their units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscriptions for units, as of December 31, 1998, $20,095,174 of units in Wells
Fund VII were treated as Class A Units, and $4,085,000 of units were treated as
Class B Units. Wells Fund VII owns interests in the following properties:
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel;
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant;
. a combined retail and office development in Roswell, Georgia;
. a two-story office building in Alachua County, Florida near
Gainesville leased to CH2M Hill, Engineers, Planners, Economists,
Scientists;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.;
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant; and
. a retail development in Clayton County, Georgia.
Certain financial information for Wells Fund VII is summarized below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues $962,630 $846,306 $816,237 $543,291 $925,246
----------------------------------------------------------------------------------------------------------------------
Net Income $895,795 $754,334 $733,149 $452,776 $804,043
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Wells Fund VIII terminated its offering on January 4, 1996, and received
gross proceeds of $32,042,689 representing subscriptions from 2,241 limited
partners. $26,135,339 of the gross proceeds were attributable to sales of Class
A Units, and $5,907,350 were attributable to sales of Class B Units. Limited
partners in Wells Fund VIII are entitled to change the status of their units
from Class A to Class B and vice versa. After taking into effect conversion
elections made by limited partners subsequent to their subscriptions for units
and certain repurchases made by Wells Fund VIII, as of December 31, 1998,
$26,745,845 of units in Wells Fund VIII were treated as Class A Units, and
$5,286,844 of units were treated as Class B Units. Wells Fund VIII owns
interests in the following properties:
. a two-story office building in Alachua County, Florida near Gainsville
leased to CH2M Hill, Engineers, Planners, Economists, Scientists;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.;
119
<PAGE>
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant;
. a retail development in Clayton County, Georgia;
. a four-story office building in Madison, Wisconsin leased to US
Cellular, a subsidiary of Bellsouth Corporation;
. a one-story office building in Farmers Branch, Texas leased to TCI
Valwood Limited Partnership I;
. a two-story office building in Orange County, California; and
. a two-story office building in Boulder County, Colorado leased to
Cirrus Logic, Inc.
Certain financial information for Wells Fund VIII is summarized below:
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross Revenues $1,360,497 $1,362,513 $1,204,018 $1,057,694 $402,428
--------------------------------------------------------------------------------------------------------------------
Net Income $1,266,946 $1,269,171 $1,102,567 $ 936,590 $273,914
--------------------------------------------------------------------------------------------------------------------
</TABLE>
Wells Fund IX terminated its offering on December 30, 1996, and received
gross proceeds of $35,000,000 representing subscriptions from 2,098 limited
partners. $29,359,310 of the gross proceeds were attributable to sales of Class
A Units, and $5,640,690 were attributable to sales of Class B Units. After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units, as of December 31, 1998, $29,898,750 of units in
Wells Fund IX were treated as Class A Units, and $5,101,250 of units were
treated as Class B Units. Wells Fund IX owns interests in the following
properties:
. a one-story office building in Farmers Branch, Texas leased to TCI
Valwood Limited Partnership I;
. a four-story office building in Madison, Wisconsin leased to US
Cellular, a subsidiary of Bellsouth Corporation;
. a two-story office building in Orange County, California;
. a two-story office building in Boulder County, Colorado leased to
Cirrus Logic, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a three-story office building in Knox County, Tennessee leased to ABB
Environmental Systems;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a three-story office building in Boulder County, Colorado; and
. a one-story office building in Oklahoma City, Oklahoma leased to
Lucent Technologies, Inc.
120
<PAGE>
Certain financial information for Wells Fund IX is summarized below:
<TABLE>
<CAPTION>
----------------------------------------------------------------------------------------------------
1999 1998 1997 1996
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Gross Revenues $1,593,734 $1,561,456 $1,199,300 $406,891
----------------------------------------------------------------------------------------------------
Net Income $1,490,331 $1,449,955 $1,091,766 $298,756
----------------------------------------------------------------------------------------------------
</TABLE>
Wells Fund X terminated its offering on December 30, 1997, and received
gross proceeds of $27,128,912 representing subscriptions from 1,806 limited
partners. $21,160,992 of the gross proceeds were contributable to sales of
Class A Units, and $5,967,920 were attributable to sales of Class B Units.
After taking into effect conversion elections made by limited partners
subsequent to their subscriptions for units as of December 31, 1998, $21,258,042
of units in Wells Fund X were treated as Class A Units and $5,870,870 of units
were treated as Class B Units. Wells Fund X owns interests in the following
properties:
. a three-story office building in Knox County, Tennessee leased to ABB
Environmental Systems;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a three-story office building in Boulder County, Colorado;
. a one-story office building in Oklahoma City, Oklahoma leased to
Lucent Technologies, Inc.;
. a one-story office and warehouse building in Orange County, California
leased to Cort Furniture Rental Corporation; and
. a two-story office and manufacturing building in Alameda County,
California leased to Fairchild Technologies U.S.A., Inc.
Certain financial information for Wells Fund X is summarized below:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------
1999 1998 1997
------------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross Revenues $1,309,281 $1,204,597 $372,507
------------------------------------------------------------------------------------
Net Income $1,192,318 $1,050,329 $278,025
------------------------------------------------------------------------------------
</TABLE>
Wells Fund XI terminated its offering on December 30, 1998, and received
gross proceeds of $16,532,802 representing subscriptions from 1,345 limited
partners. $13,029,424 of the gross proceeds were attributable to sales of Class
A Units and $3,503,378 were attributable to sales of Class B Units. Wells Fund
XI owns interests in the following properties:
. a three-story office building in Knox County, Tennessee leased to ABB
Environmental Systems;
. a one-story office building in Oklahoma City, Oklahoma leased to
Lucent Technologies, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
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<PAGE>
. a three-story office building in Boulder County, Colorado;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a one-story office and warehouse building in Orange County, California
leased to Cort Furniture Rental Corporation;
. a two-story office and manufacturing building in Alameda County,
California leased to Fairchild Technologies U.S.A., Inc.;
. a two-story manufacturing and office building in Greenville County,
South Carolina leased to EYBL CarTex, Inc.;
. a three-story office building in Johnson County, Kansas leased to
Sprint Communications Company L.P.;
. a two-story research and development office and warehouse building in
Chester County, Pennsylvania leased to Johnson Matthey, Inc.; and
. a two-story office building in Fort Myers, Florida leased to Gartner
Group, Inc.
Certain financial information for Wells Fund XI is summarized below:
1999 1998
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Gross Revenues $766,586 $262,729
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Net Income $630,528 $143,295
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Wells Fund XII began its offering on March 22, 1999. As of September 30,
2000, Wells Fund XII had received gross proceeds of $20,618,517 representing
subscriptions from 1,082 limited partners. $15,959,857 of the gross proceeds
were attributable to sales of cash preferred units and $4,658,660 were
attributable to sales of tax preferred units. Wells Fund XII owns interests in
the following properties:
. a two-story manufacturing and office building in Greenville County,
South Carolina leased to EYBL CarTex, Inc.;
. a three-story office building In Johnson County, Kansas leased to
Sprint Communications Company L.P.;
. a two-story research and development office and warehouse building in
Chester County, Pennsylvania leased to Johnson Matthey, Inc.;
. a two-story office building in Fort Myers, Florida leased to Gartner
Group, Inc.; and
. a three-story office building in Troy, Michigan leased to Siemens
Automotive Corporation.
The information set forth above should not be considered indicative of
results to be expected from the partnership.
The foregoing properties in which the above 13 limited partnerships have
invested have all been acquired on an all cash basis.
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Leo F. Wells, III and Wells Partners, L.P. are the general partners of
Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII,
Wells Fund IX, Wells Fund X, Wells Fund XI and Wells Fund XII. Wells Capital,
which is the general partner of Wells Partners, L.P., and Leo F. Wells, III are
the general partners of Wells Fund I, Wells Fund II, Wells Fund II-OW and Wells
Fund III.
Potential investors are encouraged to examine the Prior Performance Tables
included in the back of the prospectus for more detailed information regarding
the prior experience of the sponsors. In addition, upon request, prospective
investors may obtain from us without charge copies of offering materials and any
reports prepared in connection with any of the Wells programs, including a copy
of the most recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission. For a reasonable fee, we will also furnish upon request
copies of the exhibits to any such Form 10-K. Any such request should be
directed to our secretary. Additionally, Table VI contained in Part II of the
registration statement, which is not part of this prospectus, gives certain
additional information relating to properties acquired by the Wells programs.
We will furnish, without charge, copies of such table upon request.
Federal Income Tax Considerations
General
The following is a summary of material federal income tax considerations
associated with an investment in the shares. This summary does not address all
possible tax considerations that may be material to an investor and does not
constitute tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to you, as a prospective shareholder, in light of your
personal circumstances; nor does it deal with particular types of shareholders
that are subject to special treatment under the Internal Revenue Code, such as
insurance companies, tax-exempt organizations, financial institutions or broker-
dealers, or foreign corporations or persons who are not citizens or residents of
the United States ("Non-US Shareholders"). The Internal Revenue Code provisions
governing the federal income tax treatment of REITs are highly technical and
complex, and this summary is qualified in its entirety by the express language
of applicable Internal Revenue Code provisions, Treasury Regulations promulgated
thereunder and administrative and judicial interpretations thereof.
We urge you, as a prospective investor, to consult your own tax advisor
regarding the specific tax consequences to you of a purchase of shares,
ownership and sale of the shares and of our election to be taxed as a REIT,
including the federal, state, local, foreign and other tax consequences of such
purchase, ownership, sale and election.
Opinion of Counsel
Holland & Knight LLP has acted as our counsel, has reviewed this summary
and is of the opinion that it fairly summarizes the federal income tax
considerations addressed that are material to shareholders. It is also the
opinion of our counsel that, commencing with our taxable year ended December 31,
1998, it is more likely than not that we qualified to be taxed as a REIT under
the Internal Revenue Code, provided that we have operated and will continue to
operate in accordance with various assumptions and the factual representations
we made to counsel concerning our business, properties and operations. It must
be emphasized that Holland & Knight LLP's opinion is based on various
assumptions and is conditioned upon the assumptions and representations we made
concerning our business and properties. Moreover, our qualification for
taxation as a REIT depends on our ability to meet the various qualification
tests imposed under the Internal Revenue Code discussed below, the results of
which will not be reviewed by Holland & Knight LLP. Accordingly, we cannot
assure you that the actual results of our operations for any one taxable year
will satisfy these requirements. (See "Risk Factors -- Failure to Qualify as a
REIT.")
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The statements made in this section of the prospectus and in the opinion of
Holland & Knight LLP are based upon existing law and Treasury Regulations, as
currently applicable, currently published administrative positions of the
Internal Revenue Service and judicial decisions, all of which are subject to
change, either prospectively or retroactively. We cannot assure you that any
changes will not modify the conclusions expressed in counsel's opinion.
Moreover, an opinion of counsel is not binding on the Internal Revenue Service
and we cannot assure you that the Internal Revenue Service will not successfully
challenge our status as a REIT.
Taxation of the Company
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on that portion of our ordinary income or capital
gain that we distribute currently to our shareholders, because the REIT
provisions of the Internal Revenue Code generally allow a REIT to deduct
distributions paid to its shareholders. This substantially eliminates the
federal "double taxation" on earnings (taxation at both the corporate level and
shareholder level) that usually results from an investment in a corporation.
Even if we qualify for taxation as a REIT, however, we will be subject to
federal income taxation as follows:
. we will be taxed at regular corporate rates on our undistributed REIT
taxable income, including undistributed net capital gains;
. under some circumstances, we will be subject to "alternative minimum
tax";
. if we have net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other non-qualifying income from
foreclosure property, we will be subject to tax at the highest
corporate rate on that income;
. if we have net income from prohibited transactions (which are, in
general, sales or other dispositions of property other than
foreclosure property held primarily for sale to customers in the
ordinary course of business), the income will be subject to a 100%
tax;
. if we fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but have nonetheless maintained our qualification as
a REIT because certain conditions have been met, we will be subject to
a 100% tax on an amount equal to the greater of the amount by which we
fail the 75% or 95% test multiplied by a fraction calculated to
reflect our profitability;
. if we fail to distribute during each year at least the sum of (i) 85%
of our REIT ordinary income for the year, (ii) 95% of our REIT capital
gain net income for such year and (iii) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on
the excess of the required distribution over the amounts actually
distributed; and
. if we acquire any asset from a C corporation (i.e., a corporation
generally subject to corporate-level tax) in a carryover-basis
transaction and we subsequently recognize gain on the disposition of
the asset during the ten year period beginning on the date on which we
acquired the asset, then a portion of the gains may be subject to tax
at the highest regular corporate rate, pursuant to guidelines issued
by the Internal Revenue Service (the "Built-In-Gain Rules").
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Requirements for Qualification as a REIT
We elected to be taxable as a REIT for our taxable year ended December 31,
1998. In order for us to qualify as a REIT, however, we had to meet and we must
continue to meet the requirements discussed below relating to our organization,
sources of income, nature of assets and distributions of income to our
shareholders.
Organizational Requirements
In order to qualify for taxation as a REIT under the Internal Revenue Code,
we must:
. be a domestic corporation;
. elect to be taxed as a REIT and satisfy relevant filing and other
administrative requirements;
. be managed by one or more trustees or directors;
. have transferable shares;
. not be a financial institution or an insurance company;
. use a calendar year for federal income tax purposes;
. have at least 100 shareholders for at least 335 days of each taxable
year of 12 months; and
. not be closely held.
As a Maryland corporation, we satisfy the first requirement, and we have
filed an election to be taxed as a REIT with the IRS. In addition, we are
managed by a board of directors, we have transferable shares and we do not
intend to operate as a financial institution or insurance company. We utilize
the calendar year for federal income tax purposes, and we have more than 100
shareholders. We would be treated as closely held only if five or fewer
individuals or certain tax-exempt entities own, directly or indirectly, more
than 50% (by value) of our shares at any time during the last half of our
taxable year. For purposes of the closely-held test, the Internal Revenue Code
generally permits a look-through for pension funds and certain other tax-exempt
entities to the beneficiaries of the entity to determine if the REIT is closely
held. Five or fewer individuals or tax-exempt entities have never owned more
than 50% of our outstanding shares during the last half of any taxable year.
We are authorized to refuse to transfer our shares to any person if the
sale or transfer would jeopardize our ability to satisfy the REIT ownership
requirements. There can be no assurance that a refusal to transfer will be
effective. However, based on the foregoing, we should currently satisfy the
organizational requirements, including the share ownership requirements.
Notwithstanding compliance with the share ownership requirements outlined above,
tax-exempt shareholders may be required to treat all or a portion of their
distributions from us as "unrelated business taxable income" if tax-exempt
shareholders, in the aggregate, exceed certain ownership thresholds set forth in
the Internal Revenue Code. (See "Taxation of Tax-Exempt Shareholders.")
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Ownership of Interests in Partnerships and Qualified REIT Subsidiaries
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share,
based on its interest in partnership capital, of the assets of the partnership
and is deemed to have earned its allocable share of partnership income. Also,
if a REIT owns a qualified REIT subsidiary, which is defined as a corporation
wholly-owned by a REIT, the REIT will be deemed to own all of the subsidiary's
assets and liabilities and it will be deemed to be entitled to treat the income
of that subsidiary as its own. In addition, the character of the assets and
gross income of the partnership or qualified REIT subsidiary shall retain the
same character in the hands of the REIT for purposes of satisfying the gross
income tests and asset tests set forth in the Internal Revenue Code.
Operational Requirements -- Gross Income Tests
To maintain our qualification as a REIT, we must satisfy annually two gross
income requirements.
. At least 75% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property. Gross income includes "rents from real
property" and, in some circumstances, interest, but excludes gross
income from dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business. Such
dispositions are referred to as "prohibited transactions." This is the
75% Income Test.
. At least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived from
the real property investments described above and from distributions,
interest and gains from the sale or disposition of stock or securities
or from any combination of the foregoing. This is the 95% Income Test.
. The rents we receive or that we are deemed to receive qualify as
"rents from real property" for purposes of satisfying the gross income
requirements for a REIT only if the following conditions are met:
. the amount of rent received from a tenant generally must not be
based in whole or in part on the income or profits of any person,
however, an amount received or accrued generally will not be
excluded from the term "rents from real property" solely by
reason of being based on a fixed percentage or percentages of
gross receipts or sales;
. rents received from a tenant will not qualify as "rents from real
property" if an owner of 10% or more of the REIT directly or
constructively owns 10% or more of the tenant (a "Related Party
Tenant") or a subtenant of the tenant (in which case only rent
attributable to the subtenant is disqualified);
. if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total
rent received under the lease, then the portion of rent
attributable to the personal property will not qualify as "rents
from real property"; and
. the REIT must not operate or manage the property or furnish or
render services to tenants, other than through an "independent
contractor" who is adequately
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compensated and from whom the REIT does not derive any income.
However, a REIT may provide services with respect to its
properties, and the income derived therefrom will qualify as
"rents from real property," if the services are "usually or
customarily rendered" in connection with the rental of space only
and are not otherwise considered "rendered to the occupant." Even
if the services with respect to a property are impermissible
tenant services, the income derived therefrom will qualify as
"rents from real property" if such income does not exceed one
percent of all amounts received or accrued with respect to that
property.
If we acquire ownership of property by reason of the default of a borrower
on a loan or possession of property by reason of a tenant default, if the
property qualifies and we elect to treat it as foreclosure property, the income
from the property will qualify under the 75% Income Test and the 95% Income Test
notwithstanding its failure to satisfy these requirements for three years, or if
extended for good cause, up to a total of six years. In that event, we must
satisfy a number of complex rules, one of which is a requirement that we operate
the property through an independent contractor. We will be subject to tax on
that portion of our net income from foreclosure property that does not otherwise
qualify under the 75% Income Test.
Prior to the making of investments in properties, we may satisfy the 75%
Income Test and the 95% Income Test by investing in liquid assets such as
government securities or certificates of deposit, but earnings from those types
of assets are qualifying income under the 75% Income Test only for one year from
the receipt of proceeds. Accordingly, to the extent that offering proceeds have
not been invested in properties prior to the expiration of this one year period,
in order to satisfy the 75% Income Test, we may invest the offering proceeds in
less liquid investments such as mortgage-backed securities, maturing mortgage
loans purchased from mortgage lenders or shares in other REITs. We expect to
receive proceeds from the offering in a series of closings and to trace those
proceeds for purposes of determining the one year period for "new capital
investments." No rulings or regulations have been issued under the provisions
of the Internal Revenue Code governing "new capital investments," however, so
that there can be no assurance that the Internal Revenue Service will agree with
this method of calculation.
Except for amounts received with respect to certain investments of cash
reserves, we anticipate that substantially all of our gross income will be from
sources that will allow us to satisfy the income tests described above; however,
there can be no assurance given in this regard. Notwithstanding our failure to
satisfy one or both of the 75% Income and the 95% Income Tests for any taxable
year, we may still qualify as a REIT for that year if we are eligible for relief
under specific provisions of the Internal Revenue Code. These relief provisions
generally will be available if:
. our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
. we attach a schedule of our income sources to our federal income tax
return; and
. any incorrect information on the schedule is not due to fraud with
intent to evade tax.
It is not possible, however, to state whether, in all circumstances, we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally earn exceeds the limits on this income, the Internal Revenue
Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above in "Taxation of the Company," even if
these relief provisions apply, a tax would be imposed with respect to the excess
net income.
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Operational Requirements -- Asset Tests
At the close of each quarter of our taxable year, we also must satisfy
three tests (Asset Tests) relating to the nature and diversification of our
assets.
. First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government
securities. The term "real estate assets" includes real property,
mortgages on real property, shares in other qualified REITs and a
proportionate share of any real estate assets owned by a partnership
in which we are a partner or of any qualified REIT subsidiary of ours.
. Second, no more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
. Third, of the investments included in the 25% asset class, the value
of any one issuer's securities that we own may not exceed 5% of the
value of our total assets. Additionally, we may not own more than 10%
of any one issuer's outstanding voting securities.
The 5% test must generally be met for any quarter in which we acquire
securities. Further, if we meet the asset tests at the close of any quarter, we
will not lose our REIT status for a failure to satisfy the asset tests at the
end of a later quarter if such failure occurs solely because of changes in asset
values. If our failure to satisfy the asset tests results from an acquisition
of securities or other property during a quarter, we can cure the failure by
disposing of a sufficient amount of nonqualifying assets within 30 days after
the close of that quarter. We maintain, and will continue to maintain, adequate
records of the value of our assets to ensure compliance with the asset tests and
will take other action within 30 days after the close of any quarter as may be
required to cure any noncompliance.
Operational Requirements -- Annual Distribution Requirement
In order to be taxed as a REIT, we are required to make dividend
distributions, other than capital gain distributions, to our shareholders each
year in the amount of at least 95% of our REIT taxable income (computed without
regard to the dividends paid deduction and our capital gain and subject to
certain other potential adjustments) for all tax years prior to 2001 and at
least 90% of our REIT taxable income for all future years beginning with the
year 2001.
While we must generally pay dividends in the taxable year to which they
relate, we may also pay dividends in the following taxable year if (1) they are
declared before we timely file our federal income tax return for the taxable
year in question, and if (2) they are paid on or before the first regular
dividend payment date after the declaration.
Even if we satisfy the foregoing dividend distribution requirement and,
accordingly, continue to qualify as a REIT for tax purposes, we will still be
subject to tax on the excess of our net capital gain and our REIT taxable
income, as adjusted, over the amount of dividends distributed to shareholders.
In addition, if we fail to distribute during each calendar year at least
the sum of:
. 85% of our ordinary income for that year;
. 95% of our capital gain net income other than the capital gain net
income which we elect to retain and pay tax on for that year; and
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. any undistributed taxable income from prior periods,
we will be subject to a 4% excise tax on the excess of the amount of such
required distributions over amounts actually distributed during such year.
We intend to make timely distributions sufficient to satisfy this
requirement; however, it is possible that we may experience timing differences
between (1) the actual receipt of income and payment of deductible expenses, and
(2) the inclusion of that income. It is also possible that we may be allocated
a share of net capital gain attributable to the sale of depreciated property
that exceeds our allocable share of cash attributable to that sale.
In such circumstances, we may have less cash than is necessary to meet our
annual distribution requirement or to avoid income or excise taxation on certain
undistributed income. We may find it necessary in such circumstances to arrange
for financing or raise funds through the issuance of additional shares in order
to meet our distribution requirements, or we may pay taxable stock distributions
to meet the distribution requirement.
If we fail to satisfy the distribution requirement for any taxable year by
reason of a later adjustment to our taxable income made by the Internal Revenue
Service, we may be able to pay "deficiency dividends" in a later year and
include such distributions in our deductions for dividends paid for the earlier
year. In such event, we may be able to avoid being taxed on amounts distributed
as deficiency dividends, but we would be required in such circumstances to pay
interest to the Internal Revenue Service based upon the amount of any deduction
taken for deficiency dividends for the earlier year.
As noted above, we may also elect to retain, rather than distribute, our
net long-term capital gains. The effect of such an election would be as follows:
. we would be required to pay the tax on these gains;
. shareholders, while required to include their proportionate share of
the undistributed long-term capital gains in income, would receive a
credit or refund for their share of the tax paid by the REIT; and
. the basis of a shareholder's shares would be increased by the amount
of our undistributed long-term capital gains (minus the amount of
capital gains tax we pay) included in the shareholder's long-term
capital gains.
In computing our REIT taxable income, we will use the accrual method of
accounting and depreciate depreciable property under the alternative
depreciation system. We are required to file an annual federal income tax
return, which, like other corporate returns, is subject to examination by the
Internal Revenue Service. Because the tax law requires us to make many
judgments regarding the proper treatment of a transaction or an item of income
or deduction, it is possible that the Internal Revenue Service will challenge
positions we take in computing our REIT taxable income and our distributions.
Issues could arise, for example, with respect to the allocation of the purchase
price of properties between depreciable or amortizable assets and nondepreciable
or non-amortizable assets such as land and the current deductibility of fees
paid to Wells Capital or its affiliates. Were the Internal Revenue Service to
successfully challenge our characterization of a transaction or determination of
our REIT taxable income, we could be found to have failed to satisfy a
requirement for qualification as a REIT. If, as a result of a challenge, we are
determined to have failed to satisfy the distribution requirements for a taxable
year, we would be disqualified as a REIT, unless we were permitted to pay a
deficiency distribution to our
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shareholders and pay interest thereon to the Internal Revenue Service, as
provided by the Internal Revenue Code. A deficiency distribution cannot be used
to satisfy the distribution requirement, however, if the failure to meet the
requirement is not due to a later adjustment to our income by the Internal
Revenue Service.
Operational Requirements -- Recordkeeping
In order to continue to qualify as a REIT, we must maintain certain records
as set forth in applicable Treasury Regulations. Further, we must request, on
an annual basis, certain information designed to disclose the ownership of our
outstanding shares. We intend to comply with such requirements.
Failure to Qualify as a REIT
If we fail to qualify as a REIT for any reason in a taxable year and
applicable relief provisions do not apply, we will be subject to tax (including
any applicable alternative minimum tax) on our taxable income at regular
corporate rates. We will not be able to deduct dividends paid to our
shareholders in any year in which we fail to qualify as a REIT. We also will be
disqualified for the four taxable years following the year during which
qualification was lost unless we are entitled to relief under specific statutory
provisions. (See "Risk Factors -- Federal Income Tax Risks")
Sale-Leaseback Transactions
Some of our investments may be in the form of sale-leaseback transactions.
In most instances, depending on the economic terms of the transaction, we will
be treated for federal income tax purposes as either the owner of the property
or the holder of a debt secured by the property. We do not expect to request an
opinion of counsel concerning the status of any leases of properties as true
leases for federal income tax purposes.
The Internal Revenue Service may take the position that a specific sale-
leaseback transaction which we treat as a true lease is not a true lease for
federal income tax purposes but is, instead, a financing arrangement or loan.
We may also structure some sale-leaseback transactions as loans. In this event,
for purposes of the Asset Tests and the 75% Income Test, each such loan likely
would be viewed as secured by real property to the extent of the fair market
value of the underlying property. We expect that, for this purpose, the fair
market value of the underlying property would be determined without taking into
account our lease. If a sale-leaseback transaction were so recharacterized, we
might fail to satisfy the Asset Tests or the Income Tests and, consequently,
lose our REIT status effective with the year of recharacterization.
Alternatively, the amount of our REIT taxable income could be recalculated which
might also cause us to fail to meet the distribution requirement for a taxable
year.
Taxation of U.S. Shareholders
Definition
In this section, the phrase "U.S. shareholder" means a holder of shares
that for federal income tax purposes:
. is a citizen or resident of the United States;
. is a corporation, partnership or other entity created or organized in
or under the laws of the United States or of any political subdivision
thereof;
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. is an estate or trust, the income of which is subject to U.S. federal
income taxation regardless of its source; or
. a trust if a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
For any taxable year for which we qualify for taxation as a REIT, amounts
distributed to taxable U.S. shareholders will be taxed as described below.
Distributions Generally
Distributions to U.S. shareholders, other than capital gain distributions
discussed below, will constitute dividends up to the amount of our current or
accumulated earnings and profits and will be taxable to the shareholders as
ordinary income. These distributions are not eligible for the dividends
received deduction generally available to corporations. To the extent that we
make a distribution in excess of our current or accumulated earnings and
profits, the distribution will be treated first as a tax-free return of capital,
reducing the tax basis in each U.S. shareholder's shares, and the amount of each
distribution in excess of a U.S. shareholder's tax basis in its shares will be
taxable as gain realized from the sale of its shares. Distributions that we
declare in October, November or December of any year payable to a shareholder of
record on a specified date in any of these months will be treated as both paid
by us and received by the shareholder on December 31 of the year, provided that
we actually pay the distribution during January of the following calendar year.
U.S. shareholders may not include any of our losses on their own federal income
tax returns.
We will be treated as having sufficient earnings and profits to treat as a
dividend any distribution by us up to the amount required to be distributed in
order to avoid imposition of the 4% excise tax discussed above. Moreover, any
"deficiency distribution" will be treated as an ordinary or capital gain
distribution, as the case may be, regardless of our earnings and profits. As a
result, shareholders may be required to treat as taxable some distributions that
would otherwise result in a tax-free return of capital.
Capital Gain Distributions
Distributions to U.S. shareholders that we properly designate as capital
gain distributions will be treated as long-term capital gains, to the extent
they do not exceed our actual net capital gain, for the taxable year without
regard to the period for which the U.S. shareholder has held his stock.
Passive Activity Loss and Investment Interest Limitations
Our distributions and any gain you realize from a disposition of shares
will not be treated as passive activity income, and shareholders may not be able
to utilize any of their "passive losses" to offset this income in their personal
tax returns. Our distributions (to the extent they do not constitute a return
of capital) will generally be treated as investment income for purposes of the
limitations on the deduction of investment interest. Net capital gain from a
disposition of shares and capital gain distributions generally will be included
in investment income for purposes of the investment interest deduction
limitations only if, and to the extent, you so elect, in which case any such
capital gains will be taxed as ordinary income.
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Certain Dispositions of the Shares
In general, any gain or loss realized upon a taxable disposition of shares
by a U.S. shareholder who is not a dealer in securities will be treated as long-
term capital gain or loss if the shares have been held for more than 12 months
and as short-term capital gain or loss if the shares have been held for 12
months or less. If, however, a U.S. shareholder has received any capital gains
distributions with respect to his shares, any loss realized upon a taxable
disposition of shares held for six months or less, to the extent of the capital
gains distributions received with respect to his shares, will be treated as
long-term capital loss. Also, the Internal Revenue Service is authorized to
issue Treasury Regulations that would subject a portion of the capital gain a
U.S. shareholder recognizes from selling his shares or from a capital gain
distribution to a tax at a 25% rate, to the extent the capital gain is
attributable to depreciation previously deducted.
Information Reporting Requirements and Backup Withholding for U.S.
Shareholders
Under some circumstances, U.S. shareholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, our shares. Backup withholding will apply only if the
shareholder:
. fails to furnish his or her taxpayer identification number (which, for
an individual, would be his or her Social Security Number);
. furnishes an incorrect tax identification number;
. is notified by the Internal Revenue Service that he or she has failed
properly to report payments of interest and distributions or is
otherwise subject to backup withholding; or
. under some circumstances, fails to certify, under penalties of
perjury, that he or she has furnished a correct tax identification
number and that (a) he or she has not been notified by the Internal
Revenue Service that he or she is subject to backup withholding for
failure to report interest and distribution payments or (b) he or she
has been notified by the Internal Revenue Service that he or she is no
longer subject to backup withholding.
Backup withholding will not apply with respect to payments made to some
shareholders, such as corporations and tax-exempt organizations. Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a U.S. shareholder will be allowed as a
credit against the U.S. shareholder's U.S. federal income tax liability and may
entitle the U.S. shareholder to a refund, provided that the required information
is furnished to the Internal Revenue Service. U.S. shareholders should consult
their own tax advisors regarding their qualifications for exemption from backup
withholding and the procedure for obtaining an exemption.
Treatment of Tax-Exempt Shareholders
Tax-exempt entities such as employee pension benefit trusts, individual
retirement accounts, charitable remainder trusts, etc. generally are exempt from
federal income taxation. Such entities are subject to taxation, however, on any
"unrelated business taxable income" (UBTI), as defined in the Internal Revenue
Code. The payment of dividends to a tax-exempt employee pension benefit trust
or other domestic tax-exempt shareholder generally will not constitute unrelated
business taxable income to such shareholder unless such shareholder has borrowed
to acquire or carry its shares.
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In the event that we were deemed to be "predominately held" by qualified
employee pension benefit trusts that each hold more than 10% (in value) of our
shares, such trusts would be required to treat a certain percentage of the
dividend distributions paid to them as unrelated business taxable income. We
would be deemed to be "predominately held" by such trusts if either (1) one
employee pension benefit trust owns more than 25% in value of our shares, or
(ii) any group of such trusts, each owning more than 10% in value of our shares,
holds in the aggregate more than 50% in value of our shares. If either of these
ownership thresholds were ever exceeded, any qualified employee pension benefit
trust holding more than 10% in value of our shares would be subject to tax on
that portion of our dividend distributions made to it which is equal to the
percentage of our income which would be UBTI if we were a qualified trust,
rather than a REIT. We will attempt to monitor the concentration of ownership
of employee pension benefit trusts in our shares, and we do not expect our
shares to be deemed to be "predominately held" by qualified employee pension
benefit trusts, as defined in the Internal Revenue Code, to the extent required
to trigger the treatment of our income as to such trusts.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Internal Revenue Code, respectively, income from an investment in our shares
will constitute UBTI unless the shareholder in question is able to deduct
amounts "set aside" or placed in reserve for certain purposes so as to offset
the unrelated business taxable income generated. Any such organization which is
a prospective shareholder should consult its own tax advisor concerning these
"set aside" and reserve requirements.
Special Tax Considerations for Non-U.S. Shareholders
The rules governing U.S. income taxation of non-resident alien individuals,
foreign corporations, foreign partnerships and foreign trusts and estates
(collectively, "Non-U.S. shareholders") are complex. The following discussion is
intended only as a summary of these rules. Non-U.S. investors should consult
with their own tax advisors to determine the impact of federal, state and local
income tax laws on an investment in our shares, including any reporting
requirements.
Income Effectively Connected With a U.S. Trade or Business
In general, Non-U.S. shareholders will be subject to regular U.S. federal
income taxation with respect to their investment in our shares if the income
derived therefrom is "effectively connected" with the Non-U.S. shareholder's
conduct of a trade or business in the United States. A corporate Non-U.S.
shareholder that receives income that is (or is treated as) effectively
connected with a U.S. trade or business also may be subject to a branch profits
tax under Section 884 of the Internal Revenue Code, which is payable in addition
to the regular U.S. federal corporate income tax.
The following discussion will apply to Non-U.S. shareholders whose income
derived from ownership of our shares is deemed to be not "effectively connected"
with a U.S. trade or business.
Distributions Not Attributable to Gain From the Sale or Exchange of a
United States Real Property Interest
A distribution to a Non-U.S. shareholder that is not attributable to gain
realized by us from the sale or exchange of a United States real property
interest and that we do not designate as a capital gain distribution will be
treated as an ordinary income distribution to the extent that it is made out of
current or accumulated earnings and profits. Generally, any ordinary income
distribution will be subject to a U.S. federal income tax equal to 30% of the
gross amount of the distribution unless this tax is reduced by the provisions of
an applicable tax treaty. Any such distribution in excess of our earnings and
profits will be
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treated first as a return of capital that will reduce each Non-U.S.
shareholder's basis in its shares (but not below zero) and then as gain from the
disposition of those shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of shares.
Distributions Attributable to Gain From the Sale or Exchange of a United
States Real Property Interest
Distributions to a Non-U.S. shareholder that are attributable to gain from
the sale or exchange of a United States real property interest will be taxed to
a Non-U.S. shareholder under Internal Revenue Code provisions enacted by the
Foreign Investment in Real Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA,
such distributions are taxed to a Non-U.S. shareholder as if the distributions
were gains "effectively connected" with a U.S. trade or business. Accordingly,
a Non-U.S. shareholder will be taxed at the normal capital gain rates applicable
to a U.S. shareholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of non-resident alien individuals).
Distributions subject to FIRPTA also may be subject to a 30% branch profits tax
when made to a corporate Non-U.S. shareholder that is not entitled to a treaty
exemption.
Withholding Obligations With Respect to Distributions to Non-U.S.
Shareholders
Although tax treaties may reduce our withholding obligations, based on
current law, we will generally be required to withhold from distributions to
Non-U.S. shareholders, and remit to the Internal Revenue Service:
. 35% of designated capital gain distributions or, if greater, 35% of
the amount of any distributions that could be designated as capital
gain distributions; and
. 30% of ordinary income distributions (i.e., distributions paid out of
----
our earnings and profits).
In addition, if we designate prior distributions as capital gain distributions,
subsequent distributions, up to the amount of the prior distributions, will be
treated as capital gain distributions for purposes of withholding. A
distribution in excess of our earnings and profits will be subject to 30%
withholding if at the time of the distribution it cannot be determined whether
the distribution will be in an amount in excess of our current or accumulated
earnings and profits. If the amount of tax we withhold with respect to a
distribution to a Non-U.S. shareholder exceeds the shareholder's U.S. tax
liability with respect to that distribution, the Non-U.S. shareholder may file a
claim with the Internal Revenue Service for a refund of the excess.
Sale of Our Shares by a Non-U.S. Shareholder
A sale of our shares by a Non-U.S. shareholder will generally not be
subject to U.S. federal income taxation unless our shares constitute a "United
States real property interest" within the meaning of FIRPTA. Our shares will
not constitute a United States real property interest if we are a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT that at all times
during a specified testing period has less than 50% in value of its shares held
directly or indirectly by Non-U.S. shareholders. We currently anticipate that
we will be a domestically controlled REIT. Therefore, sales of our shares
should not be subject to taxation under FIRPTA. However, we cannot assure you
that we will continue to be a domestically controlled REIT. If we were not a
domestically controlled REIT, whether a Non-U.S. shareholder's sale of our
shares would be subject to tax under FIRPTA as a sale of a United States real
property interest would depend on whether our shares were "regularly traded" on
an established securities
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market and on the size of the selling shareholder's interest in us. Our shares
currently are not "regularly traded" on an established securities market.
If the gain on the sale of shares were subject to taxation under FIRPTA, a
Non-U.S. shareholder would be subject to the same treatment as a U.S.
shareholder with respect to the gain, subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals. In addition, distributions that are treated as gain from the
disposition of shares and are subject to tax under FIRPTA also may be subject to
a 30% branch profits tax when made to a corporate Non-U.S. shareholder that is
not entitled to a treaty exemption. Under FIRPTA, the purchaser of our shares
may be required to withhold 10% of the purchase price and remit this amount to
the Internal Revenue Service.
Even if not subject to FIRPTA, capital gains will be taxable to a Non-U.S.
shareholder if the Non-U.S. shareholder is a non-resident alien individual who
is present in the United States for 183 days or more during the taxable year and
some other conditions apply, in which case the non-resident alien individual
will be subject to a 30% tax on his or her U.S. source capital gains.
Recently promulgated Treasury Regulations may alter the procedures for
claiming the benefits of an income tax treaty. Our Non-U.S. shareholders should
consult their tax advisors concerning the effect, if any, of these Treasury
Regulations on an investment in our shares.
Information Reporting Requirements and Backup Withholding for Non-U.S.
Shareholders
Additional issues may arise for information reporting and backup
withholding for Non-U.S. shareholders. Non-U.S. shareholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding requirements under the Internal Revenue Code.
Statement of Stock Ownership
We are required to demand annual written statements from the record holders
of designated percentages of our shares disclosing the actual owners of the
shares. Any record shareholder who, upon our request, does not provide us with
required information concerning actual ownership of the shares is required to
include specified information relating to his shares in his federal income tax
return. We also must maintain, within the Internal Revenue District in which we
are required to file our federal income tax return, permanent records showing
the information we have received about the actual ownership of shares and a list
of those persons failing or refusing to comply with our demand.
State and Local Taxation
We and any operating subsidiaries we may form may be subject to state and
local tax in states and localities in which we or they do business or own
property. The tax treatment of the Wells REIT, Wells OP, any operating
subsidiaries we may form and the holders of our shares in local jurisdictions
may differ from the federal income tax treatment described above.
Tax Aspects of Our Operating Partnership
The following discussion summarizes certain federal income tax
considerations applicable to our investment in Wells OP, our operating
partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
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Classification as a Partnership
We will be entitled to include in our income a distributive share of Wells
OP's income and to deduct our distributive share of Wells OP's losses only if
Wells OP is classified for federal income tax purposes as a partnership, rather
than as an association taxable as a corporation. Under applicable Treasury
Regulations (the "Check-the-Box-Regulations"), an unincorporated entity with at
least two members may elect to be classified either as an association taxable as
a corporation or as a partnership. If such an entity fails to make an election,
it generally will be treated as a partnership for federal income tax purposes.
Wells OP intends to be classified as a partnership for federal income tax
purposes and will not elect to be treated as an association taxable as a
corporation under the Check-the-Box-Regulations.
Even though Wells OP will elect to be treated as a partnership for federal
income tax purposes, it may be taxed as a corporation if it is deemed to be a
"publicly traded partnership." A publicly traded partnership is a partnership
whose interests are traded on an established securities market or are readily
tradable on a secondary market (or the substantial equivalent thereof);
provided, that even if the foregoing requirements are met, a publicly traded
partnership will not be treated as a corporation for federal income tax purposes
if at least 90% of such partnership's gross income for a taxable year consists
of "qualifying income" under Section 7704(d) of the Internal Revenue Code.
Qualifying income generally includes any income that is qualifying income for
purposes of the 95% Income Test applicable to REITs (90% Passive-Type Income
Exception). (See "Requirements for Qualification as a REIT -- Operational
Requirements - Gross Income Tests").
Under applicable Treasury Regulations (PTP Regulations), limited safe
harbors from the definition of a publicly traded partnership are provided.
Pursuant to one of those safe harbors (Private Placement Exclusion), interests
in a partnership will not be treated as readily tradable on a secondary market
or the substantial equivalent thereof if (i) all interests in the partnership
were issued in a transaction (or transactions) that was not required to be
registered under the Securities Act of 1933, as amended, and (ii) the
partnership does not have more than 100 partners at any time during the
partnership's taxable year. In determining the number of partners in a
partnership, a person owning an interest in a flow-through entity (such as a
partnership, grantor trust or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (a)
substantially all of the value of the owner's interest in the flow-through is
attributable to the flow-through entity's interest (direct or indirect) in the
partnership and (b) a principal purpose of the use of the flow-through entity is
to permit the partnership to satisfy the 100 partner limitation. Wells OP
qualifies for the Private Placement Exclusion. Even if Wells OP is considered a
publicly traded partnership under the PTP Regulations because it is deemed to
have more than 100 partners, however, Wells OP should not be treated as a
corporation because it should be eligible for the 90% Passive-Type Income
Exception described above.
We have not requested, and do not intend to request, a ruling from the
Internal Revenue Service that Wells OP will be classified as a partnership for
federal income tax purposes. Holland & Knight LLP is of the opinion, however,
that based on certain factual assumptions and representations, Wells OP will
more likely than not be treated for federal income tax purposes as a partnership
and not as an association taxable as a corporation, or as a publicly traded
partnership. Unlike a tax ruling, however, an opinion of counsel is not binding
upon the Internal Revenue Service, and no assurance can be given that the
Internal Revenue Service will not challenge the status of Wells OP as a
partnership for federal income tax purposes. If such challenge were sustained
by a court, Wells OP would be treated as a corporation for federal income tax
purposes, as described below. In addition, the opinion of Holland & Knight LLP
is based on existing law, which is to a great extent the result of
administrative and judicial interpretation. No assurance can be given that
administrative or judicial changes would not modify the conclusions expressed in
the opinion.
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If for any reason Wells OP were taxable as a corporation, rather than a
partnership, for federal income tax purposes, we would not be able to qualify as
a REIT. (See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Operational Requirements - Gross Income Tests" and
"Requirements for Qualification as a REIT -- Operational Requirements - Asset
Tests.") In addition, any change in Wells OP's status for tax purposes might be
treated as a taxable event, in which case we might incur a tax liability without
any related cash distribution. Further, items of income and deduction of Wells
OP would not pass through to its partners, and its partners would be treated as
shareholders for tax purposes. Consequently, Wells OP would be required to pay
income tax at corporate tax rates on its net income, and distributions to its
partners would constitute dividends that would not be deductible in computing
Wells OP's taxable income.
Income Taxation of the Operating Partnership and its Partners
Partners, Not a Partnership, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. As a partner in Wells OP, we
will be required to take into account our allocable share of Wells OP's income,
gains, losses, deductions, and credits for any taxable year of Wells OP ending
within or with our taxable year, without regard to whether we have received or
will receive any distribution from Wells OP.
Partnership Allocations. Although a partnership agreement generally
determines the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under Section 704(b) of the Internal
Revenue Code if they do not comply with the provisions of Section 704(b) of the
Internal Revenue Code and the Treasury Regulations promulgated thereunder. If
an allocation is not recognized for federal income tax purposes, the item
subject to the allocation will be reallocated in accordance with the partner's
interests in the partnership, which will be determined by taking into account
all of the facts and circumstances relating to the economic arrangement of the
partners with respect to such item. Wells OP's allocations of taxable income
and loss are intended to comply with the requirements of Section 704(b) of the
Internal Revenue Code and the Treasury Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to
Section 704(c) of the Internal Revenue Code, income, gain, loss, and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated for
federal income tax purposes in a manner such that the contributor is charged
with, or benefits from, the unrealized gain or unrealized loss associated with
the property at the time of the contribution. The amount of such unrealized
gain or unrealized loss is generally equal to the difference between the fair
market value of the contributed property at the time of contribution and the
adjusted tax basis of such property at the time of contribution. Under
applicable Treasury Regulations, partnerships are required to use a "reasonable
method" for allocating items subject to Section 704(c) of the Internal Revenue
Code and several reasonable allocation methods are described therein.
Under the partnership agreement for Wells OP, depreciation or amortization
deductions of Wells OP generally will be allocated among the partners in
accordance with their respective interests in Wells OP, except to the extent
that Wells OP is required under Section 704(c) to use a method for allocating
depreciation deductions attributable to its properties that results in us
receiving a disproportionately large share of such deductions. It is possible
that we may (1) be allocated lower amounts of depreciation deductions for tax
purposes with respect to contributed properties than would be allocated to us if
each such property were to have a tax basis equal to its fair market value at
the time of contribution, and (2) be allocated taxable gain in the event of a
sale of such contributed properties in excess of the economic profit allocated
to us as a result of such sale. These allocations may cause us to recognize
taxable income in excess of cash proceeds received by us, which might adversely
affect our ability to comply with the REIT
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distribution requirements, although we do not anticipate that this event will
occur. The foregoing principles also will affect the calculation of our earnings
and profits for purposes of determining which portion of our distributions is
taxable as a dividend. The allocations described in this paragraph may result in
a higher portion of our distributions being taxed as a dividend than would have
occurred had we purchased such properties for cash.
Basis in Operating Partnership Interest. The adjusted tax basis of our
partnership interest in Wells OP generally is equal to (1) the amount of cash
and the basis of any other property contributed to Wells OP by us, (2) increased
by (A) our allocable share of Wells OP's income and (B) our allocable share of
indebtedness of Wells OP, and (3) reduced, but not below zero, by (A) our
allocable share of Wells OP's loss and (B) the amount of cash distributed to us,
including constructive cash distributions resulting from a reduction in our
share of indebtedness of Wells OP.
If the allocation of our distributive share of Wells OP's loss would reduce
the adjusted tax basis of our partnership interest in Wells OP below zero, the
recognition of such loss will be deferred until such time as the recognition of
such loss would not reduce our adjusted tax basis below zero. If a distribution
from Wells OP or a reduction in our share of Wells OP's liabilities (which is
treated as a constructive distribution for tax purposes) would reduce our
adjusted tax basis below zero, any such distribution, including a constructive
distribution, would constitute taxable income to us. The gain realized by us
upon the receipt of any such distribution or constructive distribution would
normally be characterized as capital gain, and if our partnership interest in
Wells OP has been held for longer than the long-term capital gain holding period
(currently one year), the distribution would constitute long-term capital gain.
Depreciation Deductions Available to the Operating Partnership. Wells OP
will use a portion of contributions made by the Wells REIT from offering
proceeds to acquire interests in properties. To the extent that Wells OP
acquires properties for cash, Wells OP's initial basis in such properties for
federal income tax purposes generally will be equal to the purchase price paid
by Wells OP. Wells OP plans to depreciate each such depreciable property for
federal income tax purposes under the alternative depreciation system of
depreciation (ADS). Under ADS, Wells OP generally will depreciate such
buildings and improvements over a 40 year recovery period using a straight-line
method and a mid-month convention and will depreciate furnishings and equipment
over a 12 year recovery period. To the extent that Wells OP acquires properties
in exchange for units of Wells OP, Wells OP's initial basis in each such
property for federal income tax purposes should be the same as the transferor's
basis in that property on the date of acquisition by Wells OP. Although the law
is not entirely clear, Wells OP generally intends to depreciate such depreciable
property for federal income tax purposes over the same remaining useful lives
and under the same methods used by the transferors.
Sale of the Operating Partnership's Property
Generally, any gain realized by Wells OP on the sale of property held for
more than one year will be long-term capital gain, except for any portion of
such gain that is treated as depreciation or cost recovery recapture. Any gain
recognized by Wells OP upon the disposition of a property acquired by Wells OP
for cash will be allocated among the partners in accordance with their
respective percentage interests in Wells OP.
Our share of any gain realized by Wells OP on the sale of any property held
by Wells OP as inventory or other property held primarily for sale to customers
in the ordinary course of Wells OP's trade or business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income also may have an adverse effect upon our ability
to satisfy the Income Tests for maintaining our REIT status. (See "Federal
Income Tax Considerations -- Requirements for Qualification as a REIT -- Gross
Income Tests" above.) We, however, do not presently intend to acquire
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or hold or allow Wells OP to acquire or hold any property that represents
inventory or other property held primarily for sale to customers in the ordinary
course of our or Wells OP's trade or business.
ERISA Considerations
The following is a summary of some non-tax considerations associated with
an investment in our shares by a qualified employee pension benefit plan or an
IRA. This summary is based on provisions of ERISA and the Internal Revenue
Code, as amended through the date of this prospectus, and relevant regulations
and opinions issued by the Department of Labor and the Internal Revenue Service.
We cannot assure you that adverse tax decisions or legislative, regulatory or
administrative changes which would significantly modify the statements expressed
herein will not occur. Any such changes may or may not apply to transactions
entered into prior to the date of their enactment.
Each fiduciary of an employee pension benefit plan subject to ERISA, such
as a profit sharing, section 401(k) or pension plan, or of any other retirement
plan or account subject to Section 4975 of the Internal Revenue Code, such as an
IRA (Benefit Plans), seeking to invest plan assets in our shares must, taking
into account the facts and circumstances of such Benefit Plan, consider, among
other matters:
. whether the investment is consistent with the applicable provisions of
ERISA and the Internal Revenue Code;
. whether, under the facts and circumstances attendant to the Benefit
Plan in question, the fiduciary's responsibility to the plan has been
satisfied;
. whether the investment will produce UBTI to the Benefit Plan (see
"Federal Income Tax Considerations -- Treatment of Tax-Exempt
Shareholders"); and
. the need to value the assets of the Benefit Plan annually.
Under ERISA, a plan fiduciary's responsibilities include the following
duties:
. to act solely in the interest of plan participants and beneficiaries
and for the exclusive purpose of providing benefits to them, as well
as defraying reasonable expenses of plan administration;
. to invest plan assets prudently;
. to diversify the investments of the plan unless it is clearly prudent
not to do so;
. to ensure sufficient liquidity for the plan; and
. to consider whether an investment would constitute or give rise to a
prohibited transaction under ERISA or the Internal Revenue Code.
ERISA also requires that the assets of an employee benefit plan be held in trust
and that the trustee, or a duly authorized named fiduciary or investment
manager, have exclusive authority and discretion to manage and control the
assets of the plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
specified transactions involving the assets of a Benefit Plan which are between
the plan and any "party in interest" or "disqualified person" with respect to
that Benefit Plan. These transactions are prohibited regardless of
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how beneficial they may be for the Benefit Plan. Prohibited transactions include
the sale, exchange or leasing of property, the lending of money or the extension
of credit between a Benefit Plan and a party in interest or disqualified person,
and the transfer to, or use by, or for the benefit of, a party in interest, or
disqualified person, of any assets of a Benefit Plan. A fiduciary of a Benefit
Plan also is prohibited from engaging in self-dealing, acting for a person who
has an interest adverse to the plan or receiving any consideration for its own
account from a party dealing with the plan in a transaction involving plan
assets. Furthermore, Section 408 of the Internal Revenue Code states that assets
of an IRA trust may not be commingled with other property except in a common
trust fund or common investment fund.
Plan Asset Considerations
In order to determine whether an investment in our shares by Benefit Plans
creates or gives rise to the potential for either prohibited transactions or the
commingling of assets referred to above, a fiduciary must consider whether an
investment in our shares will cause our assets to be treated as assets of the
investing Benefit Plans. Neither ERISA nor the Internal Revenue Code define the
term "plan assets," however, U.S. Department of Labor Regulations provide
guidelines as to whether, and under what circumstances, the underlying assets of
an entity will be deemed to constitute assets of a Benefit Plan when the plan
invests in that entity (the Plan Assets Regulation). Under the Plan Assets
Regulation, the assets of corporations, partnerships or other entities in which
a Benefit Plan makes an equity investment will generally be deemed to be assets
of the Benefit Plan unless the entity satisfies one of the exceptions to this
general rule. As discussed below, we have received an opinion of counsel that,
based on the Plan Assets Regulation, our underlying assets should not be deemed
to be "plan assets" of Benefit Plans investing in shares, assuming the
conditions set forth in the opinion are satisfied, based upon the fact that at
least one of the specific exemptions set forth in the Plan Assets Regulation is
satisfied, as determined below.
Specifically, the Plan Assets Regulation provides that the underlying
assets of REITs will not be treated as assets of a Benefit Plan investing
therein if the interest the Benefit Plan acquires is a "publicly-offered
security." A publicly-offered security must be:
. sold as part of a public offering registered under the Securities Act
of 1933 and be part of a class of securities registered under the
Securities Exchange Act of 1934, as amended, within a specified time
period;
. part of a class of securities that is owned by 100 or more persons who
are independent of the issuer and one another; and
. "freely transferable."
Our shares are being sold as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act,
and are part of a class registered under the Securities Exchange Act. In
addition, we have over 100 independent shareholders. Thus, both the first and
second criterion of the publicly-offered security exception will be satisfied.
Whether a security is "freely transferable" depends upon the particular
facts and circumstances. Our shares are subject to certain restrictions on
transferability intended to ensure that we continue to qualify for federal
income tax treatment as a REIT. The regulation provides, however, that where
the minimum investment in a public offering of securities is $10,000 or less,
the presence of a restriction on transferability intended to prohibit transfers
which would result in a termination or reclassification of the entity for state
or federal tax purposes will not ordinarily affect a determination that such
securities are freely transferable. The minimum investment in our shares is
less than $10,000; thus, the restrictions
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imposed in order to maintain our status as a REIT should not cause the shares to
be deemed not freely transferable.
In the event that our underlying assets were treated by the Department of
Labor as the assets of investing Benefit Plans, our management would be treated
as fiduciaries with respect to each Benefit Plan shareholder, and an investment
in our shares might constitute an ineffective delegation of fiduciary
responsibility to Wells Capital and expose the fiduciary of the Benefit Plan to
co-fiduciary liability under ERISA for any breach by Wells Capital of the
fiduciary duties mandated under ERISA. Further, if our assets are deemed to be
"plan assets," an investment by an IRA in our shares might be deemed to result
in an impermissible commingling of IRA assets with other property.
If our Advisor or affiliates of our Advisor were treated as fiduciaries
with respect to Benefit Plan shareholders, the prohibited transaction
restrictions of ERISA and the Internal Revenue Code would apply to any
transaction involving our assets. These restrictions could, for example,
require that we avoid transactions with entities that are affiliated with us or
our affiliates or restructure our activities in order to obtain an
administrative exemption from the prohibited transaction restrictions.
Alternatively, we might have to provide Benefit Plan shareholders with the
opportunity to sell their shares to us or we might dissolve or terminate.
If a prohibited transaction were to occur, the Internal Revenue Code
imposes an excise tax equal to 15 percent of the amount involved and authorizes
the IRS to impose an additional 100% excise tax if the prohibited transaction is
not "corrected." These taxes would be imposed on any disqualified person who
participates in the prohibited transaction. In addition, Wells Capital and
possibly other fiduciaries of Benefit Plan shareholders subject to ERISA who
permitted the prohibited transaction to occur or who otherwise breached their
fiduciary responsibilities, or a non-fiduciary participating in a prohibited
transaction, could be required to restore to the Benefit Plan any profits they
realized as a result of the transaction or breach, and make good to the Benefit
Plan any losses incurred by the Benefit Plan as a result of the transaction or
breach. With respect to an IRA that invests in our shares, the occurrence of a
prohibited transaction involving the individual who established the IRA, or his
or her beneficiary, would cause the IRA to lose its tax-exempt status under
Section 408(e)(2) of the Internal Revenue Code.
We have obtained an opinion from Holland & Knight LLP that our shares more
likely than not constitute "publicly-offered securities" and, accordingly, it is
more likely than not that our underlying assets should not be considered plan
assets under the Plan Assets Regulation, assuming the offering takes place as
described in this prospectus. If our underlying assets are not deemed to be
"plan assets," the problems discussed in the immediately preceding three
paragraphs are not expected to arise.
Other Prohibited Transactions
Regardless of whether the shares qualify for the "publicly-offered
security" exception of the Plan Assets Regulation, a prohibited transaction
could occur if the Wells REIT, Wells Capital, any selected dealer or any of
their affiliates is a fiduciary (within the meaning of Section 3(21) of ERISA)
with respect to any Benefit Plan purchasing the shares. Accordingly, unless an
administrative or statutory exemption applies, shares should not be purchased by
a Benefit Plan with respect to which any of the above persons is a fiduciary. A
person is a fiduciary with respect to a Benefit Plan under Section 3(21) of
ERISA if, among other things, the person has discretionary authority or control
with respect to plan assets or provides investment advice for a fee with respect
to plan assets. Under a regulation issued by the Department of Labor, a person
shall be deemed to be providing investment advice if that person renders advice
as to the advisability of investing in our shares and that person regularly
provides investment advice to the Benefit Plan pursuant to a mutual agreement or
understanding (written or otherwise) (1) that
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the advice will serve as the primary basis for investment decisions, and (2)
that the advice will be individualized for the Benefit Plan based on its
particular needs.
Annual Valuation
A fiduciary of an employee benefit plan subject to ERISA is required to
determine annually the fair market value of each asset of the plan as of the end
of the plan's fiscal year and to file a report reflecting that value with the
Department of Labor. When the fair market value of any particular asset is not
available, the fiduciary is required to make a good faith determination of that
asset's "fair market value" assuming an orderly liquidation at the time the
determination is made. In addition, a trustee or custodian of an IRA must
provide an IRA participant with a statement of the value of the IRA each year.
In discharging its obligation to value assets of a plan, a fiduciary subject to
ERISA must act consistently with the relevant provisions of the plan and the
general fiduciary standards of ERISA.
Unless and until our shares are listed on a national securities exchange or
are included for quotation on Nasdaq, it is not expected that a public market
for the shares will develop. To date, neither the Internal Revenue Service nor
the Department of Labor has promulgated regulations specifying how a plan
fiduciary should determine the "fair market value" of the shares, namely when
the fair market value of the shares is not determined in the marketplace.
Therefore, to assist fiduciaries in fulfilling their valuation and annual
reporting responsibilities with respect to ownership of shares, we intend to
provide reports of our annual determinations of the current value of our net
assets per outstanding share to those fiduciaries (including IRA trustees and
custodians) who identify themselves to us and request the reports. Until
December 31, 2002, we intend to use the offering price of shares as the per
share net asset value. Beginning with the year 2003, the value of the properties
and our other assets will be based on a valuation. Such valuation will be
performed by a person independent of us and of Wells Capital.
We anticipate that we will provide annual reports of our determination of
value (1) to IRA trustees and custodians not later than January 15 of each year,
and (2) to other Benefit Plan fiduciaries within 75 days after the end of each
calendar year. Each determination may be based upon valuation information
available as of October 31 of the preceding year, up-dated, however, for any
material changes occurring between October 31 and December 31.
We intend to revise these valuation procedures to conform with any relevant
guidelines that the Internal Revenue Service or the Department of Labor may
hereafter issue. Meanwhile, we cannot assure you:
. that the value determined by us could or will actually be realized by
us or by shareholders upon liquidation (in part because appraisals or
estimated values do not necessarily indicate the price at which assets
could be sold and because no attempt will be made to estimate the
expenses of selling any of our assets);
. that shareholders could realize this value if they were to attempt to
sell their shares; or
. that the value, or the method used to establish value, would comply
with the ERISA or IRA requirements described above.
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Description of Shares
The following description of the shares is not complete but is a summary of
portions of our articles of incorporation and is qualified in its entirety by
reference to the articles of incorporation.
Under our articles of incorporation, we have authority to issue a total of
500,000,000 shares of capital stock. Of the total shares authorized,
350,000,000 shares are designated as common stock with a par value of $0.01 per
share, 50,000,000 shares are designated as preferred stock with a par value of
$0.01 per share and 100,000,000 shares are designated as shares-in-trust, which
would be issued only in the event we have purchases in excess of the ownership
limits described below.
As of December 15, 2000, approximately ____________ shares of our common
stock were issued and outstanding, and no shares of preferred stock or shares-
in-trust were issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote per share on all
matters voted on by shareholders, including election of our directors. Our
articles of incorporation do not provide for cumulative voting in the election
of directors. Therefore, the holders of a majority of the outstanding common
shares can elect our entire board of directors. Subject to any preferential
rights of any outstanding series of preferred stock, the holders of common stock
are entitled to such dividends as may be declared from time to time by our board
of directors out of legally available funds and, upon liquidation, are entitled
to receive all assets available for distribution to shareholders. All shares
issued in the offering will be fully paid and non-assessable shares of common
stock. Holders of shares of common stock will not have preemptive rights, which
means that you will not have an automatic option to purchase any new shares that
we issue.
We will not issue certificates for our shares. Shares will be held in
"uncertificated" form which will eliminate the physical handling and safekeeping
responsibilities inherent in owning transferable stock certificates and
eliminate the need to return a duly executed stock certificate to effect a
transfer. Wells Capital, our advisor, acts as our registrar and as the transfer
agent for our shares. Transfers can be effected simply by mailing to Wells
Capital a transfer and assignment form, which we will provide to you at no
charge.
Preferred Stock
Our articles of incorporation authorize our board of directors to designate
and issue one or more classes or series of preferred stock without stockholder
approval. The board of directors may determine the relative rights, preferences
and privileges of each class or series of preferred stock so issued, which may
be more beneficial than the rights, preferences and privileges attributable to
the common stock. The issuance of preferred stock could have the effect of
delaying or preventing a change in control of the Wells REIT. Our board of
directors has no present plans to issue preferred stock, but may do so at any
time in the future without shareholder approval.
Meetings and Special Voting Requirements
An annual meeting of the shareholders will be held each year, at least 30
days after delivery of our annual report. Special meetings of shareholders may
be called only upon the request of a majority of the directors, a majority of
the independent directors, the chairman, the president or upon the written
request of shareholders holding at least 10% of the shares. The presence of a
majority of the outstanding shares either in person or by proxy shall constitute
a quorum. Generally, the affirmative vote of a
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majority of all votes entitled to be voted is necessary to take shareholder
action authorized by our articles of incorporation, except that a majority of
the votes represented in person or by proxy at a meeting at which a quorum is
present is sufficient to elect a director.
Under Maryland Corporation Law and our articles of incorporation,
shareholders are entitled to vote at a duly held meeting at which a quorum is
present on (1) amendment of our articles of incorporation, (2) liquidation or
dissolution of the Wells REIT, (3) reorganization of the Wells REIT, (4) merger,
consolidation or sale or other disposition of substantially all of our assets,
and (5) termination of our status as a REIT. Shareholders voting against any
merger or sale of assets are permitted under Maryland Corporation Law to
petition a court for the appraisal and payment of the fair value of their
shares. In an appraisal proceeding, the court appoints appraisers who attempt
to determine the fair value of the stock as of the date of the shareholder vote
on the merger or sale of assets. After considering the appraisers' report, the
court makes the final determination of the fair value to be paid to the
dissenting shareholder and decides whether to award interest from the date of
the merger or sale of assets and costs of the proceeding to the dissenting
shareholders.
Our advisor is selected and approved annually by our directors. While the
shareholders do not have the ability to vote to replace Wells Capital or to
select a new advisor, shareholders do have the ability, by the affirmative vote
of a majority of the shares entitled to vote on such matter, to elect to remove
a director from our board.
Shareholders are entitled to receive a copy of our shareholder list upon
request. The list provided by us will include each shareholder's name, address
and telephone number, if available, and number of shares owned by each
shareholder and will be sent within ten days of the receipt by us of the
request. A shareholder requesting a list will be required to pay reasonable
costs of postage and duplication. We have the right to request that a
requesting shareholder represent to us that the list will not be used to pursue
commercial interests.
In addition to the foregoing, shareholders have rights under Rule 14a-7
under the Securities Exchange Act, which provides that, upon the request of
investors and the payment of the expenses of the distribution, we are required
to distribute specific materials to shareholders in the context of the
solicitation of proxies for voting on matters presented to shareholders or, at
our option, provide requesting shareholders with a copy of the list of
shareholders so that the requesting shareholders may make the distribution of
proxies themselves.
Restriction on Ownership of Shares
In order for us to qualify as a REIT, not more than 50% of our outstanding
shares may be owned by any five or fewer individuals, including some tax-exempt
entities. In addition, the outstanding shares must be owned by 100 or more
persons independent of us and each other during at least 335 days of a 12-month
taxable year or during a proportionate part of a shorter taxable year. We may
prohibit certain acquisitions and transfers of shares so as to ensure our
continued qualification as a REIT under the Internal Revenue Code. However, we
cannot assure you that this prohibition will be effective.
In order to assist us in preserving our status as a REIT, our articles of
incorporation contain a limitation on ownership which prohibits any person or
group of persons from acquiring, directly or indirectly, beneficial ownership of
more than 9.8% of our outstanding shares. Our articles of incorporation provide
that any transfer of shares that would violate our share ownership limitations
is null and void and the intended transferee will acquire no rights in such
shares, unless the transfer is approved by the board of directors based upon
receipt of information that such transfer would not violate the provisions of
the Internal Revenue Code for qualification as a REIT.
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The shares in excess of the ownership limit which are attempted to be
transferred will be designated as "shares-in-trust" and will be transferred
automatically to a trust effective on the day before the reported transfer of
such shares. The record holder of the shares that are designated as shares-in-
trust will be required to submit such number of shares to the Wells REIT in the
name of the trustee of the trust. We will designate a trustee of the share
trust that will not be affiliated with us. We will also name one or more
charitable organizations as a beneficiary of the share trust. Shares-in-trust
will remain issued and outstanding shares and will be entitled to the same
rights and privileges as all other shares of the same class or series. The
trustee will receive all dividends and distributions on the shares-in-trust and
will hold such dividends or distributions in trust for the benefit of the
beneficiary. The trustee will vote all shares-in-trust during the period they
are held in trust.
At our direction, the trustee will transfer the shares-in-trust to a person
whose ownership will not violate the ownership limits. The transfer shall be
made within 20 days of our receipt of notice that shares have been transferred
to the trust. During this 20 day period, we will have the option of redeeming
such shares. Upon any such transfer or redemption, the purported transferee or
holder shall receive a per share price equal to the lesser of (a) the price per
share in the transaction that created such shares-in-trust, or (b) the market
price per share on the date of the transfer or redemption.
Any person who (1) acquires shares in violation of the foregoing
restriction or who owns shares that were transferred to any such trust is
required to give immediate written notice to the Wells REIT of such event or (2)
transfers or receives shares subject to such limitations is required to give the
Wells REIT 15 days written notice prior to such transaction. In both cases,
such persons shall provide to the Wells REIT such other information as we may
request in order to determine the effect, if any, of such transfer on our status
as a REIT.
The foregoing restrictions will continue to apply until (1) the board of
directors determines it is no longer in the best interest of the Wells REIT to
continue to qualify as a REIT and (2) there is an affirmative vote of the
majority of shares entitled to vote on such matter at a regular or special
meeting of the shareholders of the Wells REIT.
The ownership limit does not apply to an offeror which, in accordance with
applicable federal and state securities laws, makes a cash tender offer, where
at least 85% of the outstanding shares are duly tendered and accepted pursuant
to the cash tender offer. The ownership limit also does not apply to the
underwriter in a public offering of shares. In addition, the ownership limit
does not apply to a person or persons which the directors so exempt from the
ownership limit upon appropriate assurances that our qualification as a REIT is
not jeopardized.
Any person who owns 5% or more of the outstanding shares during any taxable
year will be asked to deliver a statement or affidavit setting forth the number
of shares beneficially owned, directly or indirectly.
Dividends
Dividends will be paid on a quarterly basis regardless of the frequency
with which such distributions are declared. Dividends will be paid to investors
who are shareholders as of the record dates selected by the directors. We
currently calculate our quarterly dividends based upon daily record and dividend
declaration dates so our investors will be entitled to be paid dividends
immediately upon their purchase of shares. We then make quarterly dividend
payments following the end of each calendar quarter.
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We are required to make distributions sufficient to satisfy the
requirements for qualification as a REIT for tax purposes. Generally, income
distributed as dividends will not be taxable to us under the Internal Revenue
Code if we distribute at least 95% (90% beginning in year 2001) of our taxable
income. (See "Federal Income Tax Considerations Requirements for Qualification
as a REIT.")
Dividends will be declared at the discretion of the board of directors, in
accordance with our earnings, cash flow and general financial condition. The
board's discretion will be directed, in substantial part, by its obligation to
cause us to comply with the REIT requirements. Because we may receive income
from interest or rents at various times during our fiscal year, dividends may
not reflect our income earned in that particular distribution period but may be
made in anticipation of cash flow which we expect to receive during a later
quarter and may be made in advance of actual receipt of funds in an attempt to
make dividends relatively uniform. We may borrow money, issue new securities or
sell assets in order to make dividend distributions.
We are not prohibited from distributing our own securities in lieu of
making cash dividends to shareholders, provided that the securities distributed
to shareholders are readily marketable. Shareholders who receive marketable
securities in lieu of cash dividends may incur transaction expenses in
liquidating the securities.
Dividend Reinvestment Plan
We currently have a dividend reinvestment plan available that allows you to
have your dividends otherwise distributable to you invested in additional shares
of the Wells REIT.
You may purchase shares under the dividend reinvestment plan for $10 per
share until all of the shares registered as part of this offering have been
sold. After this time, we may purchase shares either through purchases on the
open market, if a market then exists, or through an additional issuance of
shares. In any case, the price per share will be equal to the then-prevailing
market price, which shall equal the price on the securities exchange or over-
the-counter market on which such shares are listed at the date of purchase if
such shares are then listed.
You may elect to participate in the dividend reinvestment plan by
completing the Subscription Agreement, the enrollment form or by other written
notice to the plan administrator. Participation in the plan will begin with the
next distribution made after receipt of your written notice. We may terminate
the dividend reinvestment plan for any reason at any time upon 10 days' prior
written notice to participants. Your participation in the plan will also be
terminated to the extent that a reinvestment of your distributions in our shares
would cause the percentage ownership limitation contained in our articles of
incorporation to be exceeded.
If you elect to participate in the dividend reinvestment plan and are
subject to federal income taxation, you will incur a tax liability for dividends
allocated to you even though you have elected not to receive the dividends in
cash but rather to have the dividends held pursuant to the dividend reinvestment
plan. Specifically, you will be treated as if you have received the dividend
from us in cash and then applied such dividend to the purchase of additional
shares. You will be taxed on the amount of such dividend as ordinary income to
the extent such dividend is from current or accumulated earnings and profits,
unless we have designated all or a portion of the dividend as a capital gain
dividend.
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Share Redemption Program
Prior to the time that our shares are listed on a national securities
exchange, shareholders of the Wells REIT who have held their shares for at least
one year may receive the benefit of limited interim liquidity by presenting for
redemption all or any portion of their shares to us at any time in accordance
with the procedures outlined herein. At that time, we may, subject to the
conditions and limitations described below, redeem the shares presented for
redemption for cash to the extent that we have sufficient funds available to us
to fund such redemption.
If you have held your shares for the required one-year period, you may
redeem your shares for a purchase price equal to the lesser of (1) $10 per
share, or (2) the purchase price per share that you actually paid for your
shares of the Wells REIT. In the event that you are redeeming all of your
shares, shares purchased pursuant to our dividend reinvestment plan may be
excluded from the foregoing one-year holding period requirement, in the
discretion of the board of directors. In addition, for purposes of the one-year
holding period, limited partners of Wells OP who exchange their limited
partnership units for shares in the Wells REIT shall be deemed to have owned
their shares as of the date they were issued their limited partnership units in
Wells OP. The board of directors reserves the right in its sole discretion at
any time and from time to time to (1) waive the one-year holding period in the
event of the death or bankruptcy of a shareholder or other exigent
circumstances, (2) reject any request for redemption, (3) change the purchase
price for redemptions, or (4) otherwise amend the terms of our share redemption
program.
Redemption of shares, when requested, will be made quarterly on a first-
come, first-served basis. Subject to funds being available, we will limit the
number of shares redeemed pursuant to our share redemption program as follows:
(1) during any calendar year, we will not redeem in excess of three percent
(3.0%) of the weighted average number of shares outstanding during the prior
calendar year; and (2) funding for the redemption of shares will come
exclusively from the proceeds we receive from the sale of shares under our
dividend reinvestment plan such that in no event shall the aggregate amount of
redemptions under our share redemption program exceed aggregate proceeds
received from the sale of shares pursuant to our dividend reinvestment plan.
The board of directors, in its sole discretion, may choose to terminate the
share redemption program or to reduce the number of shares purchased under the
share redemption program if it determines the funds otherwise available to fund
our share redemption program are needed for other purposes. (See "Risk Factors
- Investment Risks.")
We cannot guarantee that the funds set aside for the share redemption
program will be sufficient to accommodate all requests made in any year. If we
do not have such funds available, at the time when redemption is requested, you
can (1) withdraw your request for redemption, or (2) ask that we honor your
request at such time, if any, when sufficient funds become available. Such
pending requests will be honored on a first-come, first-served basis.
The share redemption program is only intended to provide interim liquidity
for shareholders until a secondary market develops for the shares. No such
market presently exists, and we cannot assure you that any market for your
shares will ever develop.
The shares we purchase under the share redemption program will be
cancelled, and will have the status of authorized, but unissued shares. We will
not reissue such shares unless they are first registered with the Securities and
Exchange Commission (Commission) under the Securities Act of 1933 and under
appropriate state securities laws or otherwise issued in compliance with such
laws.
If we terminate, reduce the scope of or otherwise change the share
redemption program, we will disclose the changes in reports filed with the
Commission.
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Restrictions on Roll-Up Transactions
In connection with any proposed transaction considered a "Roll-up
Transaction" involving the Wells REIT and the issuance of securities of an
entity (a Roll-up Entity) that would be created or would survive after the
successful completion of the Roll-up Transaction, an appraisal of all properties
shall be obtained from a competent independent appraiser. The properties shall
be appraised on a consistent basis, and the appraisal shall be based on the
evaluation of all relevant information and shall indicate the value of the
properties as of a date immediately prior to the announcement of the proposed
Roll-up Transaction. The appraisal shall assume an orderly liquidation of
properties over a 12-month period. The terms of the engagement of the
independent appraiser shall clearly state that the engagement is for our benefit
and the shareholders. A summary of the appraisal, indicating all material
assumptions underlying the appraisal, shall be included in a report to
shareholders in connection with any proposed Roll-up Transaction.
A "Roll-up Transaction" is a transaction involving the acquisition, merger,
conversion or consolidation, directly or indirectly, of the Wells REIT and the
issuance of securities of a Roll-up Entity. This term does not include:
. a transaction involving our securities that have been for at least 12
months listed on a national securities exchange or included for
quotation on Nasdaq; or
. a transaction involving the conversion to corporate, trust, or
association form of only the Wells REIT if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following: shareholder voting rights; the term of our existence;
compensation to Wells Capital; or our investment objectives.
In connection with a proposed Roll-up Transaction, the person sponsoring
the Roll-up Transaction must offer to shareholders who vote "no" on the proposal
the choice of:
(1) accepting the securities of a Roll-up Entity offered in the proposed
Roll-up Transaction; or
(2) one of the following:
(A) remaining as shareholders of the Wells REIT and preserving their
interests therein on the same terms and conditions as existed
previously, or
(B) receiving cash in an amount equal to the shareholder's pro rata
share of the appraised value of our net assets.
We are prohibited from participating in any proposed Roll-up Transaction:
. which would result in the shareholders having democracy rights in a
Roll-up Entity that are less than those provided in our bylaws and
described elsewhere in this prospectus, including rights with respect
to the election and removal of directors, annual reports, annual and
special meetings, amendment of our articles of incorporation, and
dissolution of the Wells REIT;
. which includes provisions that would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the
securities of the Roll-up Entity, except to the minimum extent
necessary to preserve the tax status of the Roll-up Entity, or which
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would limit the ability of an investor to exercise the voting rights
of its securities of the Roll-up Entity on the basis of the number of
shares held by that investor;
. in which investor's rights to access of records of the Roll-up Entity
will be less than those provided in the section of this prospectus
entitled "Description of Shares -- Meetings and Special Voting
Requirements;" or
. in which any of the costs of the Roll-up Transaction would be borne by
us if the Roll-up Transaction is not approved by the shareholders.
Business Combinations
Under Maryland Corporation Law, business combinations between a Maryland
corporation and an interested shareholder or the interested shareholder's
affiliate are prohibited for five years after the most recent date on which the
shareholder becomes an interested shareholder. For this purpose, the term
"business combinations" includes mergers, consolidations, share exchanges, asset
transfers and issuances or reclassifications of equity securities. An
"interested shareholder" is defined for this purpose as:
(1) any person who beneficially owns ten percent or more of the voting
power of the corporation's shares; or
(2) an affiliate or associate of the corporation who, at any time within
the two-year period prior to the date in question, was the beneficial owner of
ten percent or more of the voting power of the then outstanding voting shares of
the corporation.
After the five-year prohibition, any business combination between the
corporation and an interested shareholder generally must be recommended by the
board of directors of the corporation and approved by the affirmative vote of at
least:
(1) 80% of the votes entitled to be cast by holders of outstanding voting
shares of the corporation; and
(2) two-thirds of the votes entitled to be cast by holders of voting
shares of the corporation other than shares held by the interested shareholder
or its affiliate with whom the business combination is to be effected, or held
by an affiliate or associate of the interested shareholder voting together as a
single voting group.
These super-majority vote requirements do not apply if the corporation's
common shareholders receive a minimum price, as defined under Maryland
Corporation Law, for their shares in the form of cash or other consideration in
the same form as previously paid by the interested shareholder for its shares.
None of these provisions of the Maryland Corporation Law will apply, however, to
business combinations that are approved or exempted by the board of directors of
the corporation prior to the time that the interested shareholder becomes an
interested shareholder.
The business combination statute may discourage others from trying to
acquire control of the Wells REIT and increase the difficulty of consummating
any offer.
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Control Share Acquisitions
Maryland Corporation Law provides that control shares of a Maryland
corporation acquired in a control share acquisition have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter. Shares owned by the acquiror, or by officers or directors who are
employees of the corporation are not entitled to vote on the matter. As
permitted by Maryland Corporation Law, we have provided in our bylaws that the
control share provisions of Maryland Corporation Law will not apply to
transactions involving the Wells REIT, but the board of directors retains the
discretion to change this provision in the future.
"Control shares" are voting shares which, if aggregated with all other
shares owned by the acquiror or with respect to which the acquiror has the right
to vote or to direct the voting of, other than solely by virtue of revocable
proxy, would entitle the acquiror to exercise voting power in electing directors
within one of the following ranges of voting powers:
. one-fifth or more but less than one-third;
. one-third or more but less than a majority; or
. a majority or more of all voting power.
Control shares do not include shares the acquiring person is then entitled
to vote as a result of having previously obtained shareholder approval.
Except as otherwise specified in the statute, a "control share acquisition"
means the acquisition of control shares.
Once a person who has made or proposes to make a control share acquisition
has undertaken to pay expenses and has satisfied other required conditions, the
person may compel the board of directors to call a special meeting of
shareholders to be held within 50 days of demand to consider the voting rights
of the shares. If no request for a meeting is made, the corporation may itself
present the question at any shareholders meeting.
If voting rights are not approved for the control shares at the meeting or
if the acquiring person does not deliver an "acquiring person statement" for the
control shares as required by the statute, the corporation may redeem any or all
of the control shares for their fair value, except for control shares for which
voting rights have previously been approved. Fair value is to be determined for
this purpose without regard to the absence of voting rights for the control
shares, and is to be determined as of the date of the last control share
acquisition or of any meeting of shareholders at which the voting rights for
control shares are considered and not approved.
If voting rights for control shares are approved at a shareholders meeting
and the acquiror becomes entitled to vote a majority of the shares entitled to
vote, all other shareholders may exercise appraisal rights. The fair value of
the shares as determined for purposes of these appraisal rights may not be less
than the highest price per share paid in the control share acquisition. Some of
the limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares acquired in
a merger, consolidation or share exchange if the corporation is a party to the
transaction or to acquisitions approved or exempted by the articles of
incorporation or bylaws of the corporation.
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The Operating Partnership Agreement
General
Wells Operating Partnership, L.P. (Wells OP) was formed in January 1998 to
acquire, own and operate properties on our behalf. It is considered to be an
Umbrella Partnership Real Estate Investment Trust (UPREIT), which structure is
utilized generally to provide for the acquisition of real property from owners
who desire to defer taxable gain otherwise to be recognized by them upon the
disposition of their property. Such owners may also desire to achieve diversity
in their investment and other benefits afforded to owners of stock in a REIT.
For purposes of satisfying the Asset and Income Tests for qualification as a
REIT for tax purposes, the REIT's proportionate share of the assets and income
of an UPREIT, such as Wells OP, will be deemed to be assets and income of the
REIT.
The property owner's goals are accomplished because a property owner may
contribute property to an UPREIT in exchange for limited partnership units on a
tax-free basis. Further, Wells OP is structured to make distributions with
respect to limited partnership units which are equivalent to the dividend
distributions made to shareholders of the Wells REIT. Finally, a limited partner
in Wells OP may later exchange his limited partnership units in Wells OP for
shares of the Wells REIT (in a taxable transaction) and, if our shares are then
listed, achieve liquidity for his investment.
Substantially all of our assets are held by Wells OP, and we intend to make
future acquisitions of real properties using the UPREIT structure. The Wells
REIT is the sole general partner of Wells OP and, as of September 30, 2000,
owned an approximately 99% equity percentage interest in Wells OP. Wells
Capital, our advisor, has contributed $200,000 to Wells OP and is currently the
only limited partner owning the other approximately 1% equity percentage
interest in Wells OP. As the sole general partner of Wells OP, we have the
exclusive power to manage and conduct the business of Wells OP.
The following is a summary of certain provisions of the partnership
agreement of Wells OP. This summary is not complete and is qualified by the
specific language in the partnership agreement. You should refer to the
partnership agreement, itself, which we have filed as an exhibit to the
registration statement, for more detail.
Capital Contributions
As we accept subscriptions for shares, we will transfer substantially all
of the net proceeds of the offering to Wells OP as a capital contribution;
however, we will be deemed to have made capital contributions in the amount of
the gross offering proceeds received from investors. Wells OP will be deemed to
have simultaneously paid the selling commissions and other costs associated with
the offering. If Wells OP requires additional funds at any time in excess of
capital contributions made by us and Wells Capital or from borrowing, we may
borrow funds from a financial institution or other lender and lend such funds to
Wells OP on the same terms and conditions as are applicable to our borrowing of
such funds. In addition, we are authorized to cause Wells OP to issue
partnership interests for less than fair market value if we conclude in good
faith that such issuance is in the best interest of Wells OP and the Wells REIT.
Operations
The partnership agreement requires that Wells OP be operated in a manner
that will enable the Wells REIT to (1) satisfy the requirements for being
classified as a REIT for tax purposes, (2) avoid any federal income or excise
tax liability, and (3) ensure that Wells OP will not be classified as a
"publicly traded partnership" for purposes of Section 7704 of the Internal
Revenue Code, which classification could
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result in Wells OP being taxed as a corporation, rather than as a partnership.
(See "Federal Income Tax Considerations - Tax Aspects of the Operating
Partnership - Classification as a Partnership.")
The partnership agreement provides that Wells OP will distribute cash flow
from operations to the limited partners of Wells OP in accordance with their
relative percentage interests on at least a quarterly basis in amounts
determined by the Wells REIT as general partner such that a holder of one unit
of limited partnership interest in Wells OP will receive the same amount of
annual cash flow distributions from Wells OP as the amount of annual dividends
paid to the holder of one of our shares. Remaining cash from operations will be
distributed to the Wells REIT as the general partner to enable us to make
dividend distributions to our shareholders.
Similarly, the partnership agreement of Wells OP provides that taxable
income is allocated to the limited partners of Wells OP in accordance with their
relative percentage interests such that a holder of one unit of limited
partnership interest in Wells OP will be allocated taxable income for each
taxable year in an amount equal to the amount of taxable income to be recognized
by a holder of one of our shares, subject to compliance with the provisions of
Sections 704(b) and 704(c) of the Internal Revenue Code and corresponding
Treasury Regulations. Losses, if any, will generally be allocated among the
partners in accordance with their respective percentage interests in Wells OP.
Upon the liquidation of Wells OP, after payment of debts and obligations,
any remaining assets of Wells OP will be distributed to partners with positive
capital accounts in accordance with their respective positive capital account
balances. If the Wells REIT were to have a negative balance in its capital
account following a liquidation, it would be obligated to contribute cash to
Wells OP equal to such negative balance for distribution to other partners, if
any, having positive balances in their capital accounts.
In addition to the administrative and operating costs and expenses incurred
by Wells OP in acquiring and operating real properties, Wells OP will pay all
administrative costs and expenses of the Wells REIT and such expenses will be
treated as expenses of Wells OP. Such expenses will include:
. all expenses relating to the formation and continuity of existence of the
Wells REIT;
. all expenses relating to the public offering and registration of securities
by the Wells REIT;
. all expenses associated with the preparation and filing of any periodic
reports by the Wells REIT under federal, state or local laws or
regulations;
. all expenses associated with compliance by the Wells REIT with applicable
laws, rules and regulations; and
. all other operating or administrative costs of the Wells REIT incurred in
the ordinary course of its business on behalf of Wells OP.
Exchange Rights
The limited partners of Wells OP, including Wells Capital, have the right
to cause Wells OP to redeem their limited partnership units for cash equal to
the value of an equivalent number of our shares, or, at our option, we may
purchase their limited partnership units by issuing one share of the Wells REIT
for each limited partnership unit redeemed. These exchange rights may not be
exercised, however, if and to the extent that the delivery of shares upon such
exercise would (1) result in any person owning shares in excess of our ownership
limits, (2) result in shares being owned by fewer than 100 persons, (3) result
in
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the Wells REIT being "closely held" within the meaning of Section 856(h) of the
Internal Revenue Code, (4) cause the Wells REIT to own 10% or more of the
ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of
the Internal Revenue Code, or (5) cause the acquisition of shares by a redeemed
limited partner to be "integrated" with any other distribution of our shares for
purposes of complying with the Securities Act.
Subject to the foregoing, limited partners may exercise their exchange
rights at any time after one year following the date of issuance of their
limited partnership units; provided, however, that a limited partner may not
deliver more than two exchange notices each calendar year and may not exercise
an exchange right for less than 1,000 limited partnership units, unless such
limited partner holds less than 1,000 units, in which case, he must exercise his
exchange right for all of his units.
Transferability of Interests
The Wells REIT may not (1) voluntarily withdraw as the general partner of
Wells OP, (2) engage in any merger, consolidation or other business combination,
or (3) transfer its general partnership interest in Wells OP (except to a
wholly-owned subsidiary), unless the transaction in which such withdrawal,
business combination or transfer occurs results in the limited partners
receiving or having the right to receive an amount of cash, securities or other
property equal in value to the amount they would have received if they had
exercised their exchange rights immediately prior to such transaction or unless,
in the case of a merger or other business combination, the successor entity
contributes substantially all of its assets to Wells OP in return for an
interest in Wells OP and agrees to assume all obligations of the general partner
of Wells OP. The Wells REIT may also enter into a business combination or we may
transfer our general partnership interest upon the receipt of the consent of a
majority-in-interest of the limited partners of Wells OP, other than Wells
Capital. With certain exceptions, the limited partners may not transfer their
interests in Wells OP, in whole or in part, without the written consent of the
Wells REIT as general partner. In addition, Wells Capital may not transfer its
interest in Wells OP as long as it is acting as the advisor to the Wells REIT,
except pursuant to the exercise of its right to exchange limited partnership
units for Wells REIT shares, in which case similar restrictions on transfer will
apply to the REIT shares received by Wells Capital.
Plan of Distribution
We are offering a maximum of 125,000,000 shares to the public through Wells
Investment Securities, Inc., the Dealer Manager, a registered broker-dealer
affiliated with the advisor. (See "Conflicts of Interest.") The shares are being
offered at a price of $10.00 per share on a "best efforts" basis, which means
generally that the Dealer Manager will be required to use only its best efforts
to sell the shares and it has no firm commitment or obligation to purchase any
of the shares. We are also offering 10,000,000 shares for sale pursuant to our
dividend reinvestment plan at a price of $10 per share. An additional 5,000,000
shares are reserved for issuance upon exercise of soliciting dealer warrants,
which are granted to participating broker-dealers based upon the number of
shares they sell. Therefore, a total of 140,000,000 shares are being registered
in this offering.
Except as provided below, the Dealer Manager will receive selling
commissions of 7.0% of the gross offering proceeds. The Dealer Manager will also
receive 2.5% of the gross offering proceeds in the form of a dealer manager fee
as compensation for acting as the Dealer Manager and for expenses incurred in
connection with coordinating sales efforts, training of personnel and generally
performing "wholesaling" functions. We will not pay referral or similar fees to
any accountants, attorneys or other persons in connection with the distribution
of the shares. Shareholders who elect to participate in the dividend
reinvestment plan will be charged selling commissions and dealer manager fees on
shares
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purchased pursuant to the dividend reinvestment plan on the same basis as
shareholders purchasing shares other than pursuant to the dividend reinvestment
plan.
We will also award to the Dealer Manager one soliciting dealer warrant for
every 25 shares they sell during the offering period. The Dealer Manager may
retain or reallow these warrants to broker-dealers participating in the
offering, unless such issuance of soliciting dealer warrants is prohibited by
either federal or state securities laws. The holder of a soliciting dealer
warrant will be entitled to purchase one share from the Wells REIT at a price of
$12 per share during the period beginning on the first anniversary of the
effective date of this offering and ending five years after the effective date
of this offering. Subject to certain exceptions, a soliciting dealer warrant may
not be transferred, assigned, pledged or hypothecated for a period of one year
following the effective date of this offering. The shares issuable upon exercise
of the soliciting dealer warrants are being registered as part of this offering.
For the life of the soliciting dealer warrants, participating broker-dealers are
given the opportunity to profit from a rise in the market price for the common
stock without assuming the risk of ownership, with a resulting dilution in the
interest of other shareholders upon exercise of such warrants. In addition,
holders of the soliciting dealer warrants would be expected to exercise such
warrants at a time when we could obtain needed capital by offering new
securities on terms more favorable than those provided by the soliciting dealer
warrants. Exercise of the soliciting dealer warrants is governed by the terms
and conditions detailed in this prospectus and in the Warrant Purchase
Agreement, which is an exhibit to the Registration Statement.
The Dealer Manager may authorize certain other broker-dealers who are
members of the NASD to sell shares. In the event of the sale of shares by such
other broker-dealers, the Dealer Manager may reallow its commissions in the
amount of up to 7.0% of the gross offering proceeds to such participating
broker-dealers. In addition, the Dealer Manager, in its sole discretion, may
reallow to broker-dealers participating in the offering a portion of its dealer
manager fee in the aggregate amount of up to 1.5% of gross offering proceeds to
be paid to such participating broker-dealer as marketing fees and as
reimbursement of due diligence expenses, based on such factors as the number of
shares sold by such participating broker-dealer, the assistance of such
participating broker-dealer in marketing the offering and bona fide conference
fees incurred.
We anticipate that the total underwriting compensation, including sales
commissions, the dealer manager fee and underwriting expense reimbursements,
will not exceed 9.5% of gross offering proceeds, except for the soliciting
dealer warrants described above.
We have agreed to indemnify the participating broker-dealers, including the
Dealer Manager, against certain liabilities arising under the Securities Act of
1933, as amended.
The broker-dealers participating in the offering of our shares are not
obligated to obtain any subscriptions on our behalf, and we cannot assure you
that any shares will be sold.
Our executive officers and directors, as well as officers and employees of
Wells Capital or other affiliates, may purchase shares offered in this offering
at a discount. The purchase price for such shares shall be $8.90 per share
reflecting the fact that the acquisition and advisory fees relating to such
shares will be reduced by $0.15 per share and selling commissions in the amount
of $0.70 per share and dealer manager fees in the amount of $0.25 per share will
not be payable in connection with such sales. The net offering proceeds we
receive will not be affected by such sales of shares at a discount. Wells
Capital and its affiliates shall be expected to hold their shares purchased as
shareholders for investment and not with a view towards distribution. In
addition, shares purchased by Wells Capital or its affiliates shall not be
entitled to vote on any matter presented to the shareholders for a vote.
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You should pay for your shares by check payable to "Wells Real Estate
Investment Trust, Inc." Subscriptions will be effective only upon our
acceptance, and we reserve the right to reject any subscription in whole or in
part. We may not accept a subscription for shares until at least five business
days after the date you receive this prospectus. You will receive a confirmation
of your purchase. Except for purchases pursuant to our dividend reinvestment
plan or reinvestment plans of other public real estate programs, all accepted
subscriptions will be for whole shares and for not less than 100 shares
($1,000). (See "Suitability Standards.") Except in Maine, Minnesota, Nebraska
and Washington, investors who have satisfied the minimum purchase requirement
and have purchased units or shares in Wells programs or units or shares in other
public real estate programs may purchase less than the minimum number of shares
discussed above, provided that such investors purchase a minimum of 2.5 shares
($25). After investors have satisfied the minimum purchase requirement, minimum
additional purchases must be in increments of at least 2.5 shares ($25), except
for purchases made pursuant to our dividend reinvestment plan or reinvestment
plans of other public real estate programs.
We will place the subscription proceeds in an interest-bearing account with
Bank of America, N.A., Atlanta, Georgia. Subscription proceeds held in the
account may be invested in securities backed by the United States government or
bank money-market accounts or certificates of deposit of national or state banks
that have deposits insured by the Federal Deposit Insurance Corporation,
including certificates of deposit of any bank acting as depository or custodian
for any such funds, as directed by our advisor. Subscribers may not withdraw
funds from the account. We will withdraw funds from the account periodically for
the acquisition of real estate properties or the payment of fees and expenses.
We generally admit shareholders to the Wells REIT on a daily basis.
Investors who desire to establish an IRA for purposes of investing in
shares may do so by having Wells Advisors, Inc., a qualified non-bank IRA
custodian affiliated with the advisor, act as their IRA custodian. In the event
that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the
authority of Wells Advisors, Inc. will be limited to holding the shares on
behalf of the beneficiary of the IRA and making distributions or reinvestments
in shares solely at the discretion of the beneficiary of the IRA. Wells
Advisors, Inc. will not have the authority to vote any of the shares held in an
IRA except strictly in accordance with the written instructions of the
beneficiary of the IRA.
The offering of shares will terminate on or before December 19, 2002.
However, we reserve the right to terminate this offering at any time prior to
such termination date.
The proceeds of this offering will be received and held in trust for the
benefit of purchasers of shares to be used only for the purposes set forth in
the "Estimated Use of Proceeds" section. Subscriptions will be accepted or
rejected within 30 days of receipt by the Wells REIT, and if rejected, all funds
shall be returned to the rejected subscribers within ten business days.
We may sell shares to retirement plans of broker-dealers participating in
the offering, to broker-dealers in their individual capacities, to IRAs and
qualified plans of their registered representatives or to any one of their
registered representatives in their individual capacities for 93% of the public
offering price in consideration of the services rendered by such broker-dealers
and registered representatives in the offering. The net proceeds to the Wells
REIT from such sales will be identical to net proceeds we receive from other
sales of shares.
In connection with sales of 50,000 or more shares ($500,000) to a
"purchaser" as defined below, a participating broker-dealer may agree in his
sole discretion to reduce the amount of his selling commissions. Such reduction
will be credited to the purchaser by reducing the total purchase price payable
by such purchaser. The following table illustrates the various discount levels
available:
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<TABLE>
<CAPTION>
Dealer
Sales Commissions Purchase Manager Net
Dollar Volume ------------------------ Price Fee Per Proceeds
Shares Purchased Percent Per Share Per Share Share Per Share
---------------- ------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C>
Under $500,000 7.0% $0.7000 $10.0000 $0.25 $9.05
$500,000-$999,999 5.0% $0.4895 $ 9.7895 $0.25 $9.05
$1,000,000 and Over 3.0% $0.2876 $ 9.5876 $0.25 $9.05
</TABLE>
For example, if an investor purchases 100,000 shares, he could pay as
little as $958,760 rather than $1,000,000 for the shares, in which event the
commission on the sale of such shares would be $28,760 ($0.2876 per share), and,
after payment of the dealer manager fee, we would receive net proceeds of
$905,000 ($9.05 per share). The net proceeds to the Wells REIT will not be
affected by volume discounts.
Because all investors will be deemed to have contributed the same amount
per share to the Wells REIT for purposes of declaring and paying dividends, an
investor qualifying for a volume discount will receive a higher return on his
investment than investors who do not qualify for such discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," as that term is
defined below, provided all such shares are purchased through the same broker-
dealer. The volume discount shall be prorated among the separate subscribers
considered to be a single "purchaser." Any request to combine more than one
subscription must be made in writing, and must set forth the basis for such
request. Any such request will be subject to verification by the advisor that
all of such subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser" includes:
. an individual, his or her spouse and their children under the age of
21 who purchase the units for his, her or their own accounts;
. a corporation, partnership, association, joint-stock company, trust
fund or any organized group of persons, whether incorporated or not;
. an employees' trust, pension, profit sharing or other employee benefit
plan qualified under Section 401(a) of the Internal Revenue Code; and
. all commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to investors in
the Wells REIT, the advisor may, in its sole discretion, waive the "purchaser"
requirements and aggregate subscriptions, including subscriptions to public real
estate programs previously sponsored by the advisor, or its affiliates, as part
of a combined order for purposes of determining the number of shares purchased,
provided that any aggregate group of subscriptions must be received from the
same broker-dealer, including the Dealer Manager. Any such reduction in selling
commission will be prorated among the separate subscribers except that, in the
case of purchases through the Dealer Manager, the Dealer Manager may allocate
such reduction among separate subscribers considered to be a single "purchaser"
as it deems appropriate. An investor may reduce the amount of his purchase price
to the net amount shown in the foregoing table, if applicable. If such investor
does not reduce the purchase price, the excess amount submitted over the
discounted purchase price shall be returned to the actual separate subscribers
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for shares. Except as provided in this paragraph, separate subscriptions will
not be cumulated, combined or aggregated.
In addition, in order to encourage purchases in amounts of 500,000 or more
shares, a potential purchaser who proposes to purchase at least 500,000 shares
may agree with Wells Capital and the Dealer Manager to have the acquisition and
advisory fees payable to Wells Capital with respect to the sale of such shares
reduced to 0.5%, to have the dealer manager fee payable to the Dealer Manager
with respect to the sale of such shares reduced to 0.5%, and to have the selling
commissions payable with respect to the sale of such shares reduced to 0.5%, in
which event the aggregate fees payable with respect to the sale of such shares
would be reduced by $1.10 per share, and the purchaser of such shares would be
required to pay a total of $8.90 per share purchased, rather than $10.00 per
share. The net proceeds to the Wells REIT would not be affected by such fee
reductions. Of the $8.90 paid per share, we anticipate that approximately $8.40
per share or approximately 94.4% will be used to acquire properties and pay
required acquisition expenses relating to the acquisition of properties. All
such sales must be made through registered broker-dealers.
California residents should be aware that volume discounts will not be
available in connection with the sale of shares made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant to
this Rule, volume discounts can be made available to California residents only
in accordance with the following conditions:
. there can be no variance in the net proceeds to the Wells REIT from
the sale of the shares to different purchasers of the same offering;
. all purchasers of the shares must be informed of the availability of
quantity discounts;
. the same volume discounts must be allowed to all purchasers of shares
which are part of the offering;
. the minimum amount of shares as to which volume discounts are allowed
cannot be less than $10,000;
. the variance in the price of the shares must result solely from a
different range of commissions, and all discounts allowed must be
based on a uniform scale of commissions; and
. no discounts are allowed to any group of purchasers.
Accordingly, volume discounts for California residents will be available in
accordance with the foregoing table of uniform discount levels based on dollar
volume of shares purchased, but no discounts are allowed to any group of
purchasers, and no subscriptions may be aggregated as part of a combined order
for purposes of determining the number of shares purchased.
Investors who, in connection with their purchase of shares, have engaged
the services of a registered investment advisor with whom the investor has
agreed to pay a fee for investment advisory services in lieu of normal
commissions based on the volume of securities sold may agree with the
participating broker-dealer selling such shares and the Dealer Manager to reduce
the amount of selling commissions payable with respect to such sale to zero. The
net proceeds to the Wells REIT will not be affected by eliminating the
commissions payable in connection with sales to investors purchasing through
such investment advisors. All such sales must be made through registered broker-
dealers.
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Neither the Dealer Manager nor its affiliates will directly or indirectly
compensate any person engaged as an investment advisor by a potential investor
as an inducement for such investment advisor to advise favorably for investment
in the Wells REIT.
In addition, subscribers for shares may agree with their participating
broker-dealers and the Dealer Manager to have selling commissions due with
respect to the purchase of their shares paid over a six year period pursuant to
a deferred commission arrangement. Shareholders electing the deferred commission
option will be required to pay a total of $9.40 per share purchased upon
subscription, rather than $10.00 per share, with respect to which $0.10 per
share will be payable as commissions due upon subscription. For the period of
six years following subscription, $0.10 per share will be deducted on an annual
basis from dividends or other cash distributions otherwise payable to the
shareholders and used by the Wells REIT to pay deferred commission obligations.
The net proceeds to the Wells REIT will not be affected by the election of the
deferred commission option. Under this arrangement, a shareholder electing the
deferred commission option will pay a 1% commission upon subscription, rather
than a 7% commission, and an amount equal to a 1% commission per year thereafter
for the next six years will be deducted from dividends or other cash
distributions otherwise payable to such shareholder and used by the Wells REIT
to satisfy commission obligations. The foregoing commission amounts may be
adjusted with approval of the Dealer Manager by application of the volume
discount provisions described previously.
Shareholders electing the deferred commission option who are subject to
federal income taxation will incur tax liability for dividends or other cash
distributions otherwise payable to them with respect to their shares even though
such dividends or other cash distributions will be withheld from such
shareholders and will instead be paid to third parties to satisfy commission
obligations.
Investors who wish to elect the deferred commission option should make the
election on their Subscription Agreement Signature Page. Election of the
deferred commission option shall authorize the Wells REIT to withhold dividends
or other cash distributions otherwise payable to such shareholder for the
purpose of paying commissions due under the deferred commission option;
provided, however, that in no event may the Wells REIT withhold in excess of
$0.60 per share in the aggregate under the deferred commission option. Such
dividends or cash distributions otherwise payable to shareholders may be pledged
by the Wells REIT, the Dealer Manager, the advisor or their affiliates to secure
one or more loans, the proceeds of which would be used to satisfy sales
commission obligations.
In the event that listing of the shares occurs or is reasonably anticipated
to occur at any time prior to the satisfaction of our remaining commission
obligations, the remaining commissions due under the deferred commission option
may be accelerated by the Wells REIT. In such event, we shall provide notice of
such acceleration to shareholders who have elected the deferred commission
option. The amount of the remaining commissions due shall be deducted and paid
by the Wells REIT out of dividends or other cash distributions otherwise payable
to such shareholders during the time period prior to listing; provided that, in
no event may the Wells REIT withhold in excess of $0.60 per share in the
aggregate. To the extent that the distributions during such time period are
insufficient to satisfy the remaining commissions due, the obligation of Wells
REIT and our shareholders to make any further payments of deferred commissions
under the deferred commission option shall terminate, and participating broker-
dealers will not be entitled to receive any further portion of their deferred
commissions following listing of our shares.
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Supplemental Sales Material
In addition to this prospectus, we may utilize certain sales material in
connection with the offering of the shares, although only when accompanied by or
preceded by the delivery of this prospectus. In certain jurisdictions, some or
all of such sales material may not be available. This material may include
information relating to this offering, the past performance of the advisor and
its affiliates, property brochures and articles and publications concerning real
estate. In addition, the sales material may contain certain quotes from various
publications without obtaining the consent of the author or the publication for
use of the quoted material in the sales material.
The offering of shares is made only by means of this prospectus. Although
the information contained in such sales material will not conflict with any of
the information contained in this prospectus, such material does not purport to
be complete, and should not be considered a part of this prospectus or the
registration statement of which this prospectus is a part, or as incorporated by
reference in this prospectus or said registration statement or as forming the
basis of the offering of the shares.
Legal Opinions
The legality of the shares being offered hereby has been passed upon for
the Wells REIT by Holland & Knight LLP (Counsel). The statements under the
caption "Federal Income Tax Consequences" as they relate to federal income tax
matters have been reviewed by such Counsel, and Counsel has opined as to certain
income tax matters relating to an investment in shares of the Wells REIT.
Counsel has represented Wells Capital, our advisor, as well as affiliates of
Wells Capital, in other matters and may continue to do so in the future. (See
"Conflicts of Interest.")
Experts
Audited Financial Statements
The audited financial statements of the Wells REIT as of December 31, 1999
and 1998, and for each of the years in the two year period ended December 31,
1999, included in this prospectus and elsewhere in the registration statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included in this
prospectus in reliance upon the authority of said firm as experts in giving said
report.
The Statements of Revenues over Certain Operating Expenses of the Motorola
Plainfield Building, the Dial Building, the ASML Building and the Motorola Tempe
Building for the year ended December 31, 1999, included in this prospectus and
elsewhere in the registration statement, have been audited by Arthur Andersen
LLP, independent public accountants, as indicated in their reports with respect
thereto, and are included in this prospectus in reliance upon the authority of
said firm as experts in giving said reports.
Unaudited Financial Statements
The unaudited interim financial statements of the Wells REIT as of
September 30, 2000, and for the three and nine month periods ended September 30,
2000 and 1999, which are included in this prospectus, have not been audited.
The Statements of Revenues over Certain Operating Expenses of the Motorola
Plainfield Building for the nine months ended September 30, 2000, which are
included in this prospectus, have not been audited.
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The unaudited pro forma financial statements of the Wells REIT for the year
ended December 31, 1999, and for the nine month period ended September 30, 2000,
which are included in this prospectus, have not been audited.
Additional Information
We have filed with the Securities and Exchange Commission (Commission),
Washington, D.C., a registration statement under the Securities Act of 1933, as
amended, with respect to the shares offered pursuant to this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits related thereto filed with the Commission, reference
to which is hereby made. Copies of the registration statement and exhibits
related thereto, as well as periodic reports and information filed by the Wells
REIT, may be obtained upon payment of the fees prescribed by the Commission, or
may be examined at the offices of the Commission without charge, at:
. the public reference facilities in Washington, D.C. at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
. the Northeast Regional Office in New York at 7 World Trade Center,
Suite 1300, New York, New York 10048; and
. the Midwest Regional Office in Chicago, Illinois at 500 West Madison
Street, Suite 1400, Chicago, Illinois 66661-2511.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's website is
http://www.sec.gov.
Glossary
The following are definitions of certain terms used in this prospectus and
not otherwise defined in this prospectus:
"Dealer Manager" means Wells Investment Securities, Inc.
"IRA" means an individual retirement account established pursuant to
Section 408 or Section 408A of the Internal Revenue Code.
"NASAA Guidelines" means the Statement of Policy Regarding Real Estate
Investment Trusts of the North American Securities Administrators Association,
Inc., as revised and adopted on September 29, 1993.
"Property Manager" means Wells Management Company, Inc.
"UBTI" means unrelated business taxable income, as that term is defined in
Sections 511 through 514 of the Internal Revenue Code.
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Index to Financial Statements and Prior Performance Tables
<TABLE>
<CAPTION>
Page
----
<S> <C>
Wells Real Estate Investment Trust, Inc. and Subsidiary
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 163
Consolidated Balance Sheets as of December 31, 1999 and
December 31, 1998 164
Consolidated Statements of Income for the years ended
December 31, 1999 and December 31, 1998 165
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999 and December 31, 1998 166
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and December 31, 1998 167
Notes to Consolidated Financial Statements 168
Interim (Unaudited) Financial Statements
----------------------------------------
Balance Sheets as of September 30, 2000 and December 31, 1999 189
Statements of Income for the three and nine months ended
September 30, 2000 and 1999 190
Statements of Shareholders' Equity for the nine months ended
September 30, 2000 and the year ended December 31, 1999 191
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 192
Condensed Notes to Financial Statements 193
Dial Building
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 197
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 198
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 199
ASML Building
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 200
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 201
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 202
</TABLE>
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<TABLE>
<S> <C>
Motorola Tempe Building
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 203
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 204
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 205
Motorola Plainfield Building
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 206
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 and the nine month
period ended September 30, 2000 (Unaudited) 207
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 208
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 210
Pro Forma Balance Sheet as of September 30, 2000 211
Pro Forma Statement of Income for the year ended
December 31, 1999 213
Pro Forma Statement of Income for the nine month period
ended September 30, 2000 214
Prior Performance Tables 215
</TABLE>
162
<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, 1999 and 1998 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. 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 audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated 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, 1999 and 1998 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
January 20, 2000
163
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
ASSETS
1999 1998
-------------- ------------
<S> <C> <C>
REAL ESTATE ASSETS, at cost:
Land $ 14,500,822 $ 1,520,834
Building, less accumulated depreciation of $1,726,103 and $0
at December 31, 1999 and 1998, respectively 81,507,040 20,076,845
Construction in progress 12,561,459 0
-------------- ------------
Total real estate assets 108,569,321 21,597,679
INVESTMENT IN JOINT VENTURES 29,431,176 11,568,677
CASH AND CASH EQUIVALENTS 2,929,804 7,979,403
DEFERRED OFFERING COSTS 964,941 548,729
DEFERRED PROJECT COSTS 28,093 335,421
DUE FROM AFFILIATES 648,354 262,345
PREPAID EXPENSES AND OTHER ASSETS 1,280,601 540,319
-------------- ------------
Total assets $ 143,852,290 $ 42,832,573
============== ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 461,300 $ 187,827
Notes payable 23,929,228 14,059,930
Dividends payable 2,166,701 408,176
Due to affiliate 1,079,466 554,953
-------------- ------------
Total liabilities 27,636,695 15,210,886
-------------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 200,000
-------------- ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares authorized,
13,471,085 shares issued and outstanding at December 31,
1999 and 3,154,136 shares issued and outstanding at
December 31, 1998 134,710 31,541
Additional paid-in capital 115,880,885 27,056,112
Retained earnings 0 334,034
-------------- ------------
Total shareholders' equity 116,015,595 27,421,687
-------------- ------------
Total liabilities and shareholders' equity $ 143,852,290 $ 42,832,573
============== ============
</TABLE>
The accompanying notes are an integral part of these consolidated balance
sheets.
164
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
---------- ---------
<S> <C> <C>
REVENUES:
Rental income $4,735,184 $ 20,994
Equity in income of joint ventures 1,243,969 263,315
Interest income 502,993 110,869
Other income 13,249 0
---------- ---------
6,495,395 395,178
---------- ---------
EXPENSES:
Depreciation 1,726,103 0
Interest expense 442,029 11,033
Operating costs, net of reimbursements (74,666) 0
Management and leasing fees 257,744 0
General and administrative 123,776 29,943
Legal and accounting 115,471 19,552
Computer costs 11,368 616
Amortization of organizational costs 8,921 0
---------- ---------
2,610,746 61,144
---------- ---------
NET INCOME $3,884,649 $ 334,034
========== =========
EARNINGS PER SHARE:
Basic and diluted $ 0.50 $ 0.40
========== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
165
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 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, 1997 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
Dividends ($.31 per share) 0 0 (511,163) 0 (511,163)
Sales commissions 0 0 (2,996,334) 0 (2,996,334)
Other offering expenses 0 0 (946,210) 0 (946,210)
---------- -------- ------------ ---------- ------------
BALANCE December 31, 1998 3,154,136 31,541 27,056,112 334,034 27,421,687
Issuance of common stock 10,316,949 103,169 103,066,321 0 103,169,490
Net income 0 0 0 3,884,649 3,884,649
Dividends ($.70 per share) 0 0 (1,346,240) (4,218,683) (5,564,923)
Sales commissions 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
========== ======== ============ =========== ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
166
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
<TABLE>
<CAPTION>
1999 1998
------------- -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,884,649 $ 334,034
------------- ------------
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Equity in income of joint ventures (1,243,969) (263,315)
Depreciation 1,726,103 0
Amortization of organizational costs 8,921 0
Changes in assets and liabilities:
Prepaid expenses and other assets (749,203) (540,319)
Accounts payable and accrued expenses 273,473 187,827
Due to affiliates 108,301 6,224
------------- ------------
Total adjustments 123,626 (609,583)
------------- ------------
Net cash provided by (used in) operating activities 4,008,275 (275,549)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (85,514,506) (21,299,071)
Investment in joint ventures (17,641,211) (11,276,007)
Deferred project costs paid (3,610,967) (1,103,913)
Distributions received from joint ventures 1,371,728 178,184
------------- ------------
Net cash used in investing activities (105,394,956) (33,500,807)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 40,594,463 14,059,930
Repayments of notes payable (30,725,165) 0
Dividends paid to shareholders (3,806,398) (102,987)
Issuance of common stock 103,169,490 31,540,360
Sales commissions paid (9,801,197) (2,996,334)
Other offering costs paid (3,094,111) (946,210)
------------- ------------
Net cash provided by financing activities 96,337,082 41,554,759
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,049,599) 7,778,403
CASH AND CASH EQUIVALENTS, beginning of year 7,979,403 201,000
------------- ------------
CASH AND CASH EQUIVALENTS, end of year $ 2,929,804 $ 7,979,403
============= ============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Deferred project costs applied to real estate assets $ 3,183,239 $ 298,608
============= ============
Deferred project costs contributed to joint ventures $ 735,056 $ 469,884
============= ============
Deferred offering costs due to affiliate $ 416,212 $ 0
============= ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
167
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
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 40,000,000
(exclusive of 2,200,000 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. 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 Wells
Capital, Inc. (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 Operating Partnership owns the following properties directly: (i) the
PriceWaterhouseCoopers property (the "PwC Building"), a four-story office
building located in Tampa, Florida; (ii) the AT&T Building, a four-story office
building located in Harrisburg, Pennsylvania; (iii) the Marconi Data Systems
property (the "Marconi Building"), a two-story office building located in Wood
Dale, Illinois; and (iv) the Cinemark Building, a five-story office building
located in Plano, Texas.
The Company also 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 an interest in several properties
through a joint venture between Wells Fund XI, Wells Real Estate Fund XII, L.P.
("Wells Fund XII"), and the Operating Partnership, which is referred to as Wells
Fund XI, XII and REIT Joint Venture. The Company owns two properties through a
joint venture between the Operating Partnership and Fund X and XI Associates, a
joint venture between Wells Fund X and Wells Fund XI.
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").
The following properties are owned by the Company through its investment in a
joint venture with Fund X and XI Associates: (i) a one-story office and
warehouse building in Fountain Valley, California (the "Cort Furniture
168
<PAGE>
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.
Through its investment in the Wells Fund XI, XII, and REIT Joint Venture, the
Company owns interests in the following properties: (i) a two-story
manufacturing and office building in Greenville County, South Carolina (the
"EYBL CarTex Building"), (ii) a three-story office building Leawood, Kansas (the
"Sprint Building"), (iii) an office and warehouse building in Chester County,
Pennsylvania (the "Johnson Matthey Building"), and (iv) a two-story office
building in Ft. Myers, Florida (the "Gartner Building").
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.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), commencing with the taxable year ended December
31, 1998. As a result, the Company generally will not be subject to federal
income taxation at the corporate level to the extent it distributes annually at
least 95% of its REIT taxable income, as defined in the Code, to its
shareholders and satisfies certain other requirements. Additionally, the
Operating Partnership is not subject to federal or state income taxes.
Accordingly, no provision has been made for federal or state income taxes in the
accompanying consolidated financial statements for the years ended December 31,
1999 and 1998.
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, 1999.
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
Basis of Presentation. 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.
169
<PAGE>
Partners' Distributions and Allocations of Profit and Loss. Cash available for
distribution and allocations of profit and loss to the Operating Partnership by
the joint ventures are made in accordance with the terms of the individual joint
venture agreements. Generally, these items are allocated in proportion to the
partners' respective ownership interests. Cash is paid from the joint ventures
to the Operating Partnership on a quarterly basis.
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.
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.
Cash and Cash Equivalents
For the purposes of the statements 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.
Earnings Per Share
Earnings per share is calculated based on the weighted average number of common
shares outstanding during each period. The weighted average number of common
shares outstanding is identical for basic and fully diluted earnings per share,
as there is no dilutive impact created from the Company's stock option plan
(Note 10) using the treasury stock method.
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, 1999 were $4,714,880 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, 1999 and
1998 represent fees not yet applied to properties.
3. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
offering 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, 1999, the Advisor paid organization and offering expenses on
behalf of the Company in the aggregate amount of $5,005,262, of which the
Advisor was reimbursed $4,040,321, which did not exceed the 5% limitation. The
unpaid portion of deferred offering costs is $964,941 and is included in due to
affiliate in the accompanying balance sheet.
170
<PAGE>
4. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1999 represents the Operating Partnership's
share of the cash to be distributed from its joint venture investments for the
fourth quarter of 1999 and 1998 as follows:
1999 1998
--------- ---------
Fund IX, X, XI, and REIT Joint Venture $ 32,079 $ 38,360
Wells/Orange County Associates 75,953 77,123
Wells/Fremont Associates 152,681 146,862
Fund XI, XII, and REIT 387,641 0
--------- ---------
$ 648,354 $ 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 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 $336,517
for the year ended December 31, 1999.
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, 1999 and 1998 are summarized as follows:
<TABLE>
<CAPTION>
1999 1998
------------------------ ------------------------
Amount Percent Amount Percent
------------ ------- ------------ -------
<S> <C> <C> <C> <C>
Fund IX, X, XI, and REIT Joint Venture $ 1,388,884 4% $ 1,443,378 4%
Wells/Orange County Associates 2,893,112 44 2,958,617 44
Wells/Fremont Associates 6,988,210 78 7,166,682 78
Fund XI, XII, and REIT Joint Venture 18,160,970 57 0 0
------------ ------------
$ 29,431,176 $ 11,568,677
============ ============
</TABLE>
171
<PAGE>
The following is a rollforward of the Operating Partnership's investment in
joint ventures for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Investment in joint ventures, beginning of year $11,568,677 $ 0
Equity in income of joint ventures 1,243,969 263,315
Contributions to joint ventures 18,376,267 11,745,890
Distributions from joint ventures (1,757,737) (440,528)
----------- -----------
Investment in joint ventures, end of year $29,431,176 $11,568,677
=========== ===========
</TABLE>
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 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.
172
<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, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
------------ ------------
<S> <C> <C>
Real estate assets, at cost:
Land $ 6,698,020 $ 6,454,213
Building and improvements, less accumulated depreciation
of $2,792,068 in 1999 and $1,253,156 in 1998 29,878,541 30,686,845
Construction in progress 0 990
------------ ------------
Total real estate assets 36,576,561 37,142,048
Cash and cash equivalents 1,146,874 1,329,457
Accounts receivable 554,965 133,257
Prepaid expenses and other assets 526,409 441,128
------------ ------------
Total assets $ 38,804,809 $ 39,045,890
============ ============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 704,914 $ 409,737
Due to affiliates 6,379 4,406
Partnership distributions payable 804,734 1,000,127
------------ ------------
Total liabilities 1,516,027 1,414,270
------------ ------------
Partners' capital:
Wells Real Estate Fund IX 14,590,626 14,960,100
Wells Real Estate Fund X 18,000,869 18,707,139
Wells Real Estate Fund XI 3,308,403 2,521,003
Wells Operating Partnership, L.P. 1,388,884 1,443,378
------------ ------------
Total partners' capital 37,288,782 37,631,620
------------ ------------
Total liabilities and partners' capital $ 38,804,809 $ 39,045,890
============ ============
</TABLE>
173
<PAGE>
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income (Loss)
for the Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ----------- ---------
<S> <C> <C> <C>
Revenues:
Rental income $3,932,962 $2,945,980 $28,512
Interest income 120,080 20,438 0
----------- ----------- ---------
4,053,042 2,966,418 28,512
----------- ----------- ---------
Expenses:
Depreciation 1,538,912 1,216,293 36,863
Management and leasing fees 286,139 226,643 1,711
Operating costs, net of reimbursements (43,501) (140,506) 10,118
Property administration expense 63,311 34,821 0
Legal and accounting 35,937 15,351 0
----------- ----------- ---------
1,880,798 1,352,602 48,692
----------- ----------- ---------
Net income (loss) $2,172,244 $1,613,816 $(20,180)
=========== =========== =========
Net income (loss) allocated to Wells Real Estate
Fund IX $ 850,072 $ 692,116 $(10,145)
=========== =========== =========
Net income (loss) allocated to Wells Real Estate
Fund X $1,056,316 $ 787,481 $(10,035)
=========== =========== =========
Net income allocated to Wells Real Estate Fund XI $ 184,355 $ 85,352 $ 0
=========== =========== =========
Net income allocated to Wells Operating
Partnership, L.P. $ 81,501 $ 48,867 $ 0
=========== =========== =========
</TABLE>
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 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
Net income 850,072 1,056,316 184,355 81,501 2,172,244
Partnership contributions 198,989 0 911,027 0 1,110,016
Partnership distributions (1,418,535) (1,762,586) (307,982) (135,995) (3,625,098)
------------ ----------- ---------- -------------- ------------
Balance, December 31, 1999 $14,590,626 $18,000,869 $3,308,403 $ 1,388,884 $ 37,288,782
============ =========== ========== ============== ============
</TABLE>
174
<PAGE>
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
1999 1998 1997
----------- ------------ ------------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 2,172,244 $ 1,613,816 $ (20,180)
----------- ------------ ------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 1,538,912 1,216,293 36,863
Changes in assets and liabilities:
Accounts receivable (421,708) (92,745) (40,512)
Prepaid expenses and other assets (85,281) (111,818) (329,310)
Accounts payable 295,177 29,967 379,770
Due to affiliates 1,973 1,927 2,479
----------- ------------ ------------
Total adjustments 1,329,073 1,043,624 49,290
----------- ------------ ------------
Net cash provided by operating
activities 3,501,317 2,657,440 29,110
----------- ------------ ------------
Cash flows from investing activities:
Investment in real estate (930,401) (24,788,070) (5,715,847)
----------- ------------ ------------
Cash flows from financing activities:
Distributions to joint venture partners (3,820,491) (1,799,457) 0
Contributions received from partners 1,066,992 24,970,373 5,975,908
----------- ------------ ------------
Net cash (used in) provided by
financing activities (2,753,499) 23,170,916 5,975,908
Net (decrease) increase in cash and cash ----------- ------------ ------------
equivalents (182,583) 1,040,286 289,171
Cash and cash equivalents, beginning of year 1,329,457 289,171 0
----------- ------------ ------------
Cash and cash equivalents, end of year $ 1,146,874 $ 1,329,457 $ 289,171
=========== ============ ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to
joint venture $ 43,024 $ 1,470,780 $ 318,981
=========== ============ ============
Contribution of real estate assets to $ 0 $ 5,010,639 $ 1,090,887
joint venture =========== ============ ============
</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.
Following are the financial statements for Wells/Orange County Associates:
175
<PAGE>
Wells/Orange County Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate assets, at cost:
Land $2,187,501 $2,187,501
Building, less accumulated depreciation of $278,652 in
1999 and $92,087 in 1998 4,385,463 4,572,028
----------- -----------
Total real estate assets 6,572,964 6,759,529
Cash and cash equivalents 176,666 180,895
Accounts receivable 49,679 13,123
----------- -----------
Total assets $6,799,309 $6,953,547
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 0 $ 1,550
Partnership distributions payable 173,935 176,614
------------ -----------
Total liabilities 173,935 178,164
------------ -----------
Partners' capital:
Wells Operating Partnership, L.P. 2,893,112 2,958,617
Fund X and XI Associates 3,732,262 3,816,766
------------ -----------
Total partners' capital 6,625,374 6,775,383
------------ -----------
Total liabilities and partners' capital $6,799,309 $6,953,547
============ ===========
</TABLE>
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
--------- ---------
<S> <C> <C>
Revenues:
Rental income $795,545 $331,477
Interest income 0 448
--------- ---------
795,545 331,925
--------- ---------
Expenses:
Depreciation 186,565 92,087
Management and leasing fees 30,360 12,734
Operating costs, net of reimbursements 22,229 2,288
Interest 0 29,472
Legal and accounting 5,439 3,930
--------- ---------
244,593 140,511
--------- ---------
Net income $550,952 $191,414
========= =========
Net income allocated to Wells Operating Partnership, L.P. $240,585 $ 91,978
========= =========
</TABLE>
176
<PAGE>
<TABLE>
<S> <C> <C>
Net income allocated to Fund X and XI Associates $310,367 $ 99,436
========= =========
</TABLE>
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999 and 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
Net income 240,585 310,367 550,952
Partnership distributions (306,090) (394,871) (700,961)
-------------- ------------ ------------
Balance, December 31, 1999 $2,893,112 $3,732,262 $6,625,374
============== ============ ============
</TABLE>
177
<PAGE>
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
---------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 550,952 $ 191,414
Adjustments to reconcile net income to net cash provided by ---------- ------------
operating activities:
Depreciation 186,565 92,087
Changes in assets and liabilities:
Accounts receivable (36,556) (13,123)
Accounts payable (1,550) 1,550
---------- ------------
Total adjustments 148,459 80,514
---------- ------------
Net cash provided by operating activities 699,411 271,928
Cash flows from investing activities: ---------- ------------
Investment in real estate 0 (6,563,700)
Cash flows from financing activities: ---------- ------------
Issuance of note payable 0 4,875,000
Payment of note payable 0 (4,875,000)
Distributions to partners (703,640) (93,763)
Contributions received from partners 0 6,566,430
---------- ------------
Net cash (used in) provided by financing activities (703,640) 6,472,667
---------- ------------
Net (decrease) increase in cash and cash equivalents (4,229) 180,895
Cash and cash equivalents, beginning of year 180,895 0
---------- ------------
Cash and cash equivalents, end of year $ 176,666 $ 180,895
========== ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 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.
178
<PAGE>
Following are the financial statements for Wells/Fremont Associates:
Wells/Fremont Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
ASSETS
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Real estate assets, at cost:
Land $2,219,251 $2,219,251
Building, less accumulated depreciation of $428,246 in
1999 and $142,720 in 1998 6,709,912 6,995,439
----------- -----------
Total real estate assets 8,929,163 9,214,690
Cash and cash equivalents 189,012 192,512
Accounts receivable 92,979 34,742
----------- -----------
Total assets $9,211,154 $9,441,944
============ ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 2,015 $ 3,565
Due to affiliate 5,579 2,052
Partnership distributions payable 186,997 189,490
------------ ------------
Total liabilities 194,591 195,107
Partners' capital: ------------ ------------
Wells Operating Partnership, L.P. 6,988,210 7,166,682
Fund X and XI Associates 2,028,353 2,080,155
------------ ------------
Total partners' capital 9,016,563 9,246,837
------------ ------------
Total liabilities and partners' capital $9,211,154 $9,441,944
============ ============
</TABLE>
179
<PAGE>
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999 and 1998
1999 1998
-------- --------
Revenues:
Rental income $902,946 $401,058
Interest income 0 3,896
-------- --------
902,946 404,954
-------- --------
Expenses:
Depreciation 285,526 142,720
Management and leasing fees 37,355 16,726
Operating costs, net of reimbursements 16,006 3,364
Interest 0 73,919
Legal and accounting 4,885 6,306
-------- --------
343,772 243,035
-------- --------
Net income $559,174 $161,919
======== ========
Net income allocated to Wells Operating Partnership, L.P. $433,383 $122,470
======== ========
Net income allocated to Fund X and XI Associates $125,791 $ 39,449
======== ========
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999 and 1998
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------ ---------- ----------
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
Net income 433,383 125,791 559,174
Partnership distributions (611,855) (177,593) (789,448)
------------ ---------- ----------
Balance, December 31, 1999 $ 6,988,210 $2,028,353 $9,016,563
============ ========== ==========
180
<PAGE>
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999 and 1998
<TABLE>
<CAPTION>
1999 1998
----------- -----------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 559,174 $ 161,919
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 285,526 142,720
Changes in assets and liabilities:
Accounts receivable (58,237) (34,742)
Accounts payable (1,550) 3,565
Due to affiliate 3,527 2,052
----------- -----------
Total adjustments 229,266 113,595
----------- -----------
Net cash provided by operating activities 788,440 275,514
----------- -----------
Cash flows from investing activities:
Investment in real estate 0 (8,983,111)
----------- -----------
Cash flows from financing activities:
Issuance of note payable 0 5,960,000
Payment of note payable 0 (5,960,000)
Distributions to partners (791,940) (83,001)
Contributions received from partners 0 8,983,110
----------- -----------
Net cash (used in) provided by financing activities (791,940) 8,900,109
----------- -----------
Net (decrease) increase in cash and cash equivalents (3,500) 192,512
Cash and cash equivalents, beginning of year 192,512 0
----------- -----------
Cash and cash equivalents, end of year $ 189,012 $ 192,512
=========== ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 374,299
=========== ===========
</TABLE>
181
<PAGE>
Fund XI, XII, and REIT Joint Venture
On May 1, 1999, the Operating Partnership entered into a joint venture with
Wells Fund XII and Wells Fund XI. On May 18, 1999, the joint venture purchased a
169,510-square-foot, two-story manufacturing and office building, known as EYBL
CarTex, in Fountain Inn, South Carolina. On July 21, 1999, the joint venture
purchased a 68,900 square-foot, three-story-office building, known as the Sprint
Building, in Leawood, Kansas. On August 17, 1999, the joint venture purchased a
130,000 square-foot office and warehouse building, known as the Johnson Matthey
Building, in Chester County, Pennsylvania. On September 20, 1999, the joint
venture purchased a 62,400 square-foot, two-story office building, known as the
Gartner Building, in Fort Myers, Florida.
Following are the financial statements for the Fund XI, XII, and REIT Joint
Venture:
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheet
December 31, 1999
ASSETS
<TABLE>
<S> <C>
Real estate assets, at cost:
Land $ 5,048,797
Building and improvements, less accumulated depreciation of $506,582 26,811,869
------------
Total real estate assets 31,860,666
Cash and cash equivalents 766,278
Accounts receivable 133,777
Prepaid assets and other expenses 26,486
------------
Total assets $ 32,787,207
============
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 112,457
Partnership distributions payable 680,294
------------
Total liabilities 792,751
------------
Partners' capital:
Wells Real Estate Fund XI 8,365,852
Wells Real Estate Fund XII 5,467,634
Wells Operating Partnership, L.P. 18,160,970
------------
Total partners' capital 31,994,456
------------
Total liabilities and partners' capital $ 32,787,207
============
</TABLE>
182
<PAGE>
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Income
for the Year Ended December 31, 1999
Revenues:
Rental income $ 1,443,446
Other income 57
-----------
1,443,503
-----------
Expenses:
Depreciation 506,582
Management and leasing fees 59,230
Operating costs, net of reimbursements 6,433
Property administration 14,185
Legal and accounting 4,000
-----------
590,430
-----------
Net income $ 853,073
===========
Net income allocated to Wells Real Estate Fund XI $ 240,031
===========
Net income allocated to Wells Real Estate Fund XII $ 124,542
===========
Net income allocated to Wells Operating Partnership, L.P. $ 488,500
===========
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Year Ended December 31, 1999
<TABLE>
<CAPTION>
Wells
Wells Real Wells Real Operating Total
Estate Estate Partnership, Partners'
Fund XI Fund XII L.P. Capital
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Balance, December 31, 1998 $ 0 $ 0 $ 0 $ 0
Net income 240,031 124,542 488,500 853,073
Partnership contributions 8,470,160 5,520,835 18,376,267 32,367,262
Partnership distributions (344,339) (177,743) (703,797) (1,225,879)
----------- ----------- ------------ ------------
Balance, December 31, 1999 $ 8,365,852 $ 5,467,634 $ 18,160,970 $ 31,994,456
=========== =========== ============ ============
</TABLE>
183
<PAGE>
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Cash Flows
for the Year Ended December 31, 1999
<TABLE>
<S> <C>
Cash flows from operating activities:
Net income $ 853,073
-------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 506,582
Changes in assets and liabilities:
Accounts receivable (133,777)
Prepaid expenses and other assets (26,486)
Accounts payable 112,457
-------------
Total adjustments 458,776
-------------
Net cash provided by operating activities 1,311,849
-------------
Cash flows from financing activities:
Distributions to joint venture partners (545,571)
-------------
Net increase in cash and cash equivalents 766,278
Cash and cash equivalents, beginning of year 0
-------------
Cash and cash equivalents, end of year $ 766,278
=============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 1,294,686
=============
Contribution of real estate assets to joint venture $ 31,072,562
=============
</TABLE>
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Operating Partnership's income tax basis net income for the years ended
December 31, 1999 and 1998 are calculated as follows:
<TABLE>
1999 1998
----------- ---------
<S> <C> <C>
Financial statement net income $ 3,884,649 $ 334,034
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in
excess of amounts for income tax purposes 949,631 82,618
Rental income accrued for financial reporting purposes in
excess of amounts for income tax purposes (789,599) (35,427)
Expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 49,906 1,634
----------- ---------
Income tax basis net income $ 4,094,587 $ 382,859
=========== =========
</TABLE>
184
<PAGE>
The Operating Partnership's income tax basis partners' capital at December 31,
1999 and 1998 is computed as follows:
<TABLE>
<CAPTION>
1999 1998
------------ -----------
<S> <C> <C>
Financial statement partners' capital $116,015,595 $27,421,687
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes
in excess of amounts for income tax purposes 1,032,249 82,618
Capitalization of syndication costs for income tax
purposes, which are accounted for as cost of capital
for financial reporting purposes 12,896,312 3,942,545
Accumulated rental income accrued for financial
reporting purposes in excess of amounts for income
tax purposes (825,026) (35,427)
Accumulated expenses deductible when paid for income
tax purposes, accrued for financial reporting
purposes 51,540 1,634
Dividends payable 2,166,701 408,176
------------ -----------
Income tax basis partners' capital $131,337,371 $31,821,233
============ ===========
</TABLE>
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, 1999 is as
follows:
Year ended December 31:
2000 $ 11,737,408
2001 11,976,253
2002 12,714,291
2003 12,856,557
2004 12,581,882
Thereafter 54,304,092
-------------
$ 116,170,483
=============
Three tenants contributed 32%, 16%, and 15% of rental income for the year ended
December 31, 1999. In addition, four tenants will contribute 34%, 20%, 17%, and
11% of future minimum rental income.
The future minimum rental income due the Fund IX, X, XI, and REIT Joint Venture
under noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 3,666,570
2001 3,595,686
2002 3,179,827
2003 3,239,080
2004 3,048,152
Thereafter 5,181,003
-------------
$ 21,910,318
=============
Four tenants contributed 25%, 18%, 13%, and 12% of rental income for the year
ended December 31, 1999. In addition, four tenants will contribute 28%, 22%,
15%, and 10% of future minimum rental income.
185
<PAGE>
The future minimum rental income due Wells/Orange County Associates under
noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 758,964
2001 809,580
2002 834,888
2003 695,740
-------------
$ 3,099,172
=============
One tenant contributed 100% of rental income for the year ended December 31,
1999 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, 1999 is as follows:
Year ended December 31:
2000 $ 869,492
2001 895,577
2002 922,444
2003 950,118
2004 894,833
-------------
$ 4,532,464
=============
One tenant contributed 100% of rental income for the year ended December 31,
1999 and will contribute 100% of future minimum rental income.
The future minimum rental income due from XI, XII and REIT under noncancelable
operating leases at December 31, 1999 is a follows:
Year ended December 31:
2000 $ 3,085,362
2001 3,135,490
2002 3,273,814
2003 3,367,231
2004 3,440,259
Thereafter 9,708,895
-------------
$ 26,011,051
=============
Four tenants contributed approximately 34%, 22%, 22%, and 12% of rental income
for the year ended December 31, 1999. In addition, four tenants will contribute
approximately 30%, 27%, 22%, and 18% of future minimum rental income.
8. NOTES PAYABLE
At December 31, 1999, the Operating Partnership had outstanding debt of
$23,929,228. Of this amount, $11,430,696 was borrowed under a construction loan
with Bank of America in order to finance the construction of a new building for
Matsushita Avionics (the "Matsushita Project") and improvements for the AT&T
Building. This loan is secured by the Matsushita Project and matures on May 10,
2001. The remaining $12,498,532 was borrowed against the revolving line of
credit from SouthTrust Bank, which is collateralized by the PwC Building and
matures on December 31, 2000. Interest is paid monthly and accrued at a variable
rate based on LIBOR plus 200 basis points for both of these debt instruments.
During 1999, the Company paid and capitalized interest costs of $847,451 and
$463,873, respectively. The estimated fair value of these notes approximates
their carrying value.
186
<PAGE>
The Operating Partnership also has a $9,825,000 line of credit from Bank of
America, which bears interest at a variable rate based on LIBOR plus 200 basis
points. No balance was outstanding at December 31, 1999 under this line of
credit.
9. COMMITMENTS AND CONTINGENCIES
On February 18, 1999, the Operating Partnership entered into a rental income
guaranty agreement with Fund VIII and IX Associates (the "joint venture"),
whereby the Operating Partnership guaranteed that the joint venture would
receive rental income on the existing Matsushita Building, equal to at least the
rent and building expenses that the joint venture would have received from
Matsushita Avionics over the remaining term of the existing lease. Matsushita
Avionics vacated the building on January 3, 2000, while the existing lease term
extends through September 2003. The Company paid approximately $61,000 to the
joint venture related to the rental income and building expenses due from
Matsushita Avionics for the remainder of January 2000. Such payments are made
from the Company's operating cash flow and reduce cash available for dividends.
On July 22, 1999, the Operating Partnership purchased a 7.49 acre tract of land
located in Midlothian, Chesterfield County, Virginia for the purpose of
constructing a four-story, 100,000 rentable square foot office building (the
"ABB Project"). The Operating Partnership entered into an office lease with ABB
Power Generation, Inc. ("ABB"), pursuant to which ABB has agreed to lease the
ABB Project upon its completion.
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.
10. COMMON STOCK OPTION PLAN
The Wells Real Estate Investment Trust, Inc. Independent Director Stock Option
Plan ("the Plan") provides for grants of stock to be made to independent
nonemployee directors of the Company. Options to purchase 2,500 shares of common
stock at $12 per share are granted upon initially becoming an independent
director of the Company. Of these shares, 20% are exercisable immediately on the
date of grant. An additional 20% of these shares become exercisable on each
anniversary following the date of grant for a period of four years. Effective on
the date of each annual meeting of shareholders of the Company, beginning in
2000, each independent director will be granted an option to purchase 1,000
additional shares of common stock. These options vest at the rate of 500 shares
per full year of service thereafter. All options granted under the Plan expire
no later than the date immediately following the tenth anniversary of the date
of grant and may expire sooner in the event of the disability or death of the
optionee or if the optionee ceases to serve as a director.
The Company has adopted the disclosure provisions in SFAS No. 123, "Accounting
for Stock-Based Compensation." As permitted by the provisions of SFAS No. 123,
the Company applies Accounting Principles Board ("APB") Opinion No. 25 and the
related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost.
187
<PAGE>
A summary of the Company's stock option activity during 1999 is as follows:
<TABLE>
<CAPTION>
Exercise
Number Price
-------- ---------
<S> <C> <C>
Outstanding at December 31, 1998 0 $ 0
Granted 27,500 12
-------- ---------
Outstanding at December 31, 1999 27,500 $12
======== =========
Outstanding options exercisable as of December 31, 1999 5,500 $12
======== =========
</TABLE>
The weighted average remaining contractual life of options outstanding at
December 31, 1999 is approximately 9.5 years. Based on the terms of the options,
the fair value of the options granted during 1999 is $0.
11. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 1999 and 1998:
<TABLE>
<CAPTION>
1999 Quarters Ended
----------------------------------------------------
March 31 June 30 September 30 December 31
---------- ---------- ------------ -----------
<S> <C> <C> <C> <C>
Revenues $988,000 $1,204,938 $1,803,352 $2,499,105
Net income 393,438 601,975 1,277,019 1,612,217
Basic and diluted earnings per share $0.10 $0.09 $0.18 $0.13
Dividends per share 0.17 0.17 0.18 0.18
</TABLE>
<TABLE>
<CAPTION>
1998 Quarters Ended
-------------------------------------------------
March 31 June 30 September 30 December 31
----------- --------- -------------- ------------
<S> <C> <C> <C> <C>
Revenues $0 $10,917 $73,292 $310,969
Net income 0 10,899 62,128 261,007
Basic and diluted earnings per share $0.00 $0.16 $0.06 $0.18
Dividends per share 0.00 0.00 0.15 0.16
</TABLE>
188
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
September 30, December 31,
2000 1999
------------- -------------
<S> <C> <C>
REAL ESTATE, at cost:
Land $ 21,695,304 $ 14,500,822
Building and improvements, less accumulated depreciation
of $6,810,792 in 2000 and $1,726,103 in 1999 188,671,038 81,507,040
Construction in progress 295,517 12,561,459
------------- -------------
Total real estate 210,661,859 108,569,321
------------- -------------
INVESTMENT IN JOINT VENTURES (NOTE 2) 36,708,242 29,431,176
DUE FROM AFFILIATES 859,515 648,354
CASH AND CASH EQUIVALENTS 12,257,161 2,929,804
DEFERRED PROJECT COSTS (Note 1) 471,005 28,093
DEFERRED OFFERING COSTS (Note 1) 1,108,206 964,941
PREPAID EXPENSES AND OTHER ASSETS 6,344,905 1,280,601
------------- -------------
Total assets $ 268,410,893 $ 143,852,290
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 975,821 $ 461,300
Notes payable (Note 3) 38,909,030 23,929,228
Due to affiliates (Note 4) 1,372,508 1,079,466
Dividends payable 4,475,982 2,166,701
------------- -------------
Total liabilities 45,733,341 27,636,695
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING
PARTNERSHIP 200,000 200,000
------------- -------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares
authorized, 26,174,825 shares issued and outstanding
at September 30, 2000 and 13,471,085 shares issued and
outstanding at December 31, 1999 261,748 134,710
Additional paid-in capital 222,215,804 115,880,885
Retained earnings 0 0
------------- -------------
Total shareholders' equity 222,477,552 116,015,595
------------- -------------
Total liabilities and shareholders' equity $ 268,410,893 $ 143,852,290
============= =============
</TABLE>
See accompanying condensed notes to financial statements.
189
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ---------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $5,819,968 $1,227,144 $13,712,371 $2,806,158
Equity in income of joint ventures 635,065 384,887 1,684,247 783,065
Interest income 131,578 191,321 338,020 407,067
---------- ---------- ----------- ----------
6,586,611 1,803,352 15,734,638 3,996,290
---------- ---------- ----------- ----------
EXPENSES:
Operating costs, net of
reimbursements 289,140 (75,997) 631,407 (46,381)
Management and leasing fees 381,766 68,823 919,630 150,908
Depreciation 2,155,366 423,760 5,084,689 1,036,003
Administrative costs 41,626 21,076 273,484 91,016
Legal and accounting 32,883 22,187 130,603 78,637
Computer costs 2,353 2,119 8,846 8,182
Amortization of loan costs 64,016 2,433 150,143 6,488
Interest expense 1,094,233 61,932 2,798,299 399,005
---------- ---------- ----------- ----------
4,061,383 526,333 9,997,101 1,723,858
---------- ---------- ----------- ----------
NET INCOME $2,525,228 $1,277,019 $ 5,737,537 $2,272,432
========== ========== =========== ==========
BASIC AND DILUTED EARNINGS PER
SHARE $0.11 $0.18 $0.30 $0.37
========== ========== =========== ==========
</TABLE>
See accompanying condensed notes to financial statements.
190
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 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 ($.70 per share) 0 0 (1,346,240) (4,218,683) (5,564,923)
Sales commission 0 0 (9,801,197) 0 (9,801,197)
Other offering expenses 0 0 (3,094,111) 0 (3,094,111)
------------ -------- ------------ ----------- ------------
BALANCE, December 31, 1999 13,471,085 134,710 115,880,885 0 116,015,595
Issuance of common stock 12,769,524 127,695 127,567,548 0 127,695,243
Net income 0 0 0 5,737,537 5,737,537
Dividends ($.544 per share) 0 0 (4,695,767) (5,737,537) (10,433,304)
Sales commission 0 0 (12,068,553) 0 (12,068,553)
Other offering expenses 0 0 (3,811,122) 0 (3,811,122)
Common stock retired (65,784) (657) (657,187) 0 (657,844)
------------ -------- ------------ ----------- ------------
BALANCE, September 30, 2000 26,174,825 $261,748 $222,215,804 $ 0 $222,477,552
============ ======== ============ =========== ============
</TABLE>
See accompanying condensed notes to financial statements.
191
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
------------------------------------
September 30, September 30,
2000 1999
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,737,537 $ 2,272,432
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 5,084,689 1,036,003
Amortization of loan costs 150,143 6,488
Equity in income of joint ventures (1,684,247) (783,065)
Changes in assets and liabilities:
Accounts payable 514,521 326,166
Increase in prepaid expenses and other assets (5,214,447) (667,823)
Increase due to affiliates 149,777 82,901
------------- ------------
Net cash provided by operating activities 4,737,973 2,273,102
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (103,469,511) (55,913,594)
Investment in joint ventures (7,612,005) (17,641,421)
Deferred project costs (4,446,307) (2,692,478)
Distributions received from joint ventures 2,103,704 826,822
------------- ------------
Net cash used in investing activities (113,424,119) (75,420,671)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 67,883,130 25,598,666
Repayment of note payable (52,903,328) (22,732,539)
Dividends paid (8,124,023) (2,159,649)
Issuance of common stock 127,695,243 76,927,944
Sales commissions paid (12,068,553) (7,308,155)
Offering costs paid (3,811,122) (2,307,838)
Common stock retired (657,844) 0
------------- ------------
Net cash provided by financing activities 118,013,503 68,018,429
------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,327,357 (5,129,140)
CASH AND CASH EQUIVALENTS, beginning of year 2,929,804 7,979,403
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 12,257,161 $ 2,850,263
============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to joint ventures $ 295,680 $ 735,056
============= ============
Deferred project costs applied to real estate $ 3,707,715 $ 2,273,411
============= ============
Decrease in deferred offering cost accrual $ (143,265) $ (200,640)
============= ============
</TABLE>
See accompanying condensed notes to financial statements.
192
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Wells Real Estate Investment Trust, Inc. (the "Company" or "Registrant") 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 September 30, 2000, the Company had sold 26,240,610 shares for total capital
contributions of $262,406,096. After payment of $9,161,189 in acquisition and
advisory fees and acquisition expenses, payment of $32,718,532 in selling
commissions and organization and offering expenses, capital contributions and
acquisition expenditures by Wells OP of $211,641,497 in property acquisitions
and common stock redemptions of $657,844 pursuant to the Company's share
redemption program, the Company was holding net offering proceeds of $8,227,034
available for investment in properties. An additional $38,909,030 was spent for
acquisition expenditures and was funded by loans from various lending
institutes.
Wells OP owns interest in properties both directly and 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, (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"), (v) the Fund XII-REIT Joint Venture, a
joint venture between Wells OP and Wells Real Estate Fund XII, L.P. (the "Fund
XII-REIT Joint Venture"), and (vi) the Fund VIII-IX-REIT Joint Venture, a joint
venture between Wells OP and the Fund VIII-IX Joint Venture.
As of September 30, 2000, Wells OP owned interest in the following properties
either directly or through its interests 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
"AVAYA 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; (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
193
<PAGE>
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 in Richmond, Virginia (the "Alstom Power-
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"); (xxi) a two-story office building in
Tempe, Arizona (the "Motorola Building"); (xxii) a two-story office building in
Tempe, Arizona (the "Avnet Building"); (xxiii) a three-story office building in
Troy, Michigan (the "Delphi Building"); all ten of which are owned directly by
Wells OP; (xxiv) a three-story office building in Troy, Michigan (the "Siemens
Building"), which is owned by the Fund XII-REIT Joint Venture; and (xxv) a two-
story office building in Orange County, California (the "Quest Building"),
formerly the Bake Parkway Building, previously owned by Fund VIII-IX Joint
Venture, which is now owned by the Fund VIII-IX-REIT Joint Venture.
(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% of
shareholders' capital contributions. Acquisition and Advisory Fees and
Acquisition Expenses paid as of September 30, 2000, amounted to $9,161,189 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% of shareholders' capital contributions.
(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 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 is conducted through Wells OP. At
December 31, 1997, the Wells OP had issued 20,000 limited partner units to Wells
Capital, Inc., the Advisor, in exchange for a capital contribution of $200,000.
The Company is the sole general partner in Wells OP; consequently, the
accompanying consolidated financial statements of the Company include the
amounts of both the Company and Wells OP.
194
<PAGE>
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 (not including a return of capital for
federal income tax purposes) equal to at least 95% of its real estate investment
trusts taxable income through the taxable year 2000. It is the Company's policy
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 daily 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.
2. INVESTMENTS IN JOINT VENTURES
The Company owned interests in 25 office buildings through its ownership in
Wells OP, which owns interest in six 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 September 30, 2000.
Fund VIII-IX-REIT Joint Venture
On June 15, 2000, the Fund VIII-IX-REIT Joint Venture was formed between Wells
OP and Fund VIII and Fund IX Associates, a Georgia joint venture partnership
between Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P.
(the "Fund VIII-IX Joint Venture"). On July 1, 2000, the Fund VIII-IX Joint
Venture contributed its interest in the Bake Parkway Building to the Fund VIII-
IX-REIT Joint Venture. The Bake Parkway Building is a two-story office building
containing approximately 65,006 rentable square feet on a 4.4-acre tract of land
in Irvine, California.
195
<PAGE>
A 42-month lease for the entire Bake Parkway Building has been signed by Quest
Software, Inc. Occupancy occurred on August 1, 2000. Quest is a publicly traded
corporation that provides software database management and disaster recovery
services for its clients.
Construction of tenant improvements required under the Quest lease is
anticipated to cost approximately $1,250,000 and will be funded by Wells OP.
The Alstom Power-Richmond Building
On July 24, 2000, the Company completed a build-to-suit project of a 99,057
square-foot, four-story, office building. The Class "A" property is located at
5309 Commonwealth Centre Drive in Richmond, Virginia.
The $11.4 million acquisition is 100% owned by the Company and is leased to
Alstom Power, Inc. The tenant has signed a seven-year lease, which commenced on
July 24, 2000. Alstom Power is the world's largest power generation group.
Formerly ABB Power Generation and Alstom, the two companies merged in December
1999 to form ABB Alstom Power, Inc. and in June 2000 changed its name to Alstom
Power, Inc. The group employs 58,000 people in more than 100 countries.
The building is located on 7.49 acres within the Waterford Business Park. The
Waterford Park is a 20-acre office park in Chesterfield County.
3. NOTES PAYABLE
Notes payable, as of September 30, 2000, consists of loans of (i) $9,181,877 due
to Bank of America secured by a first priority mortgage against the Matsushita
Property; (ii) $21,627,153 due to Bank of America secured by first mortgages on
the AT&T and Marconi buildings; (iii) $8,000,000 due to Richter-Schroeder
Company, Inc. secured by a first mortgage against the Metris Building; and (iv)
$100,000 due to Ryan Companies US, Inc. secured by a first mortgage on the Avnet
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 Company. Also included in Due to Affiliates is the
Matsushita lease guarantee which is explained in detail in the Company's Form
10-K for the year ended December 31, 1999. Payments of $542,645 have been made
as of September 30, 2000 toward fulfilling the Matsushita agreement.
196
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the DIAL BUILDING for the year ended December 31, 1999. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Dial
Building after acquisition by the Wells Operating Partnership, L.P. (on behalf
of Wells Real Estate Investment Trust, Inc.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Dial
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Dial Building for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
April 10, 2000
197
<PAGE>
DIAL BUILDING
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
RENTAL REVENUES $1,388,868
OPERATING EXPENSES, net of reimbursements 0
----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,388,868
==========
The accompanying notes are an integral part of this statement.
198
<PAGE>
DIAL BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 29, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a Delaware
Limited Partnership formed to acquire, own, lease, operate and manage real
properties on behalf of the Wells Real Estate Investment Trust, Inc., acquired
the Dial Building from Ryan Companies US, Inc. ("Ryan"). Ryan is not an
affiliate of Wells OP. The purchase price of the Dial Building was $14,250,000.
Wells OP incurred additional acquisition expenses in connection with the
purchase of the Dial Building, including attorney's fees, recording fees, loan
fees, and other closing costs, of approximately $35,712. The funds used to
purchase the Dial Building consisted of cash and proceeds from Wells OP's lines
of credit with SouthTrust Bank, N.A. and Bank of America, N.A.
The entire 129,689 rentable square feet of the Dial Building is currently under
a net lease agreement (the "Lease") with Dial Corporation ("Dial"). The Lease
was assigned to Wells OP at closing. The Lease commenced on August 14, 1997 and
expires on August 31, 2008. Dial has the right to extend the Lease for two
additional five-year periods at 95% of the then-current fair market rental rate.
Under the Lease, Dial is required to pay as additional rent all real estate
taxes, special assessments, utilities, insurance, and other operating costs
associated with the Dial Building during the term of the Lease. In addition,
Dial is responsible for repair and maintenance of the roof, walls, structure,
and foundation, landscaping, and heating, ventilating, air conditioning,
mechanical, electrical, plumbing, and other systems.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the Dial Building after
acquisition by Wells OP.
199
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the ASML BUILDING for the year ended December 31, 1999. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the ASML
Building after acquisition by the Wells Operating Partnership, L.P. (on behalf
of Wells Real Estate Investment Trust, Inc.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the ASML
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the ASML Building for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
April 10, 2000
200
<PAGE>
ASML BUILDING
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
REVENUES:
Rental income $1,849,908
Tenant reimbursements 242,143
----------
Total revenues 2,092,051
----------
OPERATING EXPENSES:
Ground lease 206,625
Insurance 9,628
----------
Total operating expenses 216,253
----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,875,798
==========
The accompanying notes are an integral part of this statement.
201
<PAGE>
ASML BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 29, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a Delaware
Limited Partnership formed to acquire, own, lease, operate, and manage real
properties on behalf of the Wells Real Estate Investment Trust, Inc., acquired
the ASML Building from Ryan Companies U.S., Inc. ("Ryan"). Ryan is not an
affiliate of Wells OP. The purchase price of the ASML Building was $17,355,000.
Wells OP incurred additional acquisition expenses in connection with the
purchase of the ASML Building, including attorney's fees, recording fees, loan
fees, and other closing costs, of approximately $48,875. The funds used to
purchase the ASML Building consisted of cash and proceeds obtained from
Wells OP's lines of credit with SouthTrust Bank, N.A. and Bank of America, N.A.
Wells OP also assumed a ground lease with Research Park on 9.51 acres. The
ground lease commenced August 22, 1997 and expires on December 31, 2082.
The entire 95,133 rentable square feet of the ASML Building is currently under a
net lease agreement (the "Lease") with ASML Lithography, Inc. ("ASML"). The
Lease was assigned to Wells OP at closing. The Lease commenced on June 4, 1998
and expires on June 30, 2013. ASML has the right to extend the Lease for two
additional five-year periods at the prevailing market rental rate, but in no
event less than the rate in force at the end of the preceding lease term. Under
the Lease, ASML is required to pay as additional rent the rent associated with
the ground lease described above and all real estate taxes, special assessments,
utilities, insurance, and other operating costs associated with the ASML
Building during the term of the Lease. In addition, ASML is responsible for
repair and maintenance of the roof, walls, structure, and foundation,
landscaping, and the heating, ventilating, air conditioning, mechanical,
electrical, plumbing, and other systems.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the ASML Building after
acquisition by Wells OP.
202
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the MOTOROLA BUILDING for the year ended December 31, 1999. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Motorola
Building after acquisition by the Wells Operating Partnership, L.P. (on behalf
of Wells Real Estate Investment Trust, Inc.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Motorola
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Motorola Building for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
April 10, 2000
203
<PAGE>
MOTOROLA BUILDING
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
<TABLE>
<S> <C>
REVENUES:
Rental income $1,817,366
Tenant reimbursements 290,287
----------
Total revenues 2,107,653
----------
OPERATING EXPENSES:
Ground lease 243,826
Insurance 11,951
----------
Total operating expenses 255,777
----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,851,876
==========
</TABLE>
The accompanying notes are an integral part of this statement.
204
<PAGE>
MOTOROLA BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 29, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a Delaware
Limited Partnership formed to acquire, own, lease, operate and manage real
properties on behalf of the Wells Real Estate Investment Trust, Inc., acquired
the Motorola Building from Ryan Companies US, Inc. ("Ryan"). Ryan is not an
affiliate of Wells OP. The purchase price of the Motorola Building was
$16,000,000. Wells OP incurred additional acquisition expenses in connection
with the purchase of the Motorola Building, including attorney's fees, recording
fees, loan fees, and other closing costs, of approximately $36,622. The funds
used to purchase the Motorola Building consisted of cash and proceeds obtained
from Wells OP's lines of credit with SouthTrust Bank, N.A. and Bank of America,
N.A. In addition, $5,000,000 in loan proceeds were provided by Ryan as seller
financing. Wells OP also assumed a ground lease with Research Park on 12.44
gross acres. The ground lease commenced November 19, 1997 and expires on
December 31, 2082.
The entire 133,225 rentable square feet of the Motorola Building is currently
under a net lease agreement (the "Lease") with Motorola, Inc. ("Motorola"). The
Lease was assigned to Wells OP at closing. The initial term of the Lease is
seven years, which commenced on August 17, 1998 and expires on August 31, 2005.
Motorola has the right to extend the Lease for four additional five-year periods
at the prevailing market rental rate. Under the lease, Motorola is required to
pay as additional rent the rent associated with the ground lease described above
and all real estate taxes, special assessments, utilities, insurance, and other
operating costs associated with the Motorola Building during the term of the
Lease. In addition, Motorola's responsible for repair and maintenance of the
roof, walls, structure, and foundation, landscaping, and the heating,
ventilating, air conditioning, mechanical, electrical, plumbing, and other
systems.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the Motorola Building after
acquisition by Wells OP.
205
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the MOTOROLA PLAINFIELd BUILDING for the year ended December 31,
1999. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Motorola
Plainfield Building after acquisition by the Wells Operating Partnership, L.P.
(on behalf of Wells Real Estate Investment Trust, Inc.). The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Motorola Plainfield Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Motorola Plainfield Building for the year ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
-----------------------
Atlanta, Georgia
November 30, 2000
206
<PAGE>
MOTOROLA PLAINFIELD BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
<TABLE>
<S> <C> <C>
September 30, December 31,
2000 1999
------------- ------------
(unaudited)
RENTAL REVENUES $770,000 $2,310,000
OPERATING EXPENSES, net of reimbursements 73,739 10,916
------------- -------------
REVENUES OVER CERTAIN OPERATING EXPENSES $696,261 $2,299,084
============= =============
</TABLE>
The accompanying notes are an integral part of these statements.
207
<PAGE>
MOTOROLA PLAINFIELD BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On November 1, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a
Delaware Limited Partnership formed to acquire, own, lease, operate and manage
real properties on behalf of the Wells Real Estate Investment Trust, Inc.,
acquired the Motorola Plainfield Building from WHMAB Real Estate Limited
Partnership ("WHMAB"). WHMAB is not an affiliate of Wells OP. The total
purchase price of the Motorola Plainfield Building was $34,072,916, which
includes an obligation of WHMAB assumed by Wells OP at closing to reimburse the
tenant, Motorola, Inc. ("Motorola"), a maximum of $424,760 for certain rent
payments required of it under its prior lease. Wells OP incurred additional
acquisition expenses in connection with the purchase of the Motorola Plainfield
Building, including attorney's fees, recording fees, loan fees, and other
closing costs, of approximately $105,225. The funds used to purchase the
Motorola Plainfield Building consisted of cash and proceeds from Wells OP's line
of credit with SouthTrust Bank, N.A.
The entire 236,710 rentable square feet of the Motorola Plainfield Building is
currently under a net lease agreement (the "Lease") with Motorola. The Lease
was assigned to Wells OP at closing. The Lease commenced on November 1, 2000
and expires on October 31, 2010. Motorola has the right to extend the Lease for
two additional five-year periods of time for a base rent equal to the greater of
(i) the last year's rent, or (ii) 95% of the then-current fair market rental
rate. Under the Lease, Motorola is required to pay as additional rent all real
estate taxes, special assessments, utilities, insurance, and other operating
costs associated with the Motorola Plainfield Building during the term of the
Lease. In addition, Motorola is responsible for repair and maintenance of the
roof, walls, structure, and foundation, landscaping, and heating, ventilating,
air conditioning, mechanical, electrical, plumbing, and other systems.
Prior to commencement of the Lease with Motorola, 220,000 rentable square feet
of the Motorola Plainfield Building was under a net lease agreement (the
"Previous Lease") with a tenant. The Previous Lease commenced on May 14, 1997
and expired on April 30, 2000. Under the Previous Lease, the tenant was
required to pay as additional rent all real estate taxes, special assessments,
utilities, insurance, and other operating costs associated with the Motorola
Plainfield Building during the term of the Previous Lease. In addition, the
tenant was responsible for repair and maintenance of the roof, walls, structure,
and foundation, landscaping, and heating, ventilating, air conditioning,
mechanical, electrical, plumbing, and other systems.
The Motorola Plainfield Building did not have any tenants for the period from
May 1, 2000 to October 31, 2000.
Rental Revenues
Rental income from leases is recognized on a straight-line basis over the life
of the lease.
208
<PAGE>
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the Motorola Plainfield
Building after acquisition by Wells OP.
209
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of September 30, 2000 has
been prepared to give effect to the acquisition of the Motorola Plainfield
Building by the Wells Operating Partnership, L.P. ("Wells OP"), as if the
acquisition occurred as of September 30, 2000. The following unaudited pro
forma statements of income for the year ended December 31, 1999 and the nine
months ended September 30, 2000 have been prepared to give effect to the
acquisition of the Dial Building, the ASML Building, and the Motorola Tempe
Building (together, the "Prior Acquisitions") and the Motorola Plainfield
Building by the Wells OP as if each acquisition occurred on January 1, 1999.
Wells OP is a Delaware limited partnership that was organized to own and operate
properties on behalf of the Wells Real Estate Investment Trust, Inc. Wells Real
Estate Investment Trust, Inc. is the general partner of the Wells OP.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisitions been consummated at
the beginning of the period presented.
210
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
Wells Real
Estate
Investment Pro Forma Pro Forma
Trust, Inc. Adjustments Total
----------- ----------- ------------
REAL ESTATE ASSETS, at cost:
<S> <C> <C> <C>
Land $ 21,695,304 $ 9,652,500(a) $ 31,750,313
402,509(b)
Buildings less accumulated depreciation of $6,810,792 188,671,038 24,525,641(a) 214,219,398
1,022,719(b)
Construction in progress 295,517 0 295,517
------------ ---------- ------------
Total real estate assets 210,661,859 35,603,369 246,265,228
INVESTMENT IN JOINT VENTURES 36,708,242 0 36,708,242
CASH AND CASH EQUIVALENTS 12,257,161 (10,753,381)(a) 466,584
(954,223)(b)
(82,973)(c)
DEFERRED OFFERING COSTS 1,108,206 0 1,108,206
DEFERRED PROJECT COSTS 471,005 (471,005)(b) 0
DUE FROM AFFILIATES 859,515 0 859,515
PREPAID EXPENSES AND OTHER ASSETS 6,344,905 82,973(c) 6,427,878
------------ ---------- ------------
Total assets $268,410,893 $23,424,760 $291,835,653
============ =========== ============
</TABLE>
211
<PAGE>
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
Wells Real
Estate
Investment Pro Forma Pro Forma
Trust, Inc. Adjustments Total
-------------- ------------- -------------
LIABILITIES:
<S> <C> <C> <C>
Accounts payable and accrued expenses $ 975,821 $ 424,760(a), (d) $ 1,400,581
Notes payable 38,909,030 23,000,000(a) 61,909,030
Dividends payable 4,475,982 0 4,475,982
Due to affiliate 1,372,508 0 1,372,508
------------ ----------- ------------
Total liabilities 45,733,341 23,424,760 69,158,101
------------ ----------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 0 200,000
------------ ----------- ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares authorized, 261,748 0 261,748
13,471,085 shares issued and outstanding
Additional paid-in capital 222,215,804 0 222,215,804
Retained earnings 0 0 0
------------ ----------- ------------
Total shareholders' equity 222,477,552 0 222,477,552
------------ ----------- ------------
Total liabilities and shareholders' equity $268,410,893 $23,424,760 $291,835,653
============ =========== ============
</TABLE>
(a) Reflects Wells Real Estate Investment Trust Inc.'s purchase price
for the building.
(b) Reflects deferred project costs allocated to the land and building
at approximately 4.17% of the purchase price.
(c) Reflects loan fees incurred in connection with the receipt of loan
proceeds from the SouthTrust Bank, N.A., line of credit.
(d) Reflects assumption of obligation of Wells OP to reimburse the
tenant of certain rent payments required of it under its prior
lease.
212
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
<TABLE>
<CAPTION>
Wells Real Pro Forma Adjustments
Estate ---------------------
Investment Prior Motorola Pro Forma
Trust, Inc. Acquisitions Plainfield Total
----------- ------------ ---------- ---------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $4,735,184 $5,056,142 (a) $2,310,000(a) $12,101,326
Equity in income of joint ventures 1,243,969 0 0 1,243,969
Interest income 502,993 0 0 502,993
Other income 13,249 0 0 13,249
----------- ---------- ---------- -----------
6,495,395 5,056,142 2,310,000 13,861,537
----------- ---------- ---------- -----------
EXPENSES:
Depreciation and amortization 1,726,103 1,842,818 (b) 1,021,934(b) 4,614,561
23,706(c)
Interest 442,029 2,758,350 (d) 1,787,100(f) 5,437,479
450,000 (e)
Operating costs, net of reimbursements (74,666) (60,400)(g) 10,916(h) (124,150)
Management and leasing fees 257,744 282,116 (i) 138,600(i) 678,460
General and administrative 123,776 0 0 123,776
Legal and accounting 115,471 0 0 115,471
Computer costs 11,368 0 0 11,368
Amortization of organizational costs 8,921 0 0 8,921
----------- ---------- ---------- -----------
2,610,746 5,272,884 2,982,256 10,865,886
----------- ---------- ---------- -----------
NET INCOME $3,884,649 $ (216,742) $ (672,256) $ 2,995,651
=========== ========== ========== ===========
HISTORICAL EARNINGS PER SHARE (BASIC AND DILUTED) $0.50
===========
PRO FORMA EARNINGS PER SHARE (BASIC AND DILUTED) $ 0.11(j)
==========
</TABLE>
(a) Rental income recognized on a straight-line basis.
(b) Depreciation expense on the building using the straight-line method
and a 25-year life.
(c) Amortization of loan costs over term of SouthTrust Bank, N.A. line of
credit.
(d) Interest expense on the $9,000,000 line of credit with SouthTrust
Bank, N.A. and the $26,500,000 line of credit with Bank of America,
N.A., which bear interest at 7.77% for the year ended December 31,
1999.
(e) Interest expense on the $5,000,000 note payable with Ryan Companies
U.S., Inc., the seller, which bears interest at 9%.
(f) Interest expense on the $23,000,000 line-of-credit with SouthTrust
Bank, N.A., which bears interest at 7.77% for the year ended December
31, 1999.
(g) Consists of ground lease and insurance expense for the ASML Building
and the Motorola Tempe Building, net of tenant reimbursements.
(h) Consists of non-reimbursable operating expenses.
(i) Management and leasing fees equal approximately 6% of rental income.
(j) As of the property acquisition date of November 1, 2000, Wells Real
Estate Investment Trust, Inc. had 27,970,106 shares of common stock
outstanding; pro forma earnings per share is calculated as if these
shares were outstanding for the entire year ended December 31, 1999.
213
<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Wells Real Pro Forma Adjustments
Estate ---------------------
Investment Prior Motorola Pro Forma
Trust, Inc. Acquisitions Plainfield Total
------------ ------------ ---------- ---------
REVENUES:
<S> <C> <C> <C> <C>
Rental income $13,712,371 $1,440,432 (a) $ 770,000(a) $15,922,803
Equity in income of joint ventures 1,684,247 0 0 1,684,247
Interest income 338,020 0 0 338,020
------------ ---------- ---------- -----------
15,734,638 1,440,432 770,000 17,945,070
------------ ---------- ---------- -----------
EXPENSES:
Depreciation and amortization 5,084,689 460,704 (b) 766,451(b) 6,329,624
17,780(c)
Interest 2,798,299 777,450 (d) 1,546,620(f) 5,234,869
112,500 (e)
Operating costs, net of reimbursements 631,407 (15,099)(g) 73,739(h) 690,047
Management and leasing fees 919,630 86,426 (i) 46,200(i) 1,052,256
General and administrative 273,484 0 0 273,484
Legal and accounting 130,603 0 0 130,603
Computer costs 8,846 0 0 8,846
Amortization of organizational costs 150,143 0 0 150,143
------------ ---------- ---------- -----------
9,997,101 1,421,981 2,450,790 13,869,872
------------ ---------- ---------- -----------
NET INCOME $ 5,737,537 $ 18,451 $(1,680,790) $ 4,075,198
=========== ========== =========== ===========
HISTORICAL EARNINGS PER SHARE (BASIC AND DILUTED) $ 0.30
===========
PRO FORMA EARNINGS PER SHARE (BASIC AND DILUTED) $ 0.15(j)
===========
</TABLE>
REVENUES:
(a) Rental income recognized on a straight-line basis.
(b) Depreciation expense on the building using the straight-line method
and a 25-year life.
(c) Amortization of loan costs over term of SouthTrust Bank, N.A. line of
credit.
(d) Interest expense on the $9,000,000 line of credit with SouthTrust
Bank, N.A. and the $26,500,000 line of credit with Bank of America,
N.A., which bear interest at 8.76% for the nine months ended
September 30, 2000.
(e) Interest expense on the $5,000,000 note payable with Ryan Companies
U.S., Inc., the seller, which bears interest at 9%.
(f) Interest expense on the $23,000,000 line-of-credit with SouthTrust
Bank, N.A., which bears interest at 8.97% for the nine months ended
September 30, 2000.
(g) Consists of ground lease and insurance expense for the ASML Building
and the Motorola Tempe Building, net of tenant reimbursements.
(h) Consists of non-reimbursable operating expenses.
(i) Management and leasing fees equal approximately 6% of rental income.
(j) As of the property acquisition date of November 1, 2000, Wells Real
Estate Investment Trust, Inc. had 27,970,106 shares of common stock
outstanding; pro forma earnings per share is calculated as if these
shares were outstanding for the entire nine months ended September
30, 2000.
214
<PAGE>
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (Tables) provide information relating
to real estate investment programs sponsored by the advisor and its affiliates
(Wells Public Programs) which have investment objectives similar to Wells Real
Estate Investment Trust, Inc. (Wells REIT). (See "Investment Objectives and
Criteria.") All of the Wells Public Programs, except for the Wells REIT, have
used substantial amounts of capital, and no acquisition indebtedness, to acquire
their properties.
Prospective investors should read these Tables carefully together with the
summary information concerning the Wells Public Programs as set forth in "Prior
Performance Summary" section of this prospectus.
Investors in the Wells REIT will not own any interest in other Wells Public
Programs and should not assume that they will experience returns, if any,
comparable to those experienced by investors in the Wells Public Programs.
The advisor is responsible for the acquisition, operation, maintenance and
resale of the real estate properties. The financial results of the Wells Public
Programs thus provide an indication of the advisor's performance of its
obligations during the periods covered. However, general economic conditions
affecting the real estate industry and other factors contribute significantly to
financial results.
The following tables are included herein:
Table I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
Table II - Compensation to Sponsor (in Dollars)
Table III - Annual Operating Results of Wells Public Programs
Table IV (Results of completed programs) and Table V (sales or disposals of
property) have been omitted since none of the Wells Public Programs have sold
any of their properties to date.
Additional information relating to the acquisition of properties by the Wells
Public Programs is contained in Table VI, which is included in Part II of the
registration statement which the Wells REIT has filed with the Securities and
Exchange Commission. As described above, no Wells Public Program has sold or
disposed of any property held by it. Copies of any or all information will be
provided to prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"Acquisition Fees" shall mean fees and commissions paid by a Wells Public
Program in connection with its purchase or development of a property, except
development fees paid to a person not affiliated with the Wells Public Program
or with a general partner or advisor of the Wells Public Program in connection
with the actual development of a project after acquisition of the land by the
Wells Public Program.
"Organization Expenses" shall include legal fees, accounting fees, securities
filing fees, printing and reproduction expenses and fees paid to the sponsor in
connection with the planning and formation of the Wells Public Program.
215
<PAGE>
"Underwriting Fees" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
216
<PAGE>
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the sponsors of Wells
Public Programs for which offerings have been completed since December 31, 1996.
Information is provided with regard to the manner in which the proceeds of the
offerings have been applied. Also set forth is information pertaining to the
timing and length of these offerings and the time period over which the proceeds
have been invested in the properties. All figures are as of December 31, 1999.
<TABLE>
<CAPTION>
Wells Real Wells Real Wells Real Wells Real Estate
Estate Fund Estate Fund Estate Fund Investment
IX, L.P. X, L.P. XI, L.P. Trust, Inc.
-------- ------- -------- -----------
<S> <C> <C> <C> <C>
Dollar Amount Raised $35,000,000 /(3)/ $27,128,912 /(4)/ $16,532,802 /(5)/ $132,181,919/(6)/
=========== =========== =========== ============
Percentage Amount Raised 100.0%/(3)/ 100%/(4)/ 100%/(5)/ 100%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 9.5% 9.5%
Organizational Expenses 5.0% 5.0% 3.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0% 0.0%
----------- ----------- ----------- ------------
Percent Available for Investment 85.0% 85.0% 87.5% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property 2.0% 5.4% 0.0% 1.1%
Cash Down Payment 67.1% 60.5% 84.0% 82.0%
Acquisition Fees/(2)/ 4.0% 4.0% 3.5% 3.5%
Development and Construction Costs 11.9% 14.1% 0.0% 0.3%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
----------- ----------- ----------- ------------
Total Acquisition and Development Cost 85.0% 84.0% 87.5% 86.9%
Percent Leveraged 0.0% 0.0% 0.0% 17.6%
=========== =========== =========== ============
Date Offering Began 01/05/96 12/31/96 12/31/97 01/30/98
Length of Offering 12 mo. 12 mo. 12 mo. 23 mo.
Months to Invest 90% of Amount
Available for Investment (Measured 14 mo. 19 mo. 20 mo. 21 mo.
from Beginning of Offering)
Number of Investors as of 12/31/99 2,120 1,812 1,345 3,839
</TABLE>
(1) Does not include general partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor fees
and/or architectural fees paid to affiliates of the general partners.
(3) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund IX, L.P. closed its offering on December 30, 1996,
and the total dollar amount raised was $35,000,000.
(4) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund X, L.P. closed its offering on December 30, 1997, and
the total dollar amount raised was $27,128,912.
217
<PAGE>
(5) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998,
and the total dollar amount raised was $16,532,802.
(6) Total dollar amount registered and available to be offered was $165,000,000.
Wells Real Estate Investment Trust, Inc. closed its initial offering on
December 20, 1999, and the total dollar amount raised in its initial
offering was $132,181,919.
218
<PAGE>
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by Wells Capital and its
affiliates, including compensation paid out of offering proceeds and
compensation paid in connection with the ongoing operations of Wells Public
Programs having similar or identical investment objectives the offerings of
which have been completed since December 31, 1996. These partnerships have not
sold or refinanced any of their properties to date. All figures are as of
December 31, 1999.
<TABLE>
<CAPTION>
Wells Real
Wells Real Wells Real Wells Real Estate Other
Estate Fund Estate Fund Estate Fund Investment Public
IX, L.P. X, L.P. XI, L.P. Trust, Inc. Programs/(1)/
----------- ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Date Offering Commenced 01/05/96 12/31/96 12/31/97 01/30/98 --
Dollar Amount Raised $35,000,000 $27,128,912 $16,532,802 $ 132,181,919 $206,241,095
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 309,556 $ 260,748 $ 151,911 $ 1,530,882 $ 924,156
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 1,400,000 $ 1,085,157 $ 578,648 $ 4,626,367 $ 10,159,399
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 7,064,631 $ 4,262,319 $ 2,133,705 $ 8,002,132 $ 38,076,886
Amount Paid to Sponsor from Operations:
Property Management Fee/(1)/ $ 169,661 $ 105,410 $ 22,200 $ 129,208 $ 1,434,957
Partnership Management Fee -- -- -- -- --
Reimbursements $ 133,784 $ 105,132 $ 61,058 $ 101,605 $ 1,613,725
Leasing Commissions $ 260,082 $ 176,108 $ 33,492 $ 129,208 $ 1,580,482
General Partner Distributions -- -- -- -- --
Other -- -- -- -- --
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors:
Cash -- -- -- -- --
Notes -- -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
</TABLE>
(1) Includes compensation paid to the general partners from Wells Real Estate
Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate
Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII,
L.P., and Wells Real Estate Fund VIII, L.P. during the past three years. In
addition to the amounts shown, affiliates of the general partners of Wells
Real Estate Fund I are entitled to certain property management and leasing
fees but have elected to defer the payment of such fees until a later year
on properties owned by Wells Real Estate Fund I. At December 31, 1999, the
amount of such deferred fees due the general partners totaled $2,397,266.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offering which was not
reallowed to participating broker-dealers.
(3) Fees paid to the general partners or their affiliates for acquisition and
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(4) Includes $487,134 in net cash provided by operating activities, $6,013,970
in distributions to limited partners and $563,527 in payments to sponsor
for Wells Real Estate Fund IX, L.P.; $400,825 in net cash provided by
operating activities, $3,474,844 in distributions to limited partners and
$386,650
219
<PAGE>
in payments to sponsor for Wells Real Estate Fund X, L.P.; $(150,720) in net
cash used by operating activities, $2,167,675 in distributions to limited
partners and $116,750 in payments to sponsor for Wells Real Estate Fund XI,
L.P.; $3,732,726 in net cash provided by operating activities, $3,909,385 in
dividends and $360,021 in payments to sponsor for Wells Real Estate
Investment Trust, Inc.; and $2,167,163 in net cash provided by operating
activities, $31,280,559 in distributions to limited partners and $4,629,164
in payments to sponsor for other public programs.
220
<PAGE>
TABLE III
(UNAUDITED)
The following six tables set forth operating results of Wells Public Programs
the offerings of which have been completed since December 31, 1994. The
information relates only to public programs with investment objectives similar
to those of the Wells REIT. All figures are as of December 31 of the year
indicated.
221
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------- ---------- ---------- -------- ------------
<C> <S> <S> <S> <S> <S>
Gross Revenues/(1)/ $ 982,630 $ 846,306 $ 816,237 $ 543,291 $ 925,246
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 85,273 85,722 76,838 84,265 114,953
Depreciation and Amortization/(3)/ 1,562 6,250 6,250 6,250 6,250
---------- ---------- ---------- ---------- ------------
Net Income GAAP Basis/(4)/ $ 895,795 $ 754,334 $ 733,149 $ 452,776 $ 804,043
========== ========== ========== ========== ============
Taxable Income: Operations $1,255,666 $1,109,096 $1,008,368 $ 657,443 $ 812,402
========== ========== ========== ========== ============
Cash Generated (Used By):
Operations (82,763) (72,194) (43,250) 20,883 431,728
Joint Ventures 1,777,010 1,770,742 1,420,126 760,628 424,304
---------- ---------- ---------- ---------- ------------
$1,694,247 $1,698,548 $1,376,876 $ 781,511 $ 856,032
Less Cash Distributions to Investors:
Operating Cash Flow 1,688,290 1,636,158 1,376,876 781,511 856,032
Return of Capital -- -- 2,709 10,805 22,064
Undistributed Cash Flow from Prior Year Operations -- -- -- -- 9,643
---------- ---------- ---------- --------- ------------
Cash Generated (Deficiency) after Cash Distributions $ 5,957 $ 62,390 $ (2,709) $ (10,805) $ (31,707)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions $ -- $ -- $ -- $ -- $ 805,212
---------- ---------- ---------- --------- ------------
$ 5,957 $ 62,390 $ (2,709) $ (10,805) $ 773,505
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- $ 244,207
Return of Original Limited Partner's Investment -- -- -- -- 100
Property Acquisitions and Deferred Project Costs 0 181,070 169,172 736,960 14,971,002
---------- ---------- ---------- --------- ------------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 5,957 $ (118,680) $ (171,881) $(747,765) $(14,441,804)
========== ========== ========== ========= ============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 93 85 86 62 57
- Operations Class B Units (248) (224) (168) (98) (20)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 89 82 78 55 55
- Operations Class B Units (144) (134) (111) (58) (16)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 83 81 70 43 52
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 83 81 70 42 51
- Return of Capital Class A Units -- -- -- 1 1
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment income Class A Units 67 65 54 29 30
- Return of Capital Class A Units 16 16 16 14 22
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in the
Table 100%
</TABLE>
222
<PAGE>
(1) Includes $403,325 in equity in earnings of joint ventures and $521,921 from
investment of reserve funds in 1995, $457,144 in equity in earnings of joint
ventures and $86,147 from investment of reserve funds in 1996, $785,398 in
equity in earnings of joint ventures and $30,839 from investment of reserve
funds in 1997, $839,037 in equity in earnings of joint ventures and $7,269
from investment of reserve funds in 1998, and $981,104 in equity in earnings
of joint ventures and $1,526 from investment of reserve funds in 1999. At
December 31, 1999, the leasing status was 97% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, $140,533 for 1995, $605,247 for 1996,
$877,869 for 1997, $955,245 for 1998, and $982,052 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $950,826 to Class A Limited
Partners, $(146,503) to Class B Limited Partners and $(280) to the General
Partners for 1995; $1,062,605 to Class A Limited Partners, $(609,829) to
Class B Limited Partners and $0 to the General Partners for 1996; $1,615,965
to class A Limited Partners, $(882,816) to Class B Limited Partners and $0
to the General Partners for 1997; $1,704,213 to Class A Limited Partners,
$(949,879) to Class B Limited Partners and $0 to the General Partners for
1998; and $1,879,410 to Class A Limited Partners, $(983,615) to Class B
Limited Partners and $0 to the General Partners for 1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1999, the aggregate amount of such
priority distributions payable to Class B Limited Partners totaled
$1,680,730.
223
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
------------ ----------- ------------ ------------ -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $1,360,497 $ 1,362,513 $ 1,204,018 $ 1,057,694 $ 402,428
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 87,301 87,092 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 $ 6,250 6,250 6,250
------------ ----------- ------------ ------------ -----------
Net Income GAAP Basis/(4)/ $1,266,946 $ 1,269,171 $ 1,102,567 $ 936,590 273,914
============ =========== ============ ============ ===========
Taxable Income: Operations $1,672,844 $ 1,683,192 $ 1,213,524 $ 1,001,974 404,348
============ =========== ============ ============ ===========
Cash Generated (Used By):
Operations (87,298) (63,946) 7,909 623,268 204,790
Joint Ventures 2,558,623 2,293,504 1,229,282 279,984 20,287
------------ ----------- ------------ ------------ -----------
$2,471,325 $ 2,229,558 $ 1,237,191 $ 903,252 $ 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 2,379,215 2,218,400 1,237,191 903,252 --
Return of Capital -- -- 183,315 2,443 --
Undistributed Cash Flow from Prior Year Operations -- -- -- 225,077 --
------------ ----------- ------------ ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ 92,110 $ 11,158 $ (183,315) $ (227,520) $ 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions/(5)/ -- -- -- 1,898,147 30,144,542
------------ ----------- ------------ ------------ -----------
$ 92,110 $ 11,158 $ (183,315) $ 1,670,627 $30,369,619
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 464,760 4,310,028
Return of Limited Partner's Investment -- -- 8,600 -- --
Property Acquisitions and Deferred Project Costs 0 1,850,859 10,675,811 7,931,566 6,618,273
------------ ----------- ------------ ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 92,110 $(1,839,701) $(10,867,726) $ (6,725,699) $19,441,318
============ =========== ============ ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 91 91 73 46 28
- Operations Class B Units (247) (212) (150) (47) (3)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 88 89 65 46 17
- Operations Class B Units 154 (131) (95) (33) (3)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 87 83 54 43 --
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 87 83 47 43 --
- Return of Capital Class A Units -- -- 7 0 --
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 70 69 42 33 --
- Return of Capital Class A Units 17 16 12 10 --
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
224
<PAGE>
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995, $241,819 in equity in earnings of joint
ventures and $815,875 from investment of reserve funds in 1996, $1,034,907
in equity in earnings of joint ventures and $169,111 from investment of
reserve funds in 1997, $1,346,367 in equity in earnings of joint ventures
and $16,146 from investment of reserve funds in 1998, and $1,360,494 in
equity in earnings of joint ventures and $3 from investment of reserve funds
in 1999. At December 31, 1999, the leasing status was 98% including
developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995, $265,259 for 1996, $841,666 for 1997,
$1,157,355 for 1998, and $1,209,171 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $294,221 to Class A Limited
Partners, $(20,104) to Class B Limited Partners and $(203) to the General
Partners for 1995; $1,207,540 to Class A Limited Partners, $(270,653) to
Class B Limited Partners and $(297) to the General Partners for 1996;
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997; $2,431,246 to Class A
Limited Partners, $(1,162,075) to Class B Limited Partners and $0 to the
General Partners for 1998; and $2,481,559 to Class A Limited Partners,
$(1,214,613) to Class B Limited Partners and $0 to the General Partners for
1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1999, the aggregate amount of such
priority distributions payable to Class B Limited Partners totaled
$1,464,810.
225
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $ 1,593,734 $ 1,561,456 $ 1,199,300 $ 406,891 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 90,903 105,251 101,284 101,885
Depreciation and Amortization/(3)/ 12,500 6,250 6,250 6,250
----------- ----------- ------------ ------------
Net Income GAAP Basis/(4)/ $ 1,490,331 $ 1,449,955 $ 1,091,766 $ 298,756
=========== =========== ============ ============
Taxable Income: Operations $ 1,924,542 $ 1,906,011 $ 1,083,824 $ 304,552
=========== =========== ============ ============
Cash Generated (Used By):
Operations $ (94,403) $ 80,147 $ 501,390 $ 151,150
Joint Ventures 2,814,870 2,125,489 527,390 --
----------- ----------- ------------ ------------
$ 2,720,467 $ 2,205,636 $ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 2,720,467 2,188,189 1,028,780 149,425
Return of Capital 15,528 -- 41,834 --
Undistributed Cash Flow From Prior Year
Operations 17,447 -- 1,725 --
----------- ----------- ------------ ------------
Cash Generated (Deficiency) after Cash
Distributions $ (32,975) $ 17,447 $ (43,559) $ 1,725
Special Items (not including sales and
financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- -- 35,000,000
----------- ----------- ------------ ------------
$ (32,975) $ 17,447 $ (43,559) $ 35,001,725
Use of Funds:
Sales Commissions and Offering Expenses -- -- 323,039 4,900,321
Return of Original Limited Partner's
Investment -- -- 100 --
Property Acquisitions and Deferred
Project Costs 190,853 9,455,554 13,427,158 6,544,019
----------- ----------- ------------ ------------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ (223,828) $(9,438,107) $ (13,793,856) $ 23,557,385
=========== =========== ============= ============
Net Income and Distributions Data per
$1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 89 88 53 28
- Operations Class B Units (272) (218) (77) (11)
Capital Gain (Loss) -- -- -- --
Tax and Distributions Data per $1,000
Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 86 85 46 26
- Operations Class B Units (164) (123) (47) (48)
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 88 73 36 13
- Return of Capital Class A Units 2 -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 89 73 35 13
- Return of Capital Class A Units 1 -- 1 --
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 77 61 29 10
- Return of Capital Class A Units 13 12 7 3
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested
in Program Properties at the end of the Last Year
Reported in the Table 100%
</TABLE>
226
<PAGE>
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884
from investment of reserve funds in 1996, and $593,914 in equity in
earnings of joint ventures and $605,386 from investment of reserve funds
in 1997, $1,481,869 in equity in earnings of joint ventures and $79,587
from investment of reserve funds in 1998, and $1,593,734 in equity in
earnings of joint ventures and $0 from investment of reserve funds in
1999. At December 31, 1999, the leasing status was 100% including
developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996, $469,126 for 1997, $1,143,407 for 1998,
and $1,210,939 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $330,270 to Class A Limited
Partners, $(31,220) to Class B Limited Partners and $(294) to the General
Partners for 1996; $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997;
$2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited
Partners and $0 to the General Partners for 1998; and $2,713,636 to Class
A Limited Partners, $(1,223,305) to Class B Limited Partners and $0 to
the General Partners for 1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to
the cash distributions paid to Class A Limited Partners is payable as
priority distributions out of the first available net proceeds from the
sale of partnership properties to Class B Limited Partners. The amount of
cash distributions paid per unit to Class A Limited Partners is shown as
a return of capital to the extent of such priority distributions payable
to Class B Limited Partners. As of December 31, 1999, the aggregate
amount of such priority distributions payable to Class B Limited Partners
totaled $993,010.
227
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ $1,309,281 $ 1,204,597 $ 372,507 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 98,213 99,034 88,232
Depreciation and Amortization/(3)/ 18,750 55,234 6,250
---------- ------------ -----------
Net Income GAAP Basis/(4)/ $1,192,318 $ 1,050,329 $ 278,025
========== ============ ===========
Taxable Income: Operations $1,449,771 $ 1,277,016 $ 382,543
========== ============ ===========
Cash Generated (Used By):
Operations (99,862) 300,019 200,668
Joint Ventures 2,175,915 886,846 --
---------- ------------ -----------
$2,076,053 $ 1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow 2,067,801 1,186,865 --
Return of Capital -- 19,510 --
Undistributed Cash Flow From Prior Year Operations -- 200,668 --
---------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ 8,252 $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions -- -- 27,128,912
---------- ------------ -----------
$ 8,252 $ (220,178) $27,329,580
Use of Funds:
Sales Commissions and Offering Expenses -- 300,725 3,737,363
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 0 17,613,067 5,188,485
---------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 8,252 $(18,133,970) $18,403,632
========== ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 97 85 28
- Operations Class B Units (160) (123) (9)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 92 78 35
- Operations Class B Units (100) (64) 0
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 95 66 --
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 95 56 --
- Return of Capital Class A Units -- 10 --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 71 48 --
- Return of Capital Class A Units 24 18 --
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
228
<PAGE>
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542 from
investment of reserve funds in 1997, and $869,555 in equity in earnings of
joint ventures and $215,042 from investment of reserve funds in 1998, and
$1,309,281 in equity in earnings of joint ventures and $0 from investment of
reserve funds in 1999. At December 31, 1999, the leasing status was 100%
including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997, $674,986 for 1998, and $891,911 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997; $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998; and
$2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited
Partners and $0 to the General Partners for 1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1999, the aggregate amount of such
priority distributions payable to Class B Limited Partners totaled $909,527.
229
<PAGE>
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues/(1)/ 766,586 262,729 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 111,058 113,184
Depreciation and Amortization/(3)/ 25,000 6,250
----------- -----------
Net Income GAAP Basis/(4)/ $ 630,528 $ 143,295
=========== ===========
Taxable Income: Operations $ 704,108 $ 177,692
=========== ===========
Cash Generated (Used By):
Operations 40,906 (50,858)
Joint Ventures 705,394 102,662
----------- -----------
$ 746,300 $ 51,804
Less Cash Distributions to Investors:
Operating Cash Flow 746,300 51,804
Return of Capital 49,761 48,070
Undistributed Cash Flow From Prior Year Operations -- --
----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (49,761) $ (48,070)
Special Items (not including sales and financing):
Source of Funds: -- --
General Partner Contributions -- 16,532,801
----------- -----------
Increase in Limited Partner Contributions $ (49,761) $16,484,731
Use of Funds:
Sales Commissions and Offering Expenses 214,609 1,779,661
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 9,005,979 5,412,870
----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(9,270,449) $ 9,292,200
=========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 77 20
- Operations Class B Units (112) (32)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 71 18
- Operations Class B Units (73) (17)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 60 8
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 56 4
- Return of Capital Class A Units 4 4
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)(5)
- Investment Income Class A Units 46 6
- Return of Capital Class A Units 14 2
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
</TABLE>
230
<PAGE>
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566 from
investment of reserve funds in 1998, and $607,579 in equity in earnings of
joint ventures and $159,007 from investment of reserve funds in 1999. At
December 31, 1999, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $105,458 for 1998, and $353,840 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998; and $1,009,368 to Class A Limited Partners, $(378,840) to
Class B Limited Partners and $0 to the General Partners for 1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a return
of capital to the extent of such priority distributions payable to Class B
Limited Partners. As of December 31, 1999, the aggregate amount of such
priority distributions payable to Class B Limited Partners totaled $213,006.
231
<PAGE>
EXHIBIT "A"
SUBSCRIPTION AGREEMENT
To: Wells Real Estate Investment Trust, Inc.
Suite 250
6200 The Corners Parkway
Norcross, Georgia 30092
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of shares of common stock ("Shares") of
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), set forth on such Subscription Agreement Signature Page. Payment for
the Shares is hereby made by check payable to "Wells Real Estate Investment
Trust, Inc."
I hereby acknowledge receipt of the Prospectus of the Company dated
December 20, 2000 (the "Prospectus").
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, on the terms described in the Prospectus.
Subscriptions may be rejected in whole or in part by the Company in its sole and
absolute discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the Shares is restricted
and will be governed by the Company's Articles of Incorporation and Bylaws and
all applicable laws as described in the Prospectus.
(b) Prospective investors should not invest in Shares unless they have
an adequate means of providing for their current needs and personal
contingencies and have no need for liquidity in this investment.
(c) There is no public market for the Shares and, accordingly, it may
not be possible to readily liquidate an investment in the Company.
A-1
<PAGE>
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF SHARES
260.141.11 Restrictions on Transfer.
------------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules
(the "Rules") adopted under the California Corporate Securities Law (the "Code")
shall cause a copy of this section to be delivered to each issuee or transferee
of such security at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section
25102 of the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestors, descendants or spouse, or
any custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same
issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code
(either acting as such or as a finder) to a resident of a foreign state,
territory or country who is neither domiciled in this state to the knowledge of
the broker-dealer, nor actually present in this state if the sale of such
securities is not in violation of any securities laws of the foreign state,
territory or country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other
lien given by the purchaser to the seller upon a sale of the security for which
the Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
A-2
<PAGE>
(12) by way of an exchange qualified under Section 25111, 25112
or 25113 of the Code provided that no order under Section 25140 or subdivision
(a) of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or
countries who are neither domiciled or actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property
Law or to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property
Law or by the administrator of the unclaimed property law of another state if,
in either such case, such person (i) discloses to potential purchasers at the
sale that transfer of the securities is restricted under this rule, (ii)
delivers to each purchaser a copy of this rule, and (iii) advises the
Commissioner of the name of each purchaser;
(16) by a trustee to a successor trustee when such transfer
does not involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in
an issuer transaction that is subject to the qualification requirement of
Section 25110 of the Code but exempt from that qualification requirement by
subdivision (f) of Section 25102; provided that any such transfer is on the
condition that any certificate evidencing the security issued to such transferee
shall contain the legend required by this section.
(c) The certificates representing all such securities subject to such
a restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR
ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT
THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE
STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
[Last amended effective January 21, 1988.]
SPECIAL NOTICE FOR MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI
AND NEBRASKA RESIDENTS ONLY
In no event may a subscription for Shares be accepted until at least
five business days after the date the subscriber receives the Prospectus.
Residents of the States of Maine, Massachusetts, Minnesota, Missouri and
Nebraska who first received the Prospectus only at the time of subscription may
receive a refund of the subscription amount upon request to the Company within
five days of the date of subscription.
A-3
<PAGE>
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms
of registration. Accordingly, complete Subscription Agreements and such
supporting material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
6. TRUST: The trustee signs the Signature Page. Provide the name of the
trust, the name of the trustee and the name of the beneficiary.
7. Company: Identify whether the entity is a general or limited
partnership. The general partners must be identified and their
signatures obtained on the Signature Page. In the case of an investment
by a general partnership, all partners must sign (unless a "managing
partner" has been designated for the partnership, in which case he may
sign on behalf of the partnership if a certified copy of the document
granting him authority to invest on behalf of the partnership is
submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating
the officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution
authorizing the investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of
the trustee must be provided in order for the trustee to receive checks
and other pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the
parent (unless the parent has been designated as the custodian). Only
one child is permitted in each investment under UGMA or UTMA. In
addition, designate the state under which the gift is being made.
A-4
<PAGE>
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
--------------------------------------------------------------------------------
INVESTOR Please follow these instructions carefully.
INSTRUCTIONS Failure to do so may result in the rejection
of your subscription. All information on the
Subscription Agreement Signature Page should
be completed as follows:
--------------------------------------------------------------------------------
1. INVESTMENT a. GENERAL: A minimum investment of $1,000 (100
Shares) is required, except for certain states
which require a higher minimum investment. A
CHECK FOR THE FULL PURCHASE PRICE OF THE SHARES
SUBSCRIBED FOR SHOULD BE MADE PAYABLE TO THE
ORDER OF "WELLS REAL ESTATE INVESTMENT TRUST,
INC." Investors who have satisfied the minimum
purchase requirements in Wells Real Estate Fund
I, Wells Real Estate Fund II, Wells Real Estate
Fund II-OW, Wells Real Estate Fund III, L.P.,
Wells Real Estate Fund IV, L.P., Wells Real
Estate Fund V, L.P., Wells Real Estate Fund VI,
L.P., Wells Real Estate Fund VII, L.P., Wells
Real Estate Fund VIII, L.P., Wells Real Estate
Fund IX, L.P., Wells Real Estate Fund X, L.P.,
Wells Real Estate Fund XI, L.P. or Wells Real
Estate Fund XII, L.P. or in any other public real
estate program may invest as little as $25 (2.5
Shares) except for residents of Maine, Minnesota,
Nebraska or Washington. Shares may be purchased
only by persons meeting the standards set forth
under the Section of the Prospectus entitled
"Investor Suitability Standards." Please indicate
the state in which the sale was made.
b. DEFERRED COMMISSION OPTION: Please check the box
if you have agreed with your Broker-Dealer to
elect the Deferred Commission Option, as
described in the Prospectus, as supplemented to
date. By electing the Deferred Commission Option,
you are required to pay only $9.40 per Share
purchased upon subscription. For the next six
years following the year of subscription, you
will have a 1% sales commission ($.10 per Share)
per year deducted from and paid out of dividends
or other cash distributions otherwise
distributable to you. Election of the Deferred
Commission Option shall authorize the Company to
withhold such amounts from dividends or other
cash distributions otherwise payable to you as is
set forth in the "Plan of Distribution" section
of the Prospectus.
--------------------------------------------------------------------------------
A-5
<PAGE>
--------------------------------------------------------------------------------
2. ADDITIONAL Please check if you plan to make one or more
INVESTMENTS additional investments in the Company. All
additional investments must be in increments of
at least $25. Additional investments by residents
of Maine must be for the minimum amounts stated
under "Suitability Standards" in the Prospectus,
and residents of Maine must execute a new
Subscription Agreement Signature Page to make
additional investments in the Company. If
additional investments in the Company are made,
the investor agrees to notify the Company and the
Broker-Dealer named on the Subscription Agreement
Signature Page in writing if at any time he fails
to meet the applicable suitability standards or
he is unable to make any other representations or
warranties set forth in the Prospectus or the
Subscription Agreement. The investor acknowledges
that the Broker-Dealer named in the Subscription
Agreement Signature Page may receive commissions
on such additional investments as described in
the Prospectus.
--------------------------------------------------------------------------------
3. TYPE OF OWNERSHIP Please check the appropriate box to indicate the
type of entity or type of individuals
subscribing.
--------------------------------------------------------------------------------
4. REGISTRATION NAME Please enter the exact name in which the Shares
AND ADDRESS are to be held. For joint tenants with right of
survivorship or tenants in common, include the
names of both investors. In the case of
partnerships or corporations, include the name of
an individual to whom correspondence will be
addressed. Trusts should include the name of the
trustee. All investors must complete the space
provided for taxpayer identification number or
social security number. By signing in Section 6,
the investor is certifying that this number is
correct. Enter the mailing address and telephone
numbers of the registered owner of this
investment. In the case of a Qualified Plan or
trust, this will be the address of the trustee.
Indicate the birthdate and occupation of the
registered owner unless the registered owner is a
partnership, corporation or trust.
--------------------------------------------------------------------------------
5. INVESTOR NAME AND Complete this Section only if the investor's name
ADDRESS and address is different from the registration
name and address provided in Section 4. If the
Shares are registered in the name of a trust,
enter the name, address, telephone number, social
security number, birthdate and occupation of the
beneficial owner of the trust.
--------------------------------------------------------------------------------
6. SUBSCRIBER SIGNATURES Please separately initial each representation
made by the investor where indicated. Except in
the case of fiduciary accounts, the investor may
not grant any person a power of attorney to make
such representations on his or her behalf. Each
investor must sign and date this Section. If
title is to be held jointly, all parties must
sign. If the registered owner is a partnership,
corporation or trust, a general partner, officer
or trustee of the entity must sign. PLEASE NOTE
THAT THESE SIGNATURES DO NOT HAVE TO BE
NOTARIZED.
--------------------------------------------------------------------------------
A-6
<PAGE>
--------------------------------------------------------------------------------
7. DIVIDENDS a. DIVIDEND REINVESTMENT PLAN: By electing the
Dividend Reinvestment Plan, the investor elects
to reinvest the stated percentage of dividends
otherwise payable to such investor in Shares of
the Company. The investor agrees to notify the
Company and the Broker-Dealer named on the
Subscription Agreement Signature Page in writing
if at any time he fails to meet the applicable
suitability standards or he is unable to make any
other representations and warranties as set forth
in the Prospectus or Subscription Agreement or in
the prospectus and subscription agreement of any
future limited partnerships sponsored by the
Advisor or its affiliates. The investor
acknowledges that the Broker-Dealer named in the
Subscription Agreement Signature Page may receive
commissions not to exceed 7% of any reinvested
dividends.
b. DIVIDEND ADDRESS: If cash dividends are to be
sent to an address other than that provided in
Section 4 (i.e., a bank, brokerage firm or
savings and loan, etc.), please provide the name,
account number and address.
--------------------------------------------------------------------------------
8. BROKER-DEALER This Section is to be completed by the Registered
Representative. Please complete all BROKER-DEALER
information contained in Section 8 including
suitability certification. SIGNATURE PAGE MUST BE
SIGNED BY AN AUTHORIZED REPRESENTATIVE.
--------------------------------------------------------------------------------
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Company.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
A-7
<PAGE>
<TABLE>
<S> <C>
---------------------------------------------------
SEE PRECEDING PAGE Special Instructions:
FOR INSTRUCTIONS
---------------------------------------------------
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
1. ===== INVESTMENT ==============================================================================================================
----------------------------------------------------------------
Make Investment Check Payable to:
__________________________ _____________________________ Wells Real Estate Investment Trust, Inc.
# of Shares Total $ Invested
--------------------------------------------------
(# Shares x $10 = $ Invested) [_] Initial Investment (Minimum $1,000)
[_] Additional Investments (Minimum $25)
Minimum purchase $1,000 or 100 Shares State in which sale was made _______________
---------------------------------------------------------------- --------------------------------------------------
Check the following box to elect the Deferred Commission Option: [_]
(This election must be agreed to by the Broker-Dealer listed below)
2. ===== ADDITIONAL INVESTMENTS ==================================================================================================
Please check if you plan to make additional investments in the Company: [_]
[If additional investments are made, please include social security number or other identification number on your check.]
[All additional investments must be made in increments of at least $25.]
3. ===== TYPE OF OWNERSHIP =======================================================================================================
[_] IRA (06) [_] Individual (01)
[_] Keogh (10) [_] Joint Tenants With Right of Survivorship (02)
[_] Qualified Pension Plan (11) [_] Community Property (03)
[_] Qualified Profit Sharing Plan (12) [_] Tenants in Common (04)
[_] Other Trust ___________________________________________ [_] Custodian: A Custodian for ______________ under
For the Benefit of ____________________________________ the Uniform Gift to Minors Act or the Uniform
[_] Company (15) Transfers to Minors Act of the State of
________________ (08)
[_] Other__________________________________________
4. ===== REGISTRATION NAME AND ADDRESS ===========================================================================================
Please print name(s) in which Shares are to be registered. Include trust name if applicable.
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other _________________________
-----------------------------------------------------------------------
Taxpayer Identification Number
[_] [_] - [_] [_] [_] [_] [_] [_] [_]
-----------------------------------------------------------------------
Social Security Number
[_] [_] [_] - [_] [_] - [_] [_] [_] [_]
-----------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Street Address
or P.O. Box
-----------------------------------------------------------------------------------------------------
City State Zip Code
------------------------------ ------------------ -----------------------------
------------------------------ ---------------------------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
------------------------------ ---------------------------------------------------
------------------------------ ---------------------------------------------------
Birthdate Occupation
------------------------------ ---------------------------------------------------
5. ===== INVESTOR NAME AND ADDRESS ===============================================================================================
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other _____________________
Name Social Security Number
-------------------------------------------------------------------
[_] [_] [_] - [_] [_] - [_] [_] [_] [_]
-------------------------------------------------------------------
-----------------------------------------------------------------------------------------------------
Street Address
or P.O. Box
-----------------------------------------------------------------------------------------------------
City State Zip Code
------------------------------ ------------------ -----------------------------
------------------------------ ---------------------------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
------------------------------ ---------------------------------------------------
------------------------------ ---------------------------------------------------
Birthdate Occupation
------------------------------ ---------------------------------------------------
==================================================================================================================================
</TABLE>
(REVERSE SIDE MUST BE COMPLETED)
<PAGE>
<TABLE>
<S> <C>
6. ===== SUBSCRIBER SIGNATURES ===================================================================================
Please separately initial each of the representations below. Except in the case of fiduciary accounts, you may
not grant any person a power of attorney to make such representations on your behalf. In order to induce the
Company to accept this subscription, I hereby represent and warrant to you as follows:
(a) I have received the Prospectus. _____________ _____________
Initials Initials
(b) I accept and agree to be bound by the terms and conditions of the
Articles of Incorporation. _____________ _____________
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings and
automobiles) of $150,000 or more; or (ii) a net worth (as described
above) of at least $45,000 and had during the last tax year or
estimate that I will have during the current tax year a minimum
of $45,000 annual gross income, or that I meet the higher
suitability requirements imposed by my state of primary residence
as set forth in the Prospectus under "Suitability Standards." _____________ _____________
Initials Initials
(d) If I am a California resident or if the Person to whom I
subsequently propose to assign or transfer any Shares is a
California resident, I may not consummate a sale or transfer of my
Shares, or any interest therein, or receive any consideration
therefor, without the prior written consent of the Commissioner of
the Department of Corporations of the State of California,
except as permitted in the Commissioner's Rules, and I
understand that my Shares, or any document evidencing my Shares,
will bear a legend reflecting the substance of the foregoing understanding. _____________ _____________
Initials Initials
(e) ARKANSAS, NEW MEXICO AND TEXAS RESIDENTS ONLY: I am purchasing the
Shares for my own account and acknowledge that the investment is
not liquid. _____________ _____________
Initials Initials
I declare that the information supplied above is true and correct and may be relied upon by the Company in
connection with my investment in the Company. Under penalties of perjury, by signing this Signature Page, I
hereby certify that (a) I have provided herein my correct Taxpayer Identification Number, and (b) I am not
subject to back-up withholding as a result of a failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to back-up withholding.
------------------------------------------ ----------------------------------------- -----------------
------------------------------------------ ----------------------------------------- -----------------
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
7. ===== DISTRIBUTIONS =============================================================================================
7a. Check the applicable box to participate in the Dividend Reinvestment Plan: Percentage of participation:
100% [_] Other [_] ___%
7b. Complete the following section only to direct dividends to a party other than registered owner:
------------------------------------------------------------------------------------
Name ____________________________________________________________________________________
Account Number ____________________________________________________________________________________
Street Address or P.O. Box ____________________________________________________________________________________
City ____________________________________ State ________ Zip Code ______________________
8. ===== BROKER-DEALER =============================================================================================
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete order. Broker-Dealer warrants that it
is a duly licensed Broker-Dealer and may lawfully offer Shares in the state designated as the investor's address
or the state in which the sale was made, if different. The Broker-Dealer or authorized representative warrants
that he has reasonable grounds to believe this investment is suitable for the subscriber as defined in Section
3(b) of the Rules of Fair Practice of the NASD Manual and that he has informed subscriber of all aspects of
liquidity and marketability of this investment as required by Section 4 of such Rules of Fair Practice.
________________________________________________ _______________
Broker-Dealer Name Telephone No. ( )
____________________________________________________________________________________
Broker-Dealer Street
Address or P.O. Box ____________________________________________________________________________________
City _________________________ State ___________________ Zip Code _____________________
___________________________________________________ _____________________
Registered
Representative Name Telephone No. ( )
____________________________________________________________________________________
Reg. Rep. Street
Address or P.O. Box ____________________________________________________________________________________
City _________________________ State _______________________ Zip Code _______________
______________________________________________________ ____________________________________________________
______________________________________________________ ____________________________________________________
Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and check(s) made payable to:
Wells Real Estate Investment Trust, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
800-448-1010 or 770-449-7800
Overnight address: Mailing address:
6200 The Corners Parkway, Suite 250 P.O. Box 926040
Norcross, Georgia 30092 Norcross, Georgia 30092-9209
FOR COMPANY USE ONLY:
-----------------------------------------------------------------------------------------------------------------
ACCEPTANCE BY COMPANY Amount _____________________ Date _________________________________________
Received and Subscription Accepted: Check No. ________________ Certificate No. _________________________
By: ________________________ Wells Real Estate Investment Trust, Inc.
____________________ _____________________________________________________________ ______________________
Broker-Dealer # Registered Representative # Account #
-----------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
EXHIBIT "B"
AMENDED AND RESTATED
DIVIDEND REINVESTMENT PLAN
As of December 20, 1999
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), pursuant to its Amended and Restated Articles of Incorporation,
adopted a Dividend Reinvestment Plan (the "DRP"), which is hereby amended and
restated in its entirety as set forth below. Capitalized terms shall have the
same meaning as set forth in the Articles unless otherwise defined herein.
1. Dividend Reinvestment. As agent for the shareholders ("Shareholders")
---------------------
of the Company who (a) purchased shares of the Company's common stock (the
"Shares") pursuant to the Company's initial public offering (the "Initial
Offering"), which commenced on January 30, 1998 and will terminate on or before
January 30, 2000, (b) purchase Shares pursuant to the Company's second public
offering (the "Second Offering"), which will commence immediately upon the
termination of the Initial Offering, or (c) purchase Shares pursuant to any
future offering of the Company ("Future Offering"), and who elect to participate
in the DRP (the "Participants"), the Company will apply all dividends and other
distributions declared and paid in respect of the Shares held by each
Participant (the "Dividends"), including Dividends paid with respect to any full
or fractional Shares acquired under the DRP, to the purchase of the Shares for
such Participants directly, if permitted under state securities laws and, if
not, through the Dealer Manager or Soliciting Dealers registered in the
Participant's state of residence.
2. Effective Date. The effective date of this Amended and Restated
--------------
Dividend Reinvestment Plan (the "DRP") shall be the date that the Second
Offering becomes effective with the Securities and Exchange Commission (the
"Commission").
3. Procedure for Participation. Any Shareholder who purchased Shares
---------------------------
pursuant to the Initial Offering, the Second Offering or any Future Offering and
who has received a prospectus, as contained in the Company's registration
statement filed with the Commission, may elect to become a Participant by
completing and executing the Subscription Agreement, an enrollment form or any
other appropriate authorization form as may be available from the Company, the
Dealer Manager or Soliciting Dealer. Participation in the DRP will begin with
the next Dividend payable after receipt of a Participant's subscription,
enrollment or authorization. Shares will be purchased under the DRP on the date
that Dividends are paid by the Company. Dividends of the Company are currently
paid quarterly. Each Participant agrees that if, at any time prior to the
listing of the Shares on a national stock exchange or inclusion of the Shares
for quotation on the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq"), he or she fails to meet the suitability
requirements for making an investment in the Company or cannot make the other
representations or warranties set forth in the Subscription Agreement, he or she
will promptly so notify the Company in writing.
4. Purchase of Shares. Participants will acquire DRP Shares from the
------------------
Company at a fixed price of $10 per Share until (i) all 2,200,000 of the DRP
Shares registered in the Second Offering are issued or (ii) the Second Offering
terminates and the Company elects to deregister with the Commission the unsold
DRP Shares. Participants in the DRP may also purchase fractional Shares so that
100% of the Dividends will be used to acquire Shares. However, a Participant
will not be able to acquire DRP Shares to the extent that any such purchase
would cause such Participant to exceed the Ownership Limit as set forth in the
Articles.
Shares to be distributed by the Company in connection with the DRP may (but
are not required to) be supplied from: (a) the DRP Shares which will be
registered with the Commission in connection with the Company's Second Offering,
(b) Shares to be registered with the Commission in a Future
B-1
<PAGE>
Offering for use in the DRP (a "Future Registration"), or (c) Shares of the
Company's common stock purchased by the Company for the DRP in a secondary
market (if available) or on a stock exchange or Nasdaq (if listed)
(collectively, the "Secondary Market").
Shares purchased on the Secondary Market as set forth in (c) above will be
purchased at the then-prevailing market price, which price will be utilized for
purposes of purchases of Shares in the DRP. Shares acquired by the Company on
the Secondary Market or registered in a Future Registration for use in the DRP
may be at prices lower or higher than the $10 per Share price which will be paid
for the DRP Shares pursuant to the Initial Offering and the Second Offering.
If the Company acquires Shares in the Secondary Market for use in the DRP,
the Company shall use reasonable efforts to acquire Shares for use in the DRP at
the lowest price then reasonably available. However, the Company does not in
any respect guarantee or warrant that the Shares so acquired and purchased by
the Participant in the DRP will be at the lowest possible price. Further,
irrespective of the Company's ability to acquire Shares in the Secondary Market
or to complete a Future Registration for shares to be used in the DRP, the
Company is in no way obligated to do either, in its sole discretion.
It is understood that reinvestment of Dividends does not relieve a
Participant of any income tax liability which may be payable on the Dividends.
5. Share Certificates. The ownership of the Shares purchased through the
------------------
DRP will be in book-entry form only until the Company begins to issue
certificates for its outstanding common stock.
6. Reports. Within 90 days after the end of the Company's fiscal year,
-------
the Company shall provide each Shareholder with an individualized report on his
or her investment, including the purchase date(s), purchase price and number of
Shares owned, as well as the dates of Dividend distributions and amounts of
Dividends paid during the prior fiscal year. In addition, the Company shall
provide to each Participant an individualized quarterly report at the time of
each Dividend payment showing the number of Shares owned prior to the current
Dividend, the amount of the current Dividend and the number of Shares owned
after the current Dividend.
7. Commissions and Other Charges. In connection with Shares sold pursuant
-----------------------------
to the DRP, the Company will pay selling commissions of 7%; a dealer manager fee
of 2.5%; and, in the event that proceeds from the sale of DRP Shares are used to
acquire properties, acquisition and advisory fees and expenses of 3.5%, of the
purchase price of the DRP Shares.
8. Termination by Participant. A Participant may terminate participation
--------------------------
in the DRP at any time, without penalty by delivering to the Company a written
notice. Prior to listing of the Shares on a national stock exchange or Nasdaq,
any transfer of Shares by a Participant to a non-Participant will terminate
participation in the DRP with respect to the transferred Shares. If a
Participant terminates DRP participation, the Company will ensure that the
terminating Participant's account will reflect the whole number of shares in his
or her account and provide a check for the cash value of any fractional share in
such account. Upon termination of DRP participation, Dividends will be
distributed to the Shareholder in cash.
9. Amendment or Termination of DRP by the Company. The Board of Directors
----------------------------------------------
of the Company may by majority vote (including a majority of the Independent
Directors) amend or terminate the DRP for any reason upon 10 days' written
notice to the Participants.
10. Liability of the Company. The Company shall not be liable for any act
------------------------
done in good faith, or for any good faith omission to act, including, without
limitation, any claims or liability; (a) arising out of failure to terminate a
Participant's account upon such Participant's death prior to receipt of
B-2
<PAGE>
notice in writing of such death; and (b) with respect to the time and the prices
at which Shares are purchased or sold for a Participant's account. To the extent
that indemnification may apply to liabilities arising under the Securities Act
of 1933, as amended, or the securities act of a sate, the Company has been
advised that, in the opinion of the Commission and certain state securities
commissioners, such indemnification is contrary to public policy and, therefore,
unenforceable.
B-3
<PAGE>
ALPHABETICAL INDEX Page
----
Additional Information.............................................. 160
Conflicts of Interest............................................... 50
Description of Properties........................................... 65
Description of Shares............................................... 143
ERISA Considerations................................................ 139
Estimated Use of Proceeds........................................... 26
Experts............................................................. 159
Federal Income Tax Considerations................................... 123
Financial Statements................................................ 161
Glossary............................................................ 160
Investment Objectives and Criteria.................................. 55
Legal Opinions...................................................... 159
Management.......................................................... 28
Management Compensation............................................. 45
Management's Discussion and Analysis of Financial Condition And
Results of Operations............................................. 97
Plan of Distribution................................................ 153
Prior Performance Summary........................................... 114
Prior Performance Tables............................................ 215
Prospectus Summary.................................................. 9
Questions and Answers About This Offering........................... 1
Risk Factors........................................................ 16
Suitability Standards............................................... 25
Supplemental Sales Material......................................... 159
The Operating Partnership Agreement................................. 151
Until March 20, 2001 (90 days after the date of this prospectus), all
dealers that affect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus when acting as
soliciting dealers.
We have not authorized any dealer, salesperson or other individual to give
any information or to make any representations that are not contained in this
prospectus. If any such information or statements are given or made, you should
not rely upon such information or representation. This prospectus does not
constitute an offer to sell any securities other than those to which this
prospectus relates, or an offer to sell, or a solicitation of an offer to buy,
to any person in any jurisdiction where such an offer or solicitation would be
unlawful. This prospectus speaks as of the date set forth below. You should not
assume that the delivery of this prospectus or that any sale made pursuant to
this prospectus implies that the information contained in this prospectus will
remain fully accurate and correct as of any time subsequent to the date of this
prospectus.
________________
WELLS REAL ESTATE
INVESTMENT TRUST, INC.
Up to 125,000,000 Shares
of Common Stock
Offered to the Public
________________
PROSPECTUS
________________
WELLS INVESTMENT
SECURITIES, INC.
December 20, 2000
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31 Other Expenses of Issuance and Distribution
-------------------------------------------
Following is an itemized statement of the expenses of the offering and
distribution of the securities to be registered, other than
underwriting commissions:
Amount
------
SEC Registration Fee $ 372,241
NASD Filing Fee 30,500
Printing Expenses 2,000,000
Legal Fees and Expenses 500,000
Accounting Fees and Expenses 100,000
Blue Sky Fees and Expenses 157,273
Sales and Advertising Expenses 3,500,000
Seminars 6,600,000
Miscellaneous 5,339,986
-----------
Total* $18,600,000
===========
* Estimated.
Item 32 Sales to Special Parties
------------------------
Not Applicable
Item 33 Recent Sales of Unregistered Securities
---------------------------------------
Not Applicable
Item 34 Indemnification of the Officers and Directors
---------------------------------------------
The MCGL permits a Maryland corporation to include in its Articles of
Incorporation a provision limiting the liability of its directors and officers
to the corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgement as being material to the cause of action.
Subject to the conditions set forth below, the Articles of Incorporation
provide that Wells Real Estate Investment Trust, Inc. (the "Registrant") shall
indemnify and hold harmless a Director, Advisor or Affiliate against any and all
losses or liabilities reasonably incurred by such Director, Advisor or Affiliate
in connection with or by reason of any act or omission performed or omitted to
be performed on behalf of the Company in such capacity.
Under the Company's Articles of Incorporation, the Registrant shall not
indemnify its Directors, Advisor or any Affiliate for any liability or loss
suffered by the Directors, Advisors or Affiliates, nor shall it provide that the
Directors, Advisors or Affiliates be held harmless for any loss or liability
suffered by the Registrant, unless all of the following conditions are met:
(i) the Directors, Advisor or Affiliates have
II-1
<PAGE>
determined, in good faith, that the course of conduct which caused the loss or
liability was in the best interests of the Registrant; (ii) the Directors,
Advisor or Affiliates were acting on behalf of or performing services of the
Registrant (iii) such liability or loss was not the result of (A) negligence or
misconduct by the Directors, excluding the Independent Directors, Advisors or
Affiliates; or (B) gross negligence or willful misconduct by the Independent
Directors; and (iv) such indemnification or agreement to hold harmless is
recoverable only out of the Registrant's net assets and not from Shareholders.
Notwithstanding the foregoing, the Directors, Advisors or Affiliates and any
persons acting as a broker-dealer shall not be indemnified by the Registrant for
any losses, liability or expenses arising from or out of an alleged violation of
federal or state securities laws by such party unless one or more of the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee; (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee;
and (iii) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee and finds that indemnification of the settlement
and the related costs should be made, and the court considering the request for
indemnification has been advised of he position of the SEC and of the published
position of any state securities regulatory authority in which securities of the
Registrant were offered or sold as to indemnification for violations of
securities laws.
The Articles of Incorporation provide that the advancement of Registrant
funds to the Directors, Advisors or Affiliates for legal expenses and other
costs incurred as a result of any legal action for which indemnification is
being sought is permissible only if all of the following conditions are
satisfied: (i) the legal action relates to acts or omissions with respect to
the performance of duties or services on behalf of the Registrant; (ii) the
legal action is initiated by a third party who is not a Shareholder or the legal
action is initiated by a Shareholder acting in his or her capacity as such and a
court of competent jurisdiction specifically approves such advancement; (iii)
the Directors, Advisor or Affiliates undertake to repay the advanced funds to
the Registrant together with the applicable legal rate of interest thereon, in
cases in which such Directors, Advisor or Affiliates are found not to be
entitled to indemnification.
The MGCL requires a Maryland corporation (unless its Articles of
Incorporation provide otherwise, which the Registrant's Articles of
Incorporation do not) to indemnify a director or officer who has been
successful, on the merits or otherwise, in the defense of any proceeding to
which he is made a party by reason of his service in that capacity. The MGCL
permits a Maryland corporation to indemnify its present and former directors and
officers, among others, against judgements, penalties, fines, settlements and
reasonable expenses actually incurred by them in connection with any proceeding
to which they may be made a party by reason of their service in those or other
capacities unless it is established that (a) the act or omission of the director
or officer was material to the matter giving rise to the proceeding and (i) was
committed in bad faith or (ii) was the result of active and deliberate
dishonesty, (b) the director or officer actually received an improper personal
benefit in money, property or services or (c) in the case of any criminal
proceeding, the director or officer had reasonable cause to believe that the act
or omission was unlawful. However, under the MGCL a Maryland corporation may
not indemnify for an adverse judgment in a suit by or in the right of the
corporation or for a judgment of liability on the basis that personal benefit
was improperly received, unless in either case a court orders indemnification
and then only for expenses. In addition, the MGCL permits a corporation to
advance reasonable expenses to director or officer upon the corporation's
receipt of (a) a written affirmation by the director or officer of his good
faith belief that he has met the standard of conduct necessary for
indemnification by the Registrant as authorized by the Bylaws and (b) a written
undertaking by or on his behalf to repay the amount paid or reimbursed by the
Registrant if it shall ultimately be determined that the standard of conduct was
not met. Indemnification under the provisions of the MGCL is not deemed
exclusive of any other rights, by indemnification or otherwise, to which an
officer or director may be entitled under the Registrant's Articles of
Incorporation or Bylaws, or under resolutions of stockholders or directors,
contract or otherwise. It is the position of the Commission that
indemnification of directors
II-2
<PAGE>
and officers for liabilities arising under the Securities Act is against public
policy and is unenforceable pursuant to Section 14 of the Securities Act.
The Registrant also has purchased and maintains insurance on behalf of all
of its Directors and executive officers against liability asserted against or
incurred by them in their official capacities with the Registrant, whether or
not the Registrant is required or has the power to indemnify them against the
same liability.
Item 35 Treatment of Proceeds from Stock Being Registered
-------------------------------------------------
Not Applicable
Item 36 Financial Statements and Exhibits.
---------------------------------
(a) Financial Statements:
--------------------
The following financial statements of the Registrant are filed as
part of this Registration Statement and included in the
Prospectus:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December 31, 1999 and
December 31, 1998,
(3) Consolidated Statements of Income for the years ended
December 31, 1999 and 1998,
(4) Consolidated Statements of Stockholders' Equity for the
years ended December 31, 1999 and 1998,
(5) Consolidated Statements of Cash Flows for the years
ended December 31, 1999 and 1998, and
(6) Notes to Consolidated Financial Statements.
Unaudited Financial Statements
(1) Balance Sheets as of September 30, 2000 and December
31, 1999,
(2) Statements of Income for the three months and nine
months ended September 30, 2000 and 1999,
(3) Statements of Shareholders' Equity for the year ended
December 31, 1999 and the nine months ended September
30, 2000,
(4) Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999, and
(5) Condensed Notes to Financial Statements.
The following financial statements relating to the acquisition of
the Motorola Plainfield Building are filed as part of this
Registration Statement and are included in the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 and the nine
months ended
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<PAGE>
September 30, 2000, and
(3) Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999, and
the nine months ended September 30, 2000.
The following financial statements relating to the acquisition
of the Dial Building are filed as part of this Registration
Statement and are included in the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999, and
(3) Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999.
The following financial statements relating to the acquisition
of the ASML Building are filed as part of this Registration
Statement and are included in the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999, and
(3) Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999.
The following financial statements relating to the acquisition
of the Motorola Tempe Building are filed as part of this
Registration Statement and are included in the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999, and
(3) Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999.
The following unaudited pro forma financial statements of
Wells Real Estate Investment Trust, Inc. are filed as part of
this Registration Statement and are included in the
Prospectus:
(1) Summary of Unaudited Pro Forma Financial Statements,
(2) Pro Forma Balance Sheet as of September 30, 2000,
(3) Pro Forma Statement of Income for the year ended
December 31, 1999, and
(4) Pro Forma Statement of Income for the nine months
ended September 30, 2000.
(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit No. Description
----------- -----------
1.1 Form of Dealer Manager Agreement
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<PAGE>
1.2 Form of Warrant Purchase Agreement (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
3.1 Amended and Restated Articles of Incorporation (previously filed in
and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
August 31, 2000)
3.2 Form of Bylaws (previously filed in and incorporated by reference
to Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-32099, filed on January 23,
1998)
3.3 Amendment No. 1 to Bylaws (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on April 15, 1999)
4.1 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit A to Prospectus)
5.1 Opinion of Holland & Knight LLP as to legality of securities
8.1 Opinion of Holland & Knight LLP as to tax matters
8.2 Opinion of Holland & Knight LLP as to ERISA matters
10.1 Agreement of Limited Partnership of Wells Operating Partnership,
L.P. (previously filed in and incorporated by reference to
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-32099, filed on January 23, 1998)
10.2 Advisory Agreement dated January 30, 2000 (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-93933, filed on March 15, 2000)
10.3 Management Agreement between Registrant and Wells Management
Company, Inc. (previously filed in and incorporated by reference to
Registrant's Registration Statement on From S-11, Commission File
No. 333-83933, filed on July 28, 1999)
10.4 Leasing and Tenant Coordinating Agreement between Registrant and
Wells Management Company, Inc. (previously filed in and
incorporated by reference to Registrant's Registration Statement on
From S-11, Commission File No. 333-83933, filed on July 28, 1999)
10.5 Amended and Restated Joint Venture Agreement of The Fund IX, Fund
X, Fund XI and REIT Joint Venture (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on July 9, 1998)
10.6 Lease Agreement for the ABB Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on July 9, 1998)
II-5
<PAGE>
10.7 Net Lease Agreement for the Avaya Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on July 9, 1998)
10.8 First Amendment to Net Lease Agreement for the Avaya Building
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 2 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
July 9, 1998)
10.9 Lease Agreement for the Iomega Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on August 14, 1998)
10.10 Joint Venture Agreement of Wells/Fremont Associates (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 3 of the Registrant's Registration Statement on Form S-11,
Commission File No. 333-32099, filed on August 14, 1998)
10.11 Lease Agreement for the Fairchild Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on August 14, 1998)
10.12 Joint Venture Agreement of Wells/Orange County Associates
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 3 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
August 14, 1998)
10.13 Lease for the PwC Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 of the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on January 15, 1999)
10.14 Amended and Restated Promissory Note for $15,500,000 for the
SouthTrust Loan (previously filed in and incorporated by reference
to Post-Effective Amendment No. 4 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
January 15, 1999)
10.15 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents for the PwC Building securing the SouthTrust Loan
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 4 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
January 15, 1999)
10.16 Build-To-Suit Office Lease Agreement for the AT&T Building
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999)
10.17 Amendment No. 1 to Build-To-Suit Office Lease Agreement for the
AT&T Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999).
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<PAGE>
10.18 Amendment No. 2 to Build-To-Suit Office Lease Agreement for the
AT&T Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999)
10.19 Build-To-Suit Office Lease Agreement Guaranty Payment and
Performance for the AT&T Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on April 15, 1999)
10.20 Rental Income Guaranty Agreement relating to the Quest Building
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999)
10.21 Office Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on April 15, 1999)
10.22 Guaranty of Lease for the Matsushita Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 5 of
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on April 15, 1999)
10.23 Fifth Amendment to Lease for the Johnson Matthey Building
(previously filed as Exhibit 10.7 and incorporated by reference to
Post-Effective Amendment No. 1 to the Registration Statement of
Wells Real Estate Fund XII, L.P. on Form S-11, Commission File No.
33-66657, filed on September 1, 1999)
10.24 Lease Agreement for the Gartner Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on October 14, 1999)
10.25 Lease Agreement for the Alstom Power Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on October 14, 1999)
10.26 Second Amendment to Lease Agreement for the Alstom Power Building
(previously filed in and incorporated by reference to Amendment No.
1 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on November 17, 1999)
10.27 Amended and Restated Joint Venture Partnership Agreement of The
Wells Fund XI-Fund XII - REIT Joint Venture (previously filed in
and incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on November 17, 1999)
10.28 Lease Agreement with Cinemark USA, Inc. for a portion of the
Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on March 15, 2000)
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<PAGE>
10.29 Lease Agreement with The Coca-Cola Company for a portion of the
Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on March 15, 2000)
10.30 Lease Agreement for the Metris Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on March 15, 2000)
10.31 Promissory Note for $26,725,000 for the Bank of America Loan
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 1 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on March 15, 2000)
10.32 Mortgage, Assignment and Security Agreement for the Marconi
Building and the AT&T Building securing the Bank of America Loan
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 1 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on March 15, 2000)
10.33 Assumption and Modification Agreement for the Metris Loan
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 1 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on March 15, 2000)
10.34 Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership (previously filed as Exhibit 10.11 and
incorporated by reference to Post-Effective Amendment No. 2 to Form
S-11 Registration Statement of Wells Real Estate Fund XII, L.P. on
Form S-11, Commission File No. 33-66657, filed on April 25, 2000)
10.35 Lease Agreement for the Dial Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.36 First Amendment to Lease Agreement for the Dial Building
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 2 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on June 9, 2000)
10.37 Lease Agreement for the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.38 First Amendment to Lease Agreement for the ASML Building
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 2 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on June 9, 2000)
10.39 Ground Lease Agreement for the ASML Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
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<PAGE>
10.40 First Amendment to Ground Lease Agreement for the ASML Building
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 2 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on June 9, 2000)
10.41 Lease Agreement for the Motorola Tempe Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 2
to Registrant's Registration Statement on Form S-11, Commission
File No. 333-83933, filed on June 9, 2000)
10.42 First Amendment to Lease Agreement for the Motorola Tempe Building
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 2 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on June 9, 2000)
10.43 Ground Lease Agreement for the Motorola Tempe Building (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on June 9, 2000)
10.44 Promissory Note for $5,000,000 to Ryan Companies US, Inc. relating
to the Motorola Tempe Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.45 Purchase Money Deed of Trust, Assignment of Leases and Rents,
Fixture Filing and Security Agreement securing the Motorola Tempe
Building (previously filed in and incorporated by reference to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on August 31, 2000)
10.46 Office Lease for the Siemens Building (previously filed as Exhibit
10.13 and incorporated by reference to Post-Effective Amendment No.
3 to the Registration Statement of Wells Real Estate Fund XII, L.P.
on Form S-11, Commission File No. 33-66657, filed on July 25, 2000)
10.47 Joint Venture Partnership Agreement of Fund VII-IX-REIT Joint
Venture (previously filed in and incorporated by reference to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on August 31, 2000)
10.48 Lease Agreement for the Avnet Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.49 Ground Lease Agreement for the Avnet Building (previously filed in
and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
August 31, 2000)
10.50 Lease Agreement for the Delphi Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
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<PAGE>
10.51 Lease Agreement for the Quest Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.52 Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000
revolving line of credit dated May 3, 2000 (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.53 Promissory Note for $35,000,000 to SouthTrust Bank, N.A.
(previously filed in and incorporated by reference to Post-
Effective Amendment No. 3 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on September 8,
2000)
10.54 Deed of Trust and Security Agreement with SouthTrust, N.A. relating
to the Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.55 Deed of Trust and Security Agreement with SouthTrust, N.A. relating
to the Dial Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.56 Leasehold Deed of Trust and Security Agreement with SouthTrust,
N.A. relating to the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.57 Lease Agreement for the Motorola Plainfield Building
23.1 Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)
23.2 Consent of Arthur Andersen LLP
24.1 Power of Attorney
II-10
<PAGE>
Item 37 Undertakings
------------
(a) The Registrant undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to
this Registration Statement (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933 (the "Act"); (ii) to
reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement; and (iii) to include any material
information with respect to the plan of distribution not previously
disclosed in the Registration Statement or any material change to such
information in the Registration Statement, including (but not limited
to) any addition or deletion of a managing underwriter.
(b) The Registrant undertakes (i) that, for the purpose of
determining any liability under the Act, each such post-effective
amendment may be deemed to be a new Registration Statement relating to
the securities offered therein and the offering of such securities at
that time shall be deemed to be the initial bona fide offering
thereof, (ii) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in effect at
the time such post-effective amendments are filed, and (iii) to remove
from registration by means of a post-effective amendment any of the
securities being registered which remain unsold at the termination of
the offering.
(c) The Registrant undertakes to send to each shareholder, at
least on an annual basis, a detailed statement of any transactions
with the Advisor or its affiliates, and of fees, commissions,
compensation and other benefits paid, or accrued to the Advisor or
its affiliates, for the fiscal year completed, showing the amount paid
or accrued to each recipient and the services performed.
(d) To file a sticker supplement pursuant to Rule 424(c) under
the Act during the distribution period describing each property not
identified in the prospectus at such time as there arises a reasonable
probability that such property will be acquired and to consolidate all
such stickers into a post-effective amendment filed at least once
every three months with the information contained in such amendment
provided simultaneously to the existing shareholders; each sticker
supplement should disclose all compensation and fees received by the
Advisor and its affiliates in connection with any such acquisition;
the post-effective amendment shall include audited financial
statements meeting the requirements of Rule 3-14 of Regulation S-X
only for properties acquired during the distribution period.
(e) To file, after the end of the distribution period, a current
report on Form 8-K containing the financial statements and any
additional information required by Rule 3-14 of Regulation S-X, to
reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving the
use of 10% or more (on a cumulative basis) of the net proceeds of the
offering and to provide the information contained in such report to
the shareholders at least once each quarter after the distribution
period of the offering has ended.
(f) The Registrant undertakes to file the financial statements
as required by Form 10-K for the first full fiscal year of operations
and to provide each shareholder the financial statements required by
Form 10-K for such year.
II-11
<PAGE>
(g) The Registrant undertakes to distribute to each shareholder,
within sixty (60) days after the close of each quarterly period, a
copy of each report on Form 10-Q which is required to be filed with
the Commission or a quarterly report containing at least as much
information as the report on Form 10-Q.
(h) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such indemnification
is against public policy as expressed in the Act and is, therefore,
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered, the
Registrant will, unless in the opinion of its counsel the matter has
been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Act and will be
governed by the final adjudication of such issue.
II-12
<PAGE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
The information contained on the following pages relates to acquisitions of
properties within the past three years by the Wells REIT and prior programs with
which Wells Capital, Inc., the Advisor to the Wells REIT, and its affiliates
have been affiliated and which have substantially similar investment objectives
to the Wells REIT. This table provides potential investors with information
regarding the general nature and location of the properties and the manner in
which the properties were acquired. None of the information in this Table VI
has been audited.
II-13
<PAGE>
TABLE VI
--------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Ohmeda Building
Location of property Centennial Parkway, Louisville, Boulder County,
Colorado
Type of property Two-story office building
Size of parcel 15 acres
Gross leasable space 106,750 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/1/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/2/ February 13, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $10,331,644
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $572,851
Total Acquisition Cost $10,904,495
____________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/2/ The Fund IX-X Joint Venture acquired the Ohmeda Building on February
13, 1998, and on June 11, 1998, Wells Fund XI and Wells OP (the operating
partnership of the Wells REIT) were admitted to the Fund IX-X Joint Venture as
joint venture partners.
/3/ Includes improvements made after acquisitions through September 30,
2000.
II-14
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Interlocken Building
Location of property Highway 36, Broomfield, Boulder County, Colorado
Type of property Three-story multi-tenant office building
Size of parcel 5.1 acres
Gross leasable space 51,974 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/4/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/5/ March 20, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus acquisition fee $8,293,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/6/ $447,766
Total Acquisition Cost $8,740,766
___________________________
/4/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/5/ The Fund IX-X Joint Venture acquired the Interlocken Building on March
20, 1998, and on June 11, 1998, Wells Fund XI and Wells OP (the operating
partnership of the Wells REIT) were admitted to the Fund IX-X Joint Venture as
joint venture partners.
/6/ Includes improvements made after acquisitions through September 30,
2000.
II-15
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Iomega Building
Location of property 2976 South Commerce Way, Ogden, Weber County, Utah
Type of property One-story warehouse and office building
Size of parcel 8.03 acres
Gross leasable space 100,000 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/7/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase/8/ April 1, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus acquisition fee $5,050,425
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/9/ $1,097,658
Total Acquisition Cost $6,148,083
_______________________
/7/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/8/ Wells Fund X acquired the Iomega Building on April 1, 1998, and on
June 24, 1998, Wells Fund X contributed the Iomega Building to the Fund IX-X-XI-
REIT Joint Venture.
/9/ Includes improvements made after acquisitions through September 30,
2000.
II-16
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds IX, X, XI and REIT
------------------------------
Name of property Lucent Building
Location of property 14400 Hertz Quail Springs Parkway, Oklahoma City,
Oklahoma
Type of property One-story office building
Size of parcel 5.3 acres
Gross leasable space 57,186 sq. feet
Date of commencement of Fund IX - February 12, 1996
operations/10/ Fund X - February 4, 1997
Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase June 24, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $1,600,000
Contract purchase price
plus acquisition fee $5,504,276
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/11/ $127,062
Total Acquisition Cost $5,631,338
___________________________
/10/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/11/ Includes improvements made after acquisitions through September 30,
2000.
II-17
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds X, XI and REIT
--------------------------
Name of property Cort Furniture Building
Location of property 10700 Spencer Avenue, Fountain Valley, Orange
County, California
Type of property One-story office and warehouse building
Size of parcel 3.65 acres
Gross leasable space 52,000 sq. feet
Date of commencement of Fund X - February 4, 1997
operations/12/ Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase July 31, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $6,548,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/13/ $303,616
Total Acquisition Cost $6,851,616
__________________________
/12/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/13/ Includes improvements made after acquisitions through September 30,
2000.
II-18
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds X, XI and REIT
--------------------------
Name of property Fairchild Building
Location of property 47320 Kato Road, Fremont, Alameda County,
California
Type of property Two-story office and manufacturing building
Size of parcel 3.05 acres
Gross leasable space 58,424 sq. feet
Date of commencement of Fund X - February 4, 1997
operations/14/ Fund XI - March 3, 1998
REIT - June 5, 1998
Date of purchase July 21, 1998
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $8,960,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/15/ $397,409
Total Acquisition Cost $9,357,409
________________________
/14/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/15/ Includes improvements made after acquisitions through September 30,
2000.
II-19
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property PricewaterhouseCoopers Building
Location of property George Road, Tampa, Hillsborough County, Florida
Type of property Four-story office building
Size of parcel 9 acres
Gross leasable space 130,091 sq. feet
Date of commencement of June 5, 1998
operations/16/
Date of purchase December 31, 1998
Mortgage financing at
date of purchase $14,132,538
Cash down payment $420,000
Contract purchase price
plus acquisition fee $21,226,463
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/17/ $898,168
Total Acquisition Cost $22,124,631
___________________________
/16/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/17/ Includes improvements made after acquisitions through September 30,
2000.
II-20
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property AT&T Building
Location of property Progress Avenue and Interstate Drive, Harrisburg,
Dauphin County, Pennsylvania
Type of property Four-story office building
Size of parcel 10.5 acres
Gross leasable space 81,859 sq. feet
Date of commencement of June 5, 1998
operations/18/
Date of purchase February 4, 1999
Mortgage financing at
date of purchase $6,425,000
Cash down payment $250,000
Contract purchase price
plus acquisition fee $12,531,900
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/19/ $232,209
Total Acquisition Cost $12,764,109
___________________________
/18/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/19/ Includes improvements made after acquisitions through September 30,
2000.
II-21
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Matsushita Building
Location of property Pacific Commercentre, Lake Forest, Orange County,
California
Type of property Construction of a two-story office building
Size of parcel 8.8 acres
Gross leasable space 150,000 sq. feet
Date of commencement of June 5, 1998
operations/20/
Date of purchase March 15, 1999
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $4,577,485
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/21/ $13,822,515
Total Acquisition Cost $18,400,000
___________________________
/20/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/21/ Includes improvements made after acquisitions through September 30,
2000.
II-22
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds XI, XII and REIT
----------------------------
Name of property EYBL CarTex Building
Location of property 111 SouthChase Boulevard in SouthChase Industrial
Park, Fountain Inn, Greenville County, South
Carolina
Type of property Two-story manufacturing and office building
Size of parcel 11.94 acres
Gross leasable space 169,510 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/22/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase May 18, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus acquisition fee $5,122,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/23/ $225,540
Total Acquisition Cost $5,347,540
___________________________
/22/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/23/ Includes improvements made after acquisitions through September 30,
2000.
II-23
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds XI, XII and REIT
----------------------------
Name of property Sprint Building
Location of property Leawood, Kansas
Type of property Three-story office building
Size of parcel 7.12 acres
Gross leasable space 68,900 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/24/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase July 2, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $1,000,000
Contract purchase price
plus acquisition fee $9,546,210
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/25/ $398,299
Total Acquisition Cost $9,944,509
_________________________
/24/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/25/ Includes improvements made after acquisitions through September 30,
2000.
II-24
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Alstom Power Building
Location of property Midlothian, Chesterfield County, Virginia
Type of property Four-story office building
Size of parcel 7.49 acres
Gross leasable space 102,000 sq. feet
Date of commencement of June 5, 1998
operations/26/
Date of purchase July 22, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $948,400
Contract purchase price
plus acquisition fee $948,400
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/27/ $9,969,515
Total Acquisition Cost $10,917,915
__________________________
/26/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/27/ Includes the improvements made after acquisition through September
30, 2000.
II-25
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds XI, XII and REIT
----------------------------
Name of property Johnson Matthey Building
Location of property 434-436 Devon Park Drive, Tredyffrin, Chester
County, Pennsylvania
Type of property Research and development, office and warehouse
building
Size of parcel 10.0 acres
Gross leasable space 130,000 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/28/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase August 17, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $200,000
Contract purchase price
plus acquisition fee $8,050,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/29/ $342,077
Total Acquisition Cost $8,392,077
_________________________
/28/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/29/ Includes improvements made after acquisitions through September 30,
2000.
II-26
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Marconi Building
Location of property Chancellory Business Park, Wood Dale, Illinois
Type of property Two-story office, assembly and manufacturing
building
Size of parcel 15.3 acres
Gross leasable space 250,354 sq. feet
Date of commencement of REIT - June 5, 1998
operations/30/
Date of purchase September 10, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $500,000
Contract purchase price
plus acquisition fee $32,630,940
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/31/ $1,912,472
Total Acquisition Cost $34,543,412
__________________________
/30/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/31/ Includes improvements made after acquisitions through September 30,
2000.
II-27
<PAGE>
TABLE VI (continued)
--------------------
Wells Funds XI, XII and REIT
----------------------------
Name of property Gartner Building
Location of property Fort Myers, Florida
Type of property Two-story office building
Size of parcel 4.9 acres
Gross leasable space 62,400 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/32/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase September 20, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $500,000
Contract purchase price
plus acquisition fee $8,347,600
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/33/ $347,824
Total Acquisition Cost $8,695,424
_______________________
/32/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/33/ Includes improvements made after acquisitions through September 30,
2000.
II-28
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Cinemark Building
Location of property Plano, Collin County, Texas
Type of property Five-story office building
Size of parcel 3.52 acres
Gross leasable space 118,108 sq. feet
Date of commencement of June 5, 1998
operations/34/
Date of purchase December 21, 1999
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $21,826,900
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/35/ $920,379
Total Acquisition Cost $22,747,279
____________________
/34/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/35/ Includes improvements made after acquisitions through September 30,
2000.
II-29
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Metris Building
Location of property Tulsa, Tulsa County, Oklahoma
Type of property Three-story office building
Size of parcel 14.6 acres
Gross leasable space 101,100 sq. feet
Date of commencement of June 5, 1998
operations/36/
Date of purchase February 11, 2000
Mortgage financing at
date of purchase 8,000,000
Cash down payment $4,740,000
Contract purchase price
plus acquisition fee $12,740,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/37/ $521,072
Total Acquisition Cost $13,261,072
____________________
/36/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/37/ Includes improvements made after acquisitions through September 30,
2000.
II-30
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Dial Building
Location of property 15501 N. Dial Boulevard, Scottsdale, Maricopa
County, Arizona
Type of property Two-story office building
Size of parcel 8.8 acres (approximately)
Gross leasable space 129,689 sq. feet
Date of commencement of June 5, 1998
operations/38/
Date of purchase March 29, 2000
Mortgage financing at
date of purchase $14,289,309
Cash down payment $100,000
Contract purchase price
plus acquisition fee $14,289,309
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/39/ $597,264
Total Acquisition Cost $14,886,573
__________________
/38/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/39/ Includes improvements made after acquisitions through September 30,
2000.
II-31
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property ASML Building
Location of property 8555 South River Parkway, Tempe, Maricopa County,
Arizona
Type of property Two-story office and warehouse building
Size of parcel 9.51 acres
Gross leasable space 95,133 sq. feet
Date of commencement of June 5, 1998
operations/40/
Date of purchase March 29, 2000
Mortgage financing at
date of purchase $17,397,133
Cash down payment $100,000
Contract purchase price
plus acquisition fee $17,397,133
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/41/ $727,185
Total Acquisition Cost $18,124,318
_______________________
/40/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/41/ Includes improvements made after acquisitions through September 30,
2000.
II-32
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Motorola Tempe Building
Location of property 8075 South River Parkway, Tempe, Maricopa County,
Arizona
Type of property Two-story office building
Size of parcel 12.44 acres
Gross leasable space 133,225 sq. feet
Date of commencement of June 5, 1998
operations/42/
Date of purchase March 29, 2000
Mortgage financing at
date of purchase $8,813,558
Cash down payment $100,000
Contract purchase price
plus acquisition fee $16,036,219
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/43/ $669,639
Total Acquisition Cost $16,705,858
_________________________
/42/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/43/ Includes improvements made after acquisitions through September 30,
2000.
II-33
<PAGE>
TABLE VI (continued)
--------------------
Wells Fund XII and REIT
-----------------------
Name of property Siemens Building
Location of property 4685 Investment Drive, Troy, Oakland County,
Michigan
Type of property Three-story office building
Size of parcel 5.3 acres
Gross leasable space 71,054 sq. feet
Date of commencement of Fund XII - June 1, 1999
operations/44/ REIT - June 5, 1998
Date of purchase May 10, 2000
Mortgage financing at
date of purchase N/A
Cash down payment $400,000
Contract purchase price
plus acquisition fee $14,292,489
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/45/ $1,440,430
Total Acquisition Cost $12,852,059
___________________
/44/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/45/ Includes improvements made after acquisitions through September 30,
2000.
II-34
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Avnet Building
Location of property 8700 South Price Road, Tempe, Maricopa
County, Arizona
Type of property Two-story office building
Size of parcel 9.63 acres
Gross leasable space 132,070 sq. feet
Date of commencement of June 5, 1998
operations/46/
Date of purchase June 12, 2000
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $13,269,502
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $13,269,502
_______________________
/46/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-35
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Delphi Building
Location of property 1441 West Long Lake Road, Troy, Oakland
County, Michigan
Type of property Three-story office building
Size of parcel 5.52 acres
Gross leasable space 107,152 sq. feet
Date of commencement of June 5, 1998
operations/47/
Date of purchase June 29, 2000
Mortgage financing at
date of purchase $8,000,000
Cash down payment N/A
Contract purchase price
plus acquisition fee $19,921,332
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $19,921,332
____________________
/47/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-36
<PAGE>
TABLE VI (continued)
--------------------
Wells REIT
----------
Name of property Motorola Plainfield Building
Location of property 1111 Durham Avenue, Plainfield, Middlesex County,
New Jersey
Type of property Three-story office building
Size of parcel 34.5 acres
Gross leasable space 236,710 sq. feet
Date of commencement of June 5, 1998
operations/48/
Date of purchase November 1, 2000
Mortgage financing at
date of purchase $22,800,150
Cash down payment $1,000,000
Contract purchase price
plus acquisition fee $33,814,566
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/49/ $424,760
Total Acquisition Cost $34,239,326
___________________
/48/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/49/ Includes improvements made after acquisitions through September 30,
2000.
II-37
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Amendment No. 1 to
Registration Statement to be signed on its behalf by the undersigned, thereunto
duly authorized, in the City of Norcross, and State of Georgia, on the 27/th/
day of November, 2000.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
A Maryland corporation
(Registrant)
By: /s/ Leo F. Wells, III
----------------------------
Leo F. Wells, III, President
Pursuant to the requirements of the Securities Act of 1933, this Amendment
No. 1 to Registration Statement has been signed below on November 27, 2000 by
the following persons in the capacities indicated.
<TABLE>
<CAPTION>
Name Title
---- -----
<S> <C>
/s/ Leo F. Wells, III President and Director
------------------------------------------------------ (Principal Executive Officer)
Leo F. Wells, III
/s/ Douglas P. Williams Executive Vice President and Director
------------------------------------------------------ (Principal Financial and Accounting
Douglas P. Williams Officer)
/s/ John L. Bell * Director
------------------------------------------------------
John L. Bell (By Douglas P. Williams, as Attorney-in-fact)
/s/ Richard W. Carpenter * Director
------------------------------------------------------
Richard W. Carpenter (By Douglas P. Williams, as Attorney-in-fact)
/s/ Bud Carter * Director
------------------------------------------------------
Bud Carter (By Douglas P. Williams, as Attorney-in-fact)
/s/ William H. Keogler, Jr. * Director
------------------------------------------------------
William H. Keogler, Jr. (By Douglas P. Williams, as
Attorney-in-fact)
/s/ Donald S. Moss * Director
------------------------------------------------------
Donald S. Moss (By Douglas P. Williams, as Attorney-in-fact)
/s/ Walter W. Sessoms * Director
------------------------------------------------------
Walter W. Sessoms (By Douglas P. Williams, as Attorney-in-fact)
/s/ Neil H. Strickland * Director
------------------------------------------------------
Neil H. Strickland (By Douglas P. Williams, as Attorney-in-fact)
</TABLE>
* By Douglas P. Williams, as Attorney-in-fact, pursuant to Power of Attorney
dated August 18, 2000 and included as Exhibit 24.1 herein.
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1.1 Form of Dealer Manager Agreement, filed herewith
1.2 Form of Warrant Purchase Agreement (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
3.1 Amended and Restated Articles of Incorporation (previously filed in
and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
August 31, 2000)
3.2 Form of Bylaws (previously filed in and incorporated by reference
to Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-32099, filed on January 23,
1998)
3.3 Amendment No. 1 to Bylaws (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on April 15, 1999)
4.1 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit A to Prospectus)
5.1 Opinion of Holland & Knight LLP as to legality of securities, filed
herewith
8.1 Opinion of Holland & Knight LLP as to tax matters, filed herewith
8.2 Opinion of Holland & Knight LLP as to ERISA matters, filed herewith
10.1 Agreement of Limited Partnership of Wells Operating Partnership,
L.P. (previously filed in and incorporated by reference to
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-32099, filed on January 23, 1998)
10.2 Advisory Agreement dated January 30, 2000 (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-93933, filed on March 15, 2000)
10.3 Management Agreement between Registrant and Wells Management
Company, Inc. (previously filed in and incorporated by reference to
Registrant's Registration Statement on From S-11, Commission File
No. 333-83933, filed on July 28, 1999)
10.4 Leasing and Tenant Coordinating Agreement between Registrant and
Wells Management Company, Inc. (previously filed in and
incorporated by reference to Registrant's Registration Statement on
From S-11, Commission File No. 333-83933, filed on July 28, 1999)
10.5 Amended and Restated Joint Venture Agreement of The Fund IX, Fund
X, Fund XI and REIT Joint Venture (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on July 9, 1998)
<PAGE>
10.6 Lease Agreement for the ABB Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on July 9, 1998)
10.7 Net Lease Agreement for the Avaya Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on July 9, 1998)
10.8 First Amendment to Net Lease Agreement for the Avaya Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 2 of the Registrant's Registration Statement on Form S-
11, Commission File No. 333-32099, filed on July 9, 1998)
10.9 Lease Agreement for the Iomega Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on August 14, 1998)
10.10 Joint Venture Agreement of Wells/Fremont Associates (previously filed
in and incorporated by reference to Post-Effective Amendment No. 3 of
the Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on August 14, 1998)
10.11 Lease Agreement for the Fairchild Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on August 14, 1998)
10.12 Joint Venture Agreement of Wells/Orange County Associates (previously
filed in and incorporated by reference to Post-Effective Amendment No.
3 of the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on August 14, 1998)
10.13 Lease for the PwC Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 of the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on January 15, 1999)
10.14 Amended and Restated Promissory Note for $15,500,000 for the
SouthTrust Loan (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
January 15, 1999)
10.15 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents for the PwC Building securing the SouthTrust Loan
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 of the Registrant's Registration Statement on Form S-
11, Commission File No. 333-32099, filed on January 15, 1999)
10.16 Build-To-Suit Office Lease Agreement for the AT&T Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
5 of the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on April 15, 1999)
10.17 Amendment No. 1 to Build-To-Suit Office Lease Agreement for the AT&T
Building (previously filed in and incorporated by reference to Post-
Effective Amendment No. 5 of the Registrant's Registration Statement
on Form S-11, Commission File No. 333-32099, filed on April 15, 1999).
<PAGE>
10.18 Amendment No. 2 to Build-To-Suit Office Lease Agreement for the AT&T
Building (previously filed in and incorporated by reference to Post-
Effective Amendment No. 5 of the Registrant's Registration Statement
on Form S-11, Commission File No. 333-32099, filed on April 15, 1999)
10.19 Build-To-Suit Office Lease Agreement Guaranty Payment and Performance
for the AT&T Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 of the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on April 15, 1999)
10.20 Rental Income Guaranty Agreement relating to the Quest Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 5 of the Registrant's Registration Statement on Form S-
11, Commission File No. 333-32099, filed on April 15, 1999)
10.21 Office Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on April 15, 1999)
10.22 Guaranty of Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on April 15, 1999)
10.23 Fifth Amendment to Lease for the Johnson Matthey Building (previously
filed as Exhibit 10.7 and incorporated by reference to Post-Effective
Amendment No. 1 to the Registration Statement of Wells Real Estate
Fund XII, L.P. on Form S-11, Commission File No. 33-66657, filed on
September 1, 1999)
10.24 Lease Agreement for the Gartner Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on October 14, 1999)
10.25 Lease Agreement for the Alstom Power Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on October 14, 1999)
10.26 Second Amendment to Lease Agreement for the Alstom Power Building
(previously filed in and incorporated by reference to Amendment No. 1
to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-83933, filed on November 17, 1999)
10.27 Amended and Restated Joint Venture Partnership Agreement of the Wells
Fund XI-Fund XII - REIT Joint Venture (previously filed in and
incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on November 17, 1999)
10.28 Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark
Building (previously filed in and incorporated by reference to Post-
Effective Amendment No. 1 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on March 15, 2000)
10.29 Lease Agreement with The Coca-Cola Company for a portion of the
Cinemark Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 1 to
<PAGE>
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on March 15, 2000)
10.30 Lease Agreement for the Metris Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on March 15, 2000)
10.31 Promissory Note for $26,725,000 for the Bank of America Loan
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on March 15, 2000)
10.32 Mortgage, Assignment and Security Agreement for the Marconi Building
and the AT&T Building securing the Bank of America Loan (previously
filed in and incorporated by reference to Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on March 15, 2000)
10.33 Assumption and Modification Agreement for the Metris Loan (previously
filed in and incorporated by reference to Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on March 15, 2000)
10.34 Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership (previously filed as Exhibit 10.11 and
incorporated by reference to Post-Effective Amendment No. 2 to Form S-
11 Registration Statement of Wells Real Estate Fund XII, L.P. on Form
S-11, Commission File No. 33-66657, filed on April 25, 2000)
10.35 Lease Agreement for the Dial Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.36 First Amendment to Lease Agreement for the Dial Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.37 Lease Agreement for the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.38 First Amendment to Lease Agreement for the ASML Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.39 Ground Lease Agreement for the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.40 First Amendment to Ground Lease Agreement for the ASML Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on June 9, 2000)
<PAGE>
10.41 Lease Agreement for the Motorola Tempe Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.42 First Amendment to Lease Agreement for the Motorola Tempe Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on June 9, 2000)
10.43 Ground Lease Agreement for the Motorola Tempe Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.44 Promissory Note for $5,000,000 to Ryan Companies US, Inc. relating to
the Motorola Tempe Building (previously filed in and incorporated by
reference to Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on August 31, 2000)
10.45 Purchase Money Deed of Trust, Assignment of Leases and Rents, Fixture
Filing and Security Agreement securing the Motorola Tempe Building
(previously filed in and incorporated by reference to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on August 31, 2000)
10.46 Office Lease for the Siemens Building (previously filed as Exhibit
10.13 and incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement of Wells Real Estate Fund XII, L.P. on
Form S-11, Commission File No. 33-66657, filed on July 25, 2000)
10.47 Joint Venture Partnership Agreement of Fund VII-IX-REIT Joint Venture
(previously filed in and incorporated by reference to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on August 31, 2000)
10.48 Lease Agreement for the Avnet Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.49 Ground Lease Agreement for the Avnet Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.50 Lease Agreement for the Delphi Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.51 Lease Agreement for the Quest Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.52 Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000 revolving
line of credit dated May 3, 2000 (previously filed in and incorporated
by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
<PAGE>
10.53 Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (previously
filed in and incorporated by reference to Post-Effective Amendment No.
3 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.54 Deed of Trust and Security Agreement with SouthTrust, N.A. relating to
the Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.55 Deed of Trust and Security Agreement with SouthTrust, N.A. relating to
the Dial Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
September 8, 2000)
10.56 Leasehold Deed of Trust and Security Agreement with SouthTrust, N.A.
relating to the ASML Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.57 Lease Agreement for the Motorola Plainfield Building, filed herewith
23.1 Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)
23.2 Consent of Arthur Andersen LLP, filed herewith
24.1 Power of Attorney, filed herewith
