<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 2000 or
----------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________________ to ___________________
Commission file number 0-25739
----------------------------------------------------
WELLS REAL ESTATE INVESTMENT TRUST, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-2328421
----------------------------------------- -----------------------------------
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
6200 The Corners Pkwy., Norcross, Georgia 30092
----------------------------------------- -----------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
-----------------------------
--------------------------------------------------------------------------------
(Former name, former address, and former fiscal year, if changed since last
report)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
--- ---
<PAGE>
FORM 10-Q
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets--June 30, 2000 and December 31, 1999 3
Statements of Income for the Three Months and Six Months Ended
June 30, 2000 and 1999 4
Statements of Shareholders' Equity for the Year Ended
December 31, 1999 and the Six Months Ended June 30, 2000 5
Statements of Cash Flows for the Six Months Ended June 30, 2000
and 1999 6
Condensed Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II. OTHER INFORMATION 39
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
June 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 $4,655,426 in 2000 and $1,726,103 in 1999 179,318,847 81,507,040
Construction in progress 7,964,288 12,561,459
------------ ------------
Total real estate 208,978,439 108,569,321
------------ ------------
INVESTMENT IN JOINT VENTURES (Note 2) 36,090,567 29,431,176
DUE FROM AFFILIATES 784,043 648,354
CASH AND CASH EQUIVALENTS 6,315,188 2,929,804
DEFERRED PROJECT COSTS (Note 1) 96,533 28,093
DEFERRED OFFERING COSTS (Note 1) 529,727 964,941
PREPAID EXPENSES AND OTHER ASSETS 4,809,674 1,280,601
------------ ------------
Total assets $257,604,171 $143,852,290
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable $ 874,735 $ 461,300
Notes payable (Note 3) 65,742,524 23,929,228
Due to affiliates (Note 4) 1,727,907 1,079,466
Dividends payable 3,315,836 2,166,701
Minority interest of unit holder in operating partnership 200,000 200,000
------------ ------------
Total liabilities 71,861,002 27,836,695
------------ ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares authorized,
21,753,451 shares issued and outstanding at June 30, 2000 217,535 134,710
Additional paid-in capital 185,525,634 115,880,885
Retained earnings 0 0
------------ ------------
Total shareholders' equity 185,743,169 116,015,595
------------ ------------
Total liabilities and shareholders' equity $257,604,171 $143,852,290
============ ============
</TABLE>
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------- ----------------------
June 30, June 30, June 30, June 30,
2000 1999 2000 1999
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $4,741,141 $ 852,831 $7,892,403 $1,579,014
Equity in income of joint ventures 567,421 205,455 1,049,182 398,178
Interest income 129,056 146,652 206,442 215,746
---------- ---------- ---------- ----------
5,437,618 1,204,938 9,148,027 2,192,938
---------- ---------- ---------- ----------
EXPENSES:
Operating costs, net of reimbursements 193,459 52,211 342,267 29,616
Management and leasing fees 304,094 37,393 537,864 82,085
Depreciation 1,749,065 326,001 2,929,323 612,243
Administrative costs 174,714 40,230 231,858 69,940
Legal and accounting 78,302 29,350 97,720 56,450
Computer costs 3,425 3,360 6,493 6,063
Amortization of loan fees 63,524 2,433 86,127 4,055
Interest expense 1,350,014 111,985 1,704,066 337,073
---------- ---------- ---------- ----------
3,916,597 602,963 5,935,718 1,197,525
---------- ---------- ---------- ----------
NET INCOME $1,521,021 $ 601,975 $3,212,309 $ 995,413
========== ========== ========== ==========
BASIC AND DILUTED EARNINGS PER SHARE $0.08 $0.09 $0.19 $0.19
========== ========== ========== ==========
</TABLE>
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999
AND FOR THE SIX MONTHS ENDED JUNE 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 ($.70 per share) 0 0 (1,346,240) (4,218,683) (5,564,923)
Sales commission 0 0 (9,801,197) 0 (9,801,197)
Other offering expenses 0 0 (3,094,111) 0 (3,094,111)
---------- -------- ------------ ----------- ------------
BALANCE, December 31, 1999 13,471,085 134,710 115,880,885 0 116,015,595
Issuance of common stock 8,299,382 82,994 82,910,829 0 82,993,823
Net income 0 0 0 3,212,309 3,212,309
Dividends ($.356 per share) 0 0 (2,743,130) (3,212,309) (5,955,439)
Sales commission 0 0 (7,868,248) 0 (7,868,248)
Other offering expenses 0 0 (2,484,708) 0 (2,484,708)
Common stock retired (17,016) (169) (169,994) 0 (170,163)
---------- -------- ------------ ----------- ------------
BALANCE, June 30, 2000 21,753,451 $217,535 $185,525,634 $ 0 $185,743,169
========== ======== ============ =========== ============
</TABLE>
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
----------------------------
June 30,
June 30, ------------
2000 1999
------------- ------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,212,309 $ 995,413
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 2,929,323 612,243
Amortization of organizational costs 86,127 4,055
Equity in income of joint venture (1,049,182) (398,178)
Changes in assets and liabilities:
Accounts payable 413,435 133,617
Increase in prepaid expenses and other assets (3,615,200) (1,312,721)
Increase due to affiliates 1,083,655 78,526
------------- ------------
Net cash provided by operating activities 3,060,467 112,955
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (100,790,679) (19,178,396)
Investment in joint venture (6,782,935) (3,591,828)
Deferred project costs (2,898,827) (1,615,756)
Distributions received from joint ventures 1,319,662 528,869
------------- ------------
Net cash used in investing activities (109,152,779) (23,857,111)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 66,170,746 9,918,935
Repayment of note payable (24,357,450) (14,059,930)
Dividends paid (4,806,304) (1,038,189)
Issuance of common stock 82,993,823 46,164,450
Sales commissions paid (7,868,248) (4,385,623)
Offering costs paid (2,484,708) (1,384,933)
Common stock retired (170,163) 0
------------- ------------
Net cash provided by financing activities 109,477,696 35,214,710
------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 3,385,384 11,470,554
CASH AND CASH EQUIVALENTS, beginning of year 2,929,804 7,979,403
------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 6,315,188 $ 19,449,957
============= ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to investing activities $ 2,830,387 $ 1,001,925
============= ============
Increase (decrease) in deferred offering cost accrual $ (435,214) $ (19,205)
============= ============
</TABLE>
See accompanying condensed notes to financial statements.
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<PAGE>
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS
JUNE 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 June 30, 2000, the Company had sold
21,770,468 shares for total capital contributions of $217,704,678. After
payment of $7,613,708 in Acquisition and Advisory Fees and Acquisition
Expenses, payment of $27,191,814 in selling commissions and organization and
offering expenses, capital contributions and acquisition expenditures by
Wells OP of $179,502,869 in property acquisitions and common stock
redemptions of $170,163 pursuant to the Company's share redemption program,
the Company was holding net offering proceeds of $3,226,124 available for
investment in properties. An additional $65,742,524 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"), and (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").
As of June 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 "Lucent Technologies Building"); (v) a one-story warehouse and
office building in Ogden, Utah (the "Iomega Building"), all five of which are
owned by
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<PAGE>
the Fund IX-X-XI-REIT Joint Venture; (vi) a two-story warehouse office
building in Fremont, California (the "Fremont Building"), which is owned by
the Fremont Joint Venture; (vii) a one-story warehouse and office building in
Fountain Valley, California (the "Cort Building"), which is owned by the Cort
Joint Venture; (viii) a four-story office building in Tampa, Florida (the
"PWC Building"); (ix) a four-story office building in Harrisburg,
Pennsylvania (the "AT&T Building"), which are owned directly by Wells OP; (x)
a two-story manufacturing and office building located in Fountain Inn, South
Carolina (the "EYBL CarTex Building"); (xi) a three-story office building
located in Leawood, Kansas (the "Sprint Building"); (xii) a one story office
building and warehouse in Tredyffrin Township, Pennsylvania (the "Johnson
Matthey Building"); (xiii) a two-story office building in Ft. Meyers, Florida
(the "Gartner Building"), all four of which are owned by Fund XI-XII-REIT
Joint Venture; (xiv) a two-story office building located in Lake Forest,
California (the "Matsushita Project"); (xv) a four-story office building
under construction in Richmond, Virginia (the "ABB-Richmond Building"); (xvi)
a two-story office building and warehouse in Wood Dale, Illinois (the
"Marconi Building"); (xvii) a five-story office building in Plano, Texas (the
"Cinemark Building"); (xviii) a three-story office building in Tulsa,
Oklahoma (the "Metris Building"); (xix) a two-story office building in
Scottsdale, Arizona (the "Dial Building"); (xx) a two-story office building
in Tempe, Arizona (the "ASML Building"); (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; and (xxiv) a three-story office building in Troy,
Michigan (the "Siemens Building"), which is owned by the Fund XII-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 June 30, 2000, amounted to $7,613,708 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
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<PAGE>
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 balance sheet of the Company includes the
amounts of both the Company and Wells OP.
The consolidated financial statements of the Company have been prepared in
accordance with instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. These quarterly statements have
not been examined by independent accountants, but in the opinion of the Board
of Directors, the statements for the unaudited interim periods presented
include all adjustments, which are of a normal and recurring nature,
necessary to present a fair presentation of the results for such periods. For
further information, refer to the financial statements and footnotes included
in the Company's Form 10-K for the year ended December 31, 1999.
(h) Distribution Policy
The Company will make distributions each taxable year (not including a return
of capital for federal income tax purposes) equal to at least 95% of its real
estate investment trusts taxable income. The Company intends to make regular
quarterly distributions to holders of the shares. Distributions will be made
to those shareholders who are shareholders as of the record date selected by
the Directors. Distributions will be declared on a monthly basis and paid on
a quarterly basis during the Offering period and declared and paid quarterly
thereafter.
(i) Income Taxes
The Company has made an election under Section 856 (C) of the Internal
Revenue Code 1986, as amended (the "Code"), to be taxed as a Real Estate
Investment Trust ("REIT") under the Code beginning with its taxable year
ended December 31, 1998. As a REIT for federal income tax purposes, the
Company generally will not be subject to federal income tax on income that it
distributes to its shareholders. If the Company fails to qualify as a REIT in
any taxable year, it will then be subject to federal income tax on its
taxable income at regular corporate rates and will not be permitted to
qualify for treatment as a REIT for federal income tax purposes for four
years following the year during which qualification is lost. Such an event
could materially adversely affect the Company's net income and net cash
available to distribute to shareholders. However, the Company believes that
it is organized and operates in such a manner as to qualify for treatment as
a REIT and intends to continue to operate in the foreseeable future in such a
manner so that the Company will remain qualified as a REIT for federal income
tax purposes.
(j) Statement of Cash Flows
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments.
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2. INVESTMENTS IN JOINT VENTURES
The Company owned interests in 24 office buildings through its ownership in
Wells OP, which owns interest in five 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 June 30, 2000.
Fund XII-REIT Joint Venture
On April 10, 2000, Wells Fund XII and Wells OP, the Operating Partnership for
Wells Real Estate Investment Trust, Inc., 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 Fund XII-REIT Joint Venture Partnership (the "Fund XII-REIT
Joint Venture").
As of June 30, 2000, Wells OP had contributed approximately $6,782,935 for an
approximate 50% equity interest in the Fund XII-REIT Joint Venture. As of
June 30, 2000, Wells Fund XII also had an approximate 50% equity interest in
the Fund XII-REIT Joint Venture.
Siemens Building
On May 10, 2000, the Fund XII-REIT Joint Venture acquired the Siemens
Building, a three-story office building containing approximately 77,054
rentable square feet on a 5.3-acre tract of land located in Troy, Oakland
County, Michigan, for a purchase price of $14,265,000, excluding acquisition
costs. The entire Siemens Building is currently under a net lease agreement
with Siemens which was assigned to the Fund XII-REIT Joint Venture at
closing. The lease currently expires on August 31, 2010, and Siemens has the
right to extend the lease for two additional five year periods of time at 95%
of the then current fair market rental rate.
Under the lease, Siemens is required to pay as additional monthly rent its
gas, water and electricity costs and all operating expenses including, but
not limited to, garbage and waste disposal, telephone, sprinkler service,
janitorial service, security, insurance premiums, all taxes, assessments and
other governmental levies and such other operating expenses with respect to
the Siemens Building. In addition, Siemens is responsible for all routine
maintenance and repairs to its portion of the Siemens Building. Siemens is
responsible for maintenance of the common and service areas and the central
heating, ventilation and air conditioning systems of the building.
The Fund XII-REIT Joint Venture, as landlord, is responsible for the repair
and replacement of the roof, foundation, loan bearing items, exterior surface
walls, plumbing, pipes, conduits and electrical, mechanical and plumbing
systems of the Siemens Building. Siemens must obtain written consent from the
Fund XII-REIT Joint Venture before making any alterations to the premises in
excess of $100,000 in the aggregate within any 12-month period.
Under the terms of the Siemens, lease the Fund XII-REIT Joint Venture is
required to reimburse Siemens for tenant improvement costs in the amount of
$1,954,516. The Fund XII-REIT Joint Venture received a credit at closing in
an amount equal to this tenant improvement allowance.
Siemens has a one-time right to cancel the Siemens lease effective after the
90th month of the term if Siemens (a) provides written notice of such
cancellation on or before the last day of the 78th month, and (b) pays a
cancellation fee to the Fund XII-REIT Joint Venture currently calculated to
be approximately $1,234,160.
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<PAGE>
For additional information regarding the Siemens Building, refer to
Supplement No. 4 dated July 21, 2000 to the Prospectus of Wells Real Estate
Investment Trust, Inc. dated December 20, 1999, which was filed with the
Commission on July 21, 2000 (Commission File No. 333-83933).
The Avnet Building
On June 12, 2000, Wells OP purchased a two-story office building with
approximately 130,070 rentable square feet on a 9.63-acre tract of land
located at 8700 Price Road, Tempe, Maricopa County, Arizona (the "Avnet
Building") from Ryan Companies US, Inc. The purchase price for the Avnet
Building was $13,250,000, excluding closing costs.
The land upon which the Avnet Building is situated is subject to a long-term
ground lease (the "Avnet Ground Lease") with the Research Park and, at
closing, Wells OP was assigned and assumed all the tenant's rights, duties
and obligations under the Avnet Ground Lease which commenced November 19,
1997 and expires on December 31, 2082. The annual ground lease payment for
the first 15 years of the Avnet Ground Lease term is $230,777.
The entire Avnet Building is currently under a net lease agreement (the
"Avnet Lease") with Avnet, Inc. ("Avnet"). The landlord's interest in the
Avnet Lease was assigned to Wells OP at the closing. The initial term of the
Avnet Lease is ten years, which expires on May 31, 2010. Avnet has the right
to extend the Avnet Lease for two additional five-year periods of time. The
current annual rent payable under the Avnet Lease is $1,516,164, out of which
Wells OP will be required to make the annual ground lease payment described
above.
The Avnet Building is occupied by Avnet Inc., a worldwide industrial
distributor of electronic components and computer products.
For additional information regarding the Avnet Building, refer to Supplement
No. 4 dated July 21, 2000 to the Prospectus of Wells Real Estate Investment
Trust, Inc. dated December 20, 1999, which was filed with the Commission on
July 21, 2000 (Commission File No. 333-83933).
The Delphi Building
On June 29, 2000, Wells OP acquired a 107,193 square-foot, three-story,
single-tenant office property ( the "Delphi Building") fully leased long-term
to a subsidiary of Delphi Automotive Systems Corporation (the "Delphi
Lease").
The $19,800,000 acquisition is 100% owned by the Wells OP and is 100%
occupied. The tenant has signed a ten-year lease. The tenant is a subsidiary
of Delphi Automotive Systems Corporation, a diversified supplier of
automotive parts and components. Delphi employs over 216,000 people in more
than 36 countries and sells its products to every major manufacturer of light
automotive vehicles in the world.
The Delphi Building is located on a 5.52-acre tract of land in Troy,
Michigan.
The landlord's interest in the Delphi Lease was assigned to Wells OP at the
closing. The initial term of the Delphi Lease is ten years, which expires on
December 31, 2010. The current annual rent payable under the Delphi Lease is
$1,715,088.
For additional information regarding the Delphi Building, refer to Supplement
No. 4 dated July 21, 2000 to the Prospectus of Wells Real Estate Investment
Trust, Inc. dated December 20, 1999, which was filed with the Commission on
July 21, 2000 (Commission File No. 333-83933).
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3. NOTES PAYABLE
Notes payable, as of June 30, 2000, consists of loans of (i) $10,320,100 due
to SouthTrust Bank secured by a first mortgage against the PWC Building; (ii)
$6,465,505 due to SouthTrust Bank secured by a pledge of the ABB property and
the ABB Richmond Lease, which is secured by a $4,000,000 letter of credit;
(iii) $14,213,986 due to Bank of America secured by a first priority mortgage
against the Matsushita Property; (iv) $26,642,933 due to Bank of America
secured by first mortgages on the AT&T and Marconi buildings; (v) $8,000,000
due to Richter-Schroeder Company, Inc. secured by a first mortgage against
the Metris Building; and (vi) $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 December 31,
1999 10-K. Payments of $462,928 have been made as of June 30, 2000 toward
fulfilling the Matsushita agreement.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
accompanying financial statements of the Company and notes thereto. This
report contains forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including discussion and analysis of the financial condition of the
Company, anticipated capital expenditures required to complete certain
projects, amounts of cash distributions anticipated to be distributed to
limited partners in the future, and certain other matters. Readers of this
report should be aware that there are various factors that could cause actual
results to differ materially from any forward-looking statements made in this
report, which include construction costs which may exceed estimates,
construction delays, lease-up risks, inability to obtain new tenants upon the
expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow.
Liquidity and Capital Resources
The Company began active operations on June 5, 1998, when it received and
accepted subscriptions for 125,000 shares pursuant to its initial public
offering, which commenced on January 30, 1998. The Company terminated its
initial public offering on December 19, 1999, and on December 20, 1999, the
Company commenced a follow-on public offering of up to 22,200,000 shares of
common stock at $10 per share. As of December 31, 1999, the Company had
raised an aggregate of $134,710,850 in offering proceeds through the sale of
13,471,085 shares. As of December 31, 1999, the Company had paid $4,714,880
in Acquisition Advisory Fees and Acquisition Expenses, $16,838,857 in selling
commissions and organizational offering expenses, and $112,287,969 in capital
contributions to Wells OP for investments in joint ventures and acquisitions
of real properties. As of December 31, 1999, the Company was holding net
offering proceeds of approximately $869,144 available for investment in
additional properties.
Between December 31, 1999, and June 30, 2000, the Company raised an
additional $82,993,823 in offering proceeds through the sale of an additional
8,299,383 shares. Accordingly, as of June 30, 2000, the Company had raised a
total of $217,704,678 in offering proceeds through the sale of 21,770,468
-12-
<PAGE>
shares of common stock. As of June 30, 2000, the Company had paid a total of
$7,613,708 in Acquisition and Advisory Fees and Acquisition Expenses, had
paid a total of $27,191,814 in selling commissions and organizational
offering expenses, had made capital contributions of $179,502,869 to Wells OP
for investments in joint ventures and acquisitions of real property, had
utilized $170,163 for the redemption of stock pursuant to the Company's share
redemption program, and was holding net offering proceeds of $3,226,124
available for investment and additional properties.
Cash and cash equivalents at June 30, 2000 and 1999 were $6,315,188 and
$19,449,957, respectively. The increase in cash and cash equivalents resulted
primarily from raising additional capital offset by increased investment in
real property acquisitions.
Operating cash flows are expected to increase as additional properties are
added to the Company's investment portfolio. Dividends to be distributed to
the shareholders are determined by the Board of Directors and are dependent
upon a number of factors relating to the Company, including funds available
for payment of dividends, financial condition, capital expenditure
requirements and annual distribution requirements in order to maintain the
Company's status as a REIT under the Internal Revenue Code.
As of June 30, 2000, the Company had acquired interests in 24 real estate
properties. These properties are generating sufficient cash flow to cover the
operating expenses of the Company and pay quarterly dividends. Dividends
declared for the second quarter of 2000 and the second quarter of 1999
totaled $0.181 and $0.175 per share, respectively, which were declared on a
daily record date basis in the amount of $0.1991 and $0.1902, respectively,
per share payable to the shareholders of record at the close of business of
each day during the quarter.
Cash Flows from Operating Activities
Net cash provided by operating activities was $3,060,467 for the six months
ended June 30, 2000 and $112,955 for the six months ended June 30, 1999. The
increase in net cash provided by operating activities was due primarily to
the purchase of additional properties in 1999 and 2000.
Cash Flows from Investing Activities
The increase in net cash used in investing activities from $23,857,111 for
the six months ended June 30, 1999 to $109,152,779 for the six months ended
June 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 $35,214,710
for the six months ended June 30, 1999 to $109,477,696 for the six months
ended June 30, 2000 was due primarily to the raising of additional capital
and the corresponding increase in funds borrowed to purchase additional
properties. The Company raised $82,993,823 in offering proceeds for the six
months ended June 30, 2000, as compared to $46,164,450 for the six months
ended June 30, 1999. In addition, the Company received loan proceeds from
financing secured by properties of $66,170,746 and repaid notes payable in
the amount of $24,357,450.
Results of Operations
As of June 30, 2000, the properties owned by the Company were 100% occupied.
Gross revenues for the six months ended June 30, 1999 and for the six months
ended June 30, 2000 were $2,192,938 and $9,148,027, respectively. This
increase was due to the purchase of additional properties during 1999 and
2000. The purchase of interests in additional properties also resulted in an
increase in operating
-13-
<PAGE>
expenses, management and leasing fees, and depreciation expense. The
Company's net income increased to $3,212,309 for the first six months of 2000
as compared to $995,413 for the first six months of 1999.
Subsequent Event
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 Property
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.
A 42-month lease for the entire Bake Parkway Building has been signed by
Quest Software, Inc. 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.
-14-
<PAGE>
Property Operations
As of June 30, 2000, the Company owned interests in the following operational
properties:
The ABB Building/Fund IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income $291,417 $261,987 $606,582 $522,079
Interest income 15,976 16,681 33,704 31,741
-------- -------- -------- --------
307,393 278,668 640,286 553,820
-------- -------- -------- --------
Expenses:
Depreciation 98,454 134,100 196,908 268,200
Management and leasing expenses 23,395 29,504 75,955 61,406
Other operating expenses (9,264) 25,829 (42,634) 3,707
-------- -------- -------- --------
112,585 189,433 230,229 333,313
-------- -------- -------- --------
Net income $194,808 $ 89,235 $410,057 $220,507
======== ======== ======== ========
Occupied percentage 100% 98.28% 100% 98.28%
======== ======== ======== ========
Company's ownership percentage 3.72% 3.74% 3.72% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 10,905 $ 8,419 $ 22,439 $ 18,409
======== ======== ======== ========
Net income allocated to the Company $ 7,242 $ 3,336 $ 15,250 $ 8,322
======== ======== ======== ========
</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 resulting from accelerated depreciation in 1999 on
tenant improvements for a short-term lease 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 current year common area
maintenance 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.
The Company's ownership interest in the Fund IX-X-XI-REIT Joint Venture
decreased slightly due to additional capital contributions in the first and
second quarters of 2000 by Wells Fund IX and Wells Fund X, respectively, to
the Fund IX-X-XI-REIT Joint Venture.
-15-
<PAGE>
The Ohmeda Building/Fund IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income $256,828 $256,829 $513,657 $513,657
-------- -------- -------- --------
Expenses:
Depreciation 81,576 81,576 163,152 163,152
Management and leasing expenses 11,829 12,058 28,830 23,675
Other operating expenses 53,401 (4,450) 80,995 (4,087)
-------- -------- -------- --------
146,806 89,184 272,977 182,740
-------- -------- -------- --------
Net income $110,022 $167,645 $240,680 $330,917
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Company's ownership percentage 3.72% 3.74% 3.72% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 6,912 $ 9,104 $ 14,597 $ 18,188
======== ======== ======== ========
Net income allocated to the Company $ 4,092 $ 6,268 $ 8,953 $ 12,469
======== ======== ======== ========
</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 stemmed from the revaluation of
the property by Boulder County authorities in 1999. A later reduction in
taxes due to an appeal in 2000 was offset by a common area maintenance credit
to the tenant.
Cash distributions have decreased largely because of the decrease in net
income. The Company's ownership interest in the Fund IX-X-XI-REIT Joint
Venture decreased slightly due to additional capital contributions in the
first and second quarters of 2000 by Wells Fund IX and Wells Fund X,
respectively, to the Fund IX-X-XI-REIT Joint Venture.
-16-
<PAGE>
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income $222,255 $207,758 $428,444 $414,279
-------- -------- -------- --------
Expenses:
Depreciation 71,670 71,670 143,340 143,340
Management and leasing expenses 35,810 17,755 56,717 35,619
Other operating costs (35,614) 12,884 (52,534) 10,633
-------- -------- -------- --------
71,866 102,309 147,523 189,592
-------- -------- -------- --------
Net income $150,389 $105,449 $280,921 $224,687
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Company's ownership percentage 3.72% 3.74% 3.72% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 8,305 $ 6,566 $ 15,879 $ 13,752
======== ======== ======== ========
Net income allocated to the Company $ 5,591 $ 3,942 $ 10,447 $ 8,463
======== ======== ======== ========
</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 reimbursement. Tenants are billed an
estimated amount for current year common area maintenance which is then
reconciled the following year and the difference billed to the tenants. Due
to these common area maintenance reimbursements, management and leasing fees
increased since these fees are charged only on actual receipts received.
Cash distributions and net income allocated to the Company for the quarter
ended June 30, 2000 increased in 2000 over 1999 due to an increase in net
income. The Company's ownership interest in the Fund IX-X-XI-REIT Joint
Venture decreased slightly due to additional cash fundings in the first and
second quarters of 2000 by Wells Fund IX and Wells Fund X, respectively, to
the Fund IX-X-XI-REIT Joint Venture.
-17-
<PAGE>
The Lucent Technologies Building/Fund IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income $145,752 $145,752 $291,504 $291,504
-------- -------- -------- --------
Expenses:
Depreciation 45,801 45,801 91,602 91,602
Management and leasing expenses 5,370 5,370 10,740 10,739
Other operating expenses 4,538 9,184 8,019 12,198
-------- -------- -------- --------
55,709 60,355 110,361 114,539
-------- -------- -------- --------
Net income $ 90,043 $ 85,397 $181,143 $176,965
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Company's ownership percentage 3.72% 3.74% 3.72% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 4,622 $ 4,475 $ 9,324 $ 9,256
======== ======== ======== ========
Net income allocated to the Company $ 3,347 $ 3,193 $ 6,737 $ 6,672
======== ======== ======== ========
</TABLE>
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 occur in 2000.
The Company's ownership interest in the Fund IX-X-XI-REIT Joint Venture
decreased slightly due to additional capital contributions in the first and
second quarters of 2000 by the Wells Fund IX and Wells Fund X, respectively,
to the Fund IX-X-XI-REIT Joint Venture.
-18-
<PAGE>
The Iomega Building/Fund IX-X-XI-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income $168,250 $123,873 $336,500 $247,746
-------- -------- -------- --------
Expenses:
Depreciation 55,062 48,495 110,124 96,990
Management and leasing expenses 7,280 3,735 14,560 9,338
Other operating expenses 5,219 4,238 10,367 2,525
-------- -------- -------- --------
67,561 56,468 135,051 108,853
-------- -------- -------- --------
Net income $100,689 $ 67,405 $201,449 $138,893
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Company's ownership percentage 3.72% 3.74% 3.72% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 5,610 $ 4,188 $ 11,228 $ 8,599
======== ======== ======== ========
Net income allocated to the Company $ 3,743 $ 2,520 $ 7,492 $ 5,236
======== ======== ======== ========
</TABLE>
Rental income increased in 2000, as compared to 1999, due to the completion
of the parking lot complex in the second quarter of 1999. Total expenses
increased in 2000, over 1999, due to an increase in depreciation and real
estate tax expenses relating to the new parking lot. Cash distributions
increased in 2000, over 1999, due primarily to the increase in net income.
The Company's ownership interest in the Fund IX-X-XI-REIT Joint Venture
decreased slightly due to additional capital contributions in the first and
second quarters of 2000 by Wells Fund IX and Wells Fund X, respectively, to
the Fund IX-X-XI-REIT Joint Venture.
-19-
<PAGE>
The Cort Building/Wells/Orange County Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income $198,886 $198,886 $397,771 $397,771
-------- -------- -------- --------
Expenses:
Depreciation 46,641 46,641 93,282 93,282
Management and leasing expenses 7,590 7,590 15,180 15,180
Other operating expenses (7,241) 5,281 3,930 13,453
-------- -------- -------- --------
46,990 59,512 112,392 121,915
-------- -------- -------- --------
Net income $151,896 $139,374 $285,379 $275,856
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Company's ownership percentage 43.7% 43.7% 43.7% 43.7%
======== ======== ======== ========
Cash distributions to the Company $ 82,705 $ 77,237 $157,370 $153,211
======== ======== ======== ========
Net income allocated to the Company $ 66,329 $ 60,861 $124,617 $120,459
======== ======== ======== ========
</TABLE>
Rental income, depreciation, and management and leasing expenses remained
stable in 2000, as compared to 1999, while other operating expenses are lower
due to CAM reimbursements billed in 2000 to the tenants. No CAM billing was
charged to the tenant in 1999. Tenants are billed an estimated amount for
common area maintenance which is then reconciled the following year, and the
difference is billed to the tenant.
-20-
<PAGE>
The Fairchild Building/Wells/Fremont Joint Venture
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -------------------
June 30, June 30, June 30, June 30,
-------- -------- -------- --------
2000 1999 2000 1999
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Revenues:
Rental income $225,195 $225,211 $450,390 $450,421
-------- -------- -------- --------
Expenses:
Depreciation 71,382 71,382 142,764 142,764
Management and leasing expenses 9,175 9,343 18,350 18,667
Other operating expenses 2,842 6,315 6,612 7,315
-------- -------- -------- --------
83,399 87,040 167,726 168,746
-------- -------- -------- --------
Net income $141,796 $138,171 $282,664 $281,675
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Company's ownership percentage 77.5% 77.5% 77.5% 77.5%
======== ======== ======== ========
Cash distribution to the Company $159,128 $151,707 $317,537 $307,547
======== ======== ======== ========
Net income allocated to the Company $109,897 $107,087 $219,076 $218,309
======== ======== ======== ========
</TABLE>
Rental income, net income and cash distributions to the Company remained
stable in 2000, as compared to 1999.
-21-
<PAGE>
The PCW Building
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------- -----------------------
June 30, June 30, June 30, June 30,
-------- -------- ---------- ----------
2000 1999 2000 1999
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $552,298 $552,298 $1,104,596 $1,104,340
-------- -------- ---------- ----------
Expenses:
Depreciation 206,037 205,251 412,074 411,021
Management and leasing expenses 39,437 32,263 78,382 73,535
Other operating expenses (69,651) 46,214 (105,680) 181,217
-------- -------- ---------- ----------
175,823 283,728 384,776 665,773
-------- -------- ---------- ----------
Net income $376,475 $268,570 $ 719,820 $ 438,567
======== ======== ========== ==========
Occupied percentage 100% 100% 100% 100%
======== ======== ========== ==========
Company's ownership percentage 100% 100% 100% 100%
======== ======== ========== ==========
Cash generated to the Company $527,849 $407,917 $1,024,078 $ 717,780
======== ======== ========== ==========
Net income generated to the Company $376,475 $268,570 $ 719,820 $ 438,567
======== ======== ========== ==========
</TABLE>
Rental income has remained stable. Other operating expenses are negative due
to increased common area maintenance billings in 2000. Management and leasing
fee reimbursement is also included in other operating expenses. Tenants are
billed an estimated amount for current year common area maintenance which is
then reconciled the following year, and the difference billed to the tenants.
-22-
<PAGE>
The AT&T Building
<TABLE>
<CAPTION>
Three Months Ended Six Months Five Months
------------------- Ended Ended
June 30, June 30, June 30, June 30,
-------- -------- -------- -----------
2000 1999 2000 1999
-------- -------- -------- -----------
<S> <C> <C> <C> <C>
Revenues:
Rental income $340,833 $300,533 $681,665 $474,674
-------- -------- -------- --------
Expenses:
Depreciation 120,744 120,750 241,488 201,222
Management and leasing expenses 15,338 5,130 30,676 8,550
Other operating expenses (764) 8,762 6,110 9,569
Interest expense 3,210 111,652 6,416 178,576
-------- -------- -------- --------
138,528 246,294 284,690 397,917
-------- -------- -------- --------
Net income $202,305 $ 54,239 $396,975 $ 76,757
======== ======== ======== ========
Occupied percentage 100% 100% 100% 100%
======== ======== ======== ========
Company's ownership percentage 100% 100% 100% 100%
======== ======== ======== ========
Cash generated to the Company $314,185 $247,143 $638,599 $279,185
======== ======== ======== ========
Net income generated to the Company $202,305 $ 54,239 $396,975 $ 76,757
======== ======== ======== ========
</TABLE>
On February 4, 1999, the Wells OP acquired a four-story office building
containing approximately 81,859 rentable square feet on a 10.5-acre tract of
land in Harrisburg, Pennsylvania (the "AT&T Building"), for a purchase price
of $12,291,200, excluding acquisitions costs.
Rental income increased for the three months ended June 30, 2000, as compared
to the three months ended June 30, 1999, due to an understatement of straight
line rent in 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 year are available for only five months.
-23-
<PAGE>
The EYBL CarTex Building/Wells Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Six Months Six Months
Ended Ended Ended
June 30, June 30, June 30,
------------ ---------- ----------
2000 2000 1999
------------ ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income $140,089 $280,178 $70,126
-------- -------- -------
Expenses:
Depreciation 49,900 99,801 33,268
Management and leasing expenses 5,496 11,217 10,849
Other operating expenses 9,174 19,014 0
-------- -------- -------
64,570 130,032 44,117
-------- -------- -------
Net income $ 75,519 $150,146 $26,009
======== ======== =======
Occupied percentage 100% 100% 100%
======== ======== =======
Company's ownership percentage 56.8% 56.8% 70.1%
======== ======== =======
Cash distribution to the Company $ 65,979 $122,907 $35,515
======== ======== =======
Net income allocated to the Company $ 42,866 $ 85,227 $18,248
======== ======== =======
</TABLE>
On May 18, 1999, Wells Real Estate, LLC-SC I ("Wells LLC"), a Georgia limited
liability company wholly owned by the Wells Fund XI-REIT Joint Venture,
acquired a manufacturing and office building containing 169,510 square feet
located in Fountain Inn, unincorporated Greenville County, South Carolina
(the "EYBL CarTex Building") for a purchase price of $5,085,000 excluding
acquisitions costs.
Since the EYBL CarTex Building was purchased in May of 1999, comparable
income and expense figures for the prior year are available for only two
months. Since acquisition of the property by Fund XI-XII-REIT, the property
has remained 100% occupied and no significant changes have occurred to its
operations.
The Company's ownership interest in the Fund XI-XII-REIT Joint Venture
decreased due to the admittance of Wells Fund XII to the Fund XI-REIT Joint
Venture on June 21, 1999.
-24-
<PAGE>
The Sprint Building/Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $265,997 $531,994
-------- --------
Expenses:
Depreciation 81,778 163,557
Management and leasing expenses 11,240 22,479
Other operating expenses 4,334 10,658
-------- --------
97,352 196,694
-------- --------
Net income $168,645 $335,300
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 56.8% 56.8%
======== ========
Cash distribution to the Company $132,933 $264,736
======== ========
Net income allocated to the Company $ 95,729 $190,327
======== ========
</TABLE>
On July 2, 1999, the Fund XI-XII-REIT Joint Venture acquired a three-story
office building with approximately 68,900 rentable square feet located in
Leawood, Johnson County, Kansas (the "Sprint Building") for the purchase
price of $9,546,210.
Since the Sprint Building was purchased in July 1999, comparative income and
expense figures are not available for the prior year.
Since acquisition of the property by Fund XI-XII-REIT Joint Venture, the
property has remained 100% occupied and no significant changes have occurred
to its operations.
-25-
<PAGE>
Johnson Matthey Building/Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $214,474 $428,948
-------- --------
Expenses:
Depreciation 63,838 127,737
Management and leasing expenses 8,884 17,769
Other operating expenses 5,252 10,129
-------- --------
78,004 155,635
-------- --------
Net income $136,470 $273,313
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 56.8% 56.8%
======== ========
Cash distribution to the Company $104,047 $208,307
======== ========
Net income allocated to the Company $ 77,464 $155,140
======== ========
</TABLE>
On August 17, 1999, the Fund XI-XII-REIT Joint Venture acquired a research
and development office and warehouse building containing approximately
130,000 rentable square feet on a ten-acre tract of land located in
Tredyffrin Township, Chester County, Pennsylvania (the "Johnson Matthey
Building"), for a purchase price of $8,000,000, excluding acquisition costs.
The entire Johnson Matthey Building is currently under a net lease with
Johnson Matthey, and was assigned to the Fund XI-XII-REIT Joint Venture at
closing. The lease currently expires on June 2007, and Johnson Matthey has
the right to extend the lease for two additional three-year periods of time.
Under the lease, Johnson Matthey is required to pay as additional rent all
real estate taxes, special assessments, utilities, taxes, insurance and other
operating costs with respect to the Johnson Matthey Building during the term
of the lease. In addition, Johnson Matthey is responsible for all routine
maintenance and repairs to the Johnson Matthey Building. The Fund XI-XII-REIT
Joint Venture, as landlord, is responsible for maintenance of the footings
and foundations and the structural steel columns and girders associated with
the building.
Since the Johnson Matthey Building was purchased in August 1999, comparative
income and expense figures are not available for the prior year.
Since acquisition of the property by Fund XI-XII-REIT Joint Venture, the
property has remained 100% occupied and no significant changes have occurred
to its operations.
-26-
<PAGE>
The Gartner Building/Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $216,567 $420,808
-------- --------
Expenses:
Depreciation 77,622 155,245
Management and leasing expenses 9,086 19,248
Other operating expenses (4,482) (19,793)
-------- --------
82,226 154,700
-------- --------
Net income $134,341 $266,108
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 56.8% 56.8%
======== ========
Cash distribution to the Company $109,577 $217,708
======== ========
Net income allocated to the Company $ 76,256 $151,051
======== ========
</TABLE>
On September 20, 1999, the Fund XI-XII-REIT Joint Venture acquired a two-
story office building containing approximately 62,400 rentable square feet
located on a 4.9-acre tract of land located in Ft. Myers, Florida (the
"Gartner Building"), for a purchase price of $8,320,000, excluding
acquisition costs.
Other operating expenses are negative due to an offset of tenant
reimbursements in operating costs both for the first quarter of 2000 as well
as the fourth quarter of 1999. Since the building was purchased in September
of 1999, the Company was not able to estimate the amount to be billed for
1999 until first quarter of 2000.
Since the Gartner Building was purchased in September 1999, comparative
income and expense figures are not available for the prior year.
-27-
<PAGE>
The Marconi Building
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $817,819 $1,635,638
-------- ----------
Expenses:
Depreciation 293,352 586,704
Management and leasing expenses 35,509 72,962
Other operating expenses 5,860 12,495
-------- ----------
334,721 672,161
-------- ----------
Net income $483,098 $ 963,477
======== ==========
Occupied percentage 100% 100%
======== ==========
Company's ownership percentage 100% 100%
======== ==========
Cash generated to the Company $671,940 $1,343,105
======== ==========
Net income generated to the Company $483,098 $ 963,477
======== ==========
</TABLE>
On September 10, 1999, Wells OP acquired a two-story corporate headquarters
facility containing approximately 250,354 rentable square feet on a 15.3-acre
tract of land in Wood Dale, Illinois (the "Marconi Building"), for a purchase
price of $32,630,940, excluding acquisition costs.
The building is 100% leased by Marconi Data, with a lease expiration of
November 2011.
Since the Marconi Building was purchased in September 1999, comparable income
and expense figures for the prior year are not available.
-28-
<PAGE>
The Matsushita Building
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $492,420 $1,017,029
-------- ----------
Expenses:
Depreciation 254,757 509,514
Management and leasing expenses 46,815 90,918
Other operating expenses 17,365 34,680
-------- ----------
318,937 635,112
-------- ----------
Net income $173,483 $ 381,917
======== ==========
Occupied percentage 100% 100%
======== ==========
Company's ownership percentage 100% 100%
======== ==========
Cash generated to the Company $442,307 $ 715,556
======== ==========
Net income generated to the Company $173,483 $ 381,917
======== ==========
</TABLE>
As of June 30, 2000, Wells OP had spent approximately $18,000,000 towards the
construction of the approximately 150,000 square foot office building in Lake
Forest, California (the "Matsushita Building"). The Matsushita Building is
substantially complete, and the aggregate of all costs and expenses to be
incurred by Wells OP with respect to the acquisition and construction of the
Matsushita Building is not expected to exceed the budget of $18,400,000. The
screen wall for the roof top air conditioning unit will be completed in the
third quarter of 2000.
On January 4, 2000, Matsushita Avionics occupied 100% of the 150,000 rentable
square foot building. The monthly base rent is based upon a projected total
cost for the Matsushita project of $17,847,769. If the total project cost is
more or less than $17,847,769, then the monthly base rent shall be adjusted
upward or downward, as the case may be, by 10% of the difference. Matsushita
is currently paying $154,602 in monthly rent.
Since the Matsushita Building opened in January 2000, comparable income and
expense figures for the prior year are not available.
-29-
<PAGE>
The Cinemark Building
<TABLE>
<CAPTION>
Three Months Six Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $701,262 $1,402,866
-------- ----------
Expenses:
Depreciation 212,310 424,586
Management and leasing expenses 29,340 62,040
Other operating expenses 142,265 307,855
-------- ----------
383,915 794,481
-------- ----------
Net income $317,347 $ 608,385
======== ==========
Occupied percentage 100% 100%
======== ==========
Company's ownership percentage 100% 100%
======== ==========
Cash generated to the Company $482,521 $ 938,437
======== ==========
Net income generated to the Company $317,347 $ 608,385
======== ==========
</TABLE>
On December 21, 1999, Wells OP acquired a five-story office building
containing approximately 118,108 rentable square feet on a 3.52-acre tract of
land in Plano, Texas (the "Cinemark Building"), for a purchase price of
$21,800,000, excluding acquisition costs.
The building is 100% leased by Cinemark and Coca-Cola, with lease expirations
of November 2009 and November 2006, respectively.
Since the Cinemark Building was purchased in December of 1999, comparable
income and expense figures for the prior year are not available.
-30-
<PAGE>
The Metris Building
<TABLE>
<CAPTION>
Three Months Five Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $309,552 $482,044
-------- --------
Expenses:
Depreciation 120,376 197,506
Management and leasing expenses 13,364 20,737
Other operating expenses 4,162 7,078
-------- --------
137,902 225,321
-------- --------
Net income $171,650 $256,723
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 100% 100%
======== ========
Cash generated to the Company $281,123 $435,798
======== ========
Net income generated to the Company $171,650 $256,723
======== ========
</TABLE>
In February 2000, Wells OP acquired a three-story office building containing
approximately 101,100 rentable square feet on a 14.6-acre tract of land in
Tulsa, Oklahoma (the "Metris Building"), for a purchase price of $12,700,000
excluding acquisition costs.
The building is 100% leased by Metris, with a lease expiration of January 31,
2010. The annual base rent payable under the Metris lease is $1,187,925
through January 2005 and then $1,306,718 through January 2010.
Since the Metris Building was purchased in February of 2000, comparable
income and expense figures for the prior year are not available.
-31-
<PAGE>
The Dial Building
<TABLE>
<CAPTION>
Three Months Four Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $346,918 $358,109
-------- --------
Expenses:
Depreciation 126,609 130,503
Management and leasing expenses 16,412 16,412
Other operating expenses 12,941 12,941
-------- --------
155,962 159,856
-------- --------
Net income $190,956 $198,253
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 100% 100%
======== ========
Cash generated to the Company $330,885 $342,076
======== ========
Net income generated to the Company $190,956 $198,253
======== ========
</TABLE>
On March 29, 2000, Wells OP acquired a two-story office building containing
approximately 129,689 rentable square feet on a 8.8375-acre tract of land in
Scottsdale, Arizona (the "Dial Building"), for a purchase price of
$14,250,000, excluding acquisition costs.
The building is 100% leased by Dial Corporation, with a lease expiration of
August 31, 2008. The annual base rent payable under the Dial lease is
$1,387,672 through the initial term of the lease.
Since the Dial Building was purchased in March of 2000, comparable income and
expense figures for the prior year are not available.
-32-
<PAGE>
The ASML Building
<TABLE>
<CAPTION>
Three Months Four Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental Income $586,875 $602,422
-------- --------
Expenses:
Depreciation 191,157 197,436
Management and leasing expenses 28,322 28,322
Other operating expenses 54,667 56,170
-------- --------
274,146 281,928
-------- --------
Net income $312,729 $320,494
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 100% 100%
======== ========
Cash generated to the Company $420,231 $434,275
======== ========
Net income generated to the Company $312,729 $320,494
======== ========
</TABLE>
On March 29, 2000, Wells OP acquired a two-story office building containing
approximately 95,133 rentable square feet on a 9.51-acre tract of land in
Tempe, Arizona (the "ASML Building"), for a purchase price of $17,355,000,
excluding acquisition costs.
The building is 100% leased by ASML Lithography, Inc. ("ASML"), with a lease
expiration of June 30, 2013. The current annual base rent payable under the
ASML Lease is $1,927,788, out of which Wells OP is required to make ground
lease payments in the amount of $186,368 annually.
Since the ASML Building was purchased in March of 2000, comparable income and
expense figures for the prior year are not available.
-33-
<PAGE>
The Motorola Building
<TABLE>
<CAPTION>
Three Months Four Months
Ended Ended
June 30, 2000 June 30, 2000
------------- -------------
<S> <C> <C>
Revenues:
Rental income $485,834 $500,704
-------- --------
Expenses:
Depreciation 176,250 182,039
Management and leasing expenses 21,698 21,698
Other operating expenses 64,688 66,655
-------- --------
262,636 270,392
-------- --------
Net income $223,198 $230,312
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 100% 100%
======== ========
Cash generated to the Company $385,066 $397,969
======== ========
Net income generated to the Company $223,198 $230,312
======== ========
</TABLE>
On March 29, 2000, Wells OP acquired a two-story office building containing
approximately 133,225 rentable square feet on a 12.44-acre tract of land in
Tempe, Arizona (the "Motorola Building"), for a purchase price of
$16,000,000, excluding acquisition costs.
The building is 100% leased by Motorola, Inc. ("Motorola"), with a lease
expiration of August 31, 2005. The current annual base rent payable under the
Motorola lease is $1,843,834, out of which Wells OP is required to make
ground lease payments in the amount of $243,825 annually.
Since the Motorola Building was purchased in March of 2000, comparable income
and expense figures for the prior year are not available.
-34-
<PAGE>
The Siemens Building/Fund XII-REIT Joint Venture
<TABLE>
<CAPTION>
Two Months
Ended
June 30, 2000
-------------
<S> <C>
Revenues:
Rental income $222,575
--------
Expenses:
Depreciation 69,334
Management and leasing expenses 3,284
Operating costs, net of reimbursements 227
--------
72,845
--------
Net income $149,730
========
Occupied percentage 100%
========
Company's ownership percentage 50%
========
Cash distributed to the Company $ 93,319
========
Net income allocated to the Company $ 74,865
========
</TABLE>
On May 10, 2000, the Fund XII-REIT Joint Venture acquired a three-story
office building containing approximately 77,054 rentable square feet on a
5.3-acre tract of land located in Troy, Oakland County, Michigan (the
"Siemens Building"), for a purchase price of $14,265,000, excluding
acquisition costs. The entire Siemens Building is currently under a net lease
agreement with Siemens which was assigned to the Fund XII-REIT Joint Venture
at closing. The lease currently expires on August 31, 2010, and Siemens has
the right to extend the lease for two additional five-year periods of time.
The monthly lease rent payable under the Siemens lease for the remainder of
the lease term is $109,160 for year 1; $111,857 for year 2; $114,554 for year
3; $117,251 for year 4; $119,947 for year 5; $122,644 for year 6; $125,341
for year 7; $128,038 for year 8; $130,735 for year 9; and $133,432 for year
10 and the first six months of year 11.
Under the lease, Siemens is required to pay as additional monthly rent all
real estate taxes, special assessments, utilities, taxes, insurance, and
other operating costs with respect to the Siemens Building. In addition,
Siemens is responsible for all routine maintenance and repairs to its portion
of the Siemens Building. The Fund XII-REIT Joint Venture, as landlord, is
responsible for the repair and replacement of the roof, structure, and
foundation.
Since the Siemens Building was purchased in May 2000, comparative income and
expense figures are not available for the prior year.
-35-
<PAGE>
The Avnet Building
<TABLE>
<CAPTION>
One Month
Ended
June 30, 2000
-------------
<S> <C>
Revenues:
Rental income $90,588
-------
Expenses:
Depreciation 44,238
Other operating expenses 12,431
-------
56,669
-------
Net income $33,919
=======
Occupied percentage 100%
=======
Company's ownership percentage 100%
=======
Cash generated to the Company $67,589
=======
Net income generated to the Company $33,919
=======
</TABLE>
On June 12, 2000, Wells OP acquired a two-story office building containing
approximately 130,070 rentable square feet on a 9.63-acre tract of land in
Tempe, Arizona (the "Avnet Building"), for a purchase price of $13,250,000,
excluding acquisition costs.
The building is 100% leased by Avnet, Inc. ("Avnet"), with a lease expiration
of May 31, 2010. The current annual base rent payable under the Avnet lease
is $1,516,164 out of which Wells OP is required to make ground lease payments
in the amount of $230,777 annually.
Since the Avnet Building was purchased in June of 2000, comparable income and
expense figures for the prior year are not available.
-36-
<PAGE>
The Delphi Building
<TABLE>
<CAPTION>
One Month
Ended
June 30, 2000
-------------
<S> <C>
Revenues:
Rental income $16,742
-------
Expenses:
Depreciation 3,235
Other operating expenses 7,132
-------
10,367
-------
Net income $ 6,375
=======
Occupied percentage 100%
=======
Company's ownership percentage 100%
=======
Cash generated to the Company $ 3,576
=======
Net income generated to the Company $ 6,375
=======
</TABLE>
On June 29, 2000, Wells OP acquired a three-story office building containing
approximately 107,193 rentable square feet on a 5.52-acre tract of land in
Troy, Michigan (the "Delphi Building"), for a purchase price of $19,800,000,
excluding acquisition costs.
The building is 100% leased by Delphi Automotive Systems Corporation
("Delphi"), with a lease expiration of December 31, 2010. The current annual
base rent payable under the Delphi lease is $1,715,088.
Since the Delphi Building was purchased in June of 2000, comparable income
and expense figures for the prior year are not available.
-37-
<PAGE>
PART II. OTHER INFORMATION
ITEM 4. Submission of Matters to a Vote of Security Holders.
(a) On June 28, 2000, the Registrant held its annual meeting of shareholders
at The Atlanta Athletic Club in Duluth, Georgia.
(b) The shareholders of the Registrant elected the following individuals to
the board of directors: Leo F. Wells, III, Douglas P. Williams, John L.
Bell, Richard W. Carpenter, Bud Carter, William H. Koegler, Jr., Donald
S. Moss, Walter W. Sessoms and Neil H. Strickland.
(c) The following matters were approved by the shareholders of the Registrant
at the annual meeting.
(1) The following votes were cast in connection with the election of the
directors:
Name Votes For Votes Withheld
----------------------- --------- --------------
Leo F. Wells, III 9,703,330 88,605
Douglas P. Williams 9,703,330 88,605
John L. Bell 9,703,330 88,605
Richard W. Carpenter 9,703,330 88,605
Bud Carter 9,703,330 88,605
William H. Keogler, Jr. 9,703,330 88,605
Donald S. Moss 9,703,330 88,605
Walter W. Sessoms 9,703,330 88,605
Neil H. Strickland 9,703,330 88,605
(2) Registrant's Articles of Incorporation were amended to increase the
number of authorized number of shares from 90,000,000 shares of
capital stock to 500,000,000 shares of capital stock, consisting of
350,000,000 shares of common stock, 50,000,000 shares of preferred
stock and 100,000,000 shares-in-trust. 9,027,806 shares voted for,
and 764,129 shares voted against this amendment.
(3) Registrant's Articles of Incorporation were amended to correctly
reflect January 30, 2008, as the date upon which Registrant must
begin liquidation in the event that listing of its shares does not
occur. 9,183,841 shares voted for and 608,094 shares voted against
this amendment.
(4) Registrant's Articles of Incorporation were amended to clarify the
ability of the board of directors to waive the 9.8% share ownership
limits under certain circumstances. 8,862,074 shares voted for, and
929,861 shares voted against this amendment.
(5) Various other provisions of Registrant's Articles of Incorporation
were also amended to bring them into conformity with industry
practices. 9,274,317 shares voted for and 517,618 shares voted
against these amendments.
(6) The 2000 Employee Stock Option Plan, which authorizes the board of
directors to grant stock options of Registrant to certain key
employees of Wells Capital, Inc., our Advisor, and Wells Management
Company, Inc., was approved. 8,913,910 shares voted for and 878,025
shares voted against this plan.
-38-
<PAGE>
(7) The Independent Director Warrant Plan, which authorizes Registrant to
issue to independent directors warrants to purchase 25 additional
shares for every share they purchase, was approved. 8,774,290 shares
voted for, and 1,017,645 shares voted against this plan.
(8) Arthur Andersen LLP was ratified as Registrant's independent auditors
for the fiscal year ending December 31, 2000. 9,308,714 shares voted
for and 483,221 shares voted against the ratification of our
independent auditors.
ITEM 6 (b.) On April 12, 2000, the Registrant filed a Current Report on Form
8-K dated March 29,2000 describing the acquisition of the Dial, ASML and
Avnet Buildings.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Registrant)
Dated: August 11, 2000 By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III
President, Director, and Chief
Financial Officer
-39-
