<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 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)
Maryland 58-2328421
----------------------------------- ---------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
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
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Consolidated Balance Sheets--September 30, 2000 and December 31, 1999 3
Consolidated Statements of Income for the Three Months and Nine Months Ended
September 30, 2000 and 1999 4
Consolidated Statements of Shareholders' Equity for the Year Ended December 31,
1999 and the Nine Months Ended September 30, 2000 5
Consolidated Statements of Cash Flows for the Nine Months Ended September 30,
2000 and 1999 6
Condensed Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Condition and Results of
Operations 11
PART II. OTHER INFORMATION 39
</TABLE>
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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.
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<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.
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<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.
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<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.
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<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
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"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 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.
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(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.
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
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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.
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.
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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.
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 September 30, 2000, the Company 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, the
Company 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, the
Company had paid a total of
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$9,161,189 in Acquisition and Advisory Fees and Acquisition Expenses, had
paid a total of $32,718,532 in selling commissions and organizational
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 the Company's
share redemption program, and was holding net offering proceeds of
$8,227,034 available for investment and 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 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 September 30, 2000, the Company had acquired interests in 25 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 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 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 Bake Parkway 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 Bake Parkway
Building. On July 1, 2000, the VIII-IX Joint Venture transferred the Bake
Parkway Building to the VIII-IX-REIT Joint Venture as its capital
contribution. 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 Bake
Parkway Building, Wells OP would guarantee 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 Bake Parkway Building
is leased by Quest Software, Inc. ("Quest") pursuant to a forty-two (42)
month lease that expires on December 31, 2003.
Wells OP had paid approximately $543,000 in rental income guaranty payments
to the VIII-IX Joint Venture through September 30, 2000, but has since
ceased making such payments since the Bake Parkway Building is now 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 Bake Parkway 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 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
-12-
<PAGE>
lease with Quest. Any payment made to the VIII-IX Joint Venture under the Rental
Income Guaranty Agreement will be made from investor proceeds of the Company.
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. The Company 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, the Company 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, the properties owned by the Company were 100%
occupied. 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. The Company's 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.
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.
-13-
<PAGE>
Property Operations
As of September 30, 2000, the Company has provided the following operational
information relating to its real estate properties:
Alstom Power-Knoxville (formerly the ABB Building)/
Fund IX-X-XI-REIT Joint Venture
<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 $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% 100% 98%
======== ======== ======== ========
Company's ownership percentage 3.71% 3.74% 3.71% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 11,074 $ 9,855 $ 33,513 $ 28,263
======== ======== ======== ========
Net income allocated to the Company $ 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 improvement 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 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 percentage ownership interest in the Fund IX-X-XI-REIT Joint
Venture decreased due to additional capital contributions made by Wells Fund IX
and Wells Fund X, respectively, to the Fund IX-X-XI-REIT Joint Venture in the
first and second quarters of 2000 for funding of capital improvements.
-14-
<PAGE>
The Ohmeda Building/Fund IX-X-XI-REIT Joint Venture
<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 $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%
======== ======== ======== ========
Company's ownership percentage 3.71% 3.74% 3.71% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 9,130 $ 8,804 $ 23,726 $ 26,992
======== ======== ======== ========
Net income allocated to the Company $ 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 stemmed 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 common area maintenance 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
Company for the three-month period ended September 30, 2000 increased slightly
as compared to 1999.
-15-
<PAGE>
The 360 Interlocken Building/Fund IX-X-XI-REIT Joint Venture
<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 $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%
======== ======== ======== ========
Company's ownership percentage 3.71% 3.74% 3.71% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 6,800 $ 7,200 $ 22,679 $ 20,952
======== ======== ======== ========
Net income allocated to the Company $ 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 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 based on actual receipts.
Cash distributions and net income allocated to the Company for the quarter ended
September 30, 2000 decreased in 2000, as compared to 1999, due to a decrease in
net income.
-16-
<PAGE>
The Avaya Building (formerly the Lucent Technologies Building)/
Fund IX-X-XI-REIT Joint Venture
<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 $ 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%
========= ========= ========= ========
Company's ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= ========
Cash distribution to the Company $ 4,723 $ 4,750 $ 14,048 $ 14,006
========= ========= ========= ========
Net income allocated to the Company $ 3,450 $ 3,468 $ 10,187 $ 10,140
========= ========= ========= ========
</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
not occur in 2000.
On September 30, 2000, Lucent Technologies, Inc. assigned its interest in the
lease to Avaya, Inc., the former Enterprise Networks Group of Lucent
Technologies.
-17-
<PAGE>
The Iomega Building/Fund IX-X-XI-REIT Joint Venture
<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 $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%
======== ======== ======== ========
Company's ownership percentage 3.71% 3.74% 3.71% 3.74%
======== ======== ======== ========
Cash distribution to the Company $ 5,713 $ 5,103 $ 16,940 $ 13,702
======== ======== ======== ========
Net income allocated to the Company $ 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.
-18-
<PAGE>
The Cort Building/Wells/Orange County Joint Venture
<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 $ 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%
=============== ============== =============== ===============
Company's ownership percentage 43.7% 43.7% 43.7% 43.7%
=============== ============== =============== ===============
Cash distribution to the Company $ 76,243 $ 76,926 $ 233,613 $ 230,137
=============== ============== =============== ===============
Net income allocated to the Company $ 59,867 $ 60,550 $ 184,484 $ 181,008
=============== ============== =============== ===============
</TABLE>
Rental income, depreciation, and management and leasing expenses remained stable
in 2000, as compared to 1999, while other operating expenses are lower in 2000
due to an increase in common area maintenance ("CAM") reimbursements billed 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.
-19-
<PAGE>
The Fairchild Building/Wells/Fremont Joint Venture
<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 $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%
=============== ============== =============== ===============
Company's ownership percentage 77.5% 77.5% 77.5% 77.5%
=============== ============== =============== ===============
Cash distribution to the Company $158,817 $151,627 $476,354 $459,174
=============== ============== =============== ===============
Net income allocated to the Company $109,587 $107,009 $328,663 $325,318
=============== ============== =============== ===============
</TABLE>
Rental income, net income and cash distributions to the Company remained stable
in 2000, as compared to 1999.
-20-
<PAGE>
The PWC Building
<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 $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) (54,898)
Interest expense 0 0 0 158,497
--------------- -------------- --------------- ---------------
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%
=============== ============== =============== ===============
Company's ownership percentage 100% 100% 100% 100%
=============== ============== =============== ===============
Cash generated to the Company $488,547 $526,399 $1,512,625 $1,244,179
=============== ============== =============== ===============
Net income generated to the Company $337,173 $387,067 $1,056,993 $ 825,634
=============== ============== =============== ===============
</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. There
was no interest in 2000, as compared to 1999, as the note related to this
building was paid in first quarter of 1999.
-21-
<PAGE>
The AT&T Building
<TABLE>
<CAPTION>
Nine Months Eight Months
Three Months Ended Ended Ended
-------------------------------
September 30, September 30, September 30, September 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%
============= ============= ============= =============
Company's ownership percentage 100% 100% 100% 100%
============= ============= ============= =============
Cash generated to the Company $ 314,681 $ 300,004 $ 953,280 $ 579,189
============= ============= ============= =============
Net income generated to the Company $ 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 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 year are available for only eight months.
-22-
<PAGE>
The EYBL CarTex Building/Wells Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Nine Months Five Months
Three Months Ended Ended Ended
-------------------------------
September 30, September 30, September 30, September 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%
============= ============= ============= =============
Company's ownership percentage 56.8% 56.8% 56.8% 56.8%
============= ============= ============= =============
Cash distribution to the Company $ 67,917 $ 68,084 $ 190,825 $ 103,599
============= ============= ============= =============
Net income allocated to the Company $ 44,820 $ 46,791 $ 130,047 $ 65,039
============= ============= ============= =============
</TABLE>
Since acquisition of the property by Wells Fund 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
month period ended September 30, 2000, as compared to the same period in 1999,
due to leasing commission paid to an outside broker pursuant to the terms of the
purchase agreement. Cash distributions and net income allocated to the Company
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, comparative 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.
The Company's ownership interest in the XI-XII-REIT Joint Venture decreased due
to the admittance of Wells Fund XII to the joint venture on June 21, 1999. The
Company's percentage ownership interest was 70.1% for May and June of 1999 and
56.8% for July through September of 1999.
-23-
<PAGE>
The Sprint Building/Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Nine Months Three Months
Three Months Ended Ended Ended
--------------------------------
September 30, September 30, September 30 September 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%
============= ============= ============ =============
Company's ownership percentage 56.8% 56.8% 56.8% 56.8%
============= ============= ============ =============
Cash distribution to the Company $ 133,516 $ 137,150 $ 398,252 $ 137,150
============= ============= ============ =============
Net income allocated to the Company $ 96,311 $ 100,192 $ 286,638 $ 100,192
============= ============= ============ =============
</TABLE>
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.
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
month period ended September 30, 2000, as compared to the same period for 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
for the three month period ended September 30, 2000, as compared to the same
period in 1999, 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.
-24-
<PAGE>
Johnson Matthey Building/Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months Two Months Nine Months
Ended Ended Ended
September 30, September 30, September 30,
2000 1999 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%
========== ======== ========
Company's ownership percentage 56.8% 56.8% 56.8%
========== ======== ========
Cash distribution to the Company $110,419 $ 66,517 $318,504
========== ======== ========
Net income allocated to the Company $ 83,836 $ 44,409 $238,977
========== ======== ========
</TABLE>
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.
Since the Johnson Matthey Building was purchased in August 1999, comparative
income and expense figures for the prior period ended September 30, 1999 covered
only two months. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
-25-
<PAGE>
The Gartner Building/Fund XI-XII-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months One Month Nine Months
Ended Ended Ended
September 30, September 30, September 30,
2000 1999 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 operating 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%
======== ========== ========
Company's ownership percentage 56.8% 56.8% 56.8%
======== ========== ========
Cash distribution to the Company $110,861 $ 10,374 $328,570
======== ========== ========
Net income allocated to the Company $ 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, the
Company was not able to estimate the amount to be billed for 1999 until first
quarter of 2000.
Since the 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.
Since the Gartner Building was purchased in September 1999, comparative income
and expense figures for the prior period covered only one month. Accordingly,
the prior period is not comparable to the nine month period ended September 30,
2000.
-26-
<PAGE>
The Marconi Building
<TABLE>
<CAPTION>
Three Months One Month Nine Months
Ended Ended Ended
September 30, September 30, September 30,
2000 1999 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%
======== ======== ==========
Company's ownership percentage 100% 100% 100%
======== ======== ==========
Cash generated to the Company $673,367 $157,899 $2,016,472
======== ======== ==========
Net income generated to the Company $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 covered only one month. Accordingly,
the prior period is not comparable to the nine month period ended September 30,
2000.
-27-
<PAGE>
The Matsushita Building
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
------------- -------------
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%
============= =============
Company's ownership percentage 100% 100%
============= =============
Cash generated to the Company $441,254 $1,156,810
============= =============
Net income generated to the Company $182,278 $ 564,195
============= =============
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.
-28-
<PAGE>
The Cinemark Building
Three Months Nine Months
Ended Ended
September 30, September 30,
2000 2000
------------- -------------
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%
============= =============
Company's ownership percentage 100% 100%
============= =============
Cash generated to the Company $474,274 $1,412,711
============= =============
Net income generated to the Company $309,100 $ 917,485
============= =============
Since the Cinemark Building was purchased in December 1999, comparable income
and expense figures for the prior period are not available.
-29-
<PAGE>
The Metris Building
Three Months Eight Months
Ended Ended
September 30, September 30,
2000 2000
------------- -------------
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%
============= =============
Company's ownership percentage 100% 100%
============= =============
Cash generated to the Company $281,392 $717,190
============= =============
Net income generated to the Company $170,410 $427,133
============= =============
Since the Metris Building was purchased in February 2000, comparable income and
expense figures for the prior period are not available.
-30-
<PAGE>
The Dial Building
<TABLE>
<CAPTION>
Three Months Seven Months
Ended Ended
September 30, September 30,
2000 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%
============= =============
Company's ownership percentage 100% 100%
============= =============
Cash generated to the Company $325,069 $667,145
============= =============
Net income generated to the Company $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.
-31-
<PAGE>
The ASML Building
Three Months Seven Months
Ended Ended
September 30, September 30,
2000 2000
------------- -------------
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%
============= =============
Company's ownership percentage 100% 100%
============= =============
Cash generated to the Company $401,031 $ 835,306
============= =============
Net income generated to the Company $291,066 $ 611,560
============= =============
Since the ASML Building was purchased in March 2000, comparable income and
expense figures for the prior period are not available.
-32-
<PAGE>
The Motorola Building
<TABLE>
<CAPTION>
Three Months Seven Months
Ended Ended
September 30, September 30,
2000 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%
=============== ==============
Company's ownership percentage 100% 100%
=============== ==============
Cash generated to the Company $366,882 $764,851
=============== ==============
Net income generated to the Company $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.
-33-
<PAGE>
The Siemens Building/Fund XII-REIT Joint Venture
Three Months Five Months
Ended Ended
September 30, September 30,
2000 2000
------------- -------------
Revenues:
Rental income $376,103 $598,678
-------- --------
Expenses:
Depreciation 106,736 176,070
Management and leasing expenses 14,736 18,020
Operating costs, net of reimbursements 1,805 2,032
-------- --------
123,277 196,122
-------- --------
Net income $252,826 $402,556
======== ========
Occupied percentage 100% 100%
======== ========
Company's ownership percentage 50% 50%
======== ========
Cash distributed to the Company $155,462 $248,781
======== ========
Net income allocated to the Company $126,413 $201,278
======== ========
Since the Siemens Building was purchased in May 2000, comparative income and
expense figures for the prior period are not available.
-34-
<PAGE>
The Avnet Building
Three Months Four Months
Ended Ended
September 30, September 30,
2000 2000
-------------- -------------
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%
======== ========
Company's ownership percentage 100% 100%
======== ========
Cash generated to the Company $298,703 $366,292
======== ========
Net income generated to the Company $229,151 $263,070
======== ========
Since the Avnet Building was purchased in June 2000, comparable income and
expense figures for the prior period are not available.
-35-
<PAGE>
The Delphi Building
Three Months Four Months
Ended Ended
September 30, September 30,
2000 2000
------------- -------------
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%
======== ========
Company's ownership percentage 100% 100%
======== ========
Cash generated to the Company $458,077 $461,653
======== ========
Net income generated to the Company $276,251 $282,626
======== ========
Since the Delphi Building was purchased in June 2000, comparable income and
expense figures for the prior period are not available.
-36-
<PAGE>
The Alstom Power-Richard Building
Three Months
Ended
September 30,
2000
-------------
Revenues:
Rental income $228,597
--------
Expenses:
Depreciation 110,097
Management and leasing expenses 29,694
Other operating expenses (34,658)
--------
105,133
--------
Net income $123,464
========
Occupied percentage 100%
========
Company's ownership percentage 100%
========
Cash generated to the Company $243,186
========
Net income generated to the Company $123,464
========
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 (the "Alstom Power Building"). The project is
anticipated to cost $11,400,000.
The building is 100% leased by Alstom Power, Inc. ("Alstom"), with a lease
expiration of July 31, 2007. The current annual base rent payable under the
Alstom lease is $1,183,728.
Since the Alstom Building was completed in July of 2000, comparable income and
expense figures for the prior period are not available.
On December 30, 1999, ABB Power Generation, Inc. merged into ABB Alsom Power,
Inc. and, as of June 22, 2000, ABB Alstom Power, Inc. changed its name to Alstom
Power, Inc.
-37-
<PAGE>
The Quest Building/Fund VIII-IX-REIT Joint Venture
<TABLE>
<CAPTION>
Three Months
Ended
September 30, 2000
------------------
<S> <C>
Revenues:
Rental income $259,148
------------------
Expenses:
Depreciation 46,368
Other operating expenses 16,283
------------------
62,651
------------------
Net income $196,497
==================
Occupied percentage 100%
==================
Company's ownership percentage 7.0%
==================
Cash generated to the Company $ 8,842
==================
Net income generated to the Company $ 11,529
==================
</TABLE>
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 to the Fund VIII-IX-REIT Joint Venture its interest in a
two-story office building containing approximately 65,006 rentable square feet
on a 4.4-acre tract of land in Irvine, California (the "Quest Building"),
formerly the Bake Parkway Building.
On August 1, 2000, Quest Software, Inc. ("Quest") commenced a 42 month lease for
100% of the Quest Building. 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
cost of such tenant improvements will be deemed a capital contribution by Wells
OP to the Fund VIII-IX-REIT Joint Venture as such costs are paid by Wells OP.
-38-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 (b.) No current reports on Form 8-K were filed during the third quarter
of 2000.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
Wells real estate INVESTMENT TRUST, INC.
(Registrant)
Dated: November 10, 2000 By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III
President, Director, and Chief Financial
Officer
-39-
