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, 1995
____________ 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 0-16518
_______________
Wells Real Estate Fund II
_______________
(Exact name of registrant as specified in its
charter)
Georgia 58-1678709
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 449-7800
______________ <PAGE>
_______________
(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 _____
Form 10-Q
Wells Real Estate Fund II
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1995 (Unaudited) and
December 31, 1994............................. 3
Statements of Earnings for the Three Months and
Six Months Ended June 30, 1995 (Unaudited) and
1994 (Unaudited)............................. 4
Statements of Cash Flows for the Six Months
Ended June 30, 1995 (Unaudited) and 1994
(Unaudited).................................. 5
Condensed Notes to Financial Statements........ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................. 10
PART II. OTHER INFORMATION................................... 15
3
WELLS REAL ESTATE FUND II
(a Limited Partnership)
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
Assets June 30, 1995 December 31,1994
<S> <C> <C>
Cash and cash equivalents $ 33,682 $ 112,536
Investment in joint venture(note2) 26,093,563 26,432,145
Due from affiliate 468,917 446,796
Due from Limited Partners 4,414 13,504
Total assets 26,600,576 27,004,981
Liabilities and Partners'Capital
Liabilities:
Partnership distributions payable $ 481,818 463,137
Due to affiliate 0 84,504
Total liabilities 481,818 547,641
Partners' capital: 0 0
General partners
Limited partners
Class A - 108,572 units 24,215,738 24,160,544
Class B - 30,221 units 1,903,020 2,296,796
Total Partners' capital 26,118,758 26,457,340
Total liabilities and
Partners'capital 26,600,576 27,004,981
</TABLE>
See accompanying condensed notes to financial statements.
4
WELLS REAL ESTATE FUND II
(a Limited Partnership)
Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
Revenues:
Equity in earnings of
<S> <C> <C> <C> <C>
joint ventures(note 2) 314,112 168,961 570,820 255,715
Interest income 145 1,383 365 3,945
Net earnings 314,257 170,344 571,185 259,660
Net loss allocated
to General Partners 0 0 0 0
Net earnings allocated to
Class A Limited Partners 510,176 361,868 964,960 639,031
Net loss allocated to
Class B Limited Partners (195,919) (191,523) (393,775) (379,370)
Net earnings per Class A
Limited Partner Unit 4.70 3.33 8.89 5.89
Net loss per Class B
Limited Partner Unit (6.48) (6.34) (13.03) (12.55)
Cash distribution per
Class A Limited Partner
Unit 4.35 3.29 8.38 5.82
</TABLE>
See accompanying condensed notes to financial statements.
WELLS REAL ESTATE FUND II
(a Limited Partnership)
Statements of Cash Flows
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,1995 June 30, 1994
Cash flows from operating activities:
Net earnings
<S> <C> <C>
$ 571,185 $ 259,660
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Equity in earnings of joint (570,820) (255,715)
ventures
Changes in assets and liabilities:
Decrease in due from
limited partners 9,090 5,328
Increase in accounts receivable 0 (190)
Decrease in due to affiliates (84,504) 0
Net cash (used in) provided by
operating activities (75,049) 9,083
Cash flows provided by investing activities:
Investment in joint venture 0 (78,863)
Distributions received from joint venture 884,084 536,206
Net cash provided by investing activities 884,084 457,343
Cash flows used in financing activities:
Partnership distributions paid (887,889) (695,601)
Net decrease in cash and cash equivalents (78,854) (229,175)
Cash and cash equivalents, beginning of year 112,536 330,269
Cash and cash equivalents, end of period 33,682 101,094
</TABLE>
See accompanying condensed notes to financial statements.
WELLS REAL ESTATE FUND II
(a Limited Partnership)
Condensed Notes to Financial Statements
(Unaudited)
(1) Basis of Presentation. The financial statements of Wells
Real Estate Fund II (the "Partnership") 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 General Partners, 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
period. For further information, refer to the financial
statements and footnotes included in the Partnership's Form 10-K
for the year ended December 31, 1994.
(2) Investments in Joint Venture. The Partnership owns all of
its properties through a joint venture (the "Fund II - Fund II-OW
Joint Venture") formed on March 1, 1988, between the Partnership
and Wells Real Estate Fund II-OW ("Wells Fund II-OW"). Wells
Fund II-OW is a Georgia limited partnership affiliated with the
Partnership through common General Partners. As of June 30,
1995, the Partnership's equity interest in the Fund II -Fund II-
OW Joint Venture was approximately 95%.
The Fund II - Fund II-OW Joint Venture owns the following
property directly:
The Charlotte Project is a two-story office building
containing approximately 70,752 square feet located in Charlotte,
North Carolina.
In addition, the Fund II - Fund II-OW Joint Venture owns
interests in the following properties through joint ventures:
The Tucker Project is a commercial property known as
"Heritage Place at Tucker" consisting of a retail shopping center
containing approximately 29,858 square feet and a commercial
office building complex containing approximately 67,465 square
feet located in Tucker, Dekalb County, Georgia, which is owned by
a joint venture (the "Tucker-Cherokee Joint Venture") between the
Fund II - Fund II-OW Joint Venture and Wells Real Estate Fund I
("Wells Fund I"). Wells Fund I is a Georgia limited partnership
affiliated with the Partnership through common General Partners.
As of June 30, 1995, the Fund II - Fund II-OW Joint Venture's
equity interest in the Tucker Project was approximately 45%.
The Cherokee Project is a retail shopping center known as
the "Cherokee Commons Shopping Center" containing approximately
90,415 square feet located in metropolitan Atlanta, Cherokee
County, Georgia, which is also owned by the Tucker-Cherokee Joint
Venture. As of June 30, 1995, the Fund II - Fund II-OW Joint
Venture's equity interest in the Cherokee Project was
approximately 69%.
The Atrium is a four-story office building known as "The
Atrium at Nassau Bay" containing approximately 119,000 square
feet located in metropolitan Houston, Nassau Bay, Texas, which is
owned by a joint venture (the "Fund II - Fund III Joint Venture")
between the Fund II - Fund II-OW Joint Venture and Wells Real
Estate Fund III, L.P. ("Wells Fund III"). Wells Fund III is a
Georgia limited partnership affiliated with the Partnership
through common General Partners. As of June 30, 1995, the Fund
II - Fund II-OW Joint Venture's equity interest in the Atrium was
approximately 66%.
The 880 Property is a 5.8 acre tract of real property
located at the intersection of Warsaw Road and Holcomb Bridge
Road in Roswell, Fulton County, Georgia, which is currently being
developed into two separate tracts, as follows:
The Brookwood Grill is a 1.5 acre tract of the 880 Property
owned by the Fund II - Fund III Joint Venture, which was
developed and is currently being operated as a restaurant. As of
June 30, 1995, the Fund II - Fund II-OW Joint Venture's equity
interest in the Brookwood Grill was approximately 62%.
The Holcomb Bridge Road Project is a 4.3 acre tract of the
880 Property being developed in a newly formed joint venture.
During the first quarter of 1995, the Fund II - Fund III Joint
Venture, Wells Real Estate Fund VI, L.P. ( Wells Fund VI), a
Georgia limited partnership affiliated with the Partnership
through common general partners, and Wells Real Estate Fund VII,
L.P. (``Wells Fund VII''), a Georgia limited partnership
affiliated with the Partnership through common general partners,
entered into a joint venture agreement knows as Fund II, III, VI
and VII Associates (the Fund II-III-VI-VII Joint Venture).
The investment objectives of Wells Fund VI and Wells Fund VII are
substantially identical to those of the Partnership. The Fund
II-III-VI-VII Joint Venture plans to develop the remaining
portion of the 880 Property into two buildings containing a total
of approximately 48,000 square feet. At present, it is
anticipated that approximately 26,000 square feet will be
developed as office space and that approximately 22,000 square
feet will be developed as retail space. The cost to develop the
Holcomb Bridge Road Project, excluding the cost of the land, is
currently anticipated to be approximately $4,000,000. As of June
30, 1995, Wells Fund VI had contributed approximately $515,370 to
the Fund II-III-VI-VII Joint Venture for the development of the
Holcomb Bridge Road Project. The ultimate ownership percentages
of the joint venture partners in the Fund II-III-VI-VII Joint
Venture have not been determined at this time.
For further information regarding the foregoing properties,
refer to the Partnership's Form 10-K for the year ended December
31, 1994.
See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" for a summary and discussion
of the operations of the properties described above during the
quarter ended June 30, 1995.
The following summarizes the condensed financial statements
of the Fund II - Fund II-OW Joint Venture:
FUND II AND FUND II - OW JOINT VENTURE
Balance Sheets
<TABLE>
<CAPTION>
(Unaudited)
Assets June 30, 1995 December 31, 1994
Real Estate:
<S> <C> <C>
Land $ 1,367,856 $ 1,367,856
Building and improvements, net 6,388,989 6,495,708
7,756,845 7,863,564
Investment in joint ventures 19,641,335 19,904,703
Procurement Fees 107,070 138,595
Cash and cash equivalents 68,210 516,449
Due from affiliates 414,396 147,852
Receivables and other assets 126,602 0
Total assets 28,114,458 28,571,163
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued
expenses 54,600 72,602
Due to affiliates 3,231 111,348
Partnership distributions payable 498,736 471,753
Total liabilities 556,567 655,703
Partners' capital:
Wells Real Estate Fund II 26,093,563 26,432,145
Wells Real Estate Fund II-OW 1,464,328 1,483,315
Total partners'capital 27,557,891 27,915,460
Total liabilities and
partners' capital 28,114,458 28,571,163
</TABLE>
FUND II AND FUND II-OW JOINT VENTURE
Statements of Earnings
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
Revenues:
<S> <C> <C> <C> <C>
Rental income 114,717 76,478 229,434 76,478
Equity in earnings of
joint ventures 305,151 249,946 581,822 507,747
Interest income 114 4,646 317 11,175
Expenses:
Management and leasing
fees 6,883 4,589 13,766 4,589
Depreciation &
amortization 53,158 51,628 106,316 100,198
Other operating costs 28,128 96,473 88,660 220,645
88,169 152,690 208,742 325,432
Net earnings 331,813 178,380 602,831 269,968
Cash Distributions to
the Partnership 472,115 355,706 909,403 627,755
</TABLE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.
As of June 30, 1995, the Partnership owned interests in the
following properties through the Fund II-Fund II-OW Joint
Venture:
Charlotte Project
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
<S> <C> <C> <C> <C>
Rental Income $ 103,176 $ 67,784 $ 206,352 $ 68,784
Straight Line
Rent Adjustment 11,540 7,694 23,081 7,694
Operating Expenses 11,837 40,545 33,343 108,909
Operating Income(Loss) 102,879 34,933 196,090 (32,431)
Depreciation, General and
Administrative Expenses 53,158 73,674 106,316 150,406
Net Income (Loss) 49,721 (38,741) 89,774 (182,837) $
Occupied % 100.00% 100.00% 100.00% 100.00%
Partnership Ownership% 94.69% 94.72% 94.69% 94.72%
Cash generated to the
Partnership 89,719 0 167,077 0
</TABLE>
Rental income increased for the three months and six months ended
June 30, 1995, over the same periods in 1994, due to the vacancy
of the property during 1994. Operating expenses at the Charlotte
Project decreased during the second quarter 1995 as compared to
the second quarter of 1994 due to property taxes and maintenance
expenses now being paid by First Union Bank. General and
Administrative expenses decreased over 1994 levels due mainly to
a decrease in marketing and administrative expenses relating to
the lease-up of the building.
Brookwood Grill
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
<S> <C> <C> <C> <C>
Rental Income $56,187 $ 56,187 $112,375 $ 112,375
Operating Expenses, Net
of Reimbursements 7,063 11,653 11,170 19,415
Operating Income 49,124 44,534 101,205 92,960
Depreciation,General and
Administrative Expenses 24,214 25,148 51,270 49,129
Net Income 24,910 19,386 49,935 43,831
Occupied % 100.00% 100.00% 100.00% 100.00%
Partnership Ownership% 59.04% 59.06% 59.04% 59.06%
Cash Distributions to the
Fund II - Fund II-OW
Joint Venture $24,407 $20,963 $ 48,886 $ 45,081
</TABLE>
Both net income and cash distributions increased on a year to
date basis over 1994 due primarily to decreased operating
expenditures and increased common area maintenance billings to
the tenant in 1995, the majority of which represents a timing
difference in billing.
Heritage Place at Tucker
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
<S> <C> <C> <C> <C>
Rental Income $ 322,051 $299,398 $644,015 $587,580
Operating Expenses 142,601 137,297 304,988 257,211
Operating Income 179,450 162,101 339,027 330,369
Depreciation, Refurbish-
ment and Other 83,869 77,047 178,507 166,738
Net Income 95,581 85,054 160,520 163,631
Occupied % 96.42% 96.14% 96.42% 96.14%
Ownership % 42.52% 42.52% 42.52% 42.52%
Cash Distributions to the
Fund II - Fund II-OW
Joint Venture $ 69,141 $ 43,499 $125,923 $ 91,617
</TABLE>
Rental income increased for the three months and six months ended
June 30, 1995, as compared to the same periods in 1994, due
primarily to higher base rents and a slight increase in tenant
occupancy. Operating expenses increased approximately $5,000 for
the second quarter of 1995 as compared to the second quarter of
1994 due chiefly to increased landscaping and electricity
expenses. These expenses, coupled with the increased property
taxes and utilities for the first quarter of 1995, resulted in
higher operating expenses of approximately $48,000 for the six
months ended June 30, 1995 as compared to the six months ended
June 30, 1994. Depreciation, refurbishment and other expenses
also increased slightly for the three months and six months ended
June 30, 1995, as compared to the same periods in 1994, due
chiefly to reimbursements by tenants for capital improvements in
1994. While net income has increased for the three months ended
June 30, 1995, net income decreased slightly for the six months
ended June 30, 1995 as compared to the same periods in 1994 for
the reasons discussed above. Cash distributions have increased
for both the three months and six months ended June 30, 1995 as
compared to 1994 levels due primarily to capitalized tenant
improvements made during the first two quarters of 1994.
Cherokee Commons Shopping Center
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
<S> <C> <C> <C> <C>
Rental Income $ 147,679 $134,041 $293,517 $259,070
Operating Expenses, Net
of Reimbursements 28,951 25,144 60,122 44,215
Operating Income 118,728 108,897 233,395 214,855
Depreciation, Refurbish-
ment and Other 60,694 57,071 127,316 127,830
Net Income 58,034 51,826 106,079 87,025
Occupied % 94.52% 86.00% 94.52% 86.00%
Ownership % 65.74% 64.67% 65.74% 64.67%
Cash Distributions to the
Fund II - Fund II-OW
Joint Venture $56,579 $ 53,679 $81,339 $ 89,858
</TABLE>
Rental income increased for the three months and six months ended
June 30, 1995 as compared to the same periods in 1994. This
increase is primarily due to increased tenant occupancy.
Operating expenses increased due primarily to timing differences
in billing tenant expense reimbursements. Depreciation,
refurbishment, and other expenses increased for the three months
ended June 30, 1995, as compared to the three months ended June
30, 1994, due chiefly to a increase in depreciation expense.
However, depreciation, refurbishment and other expenses remained
relatively stable for the six months ended June 30, 1995 as
compared to the same period for 1994. Although cash
distributions for the six month ended June 30, 1995 are lower
than the 1994 levels due to expenditures for capital
improvements, cash distributions for the second quarter of 1995
remained relatively stable when compared to the same period in
1994.
A lease amendment was executed with Kroger to expand its existing
store at the Cherokee Commons Shopping Center from 45,528 square
feet to 66,918 square feet. In November 1994, construction was
completed on the Kroger expansion and remodeling of the center.
The total cost for both the Kroger expansion and remodeling of
the Center was approximately $2,800,000. The initial cost of
this expansion was funded from existing reserves held by the
Partnership, Wells Fund I, and Fund II - Fund II-OW Joint
Venture. It is anticipated that the remaining funding will be
provided by Wells Real Estate Fund VI and Wells Real Estate fund
VII in the amount of $953,798 each.
The Atrium Property
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30,1995 June 30,1994 June 30,1995 June 30,1994
<S> <C> <C> <C> <C>
Rental Income $519,837 $519,836 $1,039,673 $1,039,673
Operating Expenses, Net
of Reimbursements 91,038 147,353 189,993 258,655
Operating Income 428,799 372,483 849,680 781,018
Depreciation, Refurbish-
ment and Other 114,163 121,891 232,368 250,838
Net Income 314,636 250,592 617,312 530,180
Occupied % 100.00% 100.00% 100.00% 100.00%
Ownership % 62.12% 62.14% 62.12% 62.14%
Cash Distributions to the
Fund II - Fund II-OW
Joint Venture $278,764 $277,391 $ 589,042 $ 573,832
</TABLE>
The increase in net income for the six month period ended June
30, 1995, over the same period in 1994, is due primarily to a
decrease in repairs and maintenance expenses as well as the
decrease in accrued property taxes resulting from the 1994
reassessment.
The Atrium Property lease will expire on June 30, 1996. If
Lockheed does not negotiate a new lease for the building and
suitable tenants are not found, operating results at the Atrium
Property would be adversely affected.
* * * * *
As of June 30, 1995, the developed properties owned by the Fund
II-Fund II-OW Joint Venture were 98.2% leased as compared to
96.5% leased as of June 30, 1994.
The Partnership reflected increased revenues for the quarter
ended June 30, 1995, over the revenues for the same quarter of
1994, due primarily to the joint venture's increased income which
was primarily the result of the occupancy of the Charlotte
Project.
Distributions to be received by the Partnership from the Fund II
- Fund II-OW Joint Venture for the three-month periods ended June
30, 1995, and June 30, 1994, were $468,917 and $355,706
respectively.
The Partnership made cash distributions to the Limited Partners
holding Class A Units of $4.35 per unit for the second quarter of
1995 as compared to $3.29 per unit for the second quarter of
1994. No cash distributions were made by the Partnership to the
Limited Partners holding Class B Units.
Due from limited partners in the amount of $4,414 represents 1989
and 1991 withholding taxes for certain nonresident North Carolina
investors, which the Partnership was required to pay to the state
of North Carolina and which will be deducted from future cash
distributions.
As of June 30, 1995, the Fund II - Fund II-OW Joint Venture had
used all of the remaining funds available for investment in
properties.
The Partnership is required to maintain working capital reserves
in an amount equal to the cash operating expenses estimated by
the General Partners to be required to operate the Partnership
for a six-month period, not to exceed 3% or be reduced below 1%
of Limited Partners' capital contributions. The General Partners
believe that the Partnership's working capital reserves will be
adequate, and it is not anticipated that the Partnership will
have needs for additional capital or liquid assets.
PART II - OTHER INFORMATION
Item 6(b). No reports on Form 8-K were filed during the second
quarter of 1995.
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 FUND II
Dated: August 10, 1995 By: ___/s/ Leo F. Wells, III
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital,Inc., the
Corporate General Partner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 311,376
<SECURITIES> 7,714,734
<RECEIVABLES> 386,881
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 79,972
<PP&E> 22,148,570
<DEPRECIATION> 4,031,486
<TOTAL-ASSETS> 26,610,047
<CURRENT-LIABILITIES> 1,903,670
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 24,706,377
<TOTAL-LIABILITY-AND-EQUITY> 26,610,047
<SALES> 0
<TOTAL-REVENUES> 1,087,880
<CGS> 0
<TOTAL-COSTS> 606,093
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 481,787
<INCOME-TAX> 481,787
<INCOME-CONTINUING> 481,787
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 481,787
<EPS-PRIMARY> 8.72
<EPS-DILUTED> 0
</TABLE>
