<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark one)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 30, 1997 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 Identification No.)
incorporation or organization)
3885 Holcomb Bridge Road, 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 Fund II
-------------------------
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - June 30, 1997
and December 31, 1996.................................... 3
Statements of Income for the Three Months and Six Months
Ended June 30, 1997 and 1996............................. 4
Statements of Partners' Capital for the Year Ended
December 31, 1996 and the Six Months
Ended June 30, 1997.................................... 5
Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996........................... 6
Condensed Notes to Financial Statements................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................................ 13
PART II. OTHER INFORMATION........................................... 21
2
<PAGE>
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 1997 December 31, 1996
------ ------------- -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $23,978,679 $24,418,757
Cash and cash equivalents 39,200 62,741
Due from affiliate 188,864 127,344
----------- -----------
Total assets $24,206,743 $24,608,842
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Withholdings and accounts payable $ 5,024 $ 5,408
Partnership distributions payable 8,786 159,482
----------- -----------
Total liabilities $ 13,810 $ 164,890
=========== ===========
Partners' capital:
Limited Partners:
Class A - 108,572 Units 24,192,933 24,281,269
Class B - 30,221 Units 0 162,683
----------- -----------
Total partners' capital 24,192,933 24,443,952
----------- -----------
Total liabilities and partners' capital $24,206,743 $24,608,842
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
STATEMENTS OF (LOSS) INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ---------------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
Revenues:
<S> <C> <C> <C> <C>
Equity in (loss) income of
joint ventures (Note 2) $(116,062) $ 86,923 $(251,213) $ 255,488
Interest income 135 128 194 262
--------- --------- --------- ---------
(115,927) 87,051 (251,019) 255,750
Expenses:
Partnership administration 0 10 0 90
--------- --------- --------- ---------
Net (loss) income $(115,927) $ 87,041 $(251,019) $ 255,660
========= ========= ========= =========
Net (loss) income allocated to
Class A Limited Partners $(115,927) $ 399,100 $ (88,336) $ 879,627
Net loss allocated to Class
B Limited Partners $ 0 $(312,059) $(162,683) $(623,967)
Net (loss) income per Class A
Limited Partner Unit $ (1.07) $ 3.67 $ (0.82) $ 8.10
Net loss per Class B Limited
Partner Unit $ 0.00 $ (10.33) $ (5.38) $ (20.65)
Cash distribution per Class A
Limited Partner Unit $ 0.00 $ 4.18 $ (0.00) $ 8.76
</TABLE>
See accompanying condensed notes to financial statements.
4
<PAGE>
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996 AND SIX MONTHS ENDED
JUNE 30, 1997
<TABLE>
<CAPTION>
LIMITED PARTNERS
--------------------
CLASS A CLASS B TOTAL
--------------------- -------------------- PARTNERS'
UNITS AMOUNTS UNITS AMOUNTS CAPITAL
------- ------------ ------ ------------ ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1995 108,572 $24,200,488 30,221 $ 1,386,295 $25,586,783
Net income (loss) 0 1,335,976 0 (1,223,612) 112,364
Partnership distributions 0 (1,255,195) 0 0 (1,255,195)
------- ----------- ------ ----------- -----------
BALANCE, DECEMBER 31, 1996 108,572 $24,281,269 30,221 $ 162,683 $24,443,952
Net loss 0 $ (88,336) 0 $ (162,683) $ (251,019)
------- ----------- ------ ----------- -----------
BALANCE, JUNE 30, 1997 108,572 $24,192,933 30,221 $ 0 $24,192,933
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
------------------------------
JUNE 30, 1997 JUNE 30, 1996
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(251,019) $ 255,660
--------- ---------
Adjustments to reconcile net (loss) income to net
Cash (used in) provided by operating activities:
Equity in loss (income) of joint venture 251,213 (255,488)
Changes in assets and liabilities:
Withholdings and accounts payable (385) (3,258)
--------- ---------
Total adjustments 250,828 (258,746)
--------- ---------
Net cash used in operating activities (191) (3,086)
--------- ---------
Cash flows from investing activities:
Investment in joint venture (197,461) 0
Distribution received from joint venture 324,806 975,864
--------- ---------
127,345 975,864
Cash flows from financing activities:
Distributions to partners from accumulated
earnings (150,696) (976,056)
--------- ---------
Net (decrease) increase in cash and cash
equivalents (23,542) (3,278)
Cash and cash equivalents, beginning of year 62,741 38,000
--------- ---------
Cash and cash equivalents, end of quarter $ 39,199 $ 34,722
========= =========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
------------
Wells Real Estate Fund II (the "Partnership") is a Georgia public
limited partnership having Leo F. Wells, III and Wells Capital, Inc., as
General Partners. The Partnership was formed on June 23, 1986, for the
purpose of acquiring, developing, constructing, owning, operating,
improving, leasing and otherwise managing for investment purposes income-
producing commercial or industrial properties.
On September 8, 1986, the Partnership commenced a public offering of its
limited partnership units pursuant to a Registration Statement filed on
Form S-11 under the Securities Act of 1933. The Partnership terminated its
offering on September 7, 1988, and received gross proceeds of $34,948,250
representing subscriptions from 4,440 Limited Partners, composed of two
classes of limited partnership interests, Class A and Class B limited
partnership units.
The Partnership owns equity interests in properties through its ownership
in the following joint ventures: (i) Fund II-Fund II-OW Joint Venture, a
joint venture between the Partnership and Wells Real Estate Fund II-OW (the
"Fund II-Fund II-OW Joint Venture"); (ii) Fund II-Fund III Joint Venture, a
joint venture between the Fund II-Fund II-OW Joint Venture and Wells Real
Estate Fund III, L.P. ("Fund II-Fund III Joint Venture"); (iii) Fund II-
III-VI-VII Associates, a joint venture between the Fund II-Fund III Joint
Venture, Wells Real Estate Fund VI, L.P., and Wells Real Estate Fund VII,
L.P. ("Fund II, III, VI, VII Joint Venture"); (iv) Fund I-Fund II Joint
Venture, a joint venture between the Fund II-Fund II-OW Joint Venture and
Wells Real Estate Fund I ("the Tucker Joint Venture"); and (v) Fund I, II,
II-OW, VI, VII Associates, a joint venture between Wells Real Estate Fund
I, the Fund II-Fund II-OW Joint Venture, Wells Real Estate Fund VI, L.P.,
and Wells Real Estate Fund VII, L.P. ("Fund I, II, II-OW, VI, VII Joint
Venture"). Please refer to the Partnership's Form 10-K for the year ended
December 31, 1996 for additional information on the joint ventures and
properties in which the Partnership owns an interest.
As of June 30, 1997, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a
two-story office building located in Charlotte, North Carolina ("First
Union at Charlotte"); (ii) a four-story office building located in
metropolitan Houston, Texas (the "Atrium"); (iii) a restaurant located in
Fulton County, Georgia ("the Brookwood Grill"); (iv) an office/retail
center currently being
7
<PAGE>
developed in Fulton County, Georgia ("Holcomb Bridge Road"); (v) a retail
shopping and commercial office complex located in Tucker, Georgia
("Heritage Place at Tucker"); and (vi) a shopping center located in
Cherokee County, Georgia ("Cherokee Commons"). All of the foregoing
properties were acquired on an all cash basis. For further information
regarding these joint ventures and properties, refer to the Partnership's
Form 10-K for the year ended December 31, 1996.
(b) 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 periods. For further information, refer to the financial
statements and footnotes included in the Partnership's Form 10-K for the
year ended December 31, 1996.
(2) Investment in Joint Ventures
----------------------------
The Partnership owned interests in six properties as of June 30, 1997. The
Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investment in joint ventures is recorded on the equity method.
FUND II-FUND II-OW 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 public limited partnership affiliated with the
Partnership through common general partners. The investment objectives of
Wells Fund II-OW are substantially identical to those of the Partnership.
As of June 30, 1997, the Partnership's equity interest in the Fund II-Fund
II-OW Joint Venture was approximately 95%, and the equity interest of Wells
Fund II-OW was approximately 5%. The Partnership does not have control
over the operations of the joint venture; however, it does exercise
significant influence. Accordingly, investment in joint venture is
recorded on the equity method.
8
<PAGE>
Boeing at the Atrium/Fund II & Fund III Joint Venture
-----------------------------------------------------
On April 3, 1989, the Fund II-Fund II-OW Joint Venture formed a joint
venture (the "Fund II-Fund III Joint Venture") with Wells Real Estate Fund
III, L.P. ("Wells Fund III"), a Georgia public limited partnership
affiliated with the Partnership through common general partners. The
investment objectives of Wells Fund III are substantially identical to
those of the Partnership.
In April 1989, the Fund II-Fund III Joint Venture acquired a four-story
office building located on a 5.6 acre tract of land adjacent to the Johnson
Space Center in metropolitan Houston, in the City of Nassau Bay, Harris
County, Texas, known as "The Atrium at Nassau Bay" (the "Atrium").
The Atrium was first occupied in 1987 and contains approximately 119,000
net leasable square feet. On March 3, 1997 a lease was signed with The
Boeing Company for the entire Atrium Building. The lease is for a period
of five years with an option to renew for an additional five year term.
The rental rate for the first three years of the lease term is $12.25 per
square foot and $12.50 per square foot for the final two years of initial
lease term. The rate for the optional five year term will be determined
based upon then current market rates. Upon 150 day prior written notice,
Boeing has the right to cancel its lease in the event that NASA or another
prime contractor were to cancel or substantially reduce its contract. In
addition, there is a no-cause cancellation provision at the end of the
first three year period. If this no-cause cancellation is exercised,
Boeing would be required to pay unamortized, up-front tenant improvement
costs. The lease also provides that tenant will pay certain operating
expenses in excess of $5.50 per square foot on an annual basis.
Boeing began the move-in phase of its occupancy on April 15, 1997, and
occupied the Atrium and began paying rent on May 15, 1997. The total cost
of completing the required tenant improvements and outside broker
commissions of approximately $1.4 million is being funded out of reserves
and cash flows of the Partnership, Wells Fund II-OW and Wells Fund III. As
of June 30, 1997, the Partnership had contributed approximately $197,461,
Wells Fund II-OW had contributed approximately $11,073 and Wells Fund III
had contributed approximately $532,855 to the tenant improvements and
outside broker commissions required. The ownership percentages in the
Atrium have been adjusted as a result of these additional capital
contributions, and as of June 30, 1997, the Fund II - Fund II-OW Joint
Venture holds an equity interest of approximately 61%, and Wells Fund III
holds an equity interest of approximately 39%.
For a description of other joint ventures and properties owned by the
Partnership, please refer to the Partnership's Form 10-K for the year ended
December 31, 1996.
9
<PAGE>
(3) Legal Proceedings
-----------------
Litigation was instituted in the Superior Court of Gwinnett County, Georgia
on January 13, 1997 against the Partnership, Wells Real Estate Fund III,
L.P. ("Wells Fund III"), Wells Capital, Inc. and Leo F. Wells, III, who are
the general partners of the Partnership and Wells Fund III, in connection
with a request by a limited partner in the Partnership and Wells Fund III
for a list of the names, addresses and ownership interests of the limited
partners which to date the defendants have refused to furnish to the
plaintiff. The case was styled Gramercy Park Investments L.P. v. Wells
---------------------------------------
Real Estate Fund II, Wells Real Estate Fund III, L.P., Wells Capital, Inc.
--------------------------------------------------------------------------
and Leo F. Wells, III. The plaintiff, which is a limited partner in both
----------------------
the Partnership and Wells Fund III, alleged that it was entitled to copies
of the limited partner lists under applicable provisions of Georgia
partnership law and the partnership agreements of the Partnership and Wells
Fund III so that plaintiff could make an offer to purchase up to 4.9% of
the partnership units in each fund. The plaintiff sought an order
directing the defendants to furnish to the plaintiff a current list of the
names, addresses and ownership interests of the limited partners in the
Partnership and Wells Fund III, as well as an award of certain damages,
including its costs and attorneys' fees and such other relief as the court
would deem just and proper. On February 26, 1997, the Court denied the
plaintiff's request for an immediate order requiring defendants to furnish
the lists to the plaintiff and instead ordered expedited discovery to be
completed by March 31, 1997. Ultimately, the Court secured an agreement
between the plaintiff and defendant, which detailed the conditions and
circumstances under which copies of limited partner lists would be made
available for use by the plaintiff (via a third-party mailing service, as
specified by the agreement) and conditions under which an offer would be
made by the plaintiff to the limited partners. The agreement detailed time
deadlines for actions by both the defendant and the plaintiff. The time
deadline for the actual making of offers to the limited partners was not
met by the plaintiff. As a result, the agreement appears to have been
violated and is null and void. The list of investor names has been
returned to the defendant by the third-party mailing service, and this
legal attempt appears to be terminated at this time.
10
<PAGE>
Following are the financial statements for Fund II and II-OW:
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets June 30, 1997 December 31,1996
------ ------------- ----------------
<S> <C> <C>
Real estate assets, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated
depreciation of $2,072,284 in 1997 and
$1,704,617 in 1996 5,698,834 5,882,667
----------- -----------
Total real estate assets 7,066,690 7,250,523
----------- -----------
Investment in joint ventures 18,101,264 18,369,508
Cash and cash equivalents 111,858 35,394
Due from affiliates 82,767 79,835
Accounts receivable 95,504 114,560
Prepaid expenses and other assets 71,266 79,538
----------- -----------
Total assets $25,529,349 $25,929,358
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Partnership distributions payable $ 199,455 $ 134,485
Due to affiliates 5,485 5,708
----------- -----------
Total liabilities 204,940 140,193
----------- -----------
Partners' Capital:
Wells Real Estate Fund II 23,978,679 24,418,757
Wells Real Estate Fund II-OW 1,345,730 1,370,408
----------- -----------
Total partners' capital 25,324,409 25,789,165
----------- -----------
Total liabilities and partners' capital $25,529,349 $25,929,358
=========== ===========
</TABLE>
11
<PAGE>
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
STATEMENTS OF (LOSS) INCOME
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------- ----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 114,717 $114,717 $ 229,434 $229,434
Equity in (loss) income of joint
ventures (89,663) 136,497 (211,275) 344,941
Interest income 119 100 221 202
--------- -------- --------- --------
25,173 251,314 18,380 574,577
--------- -------- --------- --------
Expenses:
Management and leasing fees 6,883 6,883 13,766 13,766
Lease acquisition costs 4,589 4,588 9,178 9,177
Operating costs-rental property 3,925 7,486 4,908 11,111
Depreciation 91,916 91,916 183,833 183,833
Legal and accounting 21,313 25,150 33,958 38,448
Computer costs 1,651 622 4,444 1,803
Partnership administration 17,467 22,872 33,594 46,623
--------- -------- --------- --------
147,744 159,517 283,681 304,761
--------- -------- --------- --------
Net (loss) income $(122,571) $ 91,797 $(265,301) $269,816
========= ======== ========= ========
Net (loss) income allocated to
Wells Real Estate Fund II $(116,062) $ 86,923 $(251,213) $255,489
Net (loss) income allocated to Wells
Real Estate Fund II-OW $ (6,508) $ 4,874 $ (14,087) $ 14,327
</TABLE>
12
<PAGE>
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 Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934, including discussion and analysis of the financial
condition of the Partnership, 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
statement made in the 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.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
As of June 30, 1997, the developed properties owned by the Fund II-Fund
II-OW Joint Venture were 93% occupied, as compared to 92% occupied as
of June 30, 1996.
Equity in (loss) income of joint ventures was $(251,213) for the six months
ended June 30, 1997, as compared to $255,488 for the six months ended
June 30, 1996. The decrease in equity in (loss) income of joint venture
revenues for 1997 was due primarily to the vacancy of the Atrium for the
first four and one-half months of 1997.
Administrative expenses of the Partnership which are incurred at the joint
venture level, decreased for the six months ended June 30, 1997, compared
to the same period of 1996, primarily to a decrease in accounting fees and
printing and postage expense.
The Partnership's net cash used in operating activities decreased for the
six months ended June 30, 1997, compared to the same period in 1996, due to
the decrease in accounts payable, primarily withholding taxes.
Distributions accrued to the Partnership from Fund II-Fund II-OW Joint
Venture for the six month periods ended June 30, 1997 and June 30, 1996
were $386,326 and $975,864 respectively.
13
<PAGE>
As set forth above, the total cost to complete the required tenant
improvements and outside brokerage commissions relating to the new lease
for The Atrium is estimated to be approximately $1,400,000, which is being
funded from reserves of the Partnership, Wells Fund II-OW and Wells Fund
III, along with cash flow from operations of the properties owned by such
partnerships.
The Partnership made no cash distributions to the Limited Partners holding
Class A Units for the second quarter of 1997 as compared to $4.18 per Unit
for the second quarter of 1996. No cash distributions were made by the
Partnership to the Limited Partners holding Class B Units. As set forth
above, substantially all cash generated from the operation of properties
owned by the Partnership in the first and second quarters of 1997 is being
used to fund the required tenant improvements and outside brokerage
commissions relating to the new lease at The Atrium. It is anticipated
that Limited Partners holding Class A Units may expect cash distributions
from the Partnership to commence again at the end of third quarter of 1997.
As of June 30, 1997, the Fund II-Fund II-OW Joint Venture had used all of
the remaining funds available for investment in properties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
14
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of June 30, 1997, the Partnership owned interests in the following properties
through the Fund II-Fund II-OW Joint Venture:
First Union at Charlotte /Fund II and II-OW Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------ ----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $114,717 $114,717 $229,434 $229,434
Expenses:
Depreciation 91,916 91,916 183,833 183,833
Management & leasing expenses 11,471 16,060 22,943 22,943
Other operating expenses 3,925 (1,485) 4,908 11,112
-------- -------- -------- --------
107,312 106,491 211,684 217,888
-------- -------- -------- --------
Net income $ 7,405 $ 8,226 $ 17,750 $ 11,546
======== ======== ======== ========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership Ownership % 94.7% 94.7% 94.7% 94.7%
Cash generated to the Fund II-
Fund II-OW Joint Venture* $108,465 $100,181 $214,261 $188,466
Net income allocated to the Fund II-
Fund II-OW Joint Venture* $ 7,405 $ 8,226 $ 17,750 $ 11,546
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income remained stable for the three and six months ended June 30, 1997
and 1996. Operating expenses decreased in the six months ended June 30, 1997,
compared to the same period of 1996, due primarily to the decrease in accounting
and administrative fees in the first quarter of 1997. Cash generated to the
Joint Venture for the three month and six month periods ended June 30, 1997
increased over the same periods of 1996 due primarily to decreased
administrative expenses at the property.
15
<PAGE>
Boeing at the Atrium/Fund II and Fund III Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ---------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 189,696 $519,837 $ 189,696 $1,039,673
Interest income 100 7,632 2,617 15,318
--------- -------- --------- ----------
189,796 527,469 192,313 1,054,991
Expenses:
Depreciation 168,643 168,619 337,285 337,097
Management & leasing expenses 29,010 35,690 29,010 71,380
Other operating expenses 191,232 147,609 289,199 233,551
--------- -------- --------- ----------
388,885 351,918 655,494 642,028
--------- -------- --------- ----------
Net (loss) income $(199,089) $175,551 $(463,181) $ 412,963
========= ======== ========= ==========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership Ownership % 58.03% 62.1% 58.03% 62.1%
Cash distributed to the Fund II-
Fund II-OW Joint Venture* $ 0 $267,288 $ 0 $ 560,919
Net (loss) income allocated to the
Fund II-Fund II-OW Joint
Venture* $(122,042) $115,162 $(295,286) $ 270,904
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental and interest income decreased for the three and six month periods ended
June 30, 1997, compared to the three and six months ended June 30, 1996, due to
the lower rental rate being paid by Boeing, the new tenant, and the vacancy of
the building for the first four and one-half months of 1997. Operating expenses
increased for the three and six months ended June 30, 1997, compared to the
three and six months ended June 30, 1996, due to the increased utility, repair,
and maintenance expenses being paid with the leasing of the building to Boeing.
For details related to the recent leasing of the Atrium, please refer to the
Condensed Notes to Financial Statements, (2) Investment in Joint Ventures.
16
<PAGE>
The Brookwood Grill /Fund II and Fund III Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
---------------------------- ----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $56,187 $56,187 $112,731 $112,375
Equity in income (loss) of joint
venture 7,498 (20,990) 18,355 (26,423)
------- ------- -------- --------
63,685 35,197 131,086 85,952
Expenses:
Depreciation 13,503 13,503 27,006 27,006
Management & leasing expenses 7,284 5,727 14,045 12,695
Other operating expenses 13,872 17,387 16,131 35,276
------- ------- -------- --------
34,659 36,617 57,182 74,977
------- ------- -------- --------
Net income (loss) $29,026 $(1,420) $ 73,904 $ 10,975
======= ======= ======== ========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership Ownership % 59.04% 59.04% 59.04% 59.04%
Cash distributed to the Fund II-
Fund II-OW Joint Venture* $43,413 $21,982 $ 90,544 $ 39,118
Net income (loss) allocated to the
Fund II-Fund II-OW Joint
Venture* $18,097 $ (885) $ 46,079 $ 6,843
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Although rental income remained stable, total revenues increased for the three
and six month periods ended June 30, 1997, as compared to the same periods of
1996, due to the increased equity in income from the Fund II, III, VI, VII Joint
Venture. Operating expenses decreased in 1997 compared to 1996 due primarily to
the decrease in property tax reimbursements in 1996.
17
<PAGE>
Holcomb Bridge Road /Fund II, III, VI, VII Joint Venture
- --------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- -----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $135,912 $ 43,754 $296,097 $ 53,175
Expenses:
Depreciation 69,982 77,822 136,112 83,942
Management & leasing expenses 22,483 5,029 43,063 6,080
Other operating expenses 13,633 28,894 43,940 47,733
-------- -------- -------- --------
106,098 111,745 223,115 137,755
-------- -------- -------- --------
Net income (loss) $ 29,814 $(67,991) $ 72,982 $(84,580)
======== ======== ======== ========
Occupied % 72.7% 20.9% 72.7% 20.9%
Partnership Ownership % 14.90% 18.14% 14.90% 18.14%
Cash distributed to the Fund II-
Fund II-OW Joint Venture* $ 25,828 $ 0 $ 53,324 $ 0
Net income (loss) allocated to the
Fund II-Fund II-OW Joint
Venture* $ 7,498 $(20,990) $ 18,355 $(26,423)
</TABLE>
*The Partnership holds a 59.04% ownership in the Fund II-Fund III Joint Venture.
In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "Holcomb Bridge Road
Property") to the Fund II, III, VI, VII Joint Venture. Development is being
completed on two buildings containing a total of approximately 49,500 square
feet. Approximately 4,100 square feet is currently under construction for which
leases have been signed. Efforts are continuing to lease the remaining space of
approximately 9,300 square feet.
As of June 30, 1997, ten tenants are occupying approximately 36,100 square feet
of space in the retail and office building under leases of varying lengths.
Operating expenses decreased for the three month period ended June 30, 1997, as
compared to June 30, 1996, due to the billing of CAM reimbursements for prior
periods in 1997. Increases in revenues, expenses and net income for the six
months ended June 30, 1997, compared to the six months ended June 30, 1996, are
due to increased occupancy at the property.
18
<PAGE>
Heritage Place at Tucker Property/Fund I - Fund II Joint Venture
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $267,465 $255,854 $529,331 $542,001
Interest income 133 127 262 379
-------- -------- -------- --------
267,598 255,981 529,593 542,380
Expenses:
Depreciation 104,097 104,428 201,765 208,228
Management & leasing expenses 44,142 30,297 64,332 62,384
Other operating expenses 144,379 140,584 301,787 256,500
-------- -------- -------- --------
292,618 275,309 567,884 527,112
-------- -------- -------- --------
Net (loss) income $(25,020) $(19,328) $(38,291) $ 15,268
======== ======== ======== ========
Occupied % 75.0% 75.0% 75.0% 75.0%
Partnership Ownership % 42.53% 42.52% 42.53% 42.52%
Cash distributed to the Fund II-
Fund II-OW Joint Venture* $ 25,432 $ 36,458 $ 61,315 $ 98,132
Net (loss) income allocated to the
Fund II-Fund II-OW Joint
Venture* $(11,237) $ (8,680) $(17,197) $ 6,857
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased for the six months ended June 30, 1997, as compared to
the same period in 1996, due primarily to decreased rental income in the first
quarter 1997 and billing of a lease cancellation charge and late payment charges
in 1996 of approximately $6,200. Operating expenses increased in 1997 over 1996
due to increases in utilities, landscaping, and other repairs and maintenance.
Net income of the property decreased in 1997 as compared to 1996 for the reasons
noted above.
19
<PAGE>
Cherokee Commons/Fund I, II, II-OW, VI, VII Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
----------------------------- ----------------------------
June 30, 1997 June 30, 1996 June 30, 1997 June 30, 1996
------------- ------------ ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $215,973 $223,987 $433,412 $446,608
Interest income 19 18 37 37
-------- -------- -------- --------
215,992 224,005 433,449 446,645
Expenses:
Depreciation 109,697 107,461 217,222 214,644
Management & leasing expenses 19,323 13,276 50,864 25,910
Other operating expenses 40,203 46,632 64,322 95,504
-------- -------- -------- --------
169,223 167,369 332,408 336,058
-------- -------- -------- --------
Net income $ 46,769 $ 56,636 $101,041 $110,587
======== ======== ======== ========
Occupied % 92.0% 95.0% 92.0% 95.0%
Partnership Ownership % 51.70% 51.70% 51.70% 51.70%
Cash distributed to the Fund II-
Fund II-OW Joint Venture* $ 84,542 $106,822 $184,265 $204,025
Net income allocated to the
Fund II-Fund II-OW Joint
Venture* $ 25,518 $ 30,901 $ 55,129 $ 60,337
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased in 1997 over 1996 levels due primarily to the decrease
in occupancy. Management and leasing expenses increased in 1997, as compared to
1996, due to one-time payments of lease acquisition fees. Operating expenses
decreased primarily due to a timing difference in billings to tenants for
property taxes.
20
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the second quarter of 1997.
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
(Registrant)
Dated: August 8, 1997 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
21
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 39,200
<SECURITIES> 23,978,679
<RECEIVABLES> 188,864
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24,206,743
<CURRENT-LIABILITIES> 13,810
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24,192,933
<TOTAL-LIABILITY-AND-EQUITY> 24,206,743
<SALES> 0
<TOTAL-REVENUES> (251,019)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (251,019)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
