<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 March 31, 1997 or
_____________________________________
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ________________________________________________
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 - March 31, 1997
and December 31, 1996.............................. 3
Statements of Income for the Three Months
Ended March 31, 1997 and 1996...................... 4
Statements of Partners' Capital for the Year Ended
December 31, 1996 and the Three Months
Ended March 31, 1997............................... 5
Statements of Cash Flows for the Three Months
Ended March 31, 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
Assets March 31, 1997 December 31, 1996
-------------- -----------------
Investment in joint ventures (Note 2) $24,099,416 $24,418,757
Cash and cash equivalents 39,069 62,741
Due from affiliate 184,190 127,344
----------- -----------
Total assets $24,322,675 $24,608,842
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Withholdings and accounts payable $ 5,029 $ 5,408
Partnership distributions payable 8,786 159,482
----------- -----------
Total liabilities $ 13,815 $ 164,890
=========== ===========
Partners' capital:
Limited Partners:
Class A - 108,572 Units 24,308,860 24,281,269
Class B - 30,221 Units 0 162,683
----------- -----------
Total partners' capital 24,308,860 24,443,952
----------- -----------
Total liabilities and
partners' capital $24,322,675 $24,608,842
=========== ===========
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
-------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues:
Equity in (loss) income of joint venture (Note 2) $(135,151) $ 168,566
Interest income 59 133
--------- ---------
$(135,092) $ 168,699
--------- ---------
Expenses:
Partnership administration $ 0 $ 80
--------- ---------
Net (loss) income $(135,092) $ 168,619
========= =========
Net income allocated to
Class A Limited Partners $ 27,591 $ 480,527
Net loss allocated to
Class B Limited Partners $(162,683) $(311,908)
Net income per Class A
Limited Partner Unit $ .25 $ 4.43
Net loss per Class B
Limited Partner Unit $ (5.38) $ (10.32)
Cash distribution per Class A
Limited Partner Unit $ .00 $ 4.58
</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 THREE MONTHS ENDED
MARCH 31, 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 income (loss) 0 $ 27,591 0 $ (162,683) $ (135,092)
------- ----------- ------ ----------- -----------
BALANCE, MARCH 31, 1997 108,572 $24,308,860 30,221 $ 0 $24,308,860
</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>
Three Months Ended
------------------
March 31, 1997 March 31, 1996
--------------- ---------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(135,092) $ 168,619
--------- ---------
Adjustments to reconcile net (loss) income to net
cash (used in) provided by operating activities:
Equity in income of the joint venture 135,151 (168,566)
Distributions received from the joint venture 127,344 478,858
Distributions to partners from accumulated
earnings (150,696) (478,993)
Changes in assets and liabilities:
Withholdings and accounts payable (379) 486
--------- ---------
Total adjustments 111,420 (168,215)
--------- ---------
Net cash (used in) provided by
operating activities (23,672) 404
--------- ---------
Net (decrease) increase in cash and
cash equivalents (23,672) 404
Cash and cash equivalents, beginning of year 62,741 38,000
--------- ---------
Cash and cash equivalents, end of quarter $ 39,069 $ 38,404
========= =========
</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 IIOW 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 Associates"); (iii) Fund II-III-
VI-VII Joint Venture, 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 Associates"); (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 Joint Venture, 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 March 31, 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"), and a restaurant located in
Fulton County, Georgia ("the Brookwood Grill"); (iii) an office/retail
center currently
7
<PAGE>
being developed in Fulton County, Georgia ("Holcomb Bridge Road"); (iv) a
retail shopping and commercial office complex located in Tucker, Georgia
("Heritage Place at Tucker"); (v) 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 Venture
---------------------------
The Partnership owned interests in six properties as of March 31, 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 March 31, 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.
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
8
<PAGE>
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 Fund II-Fund II-OW Joint Venture holds approximately 66% equity
interest in the Fund II-Fund III Joint Venture, and Wells Funds III holds
approximately 34% equity interest in the Fund II-Fund III Joint Venture.
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 their occupancy on April 15, 1997, and it
is anticipated that they will begin paying rent on approximately May 15,
1997. The total cost of completing the required tenant improvements and
outside broker commissions of approximately $1.4 million will be funded
from the reserves and cash flows of the Partnership, Wells Fund II-OW and
Wells Fund Fund III.
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.
(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
9
<PAGE>
case is 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, alleges that it is 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 may make an offer to purchase up to 4.9% of the partnership units
in each fund. The plaintiff is seeking 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 deems 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.
Thereafter, the Court will again consider the plaintiff's request to turn
over the limited partner lists.
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 March 31, 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 $1,980,368 in 1997 and
$1,888,451 in 1996 5,790,750 5,882,667
----------- -----------
Total real estate assets 7,158,606 7,250,523
----------- -----------
Investment in joint ventures 18,127,773 18,369,508
Cash and cash equivalents 69,566 35,394
Due from affiliates 120,122 79,835
Accounts receivable 98,237 114,560
Prepaid expenses and other assets 77,902 79,538
----------- -----------
Total assets $25,652,206 $25,929,358
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Partnership distributions payable $ 194,519 $ 134,485
Due to affiliates 5,771 5,708
----------- -----------
Total liabilities 200,290 140,193
----------- -----------
Partners' Capital:
Wells Real Estate Fund II 24,099,416 24,418,757
Wells Real Estate Fund II-OW 1,352,500 1,370,408
----------- -----------
Total partners' capital 25,451,916 25,789,165
----------- -----------
Total liabilities and partners' capital $25,652,206 $25,929,358
=========== ===========
</TABLE>
11
<PAGE>
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
<S> <C> <C>
Revenues:
Rental income $ 114,717 $114,717
Equity in (loss) income of joint ventures (121,612) 208,444
Interest income 102 102
--------- --------
(6,793) 323,263
--------- --------
Expenses:
Management and leasing fees 6,883 6,883
Lease acquisition costs 4,589 4,589
Operating costs - rental property 983 3,625
Depreciation 91,917 91,917
Legal and accounting 12,645 13,298
Computer costs 2,793 1,181
Partnership administration 16,127 23,751
--------- --------
135,937 145,244
--------- --------
Net (loss) income $(142,730) $178,019
========= ========
Net (loss) income allocated to Wells Real
Estate Fund II $(135,151) $168,566
Net (loss) income allocated to Wells Real
Estate Fund II-OW $ (7,579) $ 9,459
</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 March 31, 1997, the developed properties owned by the Fund II-Fund
II-OW Joint Venture were 64% occupied, as compared to 93% occupied as of
March 31, 1996. The decrease in the occupied percentages for 1997 compared
to 1996 is due to the vacancy of the Atrium during the first quarter 1997.
Gross revenues of the Partnership were $(135,092) for the three months
ended March 31, 1997, as compared to $168,699 for the three months ended
March 31, 1996. The decrease in gross revenues for 1997 was due primarily
to the vacancy of the Atrium for the first three months of 1997.
Administrative expenses of the Partnership which are incurred at the joint
venture level, decreased for the three months ended March 31, 1997,
compared to the same period of 1996, primarily to a decrease in printing
and postage expense.
The Partnership's net cash used in operating activities decreased in the
quarter ended March 31, 1997, compared to the same period in 1996,due to
the decrease in distributions received from the joint venture. Cash and
cash equivalents were decreased by the same amount.
Distributions accrued to the Partnership from Fund II-Fund II-OW Joint
Venture for the three month periods ended March 31, 1997 and March 31, 1996
were $184,190 and $497,006 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 will be
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 first quarter of 1997 as compared to $4.58 per unit
for the first 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 quarter of 1997 is being used to fund
the required tenant improvements and outside brokerage commissions relating
to the new lease at The Atrium. In addition, it is anticipated that
operating cash flow generated from properties owned by the Partnership for
the second quarter of 1997 will also be used to fund such required tenant
improvements and outside brokerage commissions, and Limited Partners
holding Class A Units should not expect cash distributions from the
Partnership to commence again until approximately third quarter ending
September 30, 1997.
As of March 31, 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 March 31, 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
- ---------------------------------------------------------
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
Revenues:
Rental Income $114,717 $114,717
Expenses:
Depreciation 91,917 91,917
Management and leasing expenses 11,472 6,883
Other operating expenses 983 12,597
-------- --------
104,372 111,397
-------- --------
Net income $ 10,345 $ 3,320
======== ========
Occupied % 100% 100%
Partnership Ownership % 94.7% 94.7%
Cash generated to the
Fund II-Fund II-OW Joint Venture* $105,796 $ 88,285
Net income allocated to the
Fund II-Fund II-OW Joint Venture* $ 10,345 $ 3,320
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income remained stable for the three ended March 31, 1997 and 1996. The
increase in net income for the first quarter of 1997 compared to 1996 was
primarily due to the decrease in accounting fees and administrative fees of
approximately $5,300. Amortization of procurement fees in the amount of
approximately $4,600 are included in management and leasing expenses. These
fees were incorrectly included in operating expenses in first quarter 1996. The
increase in net income for first quarter 1997, compared to first quarter 1996,
is due to the reduction in fees noted above and reimbursement by the tenant of
an annual maintenance charge of approximately $1,600. Cash generated to the
joint venture increased from $88,285 in first quarter 1996 to $105,796 in first
quarter 1997 due to the higher rent paid by First Union which was effective May
1, 1996, and the decrease in expenses in the current year.
15
<PAGE>
Boeing at the Atrium/Fund II and Fund III Joint Venture
- -------------------------------------------------------
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
Revenues:
Rental income $ 0 $519,836
Interest income 2,517 7,686
--------- --------
2,517 527,522
--------- --------
Expenses:
Depreciation 168,642 168,478
Management and leasing expenses 0 35,690
Other operating expenses 97,967 85,942
--------- --------
266,609 290,110
--------- --------
Net (loss) income $(264,092) $237,412
========= ========
Occupied % 0% 100%
Partnership Ownership % 62.1% 62.1%
Cash generated to the
Fund II-Fund II-OW Joint Venture* $ 0 $293,631
Net (loss) income allocated to the
Fund II-Fund II-OW Joint Venture* $(173,244) $155,742
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Net income decreased for the three months ended March 31, 1997, compared to the
same period in 1996, due to the vacancy of the Atrium. Expenses decreased in
first quarter 1997 compared to 1996 due to the building being vacant and the
decrease in management and leasing fees. The increase in operating expenses was
due primarily to expenditures of approximately $9,700 on window replacement in
the building.
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
- -------------------------------------------------------
Three Months Ended
-----------------
March 31, 1997 March 31, 1996
-------------- --------------
Revenues:
Rental Income $56,544 $56,188
Equity in income (loss) of joint venture 10,857 (5,433)
------- -------
67,401 50,755
------- -------
Expenses:
Depreciation 13,503 13,503
Management and leasing expenses 6,761 6,968
Other operating expenses 2,259 17,889
------- -------
22,523 38,360
------- -------
Net income $44,878 $12,395
======= =======
Occupied % 100% 100%
Partnership Ownership % 59.0% 59.0%
Cash generated to the
Fund II-Fund II-OW Joint Venture* $47,131 $17,136
Net income allocated to the
Fund II-Fund II-OW Joint Venture* $27,982 $ 7,728
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income has remained stable for the three months ended March 31, 1997 as
compared to 1996. The decrease in operating expenses for the first quarter of
1997 over the same period of 1996 is due primarily to an adjustment in property
tax expense accrued in 1997 and billing of reimbursements for first quarter
1997. The increase in net income is due primarily to an increase of
approximately $15,000 in the equity income of the joint venture and the
adjustment and billing noted above.
17
<PAGE>
Holcomb Bridge Road /Fund II, III, VI, VII Joint Venture
- --------------------------------------------------------
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
Revenues:
Rental Income $160,185 $ 9,421
Expenses:
Depreciation 66,130 6,120
Management and leasing expenses 20,580 1,051
Other operating expenses 30,307 18,839
-------- --------
117,017 26,010
-------- --------
Net (loss) income $ 43,168 $(16,589)
======== ========
Occupied % 63% 21%
Partnership Ownership % 14.9% 19.3%
Cash generated to the
Fund II-Fund III Joint Venture* $ 27,496 $ 0
Net (loss) income allocated to the
Fund II-Fund III Joint Venture* $ 10,857 $ (5,433)
*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, and VII Joint Venture. Development is
currently underway for approximately 6,700 square feet of space for which leases
have been signed. Efforts are continuing to lease the remaining space of
approximately 11,500 square feet.
As of March 31, 1997, nine tenants are occupying approximately 31,140 square
feet of space in the retail and office building under leases of varying lengths.
Increases in revenues, expenses and net income for the quarter ended March 31,
1997, compared to the same quarter of 1996, are due to the rental income from
the additional tenants and the operation of the property for a full three
months.
18
<PAGE>
Heritage Place at Tucker Property/Fund I - Fund II Joint Venture
- ----------------------------------------------------------------
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
Revenues:
Rental income $261,866 $286,147
Interest income 129 252
-------- --------
261,995 286,399
Expenses:
Depreciation 97,668 103,800
Management and leasing expenses 20,190 32,087
Other operating expenses 157,408 115,916
-------- --------
275,266 251,803
-------- --------
Net (loss) income $(13,271) $ 34,596
======== ========
Occupied % 76% 83%
Partnership Ownership % 42.53% 42.53%
Cash distribution to the
Fund II-Fund II-OW Joint Venture* $ 35,883 $ 61,674
Net (loss) income allocated to the
Fund II-Fund II-OW Joint Venture* $ (5,960) $ 15,537
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased in 1997 from 1996 due primarily to lowered revenue
resulting from decreased occupancy. Occupancy rate is down due to tenant move-
out and the unavailability of leasable space while fire damage is being
repaired. It is anticipated that repairs will be completed prior to the end of
May, 1997. Operating expenses increased in 1997 over 1996 due to increase in
landscaping contract and supplies and other repairs and maintenance. The
decrease in depreciation in 1997 over 1996 is due to the loss of property due to
the fire in September 1996. Net income of the property decreased to a loss of
$(13,271) in 1997 from $34,596 in 1996, due to decreased occupancy as discussed
above.
The property was 76% leased as of March 31, 1997, as compared to 83% leased, as
of March 31, 1996, due to vacant space during restoration from fire damage.
Management and leasing expenses increased due to decreased rental income.
19
<PAGE>
Cherokee Commons/Fund I, II, II-OW, VI & VII Joint Venture
- ----------------------------------------------------------
Three Months Ended
------------------
March 31, 1997 March 31, 1996
-------------- --------------
Revenues:
Rental income $217,439 $222,621
Interest income 18 19
-------- --------
217,457 222,640
Expenses:
Depreciation 107,525 107,183
Management and leasing expenses 31,541 12,634
Other operating expenses 24,119 48,872
-------- --------
163,185 168,689
-------- --------
Net income $ 54,272 $ 53,951
======== ========
Occupied % 91% 95%
Partnership Ownership % 51.7% 51.7%
Cash distribution to the
Fund II-Fund II-OW Joint Venture* $ 99,723 $ 97,203
Net income allocated to the
Fund II-Fund II-OW Joint Venture* $ 29,611 $ 29,436
*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 first 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: May 13, 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
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<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 39069
<SECURITIES> 24099416
<RECEIVABLES> 184190
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 24322675
<CURRENT-LIABILITIES> 13815
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 24308860
<TOTAL-LIABILITY-AND-EQUITY> 24322675
<SALES> 0
<TOTAL-REVENUES> (135092)
<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> (135092)
<EPS-PRIMARY> 0
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