<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, 1998 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, 1998
and December 31, 1997................................... 3
Statements of Income for the Three Months and Six Months
Ended June 30, 1998 and 1997............................ 4
Statements of Partners' Capital for the Year Ended
December 31, 1997 and the Six Months
Ended June 30, 1998..................................... 5
Statements of Cash Flows for the Six Months
Ended June 30, 1998 and 1997............................ 6
Condensed Notes to Financial Statements.................. 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................... 11
PART II. OTHER INFORMATION............................................ 19
2
<PAGE>
WELLS REAL ESTATE FUND II
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
ASSETS JUNE 30, 1998 DECEMBER 31, 1997
------ ------------- -----------------
Investment in joint venture (Note 2) $22,742,399 $23,435,256
Cash and cash equivalents 36,832 37,249
Due from affiliate 403,383 322,925
----------- -----------
Total assets $23,182,614 $23,795,430
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Liabilities:
Accounts payable $ 2,136 $ 3,014
Partnership distributions payable 412,884 331,965
----------- -----------
Total liabilities 415,020 334,979
----------- -----------
Partners' capital:
Limited Partners:
Class A - 108,572 Units 22,767,594 23,460,451
Class B - 30,221 Units 0 0
----------- -----------
Total partners' capital 22,767,594 23,460,451
----------- -----------
Total liabilities and partners'
capital $23,182,614 $23,795,430
=========== ===========
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, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Equity in (loss) income of
joint ventures (Note 2) $48,821 $(116,062) $93,587 $(251,213)
Interest income 145 135 306 194
------- --------- ------- ---------
48,966 (115,927) 93,893 (251,019)
Expenses:
Partnership administration 0 0 80 0
------- --------- ------- ---------
Net (loss) income $48,966 $(115,927) $93,812 $(251,019)
======= ========= ======= =========
Net (loss) income allocated to
Class A Limited Partners $48,966 $(115,927) $93,812 $ (88,336)
Net loss allocated to Class
B Limited Partners $ 0 $ 0 $ 0 $(162,683)
Net (loss) income per Class A
Limited Partner Unit $ 0.46 $ (1.07) $ 0.87 $ (0.82)
Net loss per Class B Limited
Partner Unit $ 0.00 $ 0.00 $ 0.00 $ (5.38)
Cash distribution per Class A
Limited Partner Unit $ 3.72 $ 0.00 $ 7.25 $ 0.00
</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, 1997 AND SIX MONTHS ENDED
JUNE 30, 1998
<TABLE>
<CAPTION>
LIMITED PARTNERS
------------------------------------------
CLASS A CLASS B TOTAL
---------------------- ------------------ PARTNERS'
UNITS AMOUNTS UNITS AMOUNTS CAPITAL
------- ------------- ------ ---------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 108,572 $24,281,269 30,221 $ 162,683 $24,443,952
Net loss 0 (168,693) 0 (162,683) (331,376)
Partnership distributions 0 (652,125) 0 0 (652,125)
------- ----------- ------ --------- -----------
BALANCE, DECEMBER 31, 1997 108,572 23,460,451 30,221 0 23,460,451
Net income 0 93,812 0 0 93,812
Partnership distributions 0 (786,669) 0 0 (786,669)
------- ----------- ------ --------- -----------
BALANCE, JUNE 30, 1998 108,572 $22,767,594 30,221 $ 0 $22,767,594
======= =========== ====== ========= ===========
</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, 1998 JUNE 30, 1997
-------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 93,812 $(251,019)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in (income) loss of joint ventures (93,587) 251,213
Changes in assets and liabilities:
Withholdings and accounts payable (877) (385)
--------- ---------
Total adjustments (94,464) 250,828
--------- ---------
Net cash provided by (used in)
operating activities (652) (191)
--------- ---------
Cash flow from investing activities:
Investment in joint venture 0 (197,461)
Distributions received from joint venture 705,986 324,806
--------- ---------
705,986 127,345
Cash flow from financing activities:
Distributions to partners from accumulated earnings (705,751) (150,696)
--------- ---------
Net (decrease) in cash and cash equivalents (417) (23,542)
Cash and cash equivalents, beginning of year 37,249 62,741
--------- ---------
Cash and cash equivalents, end of period $ 36,832 $ 39,199
========= =========
</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, 1997 for additional information on the joint ventures and
properties in which the Partnership owns an interest.
As of June 30, 1998, 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
7
<PAGE>
Fulton County, Georgia ("the Brookwood Grill"); (iv) an office/retail
center 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, 1997.
(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, 1997.
(2) Investment in Joint Ventures
----------------------------
The Partnership owned interests in six properties as of June 30, 1998. 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.
8
<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, 1998 DECEMBER 31, 1997
------ ------------- -----------------
<S> <C> <C>
Real estate, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated
depreciation of $2,439,951 in 1998 and
$2,256,118 in 1997 5,331,167 5,515,000
----------- -----------
Total real estate assets 6,699,023 6,882,856
----------- -----------
Investment in joint ventures 17,216,093 17,734,845
Cash and cash equivalents 72,451 84,392
Due from affiliates 349,229 248,623
Accounts receivable 59,088 84,207
Prepaid expenses and other assets 52,209 61,183
----------- -----------
Total assets $24,448,093 $25,096,106
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Liabilities:
Partnership distributions payable $ 426,004 $ 341,034
Due to affiliates 3,288 4,561
----------- -----------
Total liabilities 429,292 345,595
----------- -----------
Partners' capital:
Wells Real Estate Fund II 22,742,399 23,435,256
Wells Real Estate Fund II-OW 1,276,402 1,315,255
----------- -----------
Total partners' capital 24,018,801 24,750,511
----------- -----------
Total liabilities and partners' capital $24,448,093 $25,096,106
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
9
<PAGE>
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
STATEMENTS OF (LOSS) INCOME
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
---------------------------------- -------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $114,717 $ 114,717 $229,434 $ 229,434
Equity in (loss) income of joint
ventures 84,001 (89,663) 148,340 (211,275)
Interest income 114 119 244 221
-------- --------- -------- ---------
198,832 25,173 378,018 18,380
-------- --------- -------- ---------
Expenses:
Management and leasing fees 6,883 6,883 13,766 13,766
Lease acquisition costs 4,588 4,589 9,177 9,178
Operating costs-rental property 2,972 3,925 6,826 4,908
Depreciation 91,916 91,916 183,833 183,833
Legal and accounting 21,574 21,313 33,595 33,958
Computer costs 1,309 1,651 3,384 4,444
Partnership administration 18,032 17,467 28,602 33,594
-------- --------- -------- ---------
147,274 147,744 279,183 283,681
-------- --------- -------- ---------
Net income (loss) $ 51,558 $(122,571) $ 98,835 $(265,301)
======== ========= ======== =========
Net income (loss) allocated to
Wells Real Estate Fund II $ 48,821 $(116,062) $ 93,587 $(251,213)
Net income (loss) allocated to Wells
Real Estate Fund II-OW $ 2,737 $ (6,508) $ 5,248 $ (14,087)
</TABLE>
10
<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, 1998, the developed properties owned by the Fund II-Fund II-
OW Joint Venture were 95% occupied, as compared to 92% occupied as of June
30, 1997. The increase in the occupied percentages for 1998 compared to
1997 is due to the increased occupancy of the 880 Holcomb Bridge Road
property.
The increase in gross revenues of the Partnership to $48,966 for the three
months ended June 30, 1998, as compared to $(115,927) for the three months
ended June 30, 1997 and $93,893 for the six months ended June 30, 1998, as
compared to $(251,019) for the same period of 1997, is due to the occupancy
of The Atrium by Boeing Company in May 1997. Administrative expenses of
the Partnership which are incurred at the joint venture level, remained
relatively stable for the three months ended June 30, 1998, but decreased
for the six months ended June 30, 1998, compared to the same period of
1997, due primarily to decreases in professional fees, and other
administrative expenses.
The Partnership's cash flow from investing activities and cash flow from
financing activities increased in 1998, compared to 1997, due to the
increase in distributions from joint ventures and subsequent distributions
to limited partners as a result of the new lease at The Atrium. Since all
cash received from joint ventures is distributed currently, cash and cash
equivalents remain stable.
Distributions accrued to the Partnership from Fund II-Fund II-OW Joint
Venture for the six month periods ended June 30, 1998 and June 30, 1997
were $786,444 and $386,326, respectively.
11
<PAGE>
The Partnership made cash distributions to the Limited Partners holding
Class A Units for the second quarter of 1998 in the amount of $3.72 per
Unit. No cash distributions were made to Limited Partners holding Class A
Units for second quarter 1997, due to the reserve required to fund tenant
improvements at The Atrium. No cash distributions were made by the
Partnership to the Limited Partners holding Class B Units.
As of June 30, 1998, the Fund II-Fund II-OW Joint Venture had used all of
the remaining funds available for investment in properties.
The General Partners have verified that all operational computer systems
are year 2000 compliant. This includes systems supporting accounting,
property management and investor services. Also, as part of this review,
all building control systems have been verified as compliant. The current
line of business applications are based on compliant operating systems and
database servers. All of these products are scheduled for additional
upgrades before the year 2000. Therefore, it is not anticipated that the
year 2000 will have significant impact on operations.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", requires certain transactions (e.g., unrealized
gains/losses on available for sale securities) that are not reflected in
net income to be displayed as other comprehensive income. The Statement
also requires an entity to report total comprehensive income (i.e., net
income plus other comprehensive income) for every period in which an income
statement is presented. SFAS No. 130 is effective for annual and interim
periods beginning after December 15, 1997. None of the transactions
required to be reported in other comprehensive income pertain to the
Partnership; consequently, adoption of this Statement had no impact on the
partnership's disclosures.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of June 30, 1998, 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, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<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 11,472 11,471 22,944 22,943
Other operating expenses 2,954 3,925 6,678 4,908
-------- -------- -------- --------
106,342 107,312 213,455 211,684
-------- -------- -------- --------
Net income $ 8,375 $ 7,405 $ 15,979 $ 17,750
======== ======== ======== ========
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* $117,594 $108,465 $228,938 $214,261
Net income generated to the Fund II-
Fund II-OW Joint Venture* $ 8,375 $ 7,405 $ 15,979 $ 17,750
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Property operations remained stable for the three and six months ended June 30,
1998 and 1997. Cash generated to the Joint Venture for the three months and six
months ended June 30, 1998 increased over the same periods of 1997, due to an
increase in rental income billed to the tenant (rental income is straight lined
for statement reporting).
13
<PAGE>
Boeing at the Atrium/Fund II and Fund III Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- ------------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $367,536 $ 189,696 $ 735,072 $ 189,696
Interest income 13,280 100 13,280 2,617
-------- --------- --------- ---------
380,816 189,796 748,352 192,313
-------- --------- --------- ---------
Expenses:
Depreciation 216,930 168,643 433,860 337,285
Management & leasing expenses 44,679 29,010 89,167 29,010
Other operating expenses 183,393 191,232 341,824 289,199
-------- --------- --------- ---------
445,002 388,885 864,851 655,494
-------- --------- --------- ---------
Net loss $(64,186) $(199,089) $(116,499) $(463,181)
======== ========= ========= =========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership Ownership % 58.0% 58.0% 58.0% 58.0%
Cash distributed to the Fund II-
Fund II-OW Joint Venture $105,670 $ 0 $ 218,619 $ 0
Net loss allocated to the Fund II-
Fund II-OW Joint Venture $(39,346) $(122,042) $ (71,414) $(295,286)
</TABLE>
Rental income increased for the three months and six months ended June 30, 1998,
compared to the same period in 1997, due to the vacancy of the Atrium for the
first four and a half months of 1997.
Depreciation, management and leasing, and other expenses have increased in 1998
compared to 1997 with the occupancy of the building by Boeing. Cash generated
to the Partnership increased, due primarily to the increase in rental revenues
and reimbursement of tenant improvements of approximately $12,000 received from
Boeing.
14
<PAGE>
The Brookwood Grill Property/Fund II and Fund III Joint Venture
- ---------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- ------------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 56,037 $56,187 $112,375 $112,731
Equity in income of joint venture 16,943 7,498 33,074 18,355
-------- ------- -------- --------
72,980 63,685 145,449 131,086
Expenses:
Depreciation 13,503 13,503 27,006 27,006
Management & leasing expenses 6,492 7,284 13,525 14,045
Other operating expenses (23,721) 13,872 (18,492) 16,131
-------- ------- -------- --------
(3,726) 34,659 22,039 57,182
-------- ------- -------- --------
Net income $ 76,706 $29,026 $ 123,410 $ 73,904
======== ======= ======== ========
Occupied % 100.0% 100.0% 100.0% 100.0%
Partnership Ownership % 59.0% 59.0% 59.0% 59.0%
Cash distributed to the
Fund II-Fund III Joint Venture $ 76,364 $43,413 $134,015 $ 90,544
Net income allocated to the
Fund II-Fund III Joint Venture $ 47,826 $18,097 $ 76,946 $ 46,079
</TABLE>
Although rental income remained stable, total revenues increased for the three
and six month periods ended June 30, 1998, as compared to the same periods in
1997, due to the increased equity in income from the Fund II, III, VI, and VII
Joint Venture, as the Holcomb Bridge Property became 100% occupied. Operating
expenses decreased for the three months ended June 30, 1998, as compared to the
same period in 1997, due primarily to the billing of reimbursements during the
second quarter in 1998, as compared to billing in the first quarter of 1997.
Year-to-date operating expenses decreased in 1998, as compared to 1997, due
primarily to a change in method of billing water reimbursements to the tenant
which will result in the tenant being charged for a greater share.
15
<PAGE>
Holcomb Bridge Road Property/Fund II, III, VI, VII Joint Venture
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- ------------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $208,645 $135,912 $421,880 $296,097
Expenses:
Depreciation 94,129 69,982 188,033 136,112
Management & leasing expenses 29,888 22,483 59,252 43,063
Other operating expenses 13,797 13,633 36,830 43,940
-------- -------- -------- --------
137,814 106,098 284,115 223,115
-------- -------- -------- --------
Net income (loss) $ 70,831 $ 29,814 $137,765 $ 72,982
======== ======== ======== ========
Occupied % 100.0% 72.7% 100.0% 72.7%
Partnership Ownership % 14.2% 14.9% 14.2% 14.9%
Cash distributed to the
Fund II-Fund III Joint Venture* $ 41,990 $ 25,828 $ 83,158 $ 53,324
Net income allocated to the
Fund II-Fund III Joint Venture* $ 16,943 $ 7,498 $ 33,074 $ 18,355
</TABLE>
*The Partnership holds a 59.0% 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 Holcomb Bridge Road (the "Holcomb Bridge Road
Property") to the Fund II, III, VI, VII Joint Venture. Development has been
completed on two buildings with a total of approximately 49,500 square feet.
As of June 30, 1998, fourteen tenants are occupying approximately 49,500 square
feet of space in the retail and office building under leases of varying lengths.
Increases in revenues, total expenses and net income for the quarter and six
months ended June 30, 1998, compared to the same period of 1997, are due to the
property being 100% occupied as of June 30, 1998, as compared to 72.7% the same
period of 1997.
The Partnership's ownership percentage in the Fund II,III,VI,VII Joint Venture
decreased to 14.2% in 1998, as compared to 14.9% in 1997, due to additional
funding by Wells Fund VI and Wells Fund VII.
16
<PAGE>
Heritage Place at Tucker Property/Fund I - Fund II Joint Venture
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- ------------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $311,526 $267,465 $611,887 $529,331
Interest income 135 133 272 262
-------- -------- -------- --------
311,661 267,598 612,159 529,593
Expenses:
Depreciation 107,288 104,097 214,576 201,765
Management & leasing expenses 34,645 44,142 77,233 64,332
Other operating expenses 116,379 144,379 225,974 301,787
-------- -------- -------- --------
258,312 292,618 517,783 567,884
-------- -------- -------- --------
Net (loss) income $ 53,349 $(25,020) $ 94,376 $(38,291)
======== ======== ======== ========
Occupied % 82.0% 75.0% 82.0% 75.0%
Partnership Ownership % 42.53% 42.53% 42.53% 42.53%
Cash distributed to the
Fund II-Fund II-OW Joint Venture* $ 51,429 $ 25,432 $ 95,993 $ 61,315
Net (loss) income allocated to the
Fund II-Fund II-OW Joint
Venture $ 23,959 $(11,237) $ 42,384 $(17,197)
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1998 from 1997, due primarily to the increase in
occupancy from 75% to 82%. Management and leasing expenses increased over prior
year, due to increased occupancy and revenues. Other operating expenses
decreased, due to a significant decrease in landscaping expenses and plumbing
and roofing repairs.
17
<PAGE>
Cherokee Property - Fund I, II, II-OW, VI, VII Joint Venture
- ------------------------------------------------------------
<TABLE>
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------------- ------------------------------------
JUNE 30, 1998 JUNE 30, 1997 JUNE 30, 1998 JUNE 30, 1997
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $225,705 $215,973 $454,682 $433,412
Interest income 19 19 41 37
-------- -------- -------- --------
225,724 215,992 454,723 433,449
Expenses:
Depreciation 110,564 109,697 221,127 217,222
Management & leasing expenses 18,737 19,323 44,488 50,864
Other operating expenses 1,919 40,203 5,050 64,322
-------- -------- -------- --------
131,220 169,223 270,665 332,408
-------- -------- -------- --------
Net income $ 94,504 $ 46,769 $184,058 $101,041
======== ======== ======== ========
Occupied % 91.0% 92.0% 91.0% 92.0%
Partnership Ownership % 51.7% 51.7% 51.7% 51.7%
Cash distributed to the
Fund II-Fund II-OW Joint Venture* $115,766 $ 84,542 $218,466 $184,265
Net income allocated to the
Fund II-Fund II-OW Joint
Venture* $ 51,563 $ 25,518 $100,424 $ 55,129
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1998 over 1997, due primarily to the one time
adjustment made in 1997 to the straight line rent schedule. Management and
leasing expenses decreased in 1998, as compared to 1997, due to decreased
leasing commissions. The decrease in operating expenses in 1998, as compared to
1997, are due to decreased expenditures for tenant improvements, common area
expenses, and legal fees.
18
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the second quarter of 1998.
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 10, 1998 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
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-1-1998
<PERIOD-END> JUN-30-1998
<CASH> 36,832
<SECURITIES> 22,742,399
<RECEIVABLES> 403,383
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 23,182,614
<CURRENT-LIABILITIES> 415,020
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,767,594
<TOTAL-LIABILITY-AND-EQUITY> 23,182,614
<SALES> 0
<TOTAL-REVENUES> 93,893
<CGS> 0
<TOTAL-COSTS> 80
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 93,812
<INCOME-TAX> 93,812
<INCOME-CONTINUING> 93,812
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 93,812
<EPS-PRIMARY> 87
<EPS-DILUTED> 0
</TABLE>
