<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended September 30, 1999 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
(A Georgia Public Limited Partnership)
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets--September 30, 1999 and December 31, 1998 3
Statements of Income for the Three Months and Nine Months
Ended September 30, 1999 and 1998 4
Statements of Partners' Capital for the Nine Months Ended
September 30, 1999 and for the Year Ended December 31, 1998 5
Statements of Cash Flows for the Nine Months Ended
September 30, 1999 and 1998 6
Condensed Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Conditions and Results of Operations 11
PART II. OTHER INFORMATION 20
</TABLE>
-2-
<PAGE>
WELLS REAL ESTATE FUND II
(A Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS:
Investments in joint venture (Note 2) $ 21,030,025 $ 22,019,064
Cash and cash equivalents 45,760 27,011
Due from affiliate 494,961 336,616
------------- ------------
Total assets $ 21,570,746 $ 22,382,691
============= ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accounts payable $ 2,774 $ 1,255
Partnership distributions payable 459,052 337,178
------------- ------------
Total liabilities 461,826 338,433
============= ============
Partners' capital:
Limited partners:
Class A--108,572 units 21,108,920 22,044,258
Class B--30,221 units 0 0
------------- ------------
Total partners' capital 21,108,920 22,044,258
------------- ------------
Total liabilities and partners' capital $ 21,570,746 $ 22,382,691
============= ============
</TABLE>
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 Nine Months Ended
------------------------------ ------------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
REVENUES:
Equity in income of joint ventures (Note 2) $ 147,033 $ 39,491 $ 282,357 $ 133,078
Interest income 182 152 327 458
------------- ------------- ------------- -------------
147,215 39,643 282,684 133,536
EXPENSES:
Partnership administration 0 0 0 80
------------- ------------- ------------- -------------
Net income $ 147,215 $ 39,643 $ 282,684 $ 133,456
------------- ------------- ------------- -------------
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 147,215 $ 39,643 $ 282,684 $ 133,456
------------- ------------- ------------- -------------
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $ 0 $ 0 $ 0
------------- ------------- ------------- -------------
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 1.35 $ 0.36 $ 2.60 $ 1.23
------------- ------------- ------------- -------------
NET LOSS PER CLASS B LIMITED PARTNER UNIT $ 0 $ 0 $ 0 $ 0
------------- ------------- ------------- -------------
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 4.07 $ 3.64 $ 11.22 $ 10.89
------------- ------------- ------------- -------------
</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 NINE MONTHS ENDED SEPTEMBER 30, 1999
AND FOR THE YEAR ENDED DECEMBER 31, 1998
<TABLE>
<CAPTION>
Limited Partners Total
-----------------------------------------------
Class A Class B Partners'
----------------------- ---------------------
Units Amounts Units Amounts Capital
--------- ----------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 108,572 $23,460,451 30,221 $ 0 $23,460,451
Net income 0 93,162 0 0 93,162
Partnership distributions 0 (1,509,355) 0 0 (1,509,355)
--------- ---------- -------- ----------- -----------
BALANCE, December 31, 1998 108,572 22,044,258 30,221 0 22,044,258
Net income 0 282,684 0 0 282,684
Partnership distributions 0 (1,218,022) 0 0 (1,218,022)
--------- ----------- -------- ----------- -----------
BALANCE, September 30, 1999 108,572 $21,108,920 30,221 $ 0 $21,108,920
--------- ----------- -------- ----------- -----------
</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>
Nine Months Ended
--------------------------------
September 30, September 30,
1999 1998
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES:
<S> <C> <C>
Net income $ 282,684 $ 133,456
------------- -------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Equity in income of joint ventures (282,357) (133,078)
Changes in assets and liabilities:
Accounts payable 1,519 (1,303)
------------- -------------
Total adjustments (280,838) (134,381)
------------- -------------
Net cash provided by (used in) operating activities 1,846 (925)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Distributions received from joint ventures 1,113,051 1,108,921
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (1,096,148) (1,109,289)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 18,749 (1,293)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 27,011 37,249
------------- -------------
CASH AND CASH EQUIVALENTS, END OF PERIOD $ 45,760 $ 35,956
------------- -------------
</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
SEPTEMBER 30, 1999 AND 1998 AND DECEMBER 31, 1998
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. (the "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. (the
"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. (the "Fund I, II, II-OW, VI, VII Joint Venture").
Please refer to the Partnership's Form 10-K for the year ended December 31,
1998 for additional information on the joint ventures and properties in which
the Partnership owns an interest.
As of September 30, 1999, 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 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) shopping center located in Cherokee County, Georgia ("Cherokee
Commons"). All of the foregoing
-7-
<PAGE>
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, 1998.
(b) Basis Of Presentation
The financial statements of Wells Real Estate Fund II 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, 1998.
2. INVESTMENTS IN JOINT VENTURES
The Partnership owned interests in six properties as of September 30, 1999.
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investments in the joint venture are recorded using the equity method.
Fund II-Fund II-OW Joint Venture
The Partnership owns all of its properties through the Fund II-Fund II-OW
Joint Venture formed on March 1, 1988 between the Partnership and Wells Real
Estate Fund II-OW (the "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 September 30,
1999, the Partnership's equity interest in Wells 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, investments in the joint venture are recorded using
the equity method.
-8-
<PAGE>
Following are the financial statements for Fund II-Fund II-OW Joint Venture:
FUND II-FUND II-OW JOINT VENTURE
(A Georgia Joint Venture)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
-------------- ------------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated depreciation of
$2,899,533 in 1999 and $2,623,785 in 1998 4,871,584 5,147,333
-------------- ------------
Total real estate assets 6,239,440 6,515,189
Investments in joint ventures 15,941,730 16,676,111
Cash and cash equivalents 222,451 94,367
Due from affiliates 298,344 267,581
Accounts receivable 1,265 23,184
Prepaid expenses and other assets 29,488 42,828
-------------- ------------
Total assets $22,732,718 $23,619,260
============== ============
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Partnership distributions payable $ 522,317 $ 355,370
Due to affiliates 0 8,988
-------------- ------------
Total liabilities 522,317 364,358
-------------- ------------
Partners' capital:
Wells Real Estate Fund II 21,030,025 22,019,064
Wells Real Estate Fund II-OW 1,180,376 1,235,838
============== ============
Total partners' capital 22,210,401 23,254,902
-------------- ------------
Total liabilities and partners' capital $22,732,718 $23,619,260
============== ============
</TABLE>
See accompanying condensed notes to financial statements.
-9-
<PAGE>
FUND II-FUND II-OW JOINT VENTURE
(A Georgia Joint Venture)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
----------- ------------ ------------ ------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $264,259 $114,716 $506,658 $344,150
Equity in income of joint ventures 27,064 57,589 217,098 205,929
Interest income 155 119 247 363
----------- ------------ ------------ ------------
291,478 172,424 724,003 550,442
----------- ------------ ------------ ------------
EXPENSES:
Management and leasing fees 15,855 6,883 30,279 20,649
Lease acquisition costs 4,589 4,588 13,766 13,766
Operating costs--rental property 4,756 4,440 15,816 11,266
Depreciation 91,917 91,917 275,750 275,750
Legal and accounting (650) 833 27,847 34,428
Computer costs 2,661 1,602 5,402 4,986
Partnership administration 17,071 20,455 56,952 49,056
----------- ------------ ------------ ------------
136,199 130,718 425,812 409,901
----------- ------------ ------------ ------------
NET INCOME $155,279 $ 41,706 $298,191 $140,541
=========== ============ ============ ============
NET INCOME ALLOCATED TO WELLS REAL ESTATE
FUND II $147,033 $ 39,491 $282,357 $133,078
=========== ============ ============ ============
NET INCOME ALLOCATED TO WELLS REAL ESTATE
FUND II-OW $ 8,246 $ 2,215 $ 15,834 $ 7,463
=========== ============ ============ ============
</TABLE>
See accompanying condensed notes to financial statements.
-10-
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS 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 Section 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 this report, which include construction costs which may
exceed estimates, construction delays, lease-up risks, inability to obtain
new tenants upon the expiration of existing leases, and the potential need
to fund tenant improvements or other capital expenditures out of operating
cash flow.
1. RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
(a) General
As of September 30, 1999, the developed properties owned by the Fund II-
Fund II-OW Joint Venture were 97.5% occupied, as compared to 95% occupied
as of September 30, 1998.
The increase in gross revenues of the Partnership to $282,684 for the nine
months ended September 30, 1999, as compared to $133,536 for the nine
months ended September 30, 1998, is due to the increased occupancy of the
Cherokee Commons and Heritage Place at Tucker. Total administrative
expenses of the Partnership which are incurred at the joint venture level
remained relatively stable for the nine months ended September 30, 1999,
compared to the same period in 1998.
The Partnership's cash flow provided by investing activities increased in
1999 compared to 1998 due to the increase in distributions from joint
ventures as occupancy increased.
Fund II-Fund II-OW Joint Venture distributions accrued to the Partnership
for the three-month periods ended September 30, 1999 and September 30,
1998 were $494,582 and $385,816, respectively.
The Partnership made cash distributions to the limited partners holding
Class A units for the third quarter of 1999 in the amount of $4.07 per unit
as compared to $3.64 for the third quarter of 1998. No cash distributions
were made by the Partnership to the limited partners holding Class B units.
As of September 30, 1999, the Fund II-Fund II-OW Joint Venture had used all
of the remaining funds available for investment in properties.
The Partnership is unaware of any known demands, commitments, events, or
capital expenditures other than that which is required from the normal
operations of its properties
-11-
<PAGE>
that will result in the Partnership's liquidity increasing or decreasing in
any material way. The Partnership expects to meet liquidity requirements
and budget demands through cash flow from operations.
The Partnership has recently made the decision to begin selling its
properties. At this time, two properties have been identified that will be
offered for sale within the next several months. The Partnership's goal is
to have all Fund II properties sold by the end of 2002. As the properties
are sold, all proceeds will be returned to limited partners in accordance
with the Partnership's prospectus.
Year 2000
The Partnership is presently reviewing the potential impact of Year 2000
compliance issues on its information systems and business operations. A
full assessment of Year 2000 compliance issues was begun in late 1997 and
was completed by March 31, 1999. Renovations and replacements of equipment
have been and are being made as warranted. The costs incurred by the
Partnership and its affiliates thus far for renovations and replacements
have been immaterial. As of September 30, 1999, all testing of systems has
been completed.
As to the status of the Partnership's information technology systems, it is
presently believed that all major systems and software packages are Year
2000 compliant. At the present time, it is believed that all major
noninformation technology systems are Year 2000 compliant. The cost to
upgrade any noncompliant systems is believed to be immaterial.
The Partnership has confirmed with the Partnership's vendors, including
third-party service providers such as banks, that their systems are Year
2000 compliant.
The Partnership relies on computers and operating systems provided by
equipment manufacturers and also on application software designed for use
with its accounting, property management, and investment portfolio
tracking. The Partnership has preliminarily determined that any costs,
problems, or uncertainties associated with the potential consequences of
Year 2000 issues are not expected to have a material impact on the future
operations or financial conditions of the Partnership. The Partnership will
perform due diligence as to the Year 2000 readiness of each property owned
by the Partnership and each property contemplated for purchase by the
Partnership.
The Partnership's reliance on embedded computer systems (i.e.,
microcontrollers) is limited to facilities-related matters, such as office
security systems and environmental control systems.
The Partnership is currently formulating contingency plans to cover any
areas of concern. Alternate means of operating the business are being
developed in the unlikely circumstance that the computer and telephone
systems are rendered inoperable. An off-site facility from which the
Partnership could operate is being sought as well as alternate means of
communication with key third-party vendors. A written plan is being
developed for testing and dispensed to each staff member of the general
partner of the Partnership.
Management believes that the Partnership's risk of Year 2000 problems is
minimal. In the unlikely event there is a problem, the worst-case scenarios
would include the risks that the elevators or security systems within the
Partnership's properties would fail or the key
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<PAGE>
third-party vendors upon which the Partnership relies would be unable to
provide accurate investor information. In the event that the elevators shut
down, the Partnership has devised a plan for each building whereby the
tenants will use the stairs until the elevators are fixed. In the event
that the security systems shut down, the Partnership has devised a plan for
each building to hire temporary on-site security guards. In the event that
a third-party vendor has Year 2000 problems relating to investor
information, the Partnership intends to perform a full system back-up of
all investor information as of December 31, 1999 so that the Partnership
will have accurate hard-copy investor information.
-13-
<PAGE>
2. PROPERTY OPERATIONS
As of September 30, 1999, the Partnership owned interests in the following
properties through the Fund II-Fund II-OW Joint Venture:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
First Union at Charlotte/ September 30, September 30, September 30, September 30,
Fund II-Fund II-OW Joint Venture 1998 1999 1998 1999
==================================== ============== ============ ============= ===========
<S> <C> <C> <C> <C>
Revenues:
Rental income $264,259 $114,716 $506,658 $344,150
-------------- ------------ ------------- -----------
Expenses: 91,917 91,917 275,750 275,750
Depreciation 20,444 11,471 44,045 34,415
Management and leasing expenses 4,601 3,087 15,569 9,765
-------------- ------------ ------------- -----------
Other operating expenses 116,962 106,475 335,364 319,930
============== ============ ============= ===========
Net income $147,297 $ 8,241 $171,294 $ 24,220
============== ============ ============= ===========
Occupied % 100.0% 100.0% 100.0% 100.0%
============== ============ ============= ===========
Partnership's ownership % 94.7% 94.7% 94.7% 94.7%
============== ============ ============= ===========
Cash generated to the
Fund II-Fund II-OW Joint Venture* $243,802 $ 120,199 $481,414 $349,136
============== ============ ============= ===========
Net income allocated to the
Fund II-Fund II-OW Joint Venture* $147,297 $ 8,241 $171,294 $ 24,220
============== ============ ============= ===========
</TABLE>
* The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint
Venture.
Rental income, net income, and cash distributions increased for the nine
months ended September 30, 1999 as compared to the nine months ended
September 30, 1998 due to a renewed, increased rent beginning in May 1999.
Expenses increased as compared to the same periods in 1998 due primarily to
increased management fees which are charges based on rental income.
-14-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ------------------------------
Boeing at the Atrium/ September 30, September 30, September 30, September 30,
Fund II-Fund III Joint Venture 1998 1999 1998 1999
===================================== =========== ========== ============ ============
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 367,536 $ 367,536 $1,102,608 $1,102,608
Other income 0 0 0 13,280
---------- ---------- ------------ ------------
$ 367,536 367,536 1,102,608 1,115,888
---------- ---------- ------------ ------------
Expenses:
Depreciation 216,930 216,930 650,790 650,790
Management and leasing expenses 45,060 44,775 134,703 133,942
Other operating expenses 185,397 174,424 498,892 516,248
---------- ---------- ------------ ------------
447,387 436,129 1,284,385 1,300,980
---------- ---------- ------------ ------------
Net loss $ (79,851) $ (68,593) $ (181,777) $ (185,092)
========== ========== ============ ============
Occupied % 100% 100% 100% 100%
---------- ---------- ------------ ------------
Partnership's ownership % 58% 58% 58% 58%
---------- ---------- ------------ ------------
Cash distribution to the
Fund II-Fund II-OW Joint Venture* $ 103,572 $ 102,969 $ 323,621 $ 321,588
========== ========== ============ ============
Net loss allocated to
Fund II-Fund II-OW Joint Venture* $ (48,948) $ (42,047) $ (111,429) $ (109,515)
---------- ---------- ------------ ------------
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income remained stable for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998. Operating expenses
decreased for the nine months ended September 30, 1999 as compared to the nine
months ended September 30, 1998 due primarily to increased common-area
maintenance billings to tenants that were under estimated in 1998. Tenants are
billed an estimated amount for the current year common-area maintenance which is
then reconciled the following year and the difference billed to the tenants.
-15-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- --------------------------------
The Brookwood Grill/ September 30, September 30, September 30, September 30,
Fund II-Fund III Joint Venture 1999 1998 1999 1998
======================================= =============== ============= ============ =============
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 56,188 $ 56,488 $ 168,563 $168,863
Equity income of joint venture 23,307 20,308 62,611 53,382
------------ ----------- ----------- -------------
79,495 76,796 231,174 222,245
============ =========== =========== =============
Expenses:
Depreciation 13,503 13,503 40,509 40,509
Management and leasing expenses 6,704 6,250 23,387 19,775
Other operating expenses 2,467 8,271 8,797 (10,221)
------------ ----------- ----------- -------------
22,674 28,024 72,693 50,063
============ =========== =========== =============
Net income $ 56,821 $ 48,772 $ 158,481 $172,182
============ =========== =========== =============
Occupied % 100% 100% 100% 100%
============ =========== =========== =============
Partnership's ownership % 59% 59% 59% 59%
============ =========== =========== =============
Cash distribution to the
Fund II-Fund II-OW Joint Venture* $ 59,606 $ 58,328 $ 175,037 $192,343
============ =========== =========== =============
Net income allocated to the
Fund II-Fund II-OW Joint Venture* $ 35,428 $ 29,662 $ 98,813 $117,189
============ =========== =========== =============
</TABLE>
* The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Although rental income remained relatively stable, total revenues increased for
the three- and nine-month periods ended September 30, 1999 as compared to the
same periods in 1998 due to the increased equity income from Fund II, III, VI,
and VII Joint Venture, as the Holcomb Bridge Property became more profitable
this year.
Operating expenses increased for the nine months ended September 30, 1999 as
compared to the same periods in 1998 due primarily to a change in the rental
agreement of billing water reimbursements to the tenants in 1998 which was
overestimated for the year.
-16-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -------------------------------
Holcomb Bridge Road/ September 30, September 30, September 30, September 30,
Fund II, III, VI, VII Joint Venture 1999 1998 1999 1998
======================================= ============== ============= ============== =============
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 213,028 $ 226,233 $ 670,852 $ 648,113
----------- ----------- ----------- -----------
Expenses:
Depreciation 79,605 94,128 277,862 282,161
Management and leasing expenses 22,263 20,198 93,200 79,450
Other operating expenses 14,889 27,664 39,670 64,494
----------- ----------- ----------- -----------
116,757 141,990 410,732 426,105
----------- ----------- ----------- -----------
Net income $ 96,271 $ 84,243 $ 260,120 $ 222,008
=========== =========== =========== ===========
Occupied % 94% 100% 94% 100%
=========== =========== =========== ===========
Partnership's ownership % 14.2% 14.2% 14.2% 14.2%
=========== =========== =========== ===========
Cash distribution to the
Fund II-Fund III Joint Venture* $ 41,093 $ 45,561 $ 122,693 $ 128,719
=========== =========== =========== ===========
Net income allocated to the
Fund II-Fund III Joint Venture* $ 23,307 $ 20,308 $ 62,611 $ 53,382
=========== =========== =========== ===========
</TABLE>
*The Partnership holds a 59.1% ownership in the Fund II-Fund III Joint Venture.
Rental income has increased for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998 due primarily to an
underestimate of straight-line rent adjustments in 1998. Expenses decreased due
to a decrease in 1999 property taxes.
-17-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Heritage Place at Tucker/ September 30, September 30, September 30, September 30,
Tucker Joint Venture 1999 1998 1999 1998
------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 351,124 $ 301,785 $ 1,031,027 $ 913,672
Interest income 53 95 326 367
Other income 0 27,319 0 27,319
------------- ------------- ------------- -------------
351,177 329,199 1,031,353 941,358
------------- ------------- ------------- -------------
Expenses:
Depreciation 127,287 113,129 356,539 327,705
Management and leasing expenses 36,741 41,688 124,707 118,921
Other operating expenses 165,238 152,927 364,186 378,901
------------- ------------- ------------- -------------
329,266 307,744 845,432 825,527
------------- ------------- ------------- -------------
Net income $ 21,911 $ 21,455 $ 185,921 $ 115,831
============= ============= ============= =============
Occupied % 88% 82% 88% 82%
============= ============= ============= =============
Partnership's ownership % 42.5% 42.5% 42.5% 42.5%
============= ============= ============= =============
Cash distribution to the
Fund II-Fund II-OW Joint Venture* $ 39,495 $ 51,671 $ 130,236 $ 147,664
============= ============= ============= =============
Net income allocated to the
Fund II-Fund II-OW Joint Venture* $ 9,840 $ 13,793 $ 83,497 $ 56,179
============= ============= ============= =============
</TABLE>
*The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1999 from 1998 due primarily to the increase in
occupancy from 82% to 88%. Depreciation increased for the nine-month period due
to building repairs. Other operating expenses increased for the three-month
period due to HVAC repairs and decreased from $378,901 to $364,186 for the nine-
month period ended September 30, 1999 due to a sewer pump and main water line
repair in 1998.
-18-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Cherokee Commons/Fund I, II, II-OW, September 30, September 30, September 30, September 30,
VI, VII Joint Venture 1999 1998 1999 1998
----------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 238,923 $ 226,733 $ 703,538 $ 681,415
Interest income 8 2 47 43
------------- ------------- ------------- -------------
238,931 226,735 703,585 681,458
------------- ------------- ------------- -------------
Expenses:
Depreciation 111,379 111,285 332,906 332,412
Management and leasing expenses 22,863 18,478 73,992 62,966
Other operating expenses 48,342 20,630 28,699 25,680
------------- ------------- ------------- -------------
182,584 150,393 435,597 421,058
------------- ------------- ------------- -------------
Net income $ 56,347 $ 76,342 $ 267,988 $ 260,400
============= ============= ============= =============
Occupied % 97% 91% 97% 91%
============= ============= ============= =============
Partnership's ownership % 51.7% 51.7% 51.7% 51.7%
============= ============= ============= =============
Cash distribution to the
Fund II-Fund II-OW Joint Venture* $ 94,923 $ 103,684 $ 322,585 $ 322,150
============= ============= ============= =============
Net income allocated to the
Fund II-Fund II-OW Joint Venture* $ 30,743 $ 41,625 $ 146,217 $ 142,076
============= ============= ============= =============
</TABLE>
* The Partnership holds a 95% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1999 over 1998 due to increased occupancy. The
increase in operating expenses for the three-month period ended September 30,
1999 was due to increased expenditures for tenant improvements, HVAC repairs,
and parking-lot repairs.
-19-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 (b.) NO REPORTS ON FORM 8-K WERE FILED DURING THE THIRD QUARTER OF 1999.
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: November 10, 1999 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
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 45,760
<SECURITIES> 21,030,025
<RECEIVABLES> 494,961
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 21,570,746
<CURRENT-LIABILITIES> 461,826
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 21,108,920
<TOTAL-LIABILITY-AND-EQUITY> 21,570,746
<SALES> 0
<TOTAL-REVENUES> 282,684
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 282,684
<INCOME-TAX> 0
<INCOME-CONTINUING> 282,684
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 282,684
<EPS-BASIC> 2.60
<EPS-DILUTED> 0
</TABLE>
