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, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the transition period from to
Commission file number 0-17876
Wells Real Estate Fund II-OW
(Exact name of registrant as specified in its charter)
Georgia 58-1754703
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (404) 449-7800
(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-OW
Index
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1995
and December 31, 1994 ...................... 3
Statements of Earnings for the Three Months
and Nine Months Ended September 30, 1995
and 1994 .................................... 4
Statements of Cash Flows for the Nine Months
Ended September 30, 1995 and 1994 .......... 5
Condensed Notes to Financial Statements ...... 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations ............................... 10
PART II. OTHER INFORMATION ................................. 15
WELLS REAL ESTATE FUND II-OW
(a Limited Partnership)
Balance Sheets
<TABLE>
Assets
Sept 30 1995 Dec 31 1994
<S> <C> <C>
Cash and cash equivalents 509 14,703
Investment in joint venture (note 2) 1,456,660 1,483,315
Due from affiliate 27,668 24,957
Due from Limited Partners 207 1,217
Total assets 1,485,044 1,524,192
Liabilities and Partners' Capital
Liabilities:
Partnership distributions payable 27,984 25,654
Due to affiliate 0 14,824
Total liabilities 27,984 40,478
Partners' capital:
General Partners 0 0
Limited Partners:
Class A - 6,062 units outstanding 1,377,229 1,370,379
Class B - 1,626 units outstanding 79,831 113,335
Total Partners' capital 1,457,060 1,483,714
Total liabilities
and Partners' capital 1,485,044 1,524,192
</TABLE>
See accompanying condensed notes to financial statements.
WELLS REAL ESTATE FUND II-OW
(a Limited Partnership)
Statements of Earnings
<TABLE>
Three Months Ended Nine Months Ended
Sept 30 1995 Sept 30 1994 Sept 30 1995 Sept 30 1994
<S> <C> <C> <C> <C>
Revenues:
Equity in earnings of
joint venture (note 2) 20,002 15,461 52,012 29,715
Interest income 0 75 2 305
20,002 15,536 52,014 30,020
Expenses:
Office Expense 0 3 250 3
Net earnings 20,002 15,533 51,764 30,017
Net earnings allocated
to General Partners 0 0 0 0
Net earnings allocated to
Class A Limited
Partners 31,422 26,250 85,266 61,895
Net loss allocated to
Class B Limited Partners (11,421) (10,717) (33,503) (31,878)
Net earnings per Class A
Limited Partner Unit 5.19 4.33 14.07 10.21
Net loss per Class B
Limited Partner Unit (7.02) (6.59) (20.60) (19.61)
Cash distribution per
Class A Limited Partner Unit 4.56 4.07 12.93 9.88
</TABLE>
See accompanying condensed notes to financial statements.
WELLS REAL ESTATE FUND II-OW
(a Limited Partnership)
Statements of Cash Flows
<TABLE>
Nine Months Ended
Sept 30 1995 Sept 30 1994
<S> <C> <C>
Cash flows from operating activities:
Net earnings 51,764 30,017
Adjustments to reconcile net earnings
to net cash provided by
operating activities:
Equity in earnings of joint venture (52,012) (29,715)
Changes in assets and liabilities:
Decrease in due from limited
partners 1,011 610
Decrease in accounts payable (311) (280)
Decrease in due to affiliates (14,824) 0
Net cash (used in) provided by
operating activities 14,372 632
Cash flows from investing activities:
Investment in Joint Venture 0 (4,396)
Distributions received from joint venture 75,953 49,718
Net cash provided by investing activities 75,953 45,322
Cash flows used by financing activities:
Partnership distributions paid (75,775) (58,066)
Net decrease in cash and cash
equivalents (14,194) (12,112)
Cash and cash equivalents, beginning of year 14,703 26,426
Cash and cash equivalents, end of period 509 14,314
</TABLE>
See accompanying condensed notes to financial statements.
WELLS REAL ESTATE FUND II-OW
(a Limited Partnership)
Condensed Notes to Financial Statements
(Unaudited)
(1) Basis of Presentation. The financial statements of Wells Real Estate Fund
II-OW (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
period presented include all adjustments, which are of a normal and
recurring nature, necessary to
present a fair presentation of the results for such period. For further
information, refer to the financial
statements and footnotes included in the Partnership's Form 10-K for the
year ended December 31,
1994.
(2) Investments in Joint Venture. The Partnership owns all of its properties
through a joint venture (the
"Fund II-Fund II-OW Joint Venture") formed on March 1, 1988, between the
Partnership and Wells
Real Estate Fund II ("Wells Fund II"). Wells Fund II is a Georgia limited
partnership affiliated with
the Partnership through common General Partners. As of September 30, 1995,
the Partnership's
equity interest in the Fund II -Fund II-OW Joint Venture was approximately
5%.
The Fund II - Fund II-OW Joint Venture owns the following property
directly:
The Charlotte Project is a 2-story office building containing
approximately 70,752 square feet
located in Charlotte, North Carolina.
In addition, the Fund II - Fund II-OW Joint Venture owns interests in
the following properties
through joint ventures:
The Tucker Project is a commercial property known as "Heritage Place at
Tucker" consisting of a
retail shopping center containing approximately 29,858 square feet and a
commercial office building
complex containing approximately 67,465 square feet located in Tucker,
DeKalb County, Georgia,
which is owned by a joint venture (the "Tucker-Cherokee Joint Venture")
between the Fund II - Fund
II-OW Joint Venture and Wells Real Estate Fund I ("Wells Fund I"). Wells
Fund I is a Georgia
limited partnership affiliated with the Partnership through common
General Partners. As of
September 30, 1994, the Fund II - Fund II-OW Joint Venture's equity
interest in the Tucker Project
was approximately 45%.
The Cherokee Project
During the third quarter of 1995, the Fund II - Fund II-OW Joint Venture,
Wells Fund I, Wells Real
Estate Fund VI, L.P. ("Wells Fund VI"), and Wells Real Estate Fund VII,
L.P ("Wells Fund VII"),
entered into a joint venture agreement known as Fund I, II, II-OW, VI
and VII Associates (the "Fund
I-II-IIOW-VI-VII Joint Venture"), which was formed to own and operate
the Cherokee Project.
Wells Fund VI and Wells Fund VII are Georgia limited partnerships
affiliated with the Partnership
through common General Partners. The investment objectives of Wells
Fund I, Wells Fund VI and
Wells Fund VII are substantially identical to those of the Partnership.
The Cherokee Project is a retail shopping center known as the "Cherokee
Commons Shopping
Center". The Center has been expanded from 90,415 square feet to contain
approximately 103,755
square feet in metropolitan Atlanta, Cherokee County, Georgia. The total
cost for the completed
expansion and remodeling of the Center was approximately $2,800,000 and
was funded by Wells
Fund I ($94,679), Fund II - II-OW Joint Venture ($805,092), Wells Fund
VI ($953,798) and Wells
Fund VII ($953,798). As of September 30, 1995, the Fund II-Fund II-OW
Joint Venture's equity
interest in the Cherokee Project was approximately 55%.
The Atrium is a four-story office building known as "The Atrium at
Nassau Bay" containing
approximately 119,000 square feet located in metropolitan Houston,
Nassau Bay, Texas, which is
owned by a joint venture (the "Fund II - Fund III Joint Venture")
between the Fund II - Fund II-OW
Joint Venture and Wells Real Estate Fund III, L.P. ("Wells Fund III").
Wells Fund III is a Georgia
limited partnership affiliated with the Partnership through common
General Partners. As of
September 30, 1995, the Fund II -Fund II-OW Joint Venture's equity
interest in the Atrium was
approximately 66%.
The 880 Property is a 5.8 acre tract of real property located at the
intersection of Warsaw and
Holcomb Bridge Road in Roswell, Fulton County, Georgia, which is being
developed into two
separate tracts, as follows:
The Brookwood Grill is a 1.5 acre tract of the 880 Property owned by the
Fund II - Fund III Joint
Venture, which was developed and is currently being operated as a
restaurant. As of September 30,
1995, the Fund II - Fund II-OW Joint Venture's equity interest in the
Brookwood Grill was
approximately 62%.
The Holcomb Bridge Road Project is a 4.3 acre tract of the 880 Property
currently being developed
in a joint venture known as Fund II, III, VI and VII Associates (the
"Fund II-III-VI-VII Joint
Venture"), which was formed during the first quarter of 1995 among the
Fund II - Fund III Joint
Venture, Wells Fund VI and Wells Fund VII. The Fund II-III-VI-VII Joint
Venture plans to develop
the remaining portion of the 880 Property into two buildings containing
a total of approximately
48,000 square feet. At present, it is anticipated that approximately
26,000 square feet will be
developed as office space and that approximately 22,000 square feet will
be developed as retail
space. The cost to develop the Holcomb Bridge Road Project, excluding
the cost of the land, is
currently estimated to be approximately $4,000,000. As of September 30,
1995, Wells Fund VI had
contributed approximately $970,529 to the Fund II-III-VI-VII Joint
Venture for the development of
the Holcomb Bridge Road Project. The ultimate ownership percentages of
the joint venture partners
in the Fund II-III-VI-VII Joint Venture have not yet been determined
at this time.
For further information regarding the foregoing properties, refer to the
Partnership's Form 10-K for
the year ended December 31, 1994.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations" for a
summary and discussion of the operations of the properties described
above during the three months
and nine months ended September 30, 1995.
The following summarizes the condensed financial statements of the
Fund II - Fund II-OW Joint
Venture:
FUND II AND FUND II - OW JOINT VENTURE
Balance Sheets
<TABLE>
Assets
<S> <C> <C>
Sept 30, 1995 Dec 31, 1994
Real Estate:
Land 1,367,856 1,367,856
Building and improvements, net 6,340,419 6,495,708
7,708,275 7,863,564
Investment in joint ventures 19,506,386 19,904,703
Procurement fees 102,481 138,595
Cash and cash equivalents 58,341 516,449
Due from affiliates 479,460 147,852
Receivables and other assets 83,542 0
Total assets 27,938,485 28,571,163
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued expenses 0 72,602
Due to affiliates 3,924 111,348
Partnership distributions payable 521,062 471,753
Total liabilities 524,986 655,703
Partners' capital:
Wells Real Estate Fund II 25,956,839 26,432,145
Wells Real Estate Fund II - OW 1,456,660 1,483,315
Total partners' capital 27,413,499 27,915,460
Total liabilities and
partners' capital 27,938,485 28,571,163
</TABLE>
FUND II AND FUND II-OW JOINT VENTURE
Statements of Earnings
<TABLE>
Three Months Ended Nine Months Ended
<S> <C> <C> <C> <C>
Sept 30 1995 Sept 30 1994 Sept 30 1995 Sept 30 1994
Revenues:
Rental income 114,716 114,717 344,150 191,195
Equity in earnings of
joint ventures 344,511 254,138 926,333 761,885
Interest income 110 3,606 427 14,781
Expenses:
Management and leasing fees 6,883 6,883 20,649 11,472
Depreciation & amortization 53,159 53,158 159,475 153,356
Other operating costs 22,624 19,608 111,284 240,253
Net earnings 376,671 292,812 979,502 562,780
Cash Distributions to the
Partnership 27,669 24,644 78,666 59,637
</TABLE>
ITEM2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
As of September 30, 1995, the Partnership owned interests in the following
properties through the Fund II - Fund II-OW Joint Venture:
Charlotte Project
<TABLE>
Three Months Ended Nine Months Ended
Sept 30 1995 Sept 30 1994 Sept 30 1995 Sept 30 1994
<S> <C> <C> <C> <C>
Rental Income 103,177 103,176 309,529 171,960
Straight Line Rent
Adjustment 11,541 11,541 34,622 19,234
Operating Income 8,866 (3,281) 42,300 105,628
Depreciation, General and
Administrative Expenses 53,159 62,170 159,475 212,206
Net Income (Loss) 52,693 55,828 142,376 (126,640)
Occupied % 100.00% 100.00% 100.00% 100.00%
Partnership Ownership% 5.31% 5.28% 5.31% 5.28%
Cash generated to the
Partnership 4,821 0 14,190 0
</TABLE>
Net income remained stable for the three months ended September 30, 1995
compared to the same quarter of
1994. Rental income increased for the nine months ended September 30, 1995,
over the same period of
1994, due chiefly to the vacancy of the property during 1994. Operating
expenses at the project decreased
for the nine month period of 1995 compared to 1994 due to property taxes and
maintenance expenses now
being paid by First Union Bank. General and administrative expenses decreased
over 1994 levels due mainly
to a decrease in marketing and administrative expenses relating to the lease-up
of the building.
Brookwood Grill
<TABLE>
Three Months Ended Nine Months Ended
Sept 30 1995 Sept 30 1994 Sept 30 1995 Sept 30 1994
<S> <C> <C> <C> <C>
Rental Income 56,188 56,188 168,563 168,563
Operating Expenses, Net
of Reimbursements 7,066 12,002 18,236 31,417
Operating Income 49,122 44,186 150,327 137,146
Depreciation, General and
Administrative Expenses 23,222 18,210 74,492 67,339
Net Income 25,900 25,976 75,835 69,807
Occupied % of Developed
Property 100.00% 100.00% 100.00% 100.00%
Partnership Ownership % 3.31% 3.29% 3.31% 3.29%
Cash Distributions to the
Fund II - Fund II-OW
Joint Venture 25,025 9,215 73,911 54,296
</TABLE>
Net income and cash distributions have increased for the nine months ended
September 30, 1995 as
compared to the same period in 1994 due to decreased operating expenditures and
increased common area
maintenance billings to the tenant in 1995.
Heritage Place at Tucker
<TABLE>
Three Months Ended Nine Months Ended
Sept 30 1995 Sept 30 1994 Sept 30 1995 Sept 30 1994
<S> <C> <C> <C> <C>
Rental Income 313,802 313,389 957,817 900,970
Operating Expenses 131,343 146,935 436,331 404,147
Operating Income 182,459 166,454 521,486 496,823
Depreciation, Refurbish-
ment and Other 88,952 82,393 267,459 249,131
Net Income 93,507 84,061 254,027 247,692
Occupied % 89.33% 96.92% 89.33% 96.92%
Partnership Ownership% 2.39% 2.39% 2.39% 2.39%
Cash Distributions to the
Fund II - Fund II-OW
Joint Venture 71,266 49,409 197,189 141,027
</TABLE>
Rental income increased for the nine months ended September 30, 1995, as
compared to the same period in
1994, due primarily to higher base rents. While operating expenses decreased
for the three months ended
September 30, 1995, they continue to be greater, on a year to date basis, than
prior year due primarily to
increased property taxes, electricity and landscaping expenses. Depreciation,
refurbishment and other
expenses also increased for the three months and nine months ended September
30, 1995 as compared to the
same periods in 1994 due chiefly to reimbursements by tenants for refurbishments
in 1994. Net income has
increased for the three months and nine months ended September 30, 1995, as
compared to the same periods
in 1994, for the reasons discussed above. Cash distributions have increased
for both the three months and
nine months ended September 30, 1995, as compared to 1994 levels due primarily
to capitalized tenant
improvements made during the first two quarters of 1994.
Cherokee Commons Shopping Center
<TABLE>
Three Months Ended Nine Months Ended
Sept 30 1995 Sept 30 1994 Sept 30 1995 Sept 30 1994
<S> <C> <C> <C> <C>
Rental Income 253,387 129,154 546,904 388,224
Operating Expenses, Net
of Reimbursements 28,154 24,418 88,276 85,016
Operating Income 225,233 104,736 458,628 303,208
Depreciation,Refurbish-
ment and Other 90,848 57,487 218,164 168,934
Net Income 134,385 47,249 240,464 134,274
Occupied % 94.52% 92.20% 94.52% 92.20%
Partnership Ownership% 2.90% 3.63% 2.90% 3.63%
Cash Distributions to the
Fund II - Fund II-OW
Joint Venture 88,365 47,294 169,704 137,152
</TABLE>
A lease amendment was executed with Kroger to expand its existing store at the
Cherokee Commons
Shopping Center from 45,528 square feet to 66,918 square feet. In November
1994, construction was
completed on the Kroger expansion and remodeling of the center. The total cost
for both the Kroger
expansion and remodeling of Center is estimated to be approximately $2,800,000.
The initial cost of this
expansion was funded from existing reserves held by the Partnership, Wells Fund
I and Wells Fund II, and
the remaining funding was provided by Wells Fund VI and Wells Fund VII.
Rental income increased for the three months and nine months ended September 30,
1995, as compared to the
same periods in 1994, due primarily to increased tenant occupancy and the Kroger
expansion. Operating
expenses increased due primarily to timing differences in billing tenant expense
reimbursements.
Depreciation, refurbishment and other expenses increased for the three months
and nine months ended
September 30, 1995, as compared to the prior year, due chiefly to an increase
in depreciation expense
resulting from the recently completed expansion and remodeling of the Center.
Cash distributions for the
three and six month periods ended September 30, 1995 are greater than the 1994
levels due primarily to
increased revenue at the Center.
The Atrium Property
<TABLE>
Three Months Ended Nine Months Ended
Sept 30 1995 Sept 30 1994 Sept 30 1995 Sept 30 1994
<S> <C> <C> <C> <C>
Rental Income 519,836 519,836 1,559,509 1,559,509
Operating Expenses, Net
of Reimbursements 92,759 121,557 282,752 380,212
Operating Income 427,077 398,279 1,276,757 1,179,297
Depreciation, General
and Administrative
Expenses 117,989 142,907 350,357 393,745
Net Income 309,088 255,372 926,400 785,552
Occupancy % 100.00% 100.00% 100.00% 100.00%
Partnership Ownership% 3.48% 3.44% 3.48% 3.44%
Cash Distributions to the
Fund II - Fund II-Ow
Joint Venture 294,805 280,527 883,847 854,359
</TABLE>
The increase in net income for the nine month period ended September 30, 1995,
over the same period in
1994, is due primarily to a decrease in repairs and maintenance expenses as
well as the decrease in accrued
property taxes resulting from the 1994 reassessment.
The Atrium Property lease will expire on June 30, 1996. If Lockheed does not
negotiate a new lease for the
building or suitable replacement tenants are not found, operating results at the
Atrium Property would be
adversely affected.
*****
As of September 30, 1995, the developed properties owned by the Fund II-
Fund II-OW Joint Venture were
96.8% occupied as compared to 96.6% leased as of September 30, 1994.
The Partnership reflected increased revenues for the quarter ended September 30,
1995, over the revenues for
the same periods in 1994, due to the joint venture's increased income which was
primarily the result of the
occupancy of the Charlotte Project.
Distributions to be received by the Partnership from the Fund II - Fund II-OW
Joint Venture for the three-
month periods ended September 30, 1995, and September 30, 1994, were $27,669
and $24,644, respectively.
The Partnership made cash distributions to Limited Partners holding Class A
Units of $5.19 per unit for the
third quarter of 1995, as compared to $4.33 for the third quarter of 1994.
No cash distributions were made
by the Partnership to Limited Partners holding Class B Units.
Due from limited partners in the amount of $207 represents 1989 and 1991
withholding taxes for certain
nonresident North Carolina investors, which the Partnership was required to pay
to the State of North
Carolina and which will be deducted from future cash distributions.
Since the Partnership has invested all of its funds available for investment in
properties, it is highly unlikely
that the Partnership will acquire an interest in any additional properties. The
Partnership's capital resources
are anticipated to remain relatively stable over the holding period of its
investments.
The Partnership is required to maintain working capital reserves in an amount
equal to the cash operating
expenses estimated by the General Partners to be required to operate the
Partnership for a six-month period,
not to exceed 3% or be reduced below 1% of Limited Partners' capital
contributions. The General Partners
believe that the Partnership's working capital reserves will be adequate, and
it is not anticipated that the
Partnership will have needs for additional capital or liquid assets.
PART II - OTHER INFORMATION
Item 6(b). During the third quarter of 1995, the Partnership filed a report on
Form 8-K dated September 11,
1995, to report a change in the independent accounting firm engaged to audit the
Partnership's financial
statements.
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-OW
(Registrant)
Dated: November 10, 1995 By: /s/ Leo F. Wells, III
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital, Inc., the
Corporate General Partner
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 509
<SECURITIES> 1,456,660
<RECEIVABLES> 27,875
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,485,044
<CURRENT-LIABILITIES> 27,984
<BONDS> 0
<COMMON> 0
0
0
<OTHER-SE> 1,457,060
<TOTAL-LIABILITY-AND-EQUITY> 1,485,044
<SALES> 0
<TOTAL-REVENUES> 52,014
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 250
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 51,764
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 51,764
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
