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3
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
[Fee Required]
For the fiscal year ended December 31, 1995
or
[ ] Transition report pursuant to Section 13 or 15 (d) of the
Securities Exchange Act of 1934
[No Fee Required]
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 Identification Number)
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
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class Name of exchange on which
registered NONE NONE
Securities registered pursuant to Section 12 (g) of the Act:
CLASS A UNITS
(Title of Class)
CLASS B UNITS
(Title of Class)
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
Aggregate market value of the voting stock held by non-
affiliates: Not Applicable
PART I
ITEM 1. BUSINESS
Wells Real Estate Fund II-OW (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 October 13, 1987, for the purpose of acquiring, developing,
constructing, owning, operating, improving, leasing and otherwise
managing for investment purposes income-producing commercial or
industrial properties.
On November 6, 1987, 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 $1,922,000 representing subscriptions
from 219 Limited Partners, composed of two classes of limited
partnership interests, Class A and Class B limited partnership
units.
As of December 31, 1995, the Partnership owned interests in the
following properties: (i) a retail shopping and commercial
office complex located in Tucker, Georgia, (ii) a shopping center
located in Cherokee County, Georgia, (iii) a two-story office
building located in Charlotte, North Carolina, (iv) a four-story
office building located in metropolitan Houston, Texas, (v) a
restaurant located in Fulton County, Georgia, and (vi) a retail
shopping center currently being developed in Fulton County,
Georgia. All of the foregoing properties were acquired on an all
cash basis and are described in more detail in Item 2 below. The
lease on the Atrium Building in Houston, which contributes a
significant proportion to the revenue of the Partnership, will
expire in June, 1996. If the Partnership is unable to obtain a
new tenant, the income generated to the Partnership may decrease
significantly. See the detailed discussion in Item 2,
Properties.
Employees
The Partnership has no direct employees. The employees of Wells
Capital, Inc., a General Partner of the Partnership perform a
full range of real estate services including leasing and property
management, accounting, asset management and investor relations
for the Partnership. See Item 11 - "Compensation of General
Partner and Affiliates" - for a summary of the fees paid to the
General Partners and their affiliates during the fiscal year
ended December 31, 1995.
Insurance
Wells Management Company, Inc., an affiliate of the General
Partner, carries comprehensive liability and extended coverage
with respect to all the properties owned directly or indirectly
by the Partnership. In the opinion of management of the
registrant, the properties are adequately insured.
Competition
The Partnership will experience competition for tenants from
owners and managers of competing projects which may include the
General Partners and their affiliates. As a result, the
Partnership may be required to provide free rent, reduced charges
for tenant improvements and other inducements, all of which may
have an adverse impact on results of operations. At the time the
Partnership elects to dispose of its properties, the Partnership
will also be in competition with sellers of similar properties to
locate suitable purchasers for its properties.
Item 2. Properties.
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 public limited
partnership affiliated with the Partnership through common
general partners. The investment objectives of Wells Fund II are
substantially identical to those of the Partnership. As of
December 31, 1995, the Partnership's equity interest in the Fund
II-Fund II-OW Joint Venture was approximately 5%, and the equity
interest of Wells Fund II was approximately 95%..
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.
Of the six properties owned by the joint venture, three are
retail shopping centers, two are office buildings and one is a
restaurant. As of December 31, 1995, these properties were
95.87% occupied, down from 97.34% at December 31, 1994, and up
from 66.90% at December 31, 1993, 93.76% at December 31, 1992 and
93.57% at December 31, 1991.
The following table shows lease expirations during each of the
next ten years for all leases as of December 31, 1995, assuming
no exercise of renewal options or termination rights:
Partnership
Share
Year of Number of Square Annualized of Annualized
Percentage of Percentage of
Lease Leases Feet Gross Base Gross Base Total
Square Total Annualized
Expiration Expiring Expiring Rent (1) Rent (1)
Feet Expiring Gross Base Rent
1996(2)12 141,922$2,296,663 $77,135 52.20% 61.37%
1997 12 25,528 319,709 8,115 9.39% 8.54%
1998 4 7,750 92,134 2,479 2.85% 2.46%
1999 6 9,619 152,313 3,780 3.54% 4.07%
2000 2 5,314 81,438 2,100 1.95% 2.18%
2001(3)2 78,192 749,373 35,297 28.76% 20.02%
2002 1 3,531 50,821 1,215 1.30% 1.36%
2003 0 0 0 0 0.00% 0.00%
2004 0 0 0 0 0.00% 0.00%
2005 0 0 0 0 0.00%
0.00%
39 271,8563,742,451 $130,121 100.0% 100.0%
(1) Average monthly gross rent over the life of the lease,
annualized.
(2) Expiration of Lockheed Engineering and Science Company,
Inc. at The Atrium.
(3) Expiration of the Brookwood Grill with 7,440 square
feet and the First Union Bank with 70,752 square
feet at the Charlotte Project.
The following describes the properties in which the Partnership
owns an interest as of December 31, 1995.
The Charlotte Property
On May 9, 1988, the Fund II-Fund II-OW Joint Venture acquired a
two-story building containing approximately 70,752 net leasable
square feet, located on a 9.54 acre tract of land located in
Charlotte, Mecklenburg County, North Carolina (the "Charlotte
Property") for a purchase price of $8,550,000. While the entire
project was originally leased under a net lease to IBM, IBM
elected not to exercise its second three year option to extend
its lease and vacated the building effective September 30, 1993,
after paying a $425,000 lease termination fee.
On May 1, 1994, First Union Bank assumed occupancy of the
Charlotte property under a lease which expires April 30, 2001.
The principal terms of the lease provide for First Union's sole
tenancy of the project as a regional operations center for the
initial term of seven years. Because First Union Bank invested
approximately $1 million in tenant improvements at the Charlotte
property, a lower rental rate was accepted for the first five
years. There are presently no plans for improvement or further
development of the project.
The annual base rent during the initial term is $412,705 payable
in equal monthly installments of $34,392.08 during the first two
years, annual base rent of $454,651 payable in equal monthly
installments of $37,887.58 during the third year, annual base
rent of $489,650 payable in equal monthly installments of $40,804
during the fourth year and annual base rent of $524,625 payable
in equal monthly installments of $43,718.75 during the fifth
year. Rental rates during the remaining two years of the lease
term will be determined by market rates.
The occupancy rates at the Charlotte Property as of December 31
were 100% in 1995, 100% in 1994, 0% in 1993, 100% in 1992 and
1991. The average effective annual rental per square foot at the
Charlotte Property was $5.83 for 1995, $3.88 1994, $28.12 for
1993 and $15.69 for 1992, and 1991. The higher effective annual
rental rate for 1993 is due to the payment of $425,000 in lease
termination fees by IBM.
The Atrium
On April 3, 1989, the Fund II-Fund II-OW Joint Venture formed a
joint venture (the "Fund II-Fund III Joint Venture") with Wells
Real Estate Fund III, L.P. ("Wells Fund III"), a public Georgia
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, know as "The Atrium
at Nassau Bay", (the "Atrium").
The funds used by the Fund II-Fund III Joint Venture to acquire
the Atrium were derived from capital contributions made to the
Fund II-Fund III Joint Venture by the Fund II-Fund II-OW Joint
Venture and Wells Fund III in the amounts of $8,327,856 and
$2,538,000, respectively, for total initial capital contributions
of $10,865,856. As of December 31, 1995, the Fund II-Fund II-OW
Joint Venture and Wells Fund III had made total capital
contributions to the Fund II-Fund III Joint Venture of
approximately $8,330,000 and $4,448,000, respectively, for the
acquisition and development of 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 Fund 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. Each floor of the Atrium is
currently under a separate lease to Lockheed Engineering and
Science Company, Inc., a wholly-owned subsidiary of the Lockheed
Company, of which leases have terms of approximately eight years
and expire on June 30, 1996. The leases do not contain any
provisions for extension. The Fund II-Fund III Joint Venture is
responsible for operating expenses of up to $4.50 per square foot
for the first four years and $4.75 per square foot thereafter.
The tenant under each lease is required to pay certain operating
expenses including expenses relating to its share of the building
in excess of $4.50 paid by the Joint Venture per square foot for
the first four lease years and $4.75 per square foot for the
remaining term. Under the terms of each of the leases, the
tenant is responsible for all maintenance and repair work, as
well as all utilities, taxes, insurance and similar expenses with
respect to the Atrium in excess of the amounts specified above.
The leases for each of the four floors of the building are
identical, except as to their base monthly rentals. The leases
for the Atrium provide for base rent of $185,298 per month until
expiration of said lease in June 1996.
The occupancy rate at the Atrium Property was 100%, and the
average effective annual rental per square foot at the Atrium
Property was $17.47 for each of the five years from 1991 through
1995.
The lease with Lockheed will expire on June 30, 1996, and renewal
is not expected at this time. The Partnership has responded to
various potential tenants regarding leasing portions of the
Atrium, should Lockheed not renew. In the event that Lockheed
does not renew its lease and the Partnership is unable to lease a
substantial portion of the Atrium Property at rates at lease
comparable to the lease rates currently being paid under the
Lockheed lease, the income generated from the Atrium Property
could decrease significantly following the expiration of the
Lockheed lease on June 30, 1996. In addition, even if the
Partnership is able to obtain leases with new tenants for the
Lockheed Project, such leases are likely to require substantial
tenant finish and refurbishment expenditures by the Partnership,
which could have the effect of substantially reducing future cash
distributions to Limited Partners.
The Brookwood Grill Property
On January 31, 1990, the Fund II-Fund II-OW Joint Venture
acquired a 5.8 acre tract of undeveloped real property at the
intersection of Warsaw Road and Holcomb Bridge Road in Roswell,
Fulton County, Georgia (the "Brookwood Grill Property"). The
Brookwood Grill Property is located about two miles west of
Georgia Highway 400 and approximately 20 radial miles north of
the Atlanta Central Business District. The Fund II - Fund II-OW
Joint Venture paid $1,848,561, including acquisition expenses,
for the 5.8 acre tract of undeveloped property.
On September 20, 1991, the Fund II-Fund II-OW Joint Venture
contributed the Brookwood Grill Property, along with its interest
as landlord under the lease agreement referred to below, as a
capital contribution to the Fund II-Fund III Joint Venture. As
of September 20, 1991, the Fund II-Fund II-OW Joint Venture had
expended approximately $2,128,000 for the land acquisition and
development of the Brookwood Grill Property.
As of September 20, 1991, a lease agreement was entered into with
the Brookwood Grill of Roswell, Inc. for the development of
approximately 1.5 acres and the construction of a 7,440 square
foot restaurant. This Roswell site, which opened early March
1992, is the second location in the Atlanta area for what is
anticipated as a southeastern chain of restaurants similar in
concept to Houston's, Ruby Tuesday, and Friday's. This chain is
principally owned by David Rowe, an Atlanta real estate developer
of Kroger shopping centers, and several operating partners
formerly with Houston's. The terms of the lease call for an
initial term of 9 years and 11 months, with two additional 10-
year option periods. The agreement calls for a base rental of
$217,006 per year for Years 1 through 5, with a 15% increase for
the remainder of the initial term. Rental rates for all option
periods will be based on the prevailing market values and rates
for those periods. Under the terms of the lease, the Fund II-
Fund III Joint Venture was required to make certain improvements
for the development and construction of the restaurant building
together with parking areas, driveways, landscaping and other
improvements described in the plans and specifications. The Fund
II-Fund III Joint Venture has expended approximately $1,100,000
for such improvements. In addition to the base rent described
above, the tenant is required to pay "additional rent" in amounts
equal to a 12% per annum return on all amounts expended for such
improvements.
The occupancy rate for the Brookwood Grill, sole tenant, was 100%
for 1995, 1994, 1993, and 1992. The average effective annual
rental per square foot at the Brookwood Grill is $30.21 for 1995,
1994 and 1993, and $24.60 for 1992, the first year of occupancy.
As of December 31, 1995, the Fund II-Fund II-OW Joint Venture and
Wells Fund III had made total contributions to the Fund II-Fund
III Joint Venture of approximately $2,128,000 and $1,330,000,
respectively, for the acquisition and development of the
Brookwood Grill. The Fund II-Fund II-OW Joint Venture holds an
approximately 62% equity interest in the project, and Wells Fund
III holds an approximately 38% equity interest in the project.
On January 10, 1995, the remaining 4.3 undeveloped acres of land
comprising the 880 Property was contributed to a new joint
venture, Fund II, III, VI, and VII Associates by Fund II-Fund III
Joint Venture. This property is described below.
Fund II, III, VI and VII Joint Venture/Holcomb Bridge Road
Project
On January 10, 1995, Fund II-Fund III Joint Venture; Wells Real
Estate Fund VI, L.P. ("Wells Fund VI"), a Georgia public limited
partnership having Leo F. Wells, III and Wells Partners, L.P., a
Georgia limited partnership, as general partners, and Wells Real
Estate Fund VII, L. P.("Wells Fund VII"), a Georgia public
limited partnership having Leo F. Wells, III and Wells Partners,
L.P., a Georgia limited partnership, as general partners, entered
into a Joint Venture Agreement known as Fund II, III, VI and VII
Associates ("Fund II, III, VI and VII Joint Venture"). Wells
Partners, L.P. is a private limited partnership having Wells
Capital, Inc., a General Partner of the Partnership, as its sole
general partner. The investment objectives of Wells Fund VI and
Wells Fund VII are substantially identical to those of the
Partnership.
In January 1995, the Fund II-Fund III Joint Venture contributed
approximately 4.3 acres of land at the intersection of Warsaw
Road and Holcomb Bridge Road in Roswell, Fulton County, Georgia
including land improvements with a book value of $1,729,116 to
the Fund II, III, VI and VII Joint Venture. Development is
underway on two buildings containing a total of approximately
48,000 square feet; 26,000 square feet to be developed as office
space and 22,000 square feet to be developed as retail space. As
of December 31, 1995, leases have been signed with Bertucci's
Restaurant Corporation for 5,935 square feet, Air Touch Cellular
for 3,046 square feet and Townsend Tax for 1,389 square feet.
Initial occupancy occurred in February, 1996.
As of December 31, 1995, Fund II and Fund III Joint Venture had
contributed $1,729,116 in land and improvements for an
approximate 33% equity interest, Wells Fund VI had contributed
$982,691 toward the construction for an approximate 19% equity
interest, and Wells Fund VII had contributed $2,500,000 for a
approximate 48% equity interest. As of December 31, 1995, the
Partnership held an approximate 1.0% equity interest through the
Fund II-Fund II-OW Joint Venture in the Fund II, III, VI and VII
Joint Venture. The total cost to develop the Holcomb Bridge Road
Project excluding land, is currently estimated to be
approximately $4,000,000, and it is anticipated that the
remaining approximate $517,000 will be contributed $260,000 by
Wells Fund VI and $257,000 by Wells Fund VII.
Tucker Property
The Tucker Property consists of a retail shopping center and a
commercial office building complex located in Tucker, DeKalb
County, Georgia (the "Tucker Property"). The retail shopping
center at the Tucker Project contains approximately 29,858 net
leasable square feet. The commercial office space at the Tucker
Project, which divided into seven separate buildings, contains
approximately 67,465 net leasable square feet.
On January 9, 1987, the Partnership acquired an interest in the
Tucker Property which was acquired by a joint venture (the
"Tucker Joint Venture") originally between the Partnership 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. The investment objectives of
Wells Fund I are substantially identical to those of the
Partnership. Upon the formation of the Fund II-Fund II-OW Joint
Venture in March 1988, the Partnership contributed its joint
venture interest in the Tucker Joint Venture to the Fund II-Fund
II-OW Joint Venture as a part of its capital contribution. On
January 1, 1991, the Cherokee Joint Venture, which is defined
below, was merged into the Tucker Joint Venture forming a new
joint venture (the "Tucker-Cherokee Joint Venture"). As
described below, the Cherokee Joint Venture was also a joint
venture between the Fund II-Fund II-OW Joint Venture and Wells
Fund I. Under the terms of the Amended and Restated Joint
Venture Agreement of Fund I and Fund II Tucker-Cherokee, the
percentage interest of the Fund II - Fund II-OW Joint Venture in
the Tucker Project remained unchanged as a result of the merger
of the Tucker Joint Venture into the Tucker-Cherokee Joint
Venture.
On August 1, 1995, Wells Fund I and the Fund II - Fund II-OW
Joint Venture entered into another amendment to effect the
contribution of the Cherokee Project to the Fund I, II, II-OW-
VI, VII Joint Venture, as described below. As a result, the name
of the Partnership has been changed back to "Fund I and Fund II
Tucker", and is therefore no longer merged with the Cherokee
Joint Venture. The Partnership's percentage interest in the
Tucker Project remained unchanged as a result of the transaction.
Both Wells Fund I and the Fund II-Fund II-OW Joint Venture have
funded the cost of completing the Tucker Project through capital
contributions which have been paid as progressive stages of
construction were completed. As of December 31, 1995, Wells Fund
I had contributed a total of $6,399,854, and the Fund II-Fund II-
OW Joint Venture had contributed a total of $4,826,015 to the
Tucker Project. As of December 31, 1995, Wells Fund I had an
approximately 55% equity interest in the Tucker Project and the
Fund II - Fund II-OW Joint Venture had an approximately 45%
equity interest in the Tucker Project. As of December 31, 1995,
the Tucker Project was 83% occupied by 34 tenants.
There are no tenants in the project occupying ten percent or more
of the rentable square footage. The principal businesses,
occupations, and professions carried on in the building are
typical retail shopping/commercial office services.
The occupancy rate at the Tucker Property was 83% in 1995, 96% in
1994, 89% in 1993, 80% in 1992 and 83% in 1991.
The average effective annual rental per square foot at the Tucker
Property was $12.61 for 1995, $12.63 for 1994, $11.37 for 1993,
$11.37 for 1992, and $9.77 for 1991.
Cherokee Property
The Cherokee Property consists of a retail shopping center known
as "Cherokee Commons Shopping Center" located in metropolitan
Atlanta, Cherokee County, Georgia (the "Cherokee Project"). The
Cherokee Project consists of approximately 103,755 net leasable
square feet.
On June 30, 1987, the Partnership acquired an interest in the
Cherokee Project through a joint venture (the "Cherokee Joint
Venture") between the Partnership and Wells Fund II-Fund II-OW.
On January 1, 1991, the Cherokee Joint Venture merged with the
Tucker Joint Venture to form the Tucker-Cherokee Joint Venture.
As described above, the Tucker Joint Venture was also a joint
venture between the Partnership and the Fund II-Fund II-OW Joint
Venture. Under the terms of the Amended and Restated Joint
Venture Agreement of Fund I and Fund II Tucker-Cherokee, the
Partnership's percentage interest in the Cherokee Project
remained unchanged as a result of the merger of the Cherokee
Joint Venture into the Tucker-Cherokee Joint Venture.
On August 1, 1995, the Partnership, the Fund II - Fund II-OW
Joint Venture, Wells Fund I, Wells Real Estate Fund VI, L.P.
("Wells Fund VI"), a Georgia public limited partnership having
Leo F. Wells, III and Wells Partners, L.P., a Georgia non-public
limited partnership, as general partners and Wells Real Estate
Fund VII, L.P. ("Wells Fund VII'), a Georgia public limited
partnership having Leo F. Wells, III and Wells Partners, L.P., a
Georgia non-public limited partnership, as general partners
entered into a joint venture agreement known as Fund I, II, II-
OW, VI, and VII Associates (the "Fund I, II, II-OW, VI, VII Joint
Venture"), which was formed to own and operate the Cherokee
Project. Wells Partners, L.P. is a private limited partnership
having Wells Capital, Inc., a General Partnership, as its general
partner. The investment objectives of Wells Fund I, Wells Fund
II-Fund II-OW, Wells Fund VI and Wells Fund VII are substantially
identical to those of the partnership.
As of December 31, 1995, Wells Fund I had contributed property
with a book value of $2,139,900, the Fund II-Fund II-OW Joint
Venture had contributed property with a book value of
$4,860,100, Wells Fund VI had contributed cash in the amount of
$953,718 and Wells Fund VII had contributed cash in the amount of
$953,798 to the Cherokee Project. As of December 31, 1995, the
equity interests in the Cherokee Project were as follows: Wells
Fund I, 23%, Fund II-Fund II-OW Joint Venture, 55%, Wells Fund
VI, 11% and Wells Fund VII 11%.
The Cherokee Project is anchored by a 67,115 square foot lease
with Kroger Food/Drug which expires in 2011. Kroger's original
lease was for 45,528 square feet. In 1994, Kroger expanded to
the current 67,115 square feet which is approximately 65% of the
total rentable square feet in the Property. As of December 31,
1995, the Cherokee Project was approximately 94% occupied by 19
tenants, including Kroger.
Kroger is the only tenant occupying ten percent or more of the
rentable square footage. Kroger is a retail grocery chain. The
other tenants in the shopping center provide typical retail
shopping services.
The Kroger lease calls for an annual rent of $392,915, which
increased to $589,102 on August 16, 1995 due to the expansion
from 45,528 square feet to 67,115 square feet. The lease expires
March 31, 2011 with Kroger entitled to five successive renewals
each for a term of five years.
The occupancy rate at the Cherokee Property was 94% in 1995, 91%
in 1994, 89% in 1993, 88% in 1992 and 85% in 1991.
The average effective annual rental per square foot at the
Cherokee Property was $7.50 for 1995, $5.33 for 1994, $6.47 for
1993, $6.46 for 1992 and $6.52 for 1991.
ITEM 3. LEGAL PROCEEDINGS
There were no material pending legal proceedings or proceedings
known to be contemplated by governmental authorities involving
the Partnership during 1995.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
No matters were submitted to a vote of the Limited Partners
during the fourth quarter of 1995.
PART II
ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY
HOLDER MATTERS.
As of February 28, 1996, the Partnership had 6,062 outstanding
Class A Units held by a total of 179 Limited Partners and 1,626
outstanding Class B Units held by a total of 40 Limited Partners.
The capital contribution per unit is $250. There is no
established public trading market for the Partnership's limited
partnership units, and it is not anticipated that a public
trading market for the units will develop. Under the Partnership
Agreement, the General Partners have the right to prohibit
transfers of units.
Class A Unit holders are entitled to an annual 8% non-cumulative
distribution preference over Class B Unit holders as to cash
distributions from Net Cash from Operations, defined in the
Partnership Agreement as Cash Flow, less adequate cash reserves
for other obligations of the Partnership for which there is no
provision, but are initially allocated none of the depreciation,
amortization, cost recovery and interest expense. These items
are allocated to Class B Unit holders until their capital account
balances have been reduced to zero.
Cash distributions from Net Cash from Operations to the Limited
Partners is distributed on a quarterly basis unless Limited
Partners elect to have their cash distributions paid monthly.
Cash distributions made to the Limited Partners for the two most
recent fiscal years were as follows:
Amount Amount Per Class B
Per Class A Unit
Unit
Distribution for Total Amount Investment Return of Return of
General
Quarter Ended Distributed Income Capital
Capital Partner
March 31, 1994 $15,295 $2.52 $0.00
$0.00 $0.00
June 30, 1994 $19,928 3.29 0.00 0.00
$0.00
September 30, 1994 $24,716 4.08 0.00 0.00
$0.00
December 31, 1994 $25,028 4.13 0.00 0.00
$0.00
March 31, 1995 $24,128 3.98 0.00 0.00
$0.00
June 30, 1995 $26,621 4.39 0.00 0.00
$0.00
September 30, 1995 $27,668 4.56 0.00 0.00
$0.00
December 31, 1995 $26,853 4.44 0.00 0.00
$0.00
The fourth quarter distributions were accrued for accounting
purposes in 1995 and were not actually paid until February, 1996.
ITEM 6. SELECTED FINANCIAL DATA.
The following sets forth a summary of the selected financial data
for the fiscal years ended December 31, 1995, 1994, 1993, 1992
and 1991.
1995 1994
1993 1992 1991
Total assets $1,462,240 $1,524,192$1,564.139 $1,576,731 $1,613,859
Total revenues 56,702 28,120 110,450 85,746 82,249
Net Income 56,452 28,120 110,450 81,971 78,783
Net income
allocated to General
Partners -- -- -- -- --
Net income allocated
to Class A Limited
Partners 107,511 71,081 144,338 122,641 120,350
Net loss allocated
to Class B Limited
Partners (51,059) (42,961) (33,888) (40,670) (41,567)
Net income per
Class A Limited
Partner Unit 17.74 11.73 23.81 20.23 19.85
Net loss per
Class B
Limited Partner Unit(31.40)(26.42) (20.84) (25.01) (25.56)
Cash distribution
per Class A
Limited Partner Unit17.37 14.02 18.77 20.00 19.54
Cash distribution
Class B
Limited Partner Unit-- -- -- 1.31 --
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITIONS AND RESULTS OF OPERATION.
The following discussion and analysis should be read in
conjunction with the selected financial data and 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 December 31, 1995, the developed properties owned by the
Fund II-Fund II-OW Joint Venture, excluding the Holcomb Bridge
Road Property which is not yet fully developed, were 96% leased,
as compared to 1994, and 1993 when the properties were 98% and
66% leased respectively. The increase in the leased percentages
for 1994 and 1995 is due to the occupancy of the Charlotte
Property for the last eight months of 1994 and all of 1995.
Gross revenues of the Partnership were $56,702 for the fiscal
year ended December 31, 1995, as compared to $28,120 for the
fiscal year ended December 31, 1994 and $110,450 for the fiscal
year ended December 31, 1993. The increase in gross revenues for
fiscal year 1995 from fiscal year 1994 was due primarily to the
full year occupancy at the Charlotte Project. The decrease in
gross revenues for 1994 over 1993 was primarily due to the
vacancy and decreased rental rate at the Charlotte Property. A
fourth quarter loss at the Cherokee Property was due to a loss on
the retirement of tenant improvements which were necessary to
complete the Kroger expansion.
Administrative expenses of the Partnership are incurred at the
joint venture level. Depreciation expense increased from 1994 to
1995 due to a change in the estimated useful lives of buildings
and improvements from 40 years to 25 years. For further
discussion of depreciation expense, please refer to the notes to
the accompanying financial statements.
Partnership distributions paid during the fiscal year ended
December 31, 1995, totaled $105,270, as compared to $84,967
during the fiscal year ended December 31, 1994 and $113,774
during the fiscal year ended December 31, 1993. This increase in
partnership distributions paid for fiscal year 1995 as compared
to fiscal years 1994 and 1993 was primarily caused by an increase
in net cash provided by operating activities which was caused by
occupancy fluctuations.
The Partnership made cash distributions to Limited Partners
holding Class A units of $17.37 per unit for fiscal year ended
December 31, 1995 and $14.02 per unit for fiscal years ended
December 31, 1994 and $18.77 per unit for 1993. The Partnership
made no cash distributions to Limited Partners holding Class B
Units for fiscal year ended 1995, 1994 or 1993.
In March 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards ("SFAS") No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-
Lived Assets to Be Disposed of," which is effective for fiscal
years beginning after December 15, 1995. SFAS No. 121
establishes standards for determining when impairment losses on
long-lived assets have occurred and how impairment losses should
be measured. The joint ventures adopted SFAS No. 121, effective
January 1, 1995. The impact of adopting SFAS No. 121 was not
material to the financial statements of the joint ventures.
Property Operations
As of December 31, 1995, the Partnership owned interests in the
following properties through the Fund II - Fund II-OW Joint
Venture:
Tucker Property
For the Year Ended December 31
1995 1994 1993
Revenues:
Rental income $1,227,116 $1,228,960 $1,106,676
Interest income 2,599 3,269 3,151
1,229,715 1,232,229 1,109,827
Expenses:
Depreciation 277,862 238,238 236,288
Management and
leasing expenses135,517 133,650 126,853
Other operating expenses563,049 500,494 617,726
976,428 872,382 980,867
Net income $253,287 $359,847 $128,960
Occupied % 83% 96% 89%
Partnership Ownership % 2.4% 2.4% 2.4%
Cash distribution to
the Fund II-Fund II-OW
Joint Venture* $250,278 $202,642 $124,189
Net income allocated
to Fund II - Fund II-OW
Joint Venture* $113,752 $161,608 $57,817
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW
Joint Venture. For allocations to the Partnership, see footnotes
in the audited financial statements.
Rental income remained relatively stable from 1994 to 1995 and
increased from $1,106,676 in 1993 to $1,228,960 in 1994 due
primarily to increased tenant occupancy. Operating expenses
increased in 1995 over 1994 due to an increase in property taxes,
utilities, and other repairs and maintenance. Operating expenses
decreased in 1994 as compared to 1993 due chiefly to a decrease
in retirement of tenant improvements of $88,000 and a decrease of
$20,000 for general and administrative expenses. The increase in
depreciation expense for 1995 as compared to 1994 and 1993 is a
result of the change in the estimated useful lives of buildings
and improvements as previously discussed under the "General"
section of "Results of Operations and Changes in Financial
Conditions". Net income of the property decreased to $253,286 in
1995 from $359,847 in 1994 due to increased depreciation and
operating expenses as discussed above and increased in 1994 due
to increased tenant occupancy and decrease in operating expenses
as discussed above.
The property was 83% leased as of December 31, 1995, as compared
to 96% as of December 31, 1994, and 89% as of December 31, 1993.
Rental income for 1995 decreased only slightly over the 1994
level due to the decrease in occupancy occurring near the end of
1995.
Real estate taxes were $127,484 for 1995, $105,042 for 1994 and
$132,780 for 1993.
For comments on the general conditions to which the property may
be subject, see Item 1, Business, Page 2. For additional
information on the property, tenants, etc., see Item 2,
Properties, page 3.
Cherokee Commons Shopping Center
For the Year Ended December 31
1995 1994
1993
Revenues:
Rental income $778,204 $ 552,823 $585,195
Interest income 180 50 343
778,384 552,873 585,538
Expenses:
Depreciation 277,099 172,583 178,269
Management and
leasing expenses 36,303 22,410 20,453
Other operating expenses115,885 569,830 605,465
429,287 764,823 804,187
Net income $349,097 $(211.950) $(218.649)
Occupied % 94% 91% 89%
Partnership Ownership % 2.9% 3.7% 2.4%
Cash distribution to
the Fund II-Fund II-OW
Joint Venture* $269,900 $213,478 $173,665
Net income allocated
to Fund II - Fund II-OW
Joint Venture* $216,845 ($148,827) ($147,981)
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW
Joint Venture. For allocations to the Partnership, see footnotes
in the audited financial statements.
Rental income increased in 1995 over 1994 due to the Kroger
expansion which was completed in November, 1994. Rental income
for the year ended December 31, 1994 decreased approximately
$32,000 from the rental income for the year ended December 31,
1993. This decrease is due to concessions given to existing
tenants and to a decrease in occupancy for nine months of the
year. Concessions were given to new tenants because the market
in the area called for free rent in order to meet the
competition. The decrease in occupancy was due to the vacancy
created by the Kroger expansion while under construction.
Operating expenses of the property decreased to $115,886 in 1995
from $569,830 in 1994, and $605,465 in 1993. The decrease is due
primarily to the retirement of tenant improvements that occurred
in 1994 and 1993 which elevated the expenses for those two years.
The increase in depreciation expense for 1995 as compared to 1994
and 1993 is a result of the change in the estimated useful lives
of buildings and improvements as previously discussed under the
"General" section of "Results of Operations and Changes in
Financial Conditions". Net income of the property increased to
$349,097 in 1995 from a loss of ($211,950) in 1994 and ($218,649)
in 1995 due to the increase in revenue and the decrease in
operating expenses as discussed above.
A lease amendment has been executed with Kroger expanding 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 the Center was $2,807,367. The costs of this
expansion were funded in the following amounts: Wells Fund I
$94,679, and the Fund II-Fund II-OW Joint Venture $805,092, as of
December 31, 1994 Wells Fund VI $953,798, and Wells Fund VII
$953,798 as of December 31, 1995. Due to these additional
investments, the Partnership's ownership percentage in the
Cherokee Commons Shopping Center through its investment in Fund
II-Fund II-OW Joint Venture, decreased from 3.7% in 1994 to 2.90%
as of December 31, 1995. The statements are for a twelve month
period; however, Wells Fund VI and Wells Fund VII did not
contribute their portion until August, 1995.
Real estate taxes were $63,694 for 1995 and $56,080 for 1994.
For comments on the general conditions to which the property may
be subject, see Item 1, Business, Page 2. For additional
information on the property, tenants, etc., see Item 2,
Properties, page 3.
Charlotte Property
For the Year Ended December 31
1995 1994 1993
Revenue:
Rental Income $458,867 $275,137 $1,989,690
Expenses:
Depreciation 235,794 194,278 194,278
Management and
leasing expenses 27,532 18,355 119,381
Other operating expenses39,203 142,231 85,848
302,529 354,864 399,507
Net income (loss) $156,338 $(79,727) $1,590,183
Occupied % 100% 100% 100%
Partnership Ownership % 5.3% 5.3% 5.3%
Cash generated to the Fund II-
Fund II-OW Joint Venture*$364,325 $ 96,013 $799,600
Net income (loss) allocated
to the Fund II-Fund II-OW
Joint Venture * $156,338
$(79,727) $1,590,183
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW
Joint Venture. For allocations to the Partnership, see footnotes
in the audited financial statements.
Rental income increased to $458,867 for 1995 as compared to
$275,137 in 1994 due to the occupancy of the building by First
Union Bank for a full year. The decrease in rental income for
1994 as compared to 1993 is due to the lower rental rate being
paid by First Union Bank and the vacancy of the building during
the first four months of 1994. Annual rent being paid by IBM
was $1,110,000 as compared to $458,000 now being paid by First
Union. Because First Union Bank invested approximately $1
million on tenant improvements at the Charlotte property, a
lower rental rate was accepted for the first five years. There
are presently no plans for improvement or further development of
the project. In 1993 rental income increased due to the one-
time lease termination fee of $425,000 and the acceleration of
$595,597 of deferred rental income resulting from the earlier
than expected termination date. Depreciation expense was stable
for 1994 compared to 1993 but increased from $194,278 in 1994 to
$235,794 in 1995 as a result of the change in the estimated
useful lives of buildings and improvements as previously
discussed under the "General" section of "Results of Operations
and Change in Financial Conditions". Management and leasing
expenses are stable for the years ended 1995, 1994, 1993 in
proportion to rental revenues. Other operating expenses have
decreased to $39,203 in 1995 compared to $142,231 expended in
1994 due mainly to marketing and administrative expenses
incurred in efforts to lease the property. For the same reason
operating expenses increased in 1994 when compared to 1993. Net
income increased to $156,338 in 1995 compared to the loss of
$79,727 in 1994 for the reasons stated above. Net income
decreased in 1994 over 1993 due to the termination of the IBM
lease and the lower rental rate being paid by First Union Bank.
(Note: Expenses, income and cash generated to the joint venture
have been restated for 1994. The 1994 statement included
expenses paid by the joint venture for the Partnership.)
The Charlotte Project lease agreement is one in which the tenant
is directly responsible for primarily all operational expenses
including real estate taxes. Both IBM and First Union Bank
leases provide for the tenant to pay for primarily all operating
expenses. Fluctuations in expenses during the period of the IBM
lease as compared to the period of the First Union lease have no
impact on liquidity.
For comments on the general conditions to which the property may
be subject, see Item 1, Business, page 2. For additional
information on the property, tenants, etc., see Item 2,
Properties, page 3.
The Atrium
For the Year Ended December 31
1995 1994
1993
Revenues:
Rental income $2,079,345 $2,079,345 $2,079,345
Interest income 29,965 24,636 16,563
2,109,310 2,103,981 2,095,908
Expenses:
Depreciation 517,507 475,928 481,196
Management and
leasing expenses142,761 142,735 141,362
Other operating expenses451,362 504,609 493,449
1,111,630 1,123,272 1,116,007
Net income $ 997,680 $ 980,709 $ 979,901
Occupied % 100% 100% 100%
Partnership Ownership % 3.5% 3.5% 3.5%
Cash distribution to
the Fund II-Fund II-OW
Joint Venture* $1,123,602 $1,095,388 $1,054,437
Net income allocated to
the Fund II-Fund II-OW
Joint Venture* $ 654,478 $ 643,344 $ 642,815
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW
Joint Venture. For allocations to the Partnership, see footnotes
in the audited financial statements.
Revenues, expenses and net income has remained relatively stable
for the years ended December 31, 1995, 1994, and 1993. In 1995,
the increase in depreciation expense due to the change in the
estimated useful lives of buildings and improvements as
previously discussed under the "General" section of "Results of
Operations and Change in Financial Conditions" was offset by a
decrease in other operating expenses with no significant decrease
in any specific area.
Real estate taxes were $182,687 for 1995, $186,273 for 1994 and
$232,609 for 1993.
The lease with Lockheed Company will expire on June 30, 1996, and
renewal is not anticipated at this time. The Partnership has
responded to various potential tenants regarding leasing portions
of the Atrium should Lockheed not renew. In the event that
Lockheed does not renew its lease and the Partnership is unable
to lease a substantial portion of the Atrium Property at rates at
least comparable to the lease rates currently being paid under
the Lockheed lease, the income generated from the Atrium Property
could decrease significantly following the expiration of the
Lockheed lease on June 30, 1996. In addition, even if the
Partnership is able to obtain leases with new tenants for the
Lockheed Project, such leases are likely to require substantial
tenant finish and refurbishment expenditures by the Partnership,
which could have the effect of substantially reducing future cash
distributions to Limited Partners.
For comments on the general conditions to which the property may
be subject, see Item 1, Business, page 2. For additional
information on the property, tenants, etc., see Item 2,
Properties, page 3.
The Brookwood Grill Property
For the Year Ended December 31
1995 1994
1993
Revenues:
Rental income $230,316 $224,750 $224,750
Expenses:
Depreciation 63,446 58,659 58,659
Management and
leasing expenses 29,351 30,217 30,768
Other operating expenses45,175 44,553 43,442
137,972 133,429 132,869
Net income $ 92,344 $ 91,321 $ 91,881
Occupied % 100% 100% 100%
Partnership Ownership % 3.3% 3.3% 3.3%
Cash distributed to
the Fund II-Fund II-OW
Joint Venture* $96,065 $92,446 $85,940
Net income allocated
to the Fund II-Fund II-OW
Joint Venture* $57,577 $56,941 $57,290
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW
Joint Venture. For allocations to the Partnership, see footnotes
in the audited financial statements.
Rental income, expenses and net income have remained relatively
stable for the years ended December 31, 1995, 1994, and 1993. In
1995, the increase in depreciation expense due to the change in
method as previously discussed under the "General" section of
"Results of Operations and Change in Financial Conditions" was
offset by a decrease in other operating expenses, primarily an
increase in expense reimbursements which are netted against
operating expenses.
Real estate taxes were $39,668 for 1995, $38,091 for 1994, and
$44,970 for 1993.
For comments on the general competitive conditions to which the
property may be subject, see Item 1, Business, page 2. For
additional information on the property, tenants, etc., see Item
2, Properties, page 3.
Liquidity and Capital Resources
During its offering, which terminated on September 7, 1988, the
Partnership raised a total of $1,922,000 through the sale of
7,688 units. No additional units will be sold by the
Partnership. As of December 31, 1995, the Partnership
contributed an aggregate of $1,537,600 in capital contributions
to the Fund II - Fund II-OW Joint Venture, after incurring
approximately $384,000 in offering costs.
Since the Partnership is an investment partnership formed for the
purpose of acquiring, owning and operating income-producing real
property and has invested all of its funds available for
investment, it is highly unlikely that the Partnership will
acquire interests in any additional properties, and the
Partnership's capital resources are anticipated to remain
relatively stable over the holding period of its investments.
The Partnership's net cash used in operating activities increased
to $13,812 in 1995 from net cash provided by activities of $7,497
in 1994 due primarily to the distribution to the partners of
prior year tenant improvement reserves of approximately $7,000
and accrual of the payable to the affiliate of $14,000. Net cash
provided by operating activities of $11,121 in 1993 decreased to
$7,497 in 1994 due primarily to a decrease in the distributions
received from the Fund II-Fund II-OW Joint Venture as the result
of the vacancy of the Charlotte Property.
Net cash used in investing activities decreased to $0 in 1995
from net cash used of $19,220 in 1994 and increased from $0 in
1993 due to investment in the Fund II-Fund II-OW Joint Venture
for the Cherokee Commons Property.
Partnership distributions paid to limited partners increased from
$82,891 in 1994 to $103,444 in 1995 due to increased
distributions from the Fund II-Fund II-OW Joint Venture.
Partnership distributions paid to limited partners decreased from
$120,902 in 1993 to $82,891 in 1994 due to decreased
distributions from the Fund II-Fund II-OW Joint Venture. Cash
and cash equivalents decreased for the year end December 31, 1995
as compared to 1994 due primarily to additional investment of
$14,824 in the Fund II-Fund II-OW Joint Venture from the
Partnership's working capital reserve for the Kroger expansion at
Cherokee Commons Shopping Center. Cash and cash equivalents
decreased for the year ended December 31, 1994 as compared to the
year ended December 31, 1993 due primarily to the additional
investment of $19,220 in the Fund II-Fund II-OW Joint Venture
from the Partnership's working capital reserves for the Kroger
expansion at Cherokee Commons Shopping Center.
The Partnership's cash distribution to Class A Unit holders paid
and payable through the fourth quarter of 1995 have been paid
from Net Cash from Operations and the Partnership anticipates
that distributions will continue to be paid on a quarterly basis
from Net Cash from Operations. No cash distributions were paid
to Class B Unit holders for 1995.
The Partnership expects to meet liquidity requirements and budget
demands through cash flow from operations. The Partnership is
unaware of any known demands, commitments, events or capital
expenditures other than that which is required for the normal
operation of its properties that will result in the Partnership's
liquidity increasing or decreasing in any material way. The
Partnership is not obligated to fund any additional costs for the
Holcomb Bridge Road project. Additional funding for the Holcomb
Bridge Road Project is anticipated to be provided by capital
contributions from Wells Fund VI and Wells Fund VII, which have
reserved sufficient capital for this purpose.
Inflation
Real estate has not been affected significantly by inflation in
the past three years due to the relatively low inflation rate.
There are provisions in the majority of tenant leases executed
by the Partnership to protect the Partnership from the impact of
inflation. These leases contain common area maintenance charges
(CAM charges), real estate tax and insurance reimbursements on a
per square foot bases, or in some cases, annual reimbursement of
operating expenses above a certain per square foot allowance.
These provisions reduce the Partnership's exposure to increases
in costs and operating expenses resulting from inflation. In
addition, a number of the Partnership's leases are for terms of
less than five years which may permit the Partnership to replace
existing leases with new leases at higher base rental rates if
the existing leases are below market rate. There is no
assurance, however, that the Partnership would be able to replace
existing leases with new leases at higher base rentals.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The financial statements of the Registrant and supplementary
data are detailed under Item 14(a) and filed as part of the
report on the pages indicated.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE.
The Partnership's change in accountants during 1995 was
previously reported in the Partnership's Form 8-K dated
September 11, 1995. There were no disagreements with the
Partnership's accountants or other reportable events during
1995.
PART III
ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP.
Wells Capital, Inc. Wells Capital, Inc. ("Capital") is a
Georgia corporation formed in April 1984. The executive offices
of Capital are located at 3885 Holcomb Bridge Road, Norcross,
Georgia 30092. Leo F. Wells, III is the sole shareholder, sole
Director and the President of Capital.
Leo F. Wells, III. Mr. Wells is a resident of Atlanta,
Georgia, is 52 years of age and holds a Bachelor of Business
Administration Degree in Economics from the University of
Georgia. Mr. Wells is the President and sole Director of
Capital. Mr. Wells is the President of Wells & Associates,
Inc., a real estate brokerage and investment company formed in
1976 and incorporated in 1978, for which he serves as principal
broker. Mr. Wells is also currently the sole Director and
President of Wells Management Company, Inc., a property
management company he founded in 1983. In addition, Mr. Wells
is the President and Chairman of the Board of Wells Investment
Securities, Inc., Wells & Associates, Inc., and Wells Management
Company, Inc., which are affiliates of the General Partners.
From 1980 to February 1985, Mr. Wells served as Vice-President
of Hill-Johnson, Inc., a Georgia corporation engaged in the
construction business. From 1973 to 1976, he was associated
with Sax Gaskin Real Estate Company and from 1970 to 1973, he
was a real estate salesman and property manager for Roy D.
Warren & Company, an Atlanta real estate company.
ITEM 11. COMPENSATION OF GENERAL PARTNERS AND AFFILIATES.
The following table summarizes the compensation and fees paid to
the General Partners and their affiliates during the year ended
December 31, 1995.
CASH COMPENSATION TABLE
(A) (B) (C)
Name of individual or Capacities in which served- Cash Compensation
number in group Form of Compensation
________________________________________________________________
_____________
Wells Management Property Manager- $11,036 (1)
Company, Inc. Management and Leasing
Fees
Wells Capital, Inc. General Partner -0-
Leo F. Wells, III General Partner -0-
(1) The majority of these fees are not paid directly by
the Partnership but are paid by the joint venture
entities which own properties for which the property
management and leasing services relate and include
management and leasing fees which were accrued for
accounting purposes in 1995 but not actually paid
until January, 1996.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT.
No Limited Partner is known by the Partnership to own
beneficially more than 5% of the outstanding units of the
Partnership.
Set forth below is the security ownership of management as of
March 3, 1996.
(1) (2) (3)
(4)
Title of Class Name and Address of Amount and
Nature Percent of Class
Beneficial Owner of Beneficial
Ownership
_________________________________________________________________
_____________
Class A Units Leo F. Wells, III1 unit (IRA, less than 1%
401(k) and
Profit Sharing)
Class B Units Leo F. Wells, III4 units (401(k)) less than 1%
The General Partner did not receive any distribution from cash
flows or sale proceeds in 1995.
No arrangements exist which would, upon operation, result in a
change in control of the Partnership.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The compensation and fees paid or to be paid by the Partnership
to the General Partners and their affiliates in connection with
the operation of the Partnership are as follows:
Interest in Partnership Cash Flow and Net Sale
Proceeds. The General Partners will receive a
subordinated participation in distributions from cash
available for distribution equal to 10% of the total
distributions for such year payable only after the
Limited Partners receive distributions from cash
available for distribution equal to 8% of their
adjusted capital accounts in each fiscal year. In
addition, after Limited Partners receive their
distributions equal to 8% of their adjusted capital
contributions and the General Partners receive their
distributions equal to 10% of the total distributions
for such year, the General Partners will receive a
participation of 10% of the additional distributions
from cash available for distribution, 9% of which shall
be paid to the General Partners as a Partnership
Management Fee. The General Partners will also receive
a participation in net sale proceeds and net financing
proceeds equal to 15% of the residual proceeds
available for distribution after the Limited Partners
have received a return of their adjusted capital
contributions plus a 12% cumulative return on their
adjusted capital contributions. The General Partner
did not receive any distributions from net cash flow
from operations or net sale proceeds for the year ended
December 31, 1995.
Property Management and Leasing Fees. Wells
Management Company, Inc., an affiliate of the General
Partners, will receive compensation for supervising the
management of the Partnership properties equal to 6%(3%
management and 3% leasing) of rental income. In no
event will such fees exceed the sum of (i) 6% of the
gross receipts of each property, plus (ii) a separate
one-time fee for initial rent-up or leasing-up of
development properties in an amount not to exceed the
fee customarily charged in arm's-length transactions by
others rendering similar services in the same
geographic area for similar properties. With respect
to properties leased on a net basis for a period of ten
years or longer, property management fees will not
exceed 1% of gross revenues from such leases, plus a
one-time initial leasing fee of 3% of the gross
revenues which are payable over the first five years of
the term of such net leases. Management and leasing
fees are not paid directly by the Partnership but by
the joint venture entities which own the properties.
The Partnership's share of these fees which were paid
to Wells Management Company, Inc. totalled $11,036 for
the year ended December 31, 1995.
Real Estate Commissions. In connection with the
sale of Partnership properties, the General Partners or
their affiliates may receive commissions not exceeding
the lesser of (A) 50% of the commissions customarily
charged by other brokers in arm's-length transactions
involving comparable properties in the same geographic
area or (B) 3% of the gross sales price of the
property, and provided that payments of such
commissions will be made only after Limited Partners
have received prior distributions totaling 100% of
their capital contributions plus a 6% cumulative return
on their adjusted capital contributions. No real estate
commissions were paid to the General Partners or
affiliates for the year ended December 31, 1995.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on
Form 8-K.
(a)1. Financial Statements
Information with respect to this item is contained on Pages
F-2 to F-39 of this Annual
Report on Form 10-K. See Index to Financial Statements on
Page F-1.
(a)2. Financial Statement Schedule III
Information with respect to this item begins on Page S-1 of
this Annual Report on
Form 10-K
(a)3. The Exhibits filed in response to Item 601 of
Regulation S-K are listed on theExhibit
Index attached hereto.
(b) No reports on Form 8-K were filed with the Commission during
the fourth quarter of
1995.
(c) The Exhibits filed in response to Item 601 of Regulation S-K
are listed on the Exhibit
Index attached hereto.
(d) See (a)2 above.
SIGNATURES
Pursuant to the requirements of Sections 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized this 28th day of March, 1996
Wells Real Estate Fund II-OW
(Registrant)
By:
Leo F. Wells, III
Leo F. Wells, III
Individual General
partner and as President of Wells Capital, Inc., the
Corporate General Partner
Pursuant to the requirements of the Securities Exchange Act of
1934, this report has been signed below by the following person
on behalf of the registrant and in the capacity as and on the
date indicated.
Signature Title
Individual General Partner, March 28, 1996
Leo F. Wells, III President and
Sole Director
of
Wells Capital, Inc., the
Corporate General Partner
SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED
PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT
BEEN REGISTERED PURSUANT TO SECTION 12 OF THE ACT.
No annual report or proxy material relating to an annual or other
meeting of security holders has been sent to security holders.
INDEX TO FINANCIAL STATEMENTS
Financial Statements Page
Independent Auditors' Report F-2-F-3
Balance Sheets as of December 31, 1995 and 1994 F-4
Statements of Income for the Years Ended
December 31, 1995, 1994, and 1993 F-5
Statements of Partners' Capital for the Years Ended
December 31, 1995, 1994, and 1993 F-6
Statements of Cash Flows for the Years Ended
December 31, 1995, 1994, and 1993 F-7
Notes to Financial Statements for December 31, 1995,
1994, and 1993 F-8-F-39
FINANCIAL STATEMENTS BEGIN ON NEXT PAGE
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 891
<SECURITIES> 1,434,495
<RECEIVABLES> 26,854
<ALLOWANCES> 0
<INVENTORY> 0
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0
0
<OTHER-SE> 1,434,896
<TOTAL-LIABILITY-AND-EQUITY> 1,462,240
<SALES> 0
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<CGS> 0
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<OTHER-EXPENSES> 250
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<INCOME-PRETAX> 56,452
<INCOME-TAX> 0
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<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 56,452
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
