<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, 1997 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 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
------------------------------
- --------------------------------------------------------------------------------
(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
-----
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1997 and
December 31, 1996..............................................3
Statements of Income for the Three Months and Nine Months
Ended September 30, 1997 and 1996..............................4
Statements of Partners' Capital for the Year Ended
December 31, 1996 and the Nine Months
Ended September 30, 1997.......................................5
Statements of Cash Flows for the Nine Months
Ended September 30, 1997 and 1996..............................6
Condensed Notes to Financial Statements..........................7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations...............................................12
PART II. OTHER INFORMATION .................................................20
</TABLE>
2
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30, 1997 December 31, 1996
------ ------------------ -----------------
<S> <C> <C>
Investment in joint ventures (Note 2) $1,341,123 $1,370,408
Cash and cash equivalents 648 2,074
Due from affiliate 18,434 7,141
---------- ----------
Total assets $1,360,205 $1,379,623
========== ==========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 135 $ 238
Partnership distributions payable 18,546 8,576
---------- ----------
Total liabilities $ 18,681 $ 8,814
========== ==========
Partners' capital:
Limited Partners:
Class A - 6,062 units outstanding $1,341,524 $1,370,809
Class B - 1,626 units outstanding 0 0
---------- ----------
Total partners' capital $1,341,524 $1,370,809
---------- ----------
Total liabilities and partners' capital $1,360,205 $1,379,623
========== ==========
</TABLE>
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A Georgia Public Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30,1996
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Equity in income (loss) of
joint ventures (Note 2) $ 3,237 $ 3,320 $ (10,851) $ 17,647
Interest income 0 0 9 0
------------- -------------- -------------- -------------
Net income (loss) $ 3,237 $ 3,320 $ (10,842) $ 17,647
============= ============== ============== =============
Net income (loss) allocated to
Class A Limited Partners $ 3,237 $ 20,808 $ (10,842) $ 70,126
Net loss allocated to Class
B Limited Partners $ 0.00 $ (17,488) $ 0.00 $ (52,479)
Net income (loss) per Class A
Limited Partner Unit $ 0.53 $ 3.43 $ (1.79) $ 11.57
Net loss per Class B Limited
Partner Unit $ (0.00) $ (10.76) $ (0.00) $ (32.28)
Cash distribution per Class A
Limited Partner Unit $ 3.04 $ 1.41 $ 3.04 $ 10.21
</TABLE>
See accompanying condensed notes to financial statements
4
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A Georgia Public Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
FOR THE YEAR ENDED DECEMBER 31, 1996 AND NINE MONTHS ENDED
SEPTEMBER 30, 1997
<TABLE>
<CAPTION>
Limited Partners
---------------------------------------------------------------
Class A Class B Total
------------------------------ ------------------------- Partners'
Units Amounts Units Amounts Capital
----- ------- ----- ------- -------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995 6,062 $ 1,372,620 1,626 $ 62,276 $ 1,434,896
Net income (loss) 0 68,549 0 (62,276) 6,273
Partnership distributions 0 (70,360) 0 0 (70,360)
----------- -------------- ---------- ------------- -------------
BALANCE, December 31, 1996 6,062 $ 1,370,809 1,626 $ 0 $ 1,370,809
Net loss 0 $ (10,842) 0 0 $ (10,842)
Partnership distributions 0 (18,443) 0 0 (18,443)
----------- -------------- ---------- ------------- -------------
BALANCE, September 30, 1997 6,062 $ 1,341,524 1,626 $ 0 $ 1,341,524
=========== ============= ========== ============= ============
</TABLE>
See accompanying condensed notes to financial statements.
5
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A Georgia Public Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Nine Months Ended
-----------------
September 30, 1997 September 30, 1996
------------------ ------------------
<S> <C> <C>
Cash flows from operating activities:
Net (loss) income $(10,842) $ 17,647
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Equity in income (loss) of joint ventures 10,851 (17,647)
Changes in assets and liabilities:
Withholdings and accounts payable (103) (292)
-------- --------
Total adjustments 10,748 (17,939)
-------- --------
Net cash used in operating activities (94) (292)
-------- --------
Cash flow from investing activities:
Investment in joint ventures (21,744) 0
Distributions received from joint ventures 28,885 80,216
-------- --------
Net cash provided by investing activities 7,141 80,216
Cash flow from financing activities:
Partnership distribution paid (8,473) (80,217)
-------- --------
Net decrease in cash and cash equivalents (1,426) (293)
Cash and cash equivalents, beginning of year 2,074 891
-------- --------
Cash and cash equivalents, end of period $ 648 $ 598
======== ========
</TABLE>
See accompanying condensed notes to financial statements.
6
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A Georgia Public Limited Partnership)
Condensed Notes to Financial Statements
(1) Summary of Significant Accounting Policies
------------------------------------------
(a) General
-----------
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 23, 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.
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 (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 among 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 among 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, 1996 for additional information on the joint ventures and
properties in which the Partnership owns an interest.
As of September 30, 1997, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a
two-story office building located in Charlotte, North Carolina ("First
Union at Charlotte"); (ii) a four-story office building located in
metropolitan Houston, Texas (the "Atrium"); (iii) a restaurant located
7
<PAGE>
in Fulton County, Georgia ("the Brookwood Grill"); (iv) an office/retail
center currently being developed in Fulton County, Georgia ("Holcomb Bridge
Road"); (v) a retail shopping and commercial office complex located in
Tucker, Georgia ("Heritage Place at Tucker"); and (vi) a shopping center
located in Cherokee County, Georgia ("Cherokee Commons"). All of the
foregoing properties were acquired on an all cash basis. For further
information regarding these joint ventures and properties, refer to the
Partnership's Form 10-K for the year ended December 31, 1996.
(b) 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 periods presented include all adjustments, which are
of a normal and recurring nature, necessary to present a fair presentation
of the results for such periods. For further information, refer to the
financial statements and footnotes included in the Partnership's Form 10-K
for the year ended December 31, 1996.
(2) Investment in Joint Ventures
----------------------------
The Partnership owned interests in six properties as of September 30, 1997,
through its ownership in the joint ventures described above. The
Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investment in joint ventures is recorded on the equity method.
Fund II-Fund II-OW Joint Venture
--------------------------------
The Partnership owns all of its properties through a joint venture (the
"Fund II-Fund II-OW Joint Venture") formed on March 1, 1988, between the
Partnership and Wells Real Estate Fund II ("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 September
30, 1997, 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.
8
<PAGE>
Boeing at the Atrium/Fund II & Fund III Joint Venture
-----------------------------------------------------
On April 3, 1989, the Fund II-Fund II-OW Joint Venture formed a joint
venture (the "Fund II-Fund III Joint Venture") with Wells Real Estate Fund
III, L.P. ("Wells Fund III"), a Georgia public limited partnership
affiliated with the Partnership through common general partners. The
investment objectives of Wells Fund III are substantially identical to
those of the Partnership.
In April 1989, the Fund II-Fund III Joint Venture acquired a four-story
office building located on a 5.6 acre tract of land adjacent to the Johnson
Space Center in metropolitan Houston, in the City of Nassau Bay, Harris
County, Texas, known as "The Atrium at Nassau Bay" (the "Atrium").
The Atrium was first occupied in 1987 and contains approximately 119,000
net leasable square feet. On March 3, 1997, a lease was signed with The
Boeing Company for the entire Atrium Building. The lease is for a period of
five years with an option to renew for an additional five year term. The
rental rate for the first three years of the lease term is $12.25 per
square foot and $12.50 per square foot for the final two years of initial
lease term. The rate for the optional five year term will be determined
based upon then current market rates. Upon 150 day prior written notice,
Boeing has the right to cancel its lease in the event that NASA or another
prime contractor were to cancel or substantially reduce its contract. In
addition, there is a no-cause cancellation provision at the end of the
first three year period. If this no-cause cancellation is exercised, Boeing
would be required to pay unamortized, up-front tenant improvement costs.
The lease also provides that tenant will pay certain operating expenses in
excess of $5.50 per square foot on an annual basis.
Boeing began the move-in phase of its occupancy on April 15, 1997, and
occupied the Atrium and began paying rent on May 15, 1997. The total cost
of completing the required tenant improvements and outside broker
commissions of approximately $1.4 million is being funded out of reserves
and cash flows of the Partnership, Wells Fund II-OW and Wells Fund III. As
of September 30, 1997, the Partnership had contributed approximately
$21,744, Wells Fund II had contributed approximately $387,752 and Wells
Fund III had contributed approximately $659,810 to the tenant improvements
and outside broker commissions required. The ownership percentages in the
Atrium have been adjusted as a result of these additional capital
contributions, and as of September 30, 1997, the Fund II - Fund II-OW Joint
Venture holds an equity interest of approximately 61%, and Wells Fund III
holds an equity interest of approximately 39% in the Fund II - Fund III
Joint Venture.
For a description of other joint ventures and properties owned by the
Partnership, please refer to the Partnership's Form 10-K for the year ended
December 31, 1996.
9
<PAGE>
Following are the financial statements for Fund II and II-OW:
FUND II and II-OW
(A Georgia Joint Venture)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30, 1997 December 31, 1996
------ ------------------ -----------------
<S> <C> <C>
Real estate, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated
depreciation of $2,164,201 in 1997 and
$1,888,451 in 1996 5,606,917 5,882,667
----------------- ----------------
Total real estate assets 6,974,773 7,250,523
----------------- ----------------
Investment in joint ventures 18,118,262 18,369,508
Cash and cash equivalents 154,142 35,394
Due from affiliates 185,086 79,835
Accounts receivable 89,856 114,560
Prepaid expenses and other assets 67,819 79,538
----------------- ----------------
Total assets $ 25,589,938 $ 25,929,358
================= ================
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Partnership distributions payable $ 347,153 $ 134,485
Due to affiliates 5,117 5,708
----------------- ----------------
Total liabilities 352,270 140,193
----------------- ----------------
Partners' capital:
Wells Real Estate Fund II 23,896,544 24,418,757
Wells Real Estate Fund II-OW 1,341,124 1,370,408
----------------- ----------------
Total partners' capital 25,237,668 25,789,165
----------------- ----------------
Total liabilities and partners' capital $ 25,589,938 $ 25,929,358
================= ================
</TABLE>
See accompanying condensed notes to financial statements.
10
<PAGE>
FUND II and II-OW
(A Georgia Joint Venture)
STATEMENTS OF (LOSS) INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ ----------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30,1996
------------------ ------------------ ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 114,716 $ 114,716 $ 344,150 $ 344,150
Equity in income (loss) of
joint ventures 71,743 71,304 (139,532) 416,245
Interest income 118 106 339 308
------------- -------------- ------------- ------------
186,577 186,126 204,957 760,703
------------- -------------- ------------- ------------
Expenses:
Management and leasing fees 6,883 6,883 20,649 20,649
Lease acquisition costs 4,588 4,589 13,766 13,766
Operating costs - rental property 3,733 4,935 8,641 16,046
Depreciation 91,917 91,917 275,750 275,750
Legal and Accounting 5,075 678 39,033 39,126
Computer costs 3,052 1,404 7,496 3,207
Partnership administration 10,373 13,209 43,967 59,832
------------- -------------- ------------- ------------
125,621 123,615 409,302 428,376
------------- -------------- -------------- ------------
Net income (loss) $ 60,956 $ 62,511 $ (204,345) $ 332,327
============= ============== ============== ============
Net income allocated to Wells
Real Estate Fund II $ 57,719 $ 59,191 $ (193,494) $ 314,680
Net income allocated to Wells
Real Estate Fund II-OW $ 3,237 $ 3,320 $ (10,851) $ 17,647
</TABLE>
See accompanying condensed notes to financial statements.
11
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATION
--------------------
The following discussion and analysis should be read in conjunction with
the accompanying financial statements of the Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934, including discussion and analysis of the financial
condition of the Partnership, anticipated capital expenditures required to
complete certain projects, amounts of cash distributions anticipated to be
distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that
could cause actual results to differ materially from any forward-looking
statement made in the Report, which include construction costs which may
exceed estimates, construction delays, lease-up risks, inability to obtain
new tenants upon the expiration of existing leases, and the potential need
to fund tenant improvements or other capital expenditures out of operating
cash flow.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
As of September 30, 1997, the developed properties owned by the Fund
II-Fund II-OW Joint Venture were 94% occupied, as compared to 63% occupied
as of September 30, 1996.
Equity in (loss) income of joint venture was $(10,851) for the nine months
ended September 30, 1997, as compared to $17,647 for the nine months ended
September 30, 1996. The decrease in equity in (loss) income of joint
venture for 1997 was due primarily to the vacancy of The Atrium for the
first four and one-half months of 1997.
Administrative expenses of the Partnership which are incurred at the joint
venture level, decreased for the nine months ended September 30, 1997,
compared to the same period of 1996, primarily to a decrease in accounting
fees, computer costs and printing and postage expense.
The Partnership's net cash used in operating activities decreased for the
nine months ended September 30, 1997, compared to the same period in 1996,
due to the decrease in accounts payable, primarily withholding taxes. Cash
flow from investing activities decreased from $80,216 in 1996 to $7,141 in
1997, due to the investment of the distributions from the joint ventures
for the tenant improvements and outside broker commissions related to the
new tenant at The Atrium. Cash flow from financing activities decreased
from $80,217 in 1996 to $8,473 in 1997, due primarily to the vacancy of The
Atrium. As a result of the above, cash and cash equivalents have remained
fairly stable from 1996 to 1997.
12
<PAGE>
As set forth above, the total cost to complete the required tenant
improvements and outside brokerage commissions relating to the new lease
for The Atrium is estimated to be approximately $1,400,000, which was
funded from reserves of the Partnership, Wells Fund II and Wells Fund III,
along with cash flow from operations of the properties owned by such
partnership.
The Partnership made cash distributions to the Limited Partners holding
Class A Units for the third quarter of 1997 in the amount of $3.04 as
compared to $1.41 per Unit for the third quarter of 1996. No cash
distributions were made by the Partnership to the Limited Partners holding
Class B Units. As set forth above, substantially all cash generated from
the operation of properties owned by the Partnership in the first and
second quarters of 1997 was used to fund the required tenant improvements
and outside brokerage commissions relating to the new lease at The Atrium.
The Partnership's distributions paid and payable through the third quarter
of 1997 have been paid from net cash from operations and from distributions
received from its investments in joint ventures. The Partnership
anticipates that distributions will continue to be paid on a quarterly
basis from such sources. The Partnership expects to meet liquidity
requirements and budget demands through cash flows.
The Partnership is unaware of any known demands, commitments, events or
capital expenditures other than that which is required for the normal
operations of its properties or the properties in which it owns a joint
venture interest that will result in the Partnership's liquidity increasing
or decreasing in any material way.
As of September 30, 1997, the Fund II-Fund II-OW Joint Venture had used all
of the remaining funds available for investment in properties.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
13
<PAGE>
Property Operations
- -------------------
As of September 30, 1997, the Partnership owned interests in the following
properties through the Fund II-Fund II-OW Joint Venture:
First Union at Charlotte Property/Fund II and II-OW Joint Venture
- -----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ---------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $114,716 $114,716 $344,150 $344,150
Expenses:
Depreciation 91,917 91,917 275,750 275,750
Management and leasing
expenses 11,472 11,472 34,415 34,415
Other operating expenses 3,733 4,934 8,641 16,046
-------- -------- -------- --------
107,122 108,323 318,806 326,211
-------- -------- -------- --------
Net income $ 7,594 $ 6,393 $ 25,344 $ 17,939
======== ======== ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 5.3% 5.3% 5.3% 5.3%
Cash generated to the Fund II-
Fund II-OW Joint Venture* $111,335 $101,844 $325,596 $290,310
Net income allocated to the
Fund II - Fund II-OW
Joint Venture* $ 7,594 $ 6,393 $ 25,344 $ 17,939
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income remained stable for the three and nine months ended September 30,
1997 and 1996. Operating expenses decreased in the nine months ended September
30, 1997, compared to the same period of 1996, due primarily to the decrease in
accounting and administrative fees in the first quarter of 1997. Cash generated
to the Joint Venture for the three month and nine month periods ended September
30, 1997 increased over the same periods of 1996 due primarily to decreased
administrative expenses at the property.
14
<PAGE>
Boeing at The Atrium/Fund II and Fund III Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------------------------------------- -------------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 367,536 $ 8,909 $ 557,232 $ 1,048,582
Interest income 0 6,091 2,617 21,409
Other income 8,438 0 8,438 0
----------- ----------- ----------- -----------
375,974 15,000 568,287 1,069,991
----------- ----------- ----------- -----------
Expenses:
Depreciation 216,666 168,691 553,951 505,788
Management and leasing
expenses 41,283 0 70,293 71,380
Other operating expenses 183,894 (176,240) 473,093 57,310
----------- ----------- ----------- -----------
441,843 (7,549) 1,097,337 634,478
----------- ----------- ----------- -----------
Net (loss) income $ (65,869) $ 22,549 $ (529,050) $ 435,513
=========== =========== =========== ===========
Occupied % 100% 0% 100% 0%
Partnership's Ownership % 3.25% 3.50% 3.25% 3.50%
Cash distributions to the
Fund II - Fund II-OW
Joint Venture* $ 31,891 $ 0 $ 31,891 $ 472,173
Net (loss) income allocated
to the Fund II - II-OW
Joint Venture* $ (40,378) $ 14,792 $ (335,664) $ 285,696
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental and interest decreased for the nine month period ended September 30,
1997, compared to the three and nine months ended September 30, 1996, due to the
lower rental rate being paid by Boeing, the new tenant, and the vacancy of the
building for the first four and one-half months of 1997. Rental income increased
for the three month period ended September 30, 1997, compared to the three
months ended September 30, 1996, due primarily to the vacancy of The Atrium in
1996. Other income increased for the three and nine months ended September 30,
1997, compared to the three and nine months ended September 30, 1996, due to a
one-time adjustment for unused credits on the original build out of The Atrium
and a $5,000 reimbursement for the sale of office system components which were
unusable by the new tenant. Operating expenses increased for the three and nine
months ended September 30, 1997, compared to the three and nine months ended
September 30, 1996, due to the increased utility, repair, and maintenance
expenses being paid with the leasing of the building to Boeing.
For details related to the recent leasing of The Atrium, please refer to the
Condensed Notes to Financial Statements, (2) Investment in Joint Ventures.
15
<PAGE>
The Brookwood Grill /Fund II and Fund III Joint Venture
- -------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
----------------------------------------- -----------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 56,188 $ 56,797 $ 168,919 $ 169,172
Equity income (loss) of
joint venture 5,606 (573) 23,961 (26,996)
--------- --------- --------- ---------
61,794 56,224 192,880 142,176
--------- --------- --------- ---------
Expenses:
Depreciation 13,503 13,503 40,509 40,509
Management and leasing
expenses 7,032 7,483 21,077 20,178
Other operating expenses 1,656 13,665 17,787 48,941
--------- --------- --------- ---------
22,191 34,651 79,373 109,628
--------- --------- --------- ---------
Net income $ 39,603 $ 21,573 $ 113,507 $ 32,548
========= ========= ========= =========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 3.31% 3.31% 3.31% 3.31%
Cash distributions to the
Fund II - Fund II-OW
Joint Venture* $ 48,974 $ 26,840 $ 139,518 $ 65,958
Net income allocated to the
Fund II - Fund II-OW
Joint Venture* $ 24,693 $ 13,451 $ 70,772 $ 20,294
</TABLE>
*The Partnership holds a 5% 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, 1997, as compared to the
same periods of 1996, due to the increased equity in income from the Fund II,
III, VI, VII Joint Venture. Equity in income from the joint venture increased
primarily due to the increased occupancy level at 880 Holcomb Bridge Road.
Operating expenses decreased in 1997 compared to 1996 due primarily to the
decrease in property tax reimbursements in 1996.
16
<PAGE>
Holcomb Bridge Road /Fund II, III, VI, VII Joint Venture
- --------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Six Months Ended
----------------------------------------- ------------------ ------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 181,877 $ 82,869 $ 477,974 $ 136,044
Expenses:
Depreciation 84,509 54,939 220,621 138,881
Management and leasing
expenses 26,156 8,530 69,219 14,610
Other operating expenses 48,870 22,279 92,810 70,012
--------- --------- --------- ---------
159,535 85,748 382,650 223,503
--------- --------- --------- ---------
Net income (loss) $ 22,342 $ (2,879) $ 95,324 $ (87,459)
========= ========= ========= =========
Occupied % 87.1% 53.6% 87.1% 53.6%
Partnership's Ownership %
in the Fund II-III-VI-VII
Joint Venture 0.8% 0.8% 0.8% 0.8%
Cash distribution to the
Fund II-Fund III Joint
Venture* $ 23,826 $ 7,022 $ 77,150 $ 7,022
Net income (loss) allocated
to the Fund II-Fund III
Joint Venture* $ 5,606 $ (572) $ 23,961 $ (26,995)
</TABLE>
*The Partnership holds a 3.31% ownership in the Fund II-Fund III Joint Venture.
In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at 880 Holcomb Bridge Road (the "Holcomb Bridge Road
Property") to the Fund II, III, VI, VII Joint Venture. Development is being
completed on two buildings with a total of approximately 49,500 square feet.
Approximately 3,500 square feet is currently under construction for which leases
have been signed. Efforts are continuing to lease the remaining space of
approximately 2,900 square feet.
As of September 30, 1997, thirteen tenants are occupying approximately 43,100
square feet of space in the retail and office building under leases of varying
lengths. Operating expenses increased for the three month period ended September
30, 1997, as compared to September 30, 1996, due to the increased occupancy at
the property. Increases in revenues, expenses and net income for the nine months
ended September 30, 1997, compared to the six months ended September 30, 1996,
are due to increased occupancy at the property.
17
<PAGE>
Heritage Place at Tucker Property/Fund I - Fund II Joint Venture
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $267,363 $262,134 $796,694 $804,135
Interest income 762 122 1,024 501
Other income 83,027 0 83,027 0
-------- -------- -------- --------
351,152 262,256 880,745 804,636
-------- -------- -------- --------
Expenses:
Depreciation 106,541 105,280 308,306 313,508
Management and leasing
expenses 22,723 27,454 87,055 89,838
Other operating expenses 98,732 109,108 400,520 365,608
-------- -------- -------- --------
227,996 241,842 795,881 768,954
-------- -------- -------- --------
Net income $123,156 $ 20,414 $ 84,864 $ 35,682
======== ======== ======== ========
Occupied % 77% 75% 77% 75%
Partnership's Ownership % 2.39% 2.39% 2.39% 2.39%
Cash distributions to the
Fund II - Fund II-OW
Joint Venture* $ 61,037 $ 52,215 $122,352 $150,347
Net income allocated to the
Fund II - Fund II-OW
Joint Venture* $ 55,309 $ 9,168 $ 38,113 $ 16,025
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased for the nine months period ended September 30, 1997, as
compared to the same period in 1996, due primarily to decreased rental income in
the first quarter 1997 and billing of a lease cancellation charge and late
payment charges in 1996 of approximately $6,200. Operating expenses increased in
1997 over 1996 due to increases in utilities, landscaping, and other repairs and
maintenance. Other income in 1997 represents insurance payments on the 1996 fire
damage. Net income of the property decreased in 1997 as compared to 1996 for the
reasons noted above.
18
<PAGE>
Cherokee Commons/Fund I, II, II-OW, VI, VII Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------- ----------------------------------------
September 30, 1997 September 30, 1996 September 30, 1997 September 30, 1996
------------------ ------------------ ------------------ ------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $215,367 $219,956 $648,779 $666,564
Interest income 10 18 47 55
-------- -------- -------- --------
215,377 219,974 648,826 666,619
Expenses:
Depreciation 110,037 107,607 327,259 322,251
Management and leasing
expenses 7,017 12,101 57,881 38,011
Other operating expenses 39,455 38,084 103,777 133,588
-------- -------- -------- --------
156,509 157,792 488,917 493,850
-------- -------- -------- --------
Net income $ 58,868 $ 62,182 $159,909 $172,769
======== ======== ======== ========
Occupied % 93% 95% 93% 95%
Partnership's Ownership % 2.9% 2.9% 2.9% 2.9%
Cash distribution to the
Fund II - Fund II-OW
Joint Venture* $ 43,183 $108,584 $227,448 $312,609
Net income allocated to the
Fund II - Fund II-OW
Joint Venture* $ 32,119 $ 33,928 $ 87,248 $ 94,265
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income decreased in 1997, as compared to 1996 levels, due primarily to
the decrease in occupancy. Management and leasing expenses increased in 1997, as
compared to 1996, due to one-time payments of lease acquisition fees. Operating
expenses decreased due primarily to a timing difference in billings to tenants
for property taxes.
19
<PAGE>
PART II - OTHER INFORMATION
---------------------------
Item 6(b). No reports on Form 8-K were filed during the third quarter of 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND II-OW
(Registrant)
Dated: November 10, 1997 By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital, Inc.
the Corporate General Partner
20
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> SEP-30-1997
<CASH> 648
<SECURITIES> 1,341,123
<RECEIVABLES> 18,434
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,360,205
<CURRENT-LIABILITIES> 18,681
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,341,524
<TOTAL-LIABILITY-AND-EQUITY> 1,360,205
<SALES> 0
<TOTAL-REVENUES> (10,842)
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (10,842)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
