<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, 1998 or
------------------------------------
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from to
-------------------- -----------------
Commission file number 0-16518
--------------------------------------------------
Wells Real Estate Fund II-OW
- -------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Georgia 58-1678709
- ------------------------------- -------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
3885 Holcomb Bridge Road, Norcross, Georgia 30092
- -------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code (770) 449-7800
----------------------
- -------------------------------------------------------------------------
(Former name, former address and former fiscal year,
if changed since last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
------- -------
<PAGE>
Form 10-Q
---------
Wells Real Estate Fund II-OW
----------------------------
INDEX
-----
Page No.
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets - September 30, 1998
and December 31, 1997..................................... 3
Statements of Income for the Three Months and Nine Months
Ended September 30, 1998 and 1997......................... 4
Statements of Partners' Capital for the Year Ended
December 31, 1997 and the Nine Months
Ended September 30, 1998.................................. 5
Statements of Cash Flows for the Nine Months
Ended September 30, 1998 and 1997......................... 6
Condensed Notes to Financial Statements..................... 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................................ 11
PART II. OTHER INFORMATION............................................. 19
2
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
BALANCE SHEETS
Assets September 30, 1998 December 31, 1997
------ ------------------ -----------------
Investment in joint venture (Note 2) $1,256,980 $1,315,255
Cash and cash equivalents 668 741
Due from affiliate 21,635 18,109
---------- ----------
Total assets $1,279,284 $1,334,105
========== ==========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Accounts payable $ 164 $ 237
Partnership distributions payable 21,739 18,213
---------- ----------
Total liabilities 21,903 18,450
---------- ----------
Partners' Capital:
Limited Partners:
Class A - 6,062 units 1,257,381 1,315,655
Class B - 1,626 units 0 0
---------- ----------
Total partners' capital 1,257,381 1,315,655
---------- ----------
Total liabilities and partners' capital $1,279,284 $1,334,105
========== ==========
See accompanying condensed notes to financial statements.
3
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A GEORGIA PUBLIC LIMITED PARTNERSHIP)
STATEMENTS OF (LOSS) INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------------------ ----------------------------------------
Sept. 30, 1998 Sept. 30, 1997 Sept. 30, 1998 Sept. 30, 1997
------------------ -------------------- ------------------ -----------------
<S> <C> <C> <C> <C>
Revenues:
Equity in (loss) income of
joint ventures (Note 2) $2,215 $3,237 $7,463 $(10,851)
------ ------ ------ --------
Interest Income 0 0 0 9
------ ------ ------ --------
Net income (loss) $2,215 $3,237 $7,463 $(10,842)
====== ====== ====== ========
Net income (loss) allocated to
Class A Limited Partners $2,215 $3,237 $7,463 $(10,842)
Net loss allocated to Class
B Limited Partners $ 0.00 $ 0.00 $ 0.00 $ 0.00
Net income (loss) per Class A
Limited Partner Unit $ 0.36 $ .53 $ 1.23 $ (1.79)
Net loss per Class B Limited
Partner Unit $ 0.00 $ 0.00 $ 0.00 $ 0.00
Cash distribution per Class A
Limited Partner Unit $ 3.57 $ 3.04 $10.84 $ 3.04
</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, 1997 AND NINE MONTHS ENDED
SEPTEMBER 30, 1998
<TABLE>
<CAPTION>
LIMITED PARTNERS
-----------------------------------
CLASS A CLASS B TOTAL
---------------- -------------- PARTNERS'
UNITS AMOUNTS UNITS AMOUNTS CAPITAL
----- ------- ----- ------- ------------
<S> <C> <C> <C> <C> <C>
BALANCE, DECEMBER 31, 1996 6,062 $1,370,809 1,626 $0 $1,370,809
Net loss 0 (18,601) 0 0 (18,601)
Partnership distributions 0 (36,553) 0 0 (36,553)
----- ---------- ----- -- ----------
BALANCE, DECEMBER 31, 1997 6,062 1,315,655 1,626 0 1,315,655
Net income 0 7,463 0 0 7,463
Partnership distributions 0 (65,737) 0 0 (65,737)
----- ---------- ----- -- ----------
BALANCE, SEPTEMBER 30, 1998 6,062 $1,257,381 1,626 $0 $1,257,381
===== ========== ===== == ==========
</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, 1998 September 30, 1997
------------------- -------------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ 7,463 $(10,842)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Equity in (income) loss of joint ventures (7,463) 10,851
Changes in assets and liabilities:
Withholdings and accounts payable (72) (103)
-------- --------
Total adjustments (7,535) 10,748
-------- --------
Net cash used in
operating activities (72) (94)
-------- --------
Cash flow from investing activities:
Investment in joint venture 0 (21,744)
Distributions received from joint venture 62,211 28,885
-------- --------
62,211 7,141
Cash flow from financing activities:
Distributions to partners from accumulated earnings
(62,211) (8,473)
-------- --------
Net decrease in cash and cash equivalents (73) (1,426)
Cash and cash equivalents, beginning of year 741 2,074
-------- --------
Cash and cash equivalents, end of period $ 668 $ 648
======== ========
</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. ("Fund II-Fund III Joint Venture"); (iii) Fund II-
III-VI-VII Associates, a joint venture between the Fund II-Fund III Joint
Venture, Wells Real Estate Fund VI, L.P., and Wells Real Estate Fund VII,
L.P. ("Fund II, III, VI, VII Joint Venture"); (iv) Fund I-Fund II Joint
Venture, a joint venture between the Fund II-Fund II-OW Joint Venture and
Wells Real Estate Fund I ("the Tucker Joint Venture"); and (v) Fund I, II,
II-OW, VI, VII Associates, a joint venture between Wells Real Estate Fund
I, the Fund II-Fund II-OW Joint Venture, Wells Real Estate Fund VI, L.P.,
and Wells Real Estate Fund VII, L.P. ("Fund I, II, II-OW, VI, VII Joint
Venture"). Please refer to the Partnership's Form 10-K for the year ended
December 31, 1997 for additional information on the joint ventures and
properties in which the Partnership owns an interest.
As of September 30, 1998, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a
two-story office building located in Charlotte, North Carolina ("First
Union at Charlotte"); (ii) a four-story office building located in
metropolitan Houston, Texas (the "Atrium"); (iii) a restaurant located in
Fulton County, Georgia ("the Brookwood Grill"); (iv) an office/retail
center developed
7
<PAGE>
in Fulton County, Georgia ("Holcomb Bridge Road"); (v) a retail shopping
and commercial office complex located in Tucker, Georgia ("Heritage Place
at Tucker"); and (vi) a shopping center located in Cherokee County, Georgia
("Cherokee Commons"). All of the foregoing properties were acquired on an
all cash basis. For further information regarding these joint ventures and
properties, refer to the Partnership's Form 10-K for the year ended
December 31, 1997.
(b) Basis of Presentation
--------------------------
The financial statements of Wells Real Estate Fund II-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, 1997.
(2) Investment in Joint Ventures
----------------------------
The Partnership owned interests in six properties as of September 30, 1998.
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investment in joint ventures is recorded on the equity method.
8
<PAGE>
Following are the financial statements for Fund II and II-OW:
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
BALANCE SHEETS
<TABLE>
<CAPTION>
Assets September 30, 1998 December 31, 1997
------ ------------------ -----------------
<S> <C> <C>
Real estate, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated
depreciation of $2,531,867 in 1998 and
$2,256,118 in 1997 5,239,251 5,515,000
----------- -----------
Total real estate assets 6,607,107 6,882,856
----------- -----------
Investment in joint ventures 16,962,304 17,734,845
Cash and cash equivalents 91,853 84,392
Due from affiliates 311,376 248,623
Accounts receivable 42,649 84,207
Prepaid expenses and other assets 47,518 61,183
----------- -----------
Total assets $24,062,807 $25,096,106
=========== ===========
Liabilities and Partners' Capital
---------------------------------
Liabilities:
Partnership distributions payable $ 407,452 $ 341,034
Due to affiliates 2,302 4,561
----------- -----------
Total liabilities 409,754 345,595
----------- -----------
Partners' capital:
Wells Real Estate Fund II 22,396,073 23,435,256
Wells Real Estate Fund II-OW 1,256,980 1,315,255
----------- -----------
Total partners' capital 23,653,053 24,750,511
----------- -----------
Total liabilities and partners' capital $24,062,807 $25,096,106
=========== ===========
</TABLE>
See accompanying condensed notes to financial statements.
9
<PAGE>
FUND II AND II-OW
(A GEORGIA JOINT VENTURE)
STATEMENTS OF INCOME (LOSS)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
--------------------------------------------- -----------------------------------
Sept 30, 1998 Sept 30, 1997 Sept 30, 1998 Sept 30, 1997
------------------- -------------------- ---------------- -----------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $114,716 $114,716 $344,150 $ 344,150
Equity in (loss) income of joint
ventures 57,589 71,743 205,929 (139,532)
Interest income 119 118 363 339
-------- -------- -------- ---------
172,424 186,577 550,442 204,957
-------- -------- -------- ---------
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 4,440 3,733 11,266 8,641
Depreciation 91,917 91,917 275,750 275,750
Legal and accounting 833 5,074 34,428 39,033
Computer costs 1,602 3,052 4,986 7,496
Partnership administration 20,455 10,373 49,056 43,967
-------- -------- -------- ---------
130,718 125,621 409,901 409,302
-------- -------- -------- ---------
Net income (loss) $ 41,706 $ 60,956 $140,541 $(204,345)
======== ======== ======== =========
Net income (loss) allocated to
Wells Real Estate Fund II $ 39,491 $ 57,719 $133,078 $(193,494)
Net income (loss) allocated to Wells
Real Estate Fund II-OW $ 2,215 $ 3,237 $ 7,463 $ (10,851)
</TABLE>
10
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
-----------------------------------------------------------------------
RESULTS OF OPERATIONS.
----------------------
The following discussion and analysis should be read in conjunction with
the accompanying financial statements of the Partnership and notes thereto.
This Report contains forward-looking statements, within the meaning of
Section 27A of the Securities Act of 1933 and 21E of the Securities
Exchange Act of 1934, including discussion and analysis of the financial
condition of the Partnership, anticipated capital expenditures required to
complete certain projects, amounts of cash distributions anticipated to be
distributed to Limited Partners in the future and certain other matters.
Readers of this Report should be aware that there are various factors that
could cause actual results to differ materially from any forward-looking
statement made in the Report, which include construction costs which may
exceed estimates, construction delays, lease-up risks, inability to obtain
new tenants upon the expiration of existing leases, and the potential need
to fund tenant improvements or other capital expenditures out of operating
cash flow.
Results of Operations and Changes in Financial Conditions
---------------------------------------------------------
General
-------
As of September 30, 1998, the developed properties owned by the Fund II-
Fund II-OW Joint Venture were 95% occupied, as compared to 92% occupied as
of September 30, 1997. The increase in the occupied percentages for 1998
compared to 1997 is due to the increased occupancy of the 880 Holcomb
Bridge Road property.
The increase in gross revenues of the Partnership to $7,463 for the nine
months ended September 30, 1998 as compared to ($10,842) for the nine
months ended September 30, 1997, is due to the occupancy of The Atrium
Boeing Company in May 1997. Administrative expenses of the Partnership
which are incurred at the joint venture level, remained relatively stable
for nine months ended September 30, 1998.
The Partnership's cash flow from investing activities and cash flow from
financing activities increased in 1998, compared to 1997, due to the
increase in distributions from joint ventures and subsequent distributions
to limited partners as a result of the new lease at The Atrium. Since all
cash received from joint ventures is distributed currently, cash and cash
equivalents remain stable.
The Partnership made cash distributions to the Limited Partners holding
Class A Units for the third quarter of 1998 in the amount of $3.57 per Unit
as compared to $3.04 for third quarter 1997. No cash distributions were
made by the Partnership to the Limited Partners holding Class B Units.
11
<PAGE>
As of September 30, 1998, the Fund II-Fund II-OW Joint Venture had used all
of the remaining funds available for investment in properties.
The General Partners have verified that all operational computer systems
are year 2000 compliant. This includes systems supporting accounting,
property management and investor services. Also, as part of this review,
all building control systems have been verified as compliant. The current
line of business applications are based on compliant operating systems and
database servers. All of these products are scheduled for additional
upgrades before the year 2000. Therefore, it is not anticipated that the
year 2000 will have significant impact on operations.
RECENT ACCOUNTING PRONOUNCEMENTS
--------------------------------
Statement of Financial Accounting Standards (SFAS) No. 130, "Reporting
Comprehensive Income", requires certain transactions (e.g., unrealized
gains/losses on available for sale securities) that are not reflected in
net income to be displayed as other comprehensive income. The Statement
also requires an entity to report total comprehensive income (i.e., net
income plus other comprehensive income) for every period in which an income
statement is presented. SFAS No. 130 is effective for annual and interim
periods beginning after December 15, 1997. None of the transactions
required to be reported in other comprehensive income pertain to the
Partnership; consequently, adoption of this Statement had no impact on the
partnership's disclosures.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
<PAGE>
PROPERTY OPERATIONS
- -------------------
As of September 30, 1998, the Partnership owned interests in the following
properties through the Fund II-Fund II-OW Joint Venture:
First Union at Charlotte /Fund II and II-OW Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------- ------------------- ------------------- -------------------
<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 11,471 11,472 34,415 34,415
Other operating expenses 3,087 3,733 9,765 8,641
-------- -------- -------- --------
106,485 107,122 319,930 318,806
-------- -------- -------- --------
Net income $ 8,241 $ 7,594 $ 24,220 $ 25,344
======== ======== ======== ========
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* $120,199 $111,335 $349,136 $325,596
Net income allocated to the
Fund II - Fund II-OW
Joint Venture* $ 8,241 $ 7,594 $ 24,220 $ 25,344
</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,
1998 and 1997. Cash generated to the Joint Venture for the three month and nine
month periods ended September 30, 1998 due to an increase in rental income
billed to the tenant (rental income is straight lined for statement reporting).
13
<PAGE>
BOEING AT THE ATRIUM/FUND II AND FUND III JOINT VENTURE
- -------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $367,536 $367,536 $1,102,608 $ 557,232
Interest income 0 0 0 2,617
Other income 0 8,438 13,280 8,438
-------- -------- ---------- ----------
367,536 375,974 1,115,888 568,287
-------- -------- ---------- ----------
Expenses:
Depreciation 216,930 216,666 650,790 553,951
Management and leasing
expenses 44,775 41,283 133,942 70,293
Other operating expenses 174,424 183,894 516,248 473,093
-------- -------- ---------- ----------
436,129 441,843 1,300,980 1,097,337
-------- -------- ---------- ----------
Net loss $(68,593) $(65,869) $ (185,092) $ (529,050)
======== ======== ========== ==========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 3.2% 3.2% 3.2% 3.2%
Cash distributions to the
Fund II - Fund II-OW
Joint Venture* $102,969 $ 45,224 $ 321,588 $ 45,224
Net (loss) allocated
to the Fund II - II-OW
Joint Venture* $(42,047) $(40,378) $ (109,515) $ (335,664)
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased for the three months and nine months ended September 30,
1998, compared to the same period in 1997, due to the vacancy of the Atrium for
the first four and a half months of 1997.
Depreciation, management and leasing, and other expenses have increased in 1998
compared to 1997 with the occupancy of the building by Boeing for the full nine
months of 1998. Cash distributions to the Partnership increased, due primarily
to the increase in rental revenues. Distributions for the three months ended
September 30, 1997 was $45,224 and was basically a year-to-date amount due to
the vacancy of the building for the first 4-1/2 months of 1997.
14
<PAGE>
THE BROOKWOOD GRILL /FUND II AND FUND III JOINT VENTURE
- -------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $56,488 $56,188 $168,863 $168,919
Equity income (loss) of
joint venture 20,308 5,606 53,382 23,961
------- ------- -------- --------
76,796 61,794 222,245 192,880
------- ------- -------- --------
Expenses:
Depreciation 13,503 13,503 40,509 40,509
Management and leasing
Expenses 6,250 7,032 19,775 21,077
Other operating expenses 8,271 1,656 (10,221) 17,787
------- ------- -------- --------
28,024 22,191 50,063 79,373
------- ------- -------- --------
Net income $48,772 $39,603 $172,182 $113,507
======= ======= ======== ========
Occupied % 100% 100% 100% 100%
Partnership's Ownership % 3.3% 3.3% 3.3% 3.3%
Cash distributions to the
Fund II - Fund II-OW
Joint Venture* $58,328 $48,974 $192,343 $139,518
Net income allocated to the
Fund II - Fund II-OW
Joint Venture* $29,662 $24,693 $117,189 $ 70,772
</TABLE>
* The Partnership holds a 95% ownership interest 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, 1998, as compared to the
same periods of 1997, due to the increased equity in income from the Fund II,
III, VI, VII Joint Venture, as the Holcomb Bridge Property became 100% occupied.
Year-to-date operating expenses decreased in 1998, as compared to 1997, due
primarily to a change in the rental agreement of billing water reimbursements to
the tenant which will result in the tenant being charged for a greater share of
the total bill. Operating expenses increased for the three months ended
September 30, 1998, due primarily to an increased amount in water/sewer billing
during the third quarter.
15
<PAGE>
HOLCOMB BRIDGE ROAD /FUND II, III, VI, VII JOINT VENTURE
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended Six Months Ended
---------------------------------------- ------------------- -------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------- ------------------- ------------------- -------------------
Revenues:
<S> <C> <C> <C> <C>
Rental income $226,233 $181,877 $648,113 $477,974
Expenses:
Depreciation 94,128 84,509 282,161 220,621
Management and leasing
expenses 20,198 26,156 79,450 69,219
Other operating expenses 27,664 22,279 64,494 92,810
-------- -------- -------- --------
141,990 159,535 426,105 382,650
-------- -------- -------- --------
Net income $ 84,243 $ 22,342 $222,008 $ 95,324
======== ======== ======== ========
Occupied % 100% 87.1% 100% 87.1%
Partnership's Ownership % .8% .8% .8% .8%
Cash distibution to the
Fund II-Fund III Joint
Venture* $ 45,561 $ 23,826 $128,719 $ 77,150
Net income allocated to
The Fund II-Fund III Joint
Venture* $ 20,308 $ 5,606 $ 53,382 $ 23,961
</TABLE>
*The Partnership holds a 59.0% ownership in the Fund II-Fund III Joint Venture.
In January 1995, the Fund II-Fund III Joint Venture contributed 4.3 acres of
land and land improvements at Holcomb Bridge Road (the "Holcomb Bridge Road
Property") to the Fund II, III, VI, VII Joint Venture. Development has been
completed on two buildings containing a total of approximately 49,500 square
feet.
As of September 30, 1998, fourteen tenants are occupying approximately 49,500
square feet of space in the retail and office building under leases of varying
lengths. Increases in revenues, total expenses and net income for the quarter
and nine months ended September 30, 1998, compared to the same period of 1997,
are due to the property being 100% occupied as of September 30, 1998, as
compared to 87.1% at the end of the same period of 1997.
The Partnership's ownership percentage in the Fund II, III, VI, VII Joint
Venture decreased to 14.2% in 1998, as compared to 14.9% in 1997, due to
additional funding by Wells Fund VI and Wells Fund VII.
16
<PAGE>
Heritage Place at Tucker Property/Fund I - Fund II Joint Venture
- ----------------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $301,785 $267,363 $913,672 $796,694
Interest income 95 762 367 1,024
Other income 27,319 83,027 27,319 83,027
-------- -------- -------- --------
329,199 351,152 941,358 880,745
-------- -------- -------- --------
Expenses:
Depreciation 113,129 106,541 327,705 308,306
Management and leasing
expenses 41,688 22,723 118,921 87,055
Other operating expenses 152,927 98,732 378,901 400,520
-------- -------- -------- --------
307,744 227,996 825,527 795,881
-------- -------- -------- --------
Net income $ 21,455 $123,156 $115,831 $ 84,864
======== ======== ======== ========
Occupied % 82% 77% 82% 77%
Partnership's Ownership % 2.4% 2.4% 2.4% 2.4%
Cash distributions to the
Fund II - Fund II-OW $ 51,671 $ 61,037 $147,664 $122,352
Joint Venture*
Net income allocated to the
Fund II - Fund II-OW
Joint Venture* $ 13,793 $ 55,309 $ 56,179 $ 38,113
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1998 from 1997 due primarily to the increase in
occupancy from 77% to 82%. Management and leasing expenses increased due to
increased occupancy and rental revenues. Other operating expenses for the nine
months ended September 30, 1998 decreased to $378,901 as compared to $400,520
due to a significant decrease in landscaping expenses and plumbing and roofing
repairs incurred in 1997. Other expenses increased to $152,927 as compared to
$98,732 for the three month period ended September 30, 1998 due to a sewer pump
and main line repair.
17
<PAGE>
Cherokee Commons/Fund I, II, II-OW, VI, VII Joint Venture
- ---------------------------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------------------- ----------------------------------------
September 30, 1998 September 30, 1997 September 30, 1998 September 30, 1997
------------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $226,733 $215,367 $681,415 $648,779
Interest income 2 10 43 47
-------- -------- -------- --------
226,735 215,377 681,458 648,826
Expenses:
Depreciation 111,285 110,037 332,412 327,259
Management and leasing
expenses 18,478 7,017 62,966 57,881
Other operating expenses 20,630 39,455 25,680 103,777
-------- -------- -------- --------
156,509 157,792 421,058 488,917
-------- -------- -------- --------
Net income $ 76,342 $ 58,868 $260,400 $159,909
======== ======== ======== ========
Occupied % 91% 93% 91% 93%
Partnership's Ownership % 2.9% 2.9% 2.9% 2.9%
Cash distribution to the
Fund II-Fund II-OW Joint $103,684 $ 43,183 $322,150 $227,448
Venture*
Net income allocated to the
Fund II-Fund II-OW Joint $ 41,625 $ 32,119 $142,076 $ 87,248
Venture*
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1998 over 1997, due primarily to the one time
adjustment made in 1997 to the straight line rent schedule. The decrease in
operating expenses in 1998, as compared to 1997, are due to decreased
expenditures for tenant improvements, plumbing, common area expenses and legal
fees.
18
<PAGE>
PART II - OTHER INFORMATION
----------------------------
Item 6(b). No reports on Form 8-K were filed during the third quarter of 1998.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND II
(Registrant)
Dated: November 10, 1998 By: /s/Leo F. Wells, III
--------------------
Leo F. Wells, III, as Individual
General Partner and as President,
Sole Director and Chief Financial
Officer of Wells Capital, Inc.
the Corporate General Partner
19
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<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 668
<SECURITIES> 1,256,980
<RECEIVABLES> 21,635
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,279,284
<CURRENT-LIABILITIES> 21,903
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,257,381
<TOTAL-LIABILITY-AND-EQUITY> 1,279,284
<SALES> 0
<TOTAL-REVENUES> 7,463
<CGS> 0
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<OTHER-EXPENSES> 0
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<INCOME-PRETAX> 7,463
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<INCOME-CONTINUING> 7,463
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<EXTRAORDINARY> 0
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<NET-INCOME> 7,463
<EPS-PRIMARY> 1.23
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