<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended September 30, 1999 or
----------------------------------------
[_] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _____________________ to ____________________
Commission file number 0-16518
---------------------------------------
WELLS REAL ESTATE FUND II-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
(A Georgia Public Limited Partnership)
INDEX
<TABLE>
<CAPTION>
Page No.
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets--September 30, 1999 and December 31, 1998 3
Statements of Income for the Three Months and Nine Months Ended September 30, 1999 and 1998 4
Statements of Partners' Capital for the Year Ended December 31, 1998 and the Nine Months
Ended September 30, 1999 5
Statements of Cash Flows for the Nine Months Ended September 30, 1999 and 1998 6
Condensed Notes to Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial Conditions and Results of Operations 11
PART II. OTHER INFORMATION 20
</TABLE>
-2-
<PAGE>
WELLS REAL ESTATE FUND II-OW
(A Georgia Public Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
------------- ------------
<S> <C> <C>
ASSETS:
Investment in joint venture (Note 2) $1,180,376 $1,235,838
Cash and cash equivalents 751 669
Due from affiliate 27,735 18,870
----------- ----------
Total assets $1,208,862 $1,255,377
=========== ==========
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Accounts payable $ 221 $ 164
Partnership distributions payable 24,665 18,974
---------- ----------
Total liabilities 24,886 19,138
========== ==========
Partners' capital:
Limited partners:
Class A--6,062 units 1,183,976 1,236,239
Class B--1,626 units 0 0
---------- ----------
Total partners' capital 1,183,976 1,236,239
---------- ----------
Total liabilities and partners' capital $1,208,862 $1,255,377
========== ==========
</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, September 30, September 30, September 30,
1999 1998 1999 1998
--------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C>
REVENUES:
Equity in income of joint ventures (Note 2) $8,246 $2,215 $15,834 $7,463
Other income 130 0 130 0
--------------- --------------- --------------- ---------------
Net income $8,376 $2,215 $15,964 $7,463
=============== =============== =============== ===============
NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $8,376 $2,215 $15,964 $7,463
=============== =============== =============== ===============
NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ 0 $ 0 $ 0 $ 0
=============== =============== =============== ===============
NET INCOME PER CLASS A LIMITED PARTNER UNIT $ 1.38 $ 0.36 $ 2.63 $ 1.23
=============== =============== =============== ===============
NET LOSS PER CLASS B LIMITED PARTNER UNIT $ 0 $ 0 $ 0 $ 0
=============== =============== =============== ===============
CASH DISTRIBUTION PER CLASS A LIMITED PARTNER UNIT $ 4.06 $ 3.57 $ 11.25 $10.84
=============== =============== =============== ===============
</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, 1998
AND THE NINE MONTHS ENDED SEPTEMBER 30, 1999
<TABLE>
<CAPTION>
Limited Partners Total
-----------------------------------------
Class A Class B Partners'
------------------- --------------------
Units Amounts Units Amounts Capital
-------- --------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1997 6,062 $1,315,655 1,626 $0 $1,315,655
Net income 0 5,190 0 0 5,190
Partnership distributions 0 (84,606) 0 0 (84,606)
----- --------- ----- -- ----------
BALANCE, December 31, 1998 6,062 1,236,239 1,626 0 1,236,239
Net income 0 15,963 0 0 15,963
Partnership distributions 0 (68,226) 0 0 (68,226)
----- ---------- ----- -- ----------
BALANCE, September 30, 1999 6,062 $1,183,976 1,626 $0 $1,183,976
===== ========== ===== == ==========
</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>
For the Nine Months Ended
-------------------------------
September 30, September 30,
1999 1998
------------- -------------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 15,963 $ 7,463
Adjustments to reconcile net income to net cash provided by (used in) ------------- -------------
operating activities:
Equity in income of joint ventures (15,834) (7,463)
Changes in assets and liabilities:
Accounts payable 57 (73)
------------- -------------
Total adjustments (15,777) (7,536)
------------- -------------
Net cash provided by (used in) operating activities 186 (73)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in joint venture 0 0
Distributions received from joint ventures 62,432 62,211
------------- -------------
Net cash provided by investing activities 62,432 62,211
------------- -------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Distributions to partners (62,536) (62,211)
------------- -------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 82 (73)
CASH AND CASH EQUIVALENTS, beginning of year 669 741
------------- -------------
CASH AND CASH EQUIVALENTS, end of period $ 751 $ 668
============= =============
</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
SEPTEMBER 30, 1999 AND 1998 AND DECEMBER 31, 1998
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, 1998 for
additional information on the joint ventures and properties in which the
Partnership owns an interest.
As of September 30, 1999, the Partnership owned interests in the following
properties through its ownership of the foregoing joint ventures: (i) a two-
story office building located in Charlotte, North Carolina ("First Union at
Charlotte"); (ii) a four-story office building located in metropolitan
Houston, Texas (the "Atrium"); (iii) a restaurant located in Fulton County,
Georgia (the "Brookwood Grill"); (iv) an office/retail center developed in
Fulton County, Georgia ("Holcomb Bridge Road"); (v) a retail shopping and
commercial office complex located in Tucker, Georgia (the "Heritage Place at
Tucker"); and (vi) a shopping center located in Cherokee County, Georgia (the
"Cherokee Commons"). All of the
-7-
<PAGE>
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, 1998.
(b) Basis of Presentation
The financial statements of Wells Real Estate Fund II-OW have been prepared
in accordance with instructions to Form 10-Q and do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. These quarterly statements
have not been examined by independent accountants, but in the opinion of the
general partners, the statements for the unaudited interim periods presented
include all adjustments, which are of a normal and recurring nature,
necessary to present a fair presentation of the results for such periods. For
further information, refer to the financial statements and footnotes included
in the Partnership's Form 10-K for the year ended December 31, 1998.
2. INVESTMENTS IN JOINT VENTURES
The Partnership owned interests in six properties as of September 30, 1999.
The Partnership does not have control over the operations of the joint
ventures; however, it does exercise significant influence. Accordingly,
investments in the joint venture are recorded using the equity method
Fund II-Fund II-OW Joint Venture
The Partnership owns all of its properties through the Fund II-Fund II-OW
Joint Venture formed on March 1, 1988 between the Partnership and Wells Real
Estate Fund II ("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, 1999, the Partnership's equity
interest in Wells Fund II-Fund II-OW Joint Venture was approximately 5%, and
the equity interest of Wells Fund II was approximately 95%.
-8-
<PAGE>
Following are the financial statements for Fund II-Fund II-OW Joint Venture:
FUND II-FUND II-OW JOINT VENTURE
(A Georgia Joint Venture)
BALANCE SHEETS
<TABLE>
<CAPTION>
September 30, December 31,
1999 1998
---------------- ----------------
<S> <C> <C>
ASSETS:
Real estate, at cost:
Land $ 1,367,856 $ 1,367,856
Building and improvements, less accumulated
depreciation of $2,899,533 in 1999 and
$2,623,785 in 1998 4,871,584 5,147,333
---------------- ----------------
Total real estate assets 6,239,440 6,515,189
Investments in joint ventures 15,941,730 16,676,111
Cash and cash equivalents 222,451 94,367
Due from affiliates 298,344 267,581
Accounts receivable 1,265 23,184
Prepaid expenses and other assets 29,488 42,828
---------------- ----------------
Total assets $ 22,732,718 $ 23,619,260
================ ================
LIABILITIES AND PARTNERS' CAPITAL:
Liabilities:
Partnership distributions payable $ 522,317 $ 355,370
Due to affiliates 0 8,988
---------------- ----------------
Total liabilities 522,317 364,358
---------------- ----------------
Partners' capital:
Wells Real Estate Fund II 21,030,025 22,019,064
Wells Real Estate Fund II-OW 1,180,376 1,235,838
---------------- ----------------
Total partners' capital 22,210,401 23,254,902
---------------- ----------------
Total liabilities and partners' capital $ 22,732,718 $ 23,619,260
================ ================
</TABLE>
See accompanying condensed notes to financial statements.
-9-
<PAGE>
FUND II-FUND II-OW JOINT VENTURE
(A Georgia Joint Venture)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
-------------- -------------- -----------------------------
September 30, September 30, September 30, September 30,
1999 1998 1999 1998
-------------- -------------- ------------- --------------
<S> <C> <C> <C> <C>
REVENUES:
Rental income $ 264,259 $ 14,716 $ 506,658 $ 344,150
Equity in income of joint ventures 27,064 57,589 217,098 205,929
Interest income 155 119 247 363
-------------- -------------- ------------- --------------
291,478 172,424 724,003 550,442
-------------- -------------- ------------- --------------
EXPENSES:
Management and leasing fees 15,855 6,883 30,279 20,649
Lease acquisition costs 4,589 4,588 13,766 13,766
Operating costs--rental property 4,756 4,440 15,816 11,266
Depreciation 91,917 91,917 275,750 275,750
Legal and accounting (650) 833 27,847 34,428
Computer costs 2,661 1,602 5,402 4,986
Partnership administration 17,071 20,455 56,952 49,056
-------------- -------------- -------------- --------------
136,199 130,718 425,812 409,901
-------------- -------------- -------------- --------------
Net income $ 155,279 $ 41,706 $ 298,191 $ 140,541
-------------- -------------- -------------- --------------
NET INCOME ALLOCATED TO WELLS REAL
ESTATE FUND II $ 147,033 $ 39,491 $ 282,357 $ 133,078
-------------- -------------- -------------- --------------
NET INCOME ALLOCATED TO WELLS REAL
ESTATE FUND II-OW $ 8,246 $ 2,215 $ 15,834 $ 7,463
============= ============== ============== ==============
</TABLE>
See accompanying condensed notes to financial statements.
-10-
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITIONS AND
RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with the
accompanying financial statements of the Partnership and notes thereto. This
report contains forward-looking statements, within the meaning of Section 27A
of the Securities Act of 1933 and Section 21E of the Securities Exchange Act
of 1934, including discussion and analysis of the financial condition of the
Partnership, anticipated capital expenditures required to complete certain
projects, amounts of cash distributions anticipated to be distributed to
limited partners in the future, and certain other matters. Readers of this
report should be aware that there are various factors that could cause actual
results to differ materially from any forward-looking statements made in this
report, which include construction costs which may exceed estimates,
construction delays, lease-up risks, inability to obtain new tenants upon the
expiration of existing leases, and the potential need to fund tenant
improvements or other capital expenditures out of operating cash flow.
1. RESULTS OF OPERATIONS AND CHANGES IN FINANCIAL CONDITIONS
(a) General
As of September 30, 1999, the developed properties owned by the Fund II-Fund
II-OW Joint Venture were 97.5% occupied as compared to 95% occupied as of
September 30, 1998.
The increase in gross revenues of the Partnership to $15,964 for the nine
months ended September 30, 1999, as compared to $7,463 for the nine months
ended September 30, 1998 is due to the increase occupancy of the Cherokee
Commons and Heritage Place at Tucker. Total administrative expenses of the
Partnership which are incurred at the joint venture level remained relatively
stable for the nine months ended September 30, 1999 compared to the same
period of 1998.
The Partnership's cash flow provided by investing activities and cash flow
used in financing activities increased in 1999 compared to 1998 due to the
increase in distributions from joint ventures as occupancies increased.
Since all cash received from joint ventures is distributed currently, cash
and cash equivalents remained stable.
Fund II-Fund II-OW Joint Venture distributions accrued to the Partnership for
the three-month periods ended September 30, 1999 and September 30, 1998 were
$27,735 and $21,636, respectively.
The Partnership made cash distributions in the amount of $4.06 per unit to
the limited partners holding Class A units for the third quarter of 1999 as
compared to $3.57 per unit for the third quarter of 1998. No cash
distributions were made by the Partnership to the Limited Partners holding
Class B units.
As of September 30, 1999, the Fund II-Fund II-OW Joint Venture had used all
of the remaining funds available for investment in properties.
-11-
<PAGE>
The Partnership is unaware of any known demands, commitments, events, or
capital expenditures other than that which is required from the normal
operations of its properties that will result in the Partnership's liquidity
increasing or decreasing in any material way. The Partnership expects to
meet liquidity requirements and demands through cash flow from operations.
The Partnership has recently made the decision to begin selling its
properties. At this time, two properties have been identified that will be
offered for sale within the next several months. The Partnership's goal is
to have all Fund II-OW properties sold by the end of 2002. As the properties
are sold, all proceeds will be returned to limited partners in accordance
with the Partnership's prospectus.
Year 2000
The Partnership is presently reviewing the potential impact of Year 2000
compliance issues on its information systems and business operations. A full
assessment of Year 2000 compliance issues was begun in late 1997 and was
completed by March 31, 1999. Renovations and replacements of equipment have
been and are being made as warranted. The costs incurred by the Partnership
and its affiliates thus far for renovations and replacements have been
immaterial. As of September 30, 1999, all testing of systems has been
completed.
As to the status of the Partnership's information technology systems, it is
presently believed that all major systems and software packages are Year 2000
compliant. At the present time, it is believed that all major noninformation
technology systems are Year 2000 compliant. The cost to upgrade any
noncompliant systems is believed to be immaterial.
The Partnership has confirmed with the Partnership's vendors, including
third-party service providers such as banks, that their systems are Year 2000
compliant.
The Partnership relies on computers and operating systems provided by
equipment manufacturers, and also on application software designed for use
with its accounting, property management, and investment portfolio tracking.
The Partnership has preliminarily determined that any costs, problems, or
uncertainties associated with the potential consequences of Year 2000 issues
are not expected to have a material impact on the future operations or
financial condition of the Partnership. The Partnership will perform due
diligence as to the Year 2000 readiness of each property owned by the
Partnership and each property contemplated for purchase by the Partnership.
The Partnership's reliance on embedded computer systems (i.e.,
microcontrollers) is limited to facilities-related matters, such as office
security systems and environmental control systems.
The Partnership is currently formulating contingency plans to cover any areas
of concern. Alternate means of operating the business are being developed in
the unlikely circumstance that the computer and telephone systems are
rendered inoperable. An off-site facility from which the Partnership could
operate is being sought as well as alternate means of communication with key
third-party vendors. A written plan is being developed for testing and
dispensed to each staff member of the general partner of the Partnership.
-12-
<PAGE>
Management believes that the Partnership's risk of Year 2000 problems is
minimal. In the unlikely event there is a problem, the worst-case scenarios
would include the risks that the elevators or security systems within the
Partnership's properties would fail or the key third-party vendors upon
which the Partnership relies would be unable to provide accurate investor
information. In the event that the elevators shut down, the Partnership has
devised a plan for each building whereby the tenants will use the stairs
until the elevators are fixed. In the event that the security systems shut
down, the Partnership has devised a plan for each building to hire
temporary on-site security guards. In the event that a third-party vendor
has Year 2000 problems relating to investor information, the Partnership
intends to perform a full system back-up of all investor information as of
December 31, 1999 so that the Partnership will have accurate hard-copy
investor information.
-13-
<PAGE>
2. PROPERTY OPERATIONS
As of September 30, 1999, the Partnership owned interests in the following
properties through the Fund II-Fund II-OW Joint Venture:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ -----------------------------
First Union at Charlotte/ September 30, September 30, September 30, September 30,
Fund II-Fund II-OW Joint Venture 1999 1998 1999 1998
------------------------------------------------ ------------ -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $ 264,259 $ 114,716 $ 506,658 $ 344,150
============= ============= ============= =============
Expenses:
Depreciation 91,917 91,917 275,750 275,750
Management and leasing expenses 20,444 11,471 44,045 34,415
Other operating expenses 4,601 3,087 15,569 9,765
------------- ------------- ------------- -------------
116,962 106,475 335,364 319,930
------------- ------------- ------------- -------------
Net income $ 147,297 $ 8,241 $ 171,294 $ 24,220
============= ============= ============= =============
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* $ 243,802 $ 120,199 $ 481,414 $ 349,136
============= ============= ============= =============
Net income generated to the
Fund II-Fund II-OW Joint Venture* $ 147,297 $ 8,241 $ 171,294 $ 24,220
============= ============= ============= =============
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income, net income, and cash distributions increased for the nine months
ended September 30, 1999 as compared to the nine months ended September 30, 1998
due to a renewed, increased rent beginning in May 1999. Expenses increased as
compared to the same periods in 1998 due primarily to increased management fees
which are charges based on rental income.
-14-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- -----------------------------
Boeing at the Atrium/ September 30, September 30, September 30, September 30,
Fund II-Fund III Joint Venture 1999 1998 1999 1998
- ------------------------------------------------ ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $367,536 $367,536 $1,102,608 $1,102,608
Other income 0 0 0 13,280
-------- -------- ---------- ----------
367,536 367,536 1,102,608 1,115,888
======== ======== ========== ==========
Expenses:
Depreciation 216,930 216,930 650,790 650,790
Management and leasing expenses 45,060 44,775 134,703 133,942
Other operating expenses 185,397 174,424 498,892 516,248
-------- -------- ---------- ----------
447,387 436,129 1,284,385 1,300,980
-------- -------- ---------- ----------
Net loss $(79,851) $(68,593) $ (181,777) $ (185,092)
======== ======== ========== ==========
Occupied % 100% 100% 100% 100%
======== ======== ========== ==========
Partnership's ownership % 3.2% 3.2% 3.2% 3.2%
======== ======== ========== ==========
Cash distribution to the Fund II-Fund II-OW Joint Venture* $103,572 $102,969 $ 323,621 $ 321,588
======== ======== ========== ==========
Net loss allocated to Fund II-Fund II-OW Joint Venture* $(48,948) $(42,047) $ (111,429) $ (109,515)
======== ======== ========== ==========
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income remained stable for the nine months ended September 30, 1999 as
compared to the nine months ended September 30, 1998. Operating expenses
decreased for the nine months ended September 30, 1999 as compared to the nine
months ended September 30, 1998 due primarily to increased common-area
maintenance billings to tenants that were underestimated in 1998. Tenants are
billed an estimated amount for the current year common-area maintenance which is
then reconciled the following year and the difference billed to the tenants.
-15-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
---------------------------- ----------------------------
The Brookwood Grill/ September 30, September 30, September 30, September 30,
Fund II-Fund III Joint Venture 1999 1998 1999 1998
- ------------------------------------------------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $56,188 $56,488 $168,563 $168,863
Equity income of joint venture 23,307 20,308 62,611 53,382
------------- ------------- ------------- -------------
79,495 76,796 231,174 222,245
============= ============= ============= =============
Expenses:
Depreciation 13,503 13,503 40,509 40,509
Management and leasing expenses 6,704 6,250 23,387 19,775
Other operating expenses 2,467 8,271 8,797 (10,221)
-------------- ------------- ------------- -------------
22,674 28,024 72,693 50,063
============== ============= ============= =============
Net income $56,821 $48,772 $158,481 $172,182
============== ============= ============= =============
Occupied % 100% 100% 100% 100%
============== ============= ============= =============
Partnership's ownership % 3.3% 3.3% 3.3% 3.3%
============== ============= ============= =============
Cash distribution to the Fund II-Fund II-OW Joint Venture* $59,606 $58,328 $175,037 $192,343
============== ============= ============= =============
Net income allocated to the Fund II-Fund II-OW Joint $35,428 $29,662 $ 98,813 $117,189
============== ============= ============= =============
Venture*
</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, 1999 as compared to
the same periods in 1998 due to the increased equity income from Fund II,
III, VI, and VII Joint Venture, as the Holcomb Bridge Property became more
profitable this year.
Operating expenses increased for the nine months ended September 30, 1999 as
compared to the same periods in 1998 due primarily to a change in the rental
agreement of billing water reimbursements to the tenant in 1998 which was
overestimated for the year.
-16-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- -------------------------------
Holcomb Bridge Road/ September 30, September 30, September 30, September 30,
Fund II, III, VI, VII Joint Venture 1999 1998 1999 1998
---------------------------------------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $213,028 $226,233 $670,852 $648,113
Expenses:
Depreciation 79,605 94,128 277,862 282,161
Management and leasing expenses 22,263 20,198 93,200 79,450
Other operating expenses 14,889 27,664 39,670 64,494
-------------- ------------- ------------- ------------
116,757 141,990 410,732 426,105
-------------- ------------- ------------- ------------
Net income $ 96,271 $ 84,243 $260,120 $222,008
============== ============= ============= ============
Occupied % 94% 100% 94% 100%
============== ============= ============= ============
Partnership's ownership % 0.8% 0.8% 0.8% 0.8%
============== ============= ============= ============
Cash distribution to the Fund II-Fund III
Joint Venture* $ 41,093 $ 45,561 $122,693 $128,719
============== ============= ============= ============
Net income allocated to the Fund II-Fund III
Joint Venture* $ 23,307 $ 20,308 $ 62,611 $ 53,382
============== ============= ============= ============
</TABLE>
*The Partnership holds a 3.3% ownership in the Fund II-Fund III Joint Venture.
Rental income has increased for the nine months ended September 30, 1999 as
compared to the same periods in 1998 due primarily to an underestimate of
straight-line rent adjustments. Expenses decreased due to a decrease in 1999
property tax.
-17-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------- ------------------------------
Heritage Place at Tucker/ September 30, September 30, September 30, September 30,
Tucker Joint Venture 1999 1998 1999 1998
----------------------------------------------- --------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $351,124 $301,785 $1,031,027 $913,672
Interest income 53 95 326 367
Other income 0 27,319 0 27,319
------------- ------------ ------------ ------------
351,177 329,199 1,031,353 941,358
------------- ------------ ------------ ------------
Expenses:
Depreciation 127,287 113,129 356,539 327,705
Management and leasing expenses 36,741 41,688 124,707 118,921
Other operating expenses 165,238 152,927 364,186 378,901
------------- ------------ ------------ ------------
329,266 307,744 845,432 825,527
------------- ------------ ------------ ------------
Net income $ 21,911 $ 21,455 $ 185,921 $115,831
============= ============ ============ ============
Occupied % 88% 82% 88% 82%
============= ============ ============ ============
Partnership's ownership % 2.4% 2.4% 2.4% 2.4%
============= ============ ============ ============
Cash distribution to the Fund II-Fund II-OW
Joint Venture* $ 39,495 $ 51,671 $ 130,236 $147,664
============= ============ ============ ============
Net income allocated to the Fund II-Fund II-OW
Joint Venture* $ 9,840 $ 13,793 $ 83,497 $ 56,179
============= ============ ============ ============
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1999 from 1998 due primarily to the increase in
occupancy from 82% to 88%. Depreciation increased for the nine-month period due
to building repairs. Other operating expenses increased for the three-month
period due to HVAC repairs and decreased from $378,901 to $364,186 for the nine-
month period ended September 30, 1999 due to a sewer pump and main water line
repair in 1998.
-18-
<PAGE>
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
------------------------------ ------------------------------
Cherokee Commons/Fund I, II, II-OW, September 30, September 30, September 30, September 30,
VI, VII Joint Venture 1999 1998 1999 1998
------------------------------------------------ -------------- -------------- -------------- -------------
<S> <C> <C> <C> <C>
Revenues:
Rental income $238,923 $226,733 $703,538 $681,415
Interest income 8 2 47 43
------------ ------------ ----------- -----------
238,931 226,735 703,585 681,458
------------ ------------ ----------- -----------
Expenses:
Depreciation 111,379 111,285 332,906 332,412
Management and leasing expenses 22,863 18,478 73,992 62,966
Other operating expenses 48,342 20,630 28,699 25,680
------------ ------------ ----------- -----------
182,584 150,393 435,597 421,058
------------ ------------ ----------- -----------
Net income $ 56,347 $ 76,342 $267,988 $260,400
============ ============ =========== ===========
Occupied % 97% 91% 97% 91%
============ ============ =========== ===========
Partnership's ownership % 2.9% 2.9% 2.9% 2.9%
============ ============ =========== ===========
Cash distribution to the Fund II-Fund II-OW
Joint Venture* $ 94,923 $103,684 $322,585 $322,150
============ ============ =========== ===========
Net income allocated to the Fund II-Fund II-OW
Joint Venture* $ 30,743 $ 41,625 $146,217 $142,076
============ ============ =========== ===========
</TABLE>
*The Partnership holds a 5% ownership in the Fund II-Fund II-OW Joint Venture.
Rental income increased in 1999 over 1998 due to increased occupancy. The
increase in operating expenses for the three-month period ended September 30,
1999 was due to increased expenditures for tenant improvements, HVAC repairs,
and parking lot repairs.
-19-
<PAGE>
PART II. OTHER INFORMATION
ITEM 6 (b.) NO REPORTS ON FORM 8-K WERE FILED DURING THE THIRD QUARTER OF 1999.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
WELLS REAL ESTATE FUND II-OW
(Registrant)
Dated: November 10, 1999 By: /s/ Leo F. Wells, III
---------------------
Leo F. Wells, III, as Individual
General Partner, and as President,
Sole Director, and Chief Financial
Officer of Wells Capital, Inc., the
Corporate General Partner
-20-
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 751
<SECURITIES> 1,180,376
<RECEIVABLES> 27,735
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 1,208,862
<CURRENT-LIABILITIES> 24,886
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 1,183,976
<TOTAL-LIABILITY-AND-EQUITY> 1,208,862
<SALES> 0
<TOTAL-REVENUES> 15,964
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 15,964
<INCOME-TAX> 0
<INCOME-CONTINUING> 15,964
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 15,964
<EPS-BASIC> 2.63
<EPS-DILUTED> 0
</TABLE>
