As filed with the Securities and Exchange Commission on July 22, 2002
Registration No. 333-44900
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
------------------
POST-EFFECTIVE AMENDMENT NO. 7 TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
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WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Exact name of registrant as specified in governing instruments)
6200 The Corners Parkway, Suite 250
Atlanta, Georgia 30092
(770) 449-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3400
(404) 817-8500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Agent for Service)
------------------
Maryland 58-2328421
(State or other (I.R.S. Employer
Jurisdiction of Incorporation) Identification Number)
------------------
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering.[_] _____________
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _____________
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_] _____________
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_] _____________
Approximate date of commencement of proposed sale to the public: As soon as
practicable following effectiveness of this Registration Statement.
------------------
[The following is text to a sticker to be attached to the front cover page of
the prospectus in a manner that will not obscure the Risk Factors:]
SUPPLEMENTAL INFORMATION - The prospectus of Wells Real Estate Investment
Trust, Inc. consists of this sticker, the prospectus dated December 20, 2000,
Supplement No. 1 dated February 5, 2001, Supplement No. 2 dated April 25, 2001,
Supplement No. 3 dated July 20, 2001, Supplement No. 4 dated August 10, 2001,
Supplement No. 5 dated October 15, 2001, Supplement No. 6 dated January 20,
2002, Supplement No. 7 dated March 30, 2002, Supplement No. 8 dated April 15,
2002 and Supplement No. 9 dated July 10, 2002 (the supplements are contained
inside the back cover page of the prospectus). Supplement No. 1 includes
descriptions of acquisitions of interests in office buildings in Houston, Texas,
Minnetonka, Minnesota and Oklahoma City, Oklahoma. Supplement No. 2 includes
updated financial statements, prior performance tables and certain other
revisions to the prospectus. Supplement No. 3 includes descriptions of
acquisitions of interests in office buildings in Nashville, Tennessee and
Jacksonville, Florida and certain other revisions to the prospectus. Supplement
No. 4 includes descriptions of an acquisition of an office building in Quincy,
Massachusetts, the initial transaction under the Section 1031 Exchange Program
and certain other revisions to the prospectus. Supplement No. 5 includes
descriptions of acquisitions of office buildings in Houston, Texas, Millington,
Tennessee and Cary, North Carolina, the acquisition of a build-to-suit property
in Irving, Texas, the declaration of fourth quarter dividends and certain other
revisions to the prospectus. Supplement No. 6 includes descriptions of
acquisitions of office buildings in Tamarac, Florida, Schaumburg, Illinois and
Sarasota, Florida, the acquisition of an interest in an office and assembly
building in Parker, Colorado, revisions to the "Suitability Standards" section,
revisions to the "Plan of Distribution" section and certain other revisions to
the prospectus. Supplement No. 7 includes updated financial statements, prior
performance tables and certain other revisions to the prospectus. Supplement No.
8 includes descriptions of acquisitions of buildings in Houston, Texas, Atlanta,
Georgia, Lakewood, Colorado, Farmington Hills, Michigan, and Kalamazoo, Michigan
and certain other revisions to the prospectus. Supplement No. 9 includes
descriptions of acquisitions of buildings in Atlanta, Georgia, Ft. Lauderdale,
Florida, Allen, Texas, Boxborough, Massachusetts, Aurora, Colorado and Phoenix,
Arizona and certain other revisions to the prospectus.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
Up to 125,000,000 shares offered to the public
___________________________________
Wells Real Estate Investment Trust, Inc. (Wells REIT) is a real estate
investment trust. We invest in commercial real estate properties primarily
consisting of high grade office buildings which are leased to large corporate
tenants. We currently own interests in 26 office buildings located in 15 states.
We are offering and selling to the public up to 125,000,000 shares for $10
per share and up to 10,000,000 shares to be issued pursuant to our dividend
reinvestment plan at a purchase price of $10 per share. An additional 5,000,000
shares are being registered which are reserved for issuance at $12 per share to
participating broker-dealers upon their exercise of warrants.
You must purchase at least 100 shares for $1,000.
The most significant risks relating to your investment include the following:
.. lack of a public trading market for the shares
.. reliance on Wells Capital, Inc., our advisor, to select properties and
conduct our operations
.. authorization of substantial fees to the advisor and its affiliates
.. borrowing - which increases the risk of loss of our investments
.. conflicts of interest facing the advisor and its affiliates
You should see the complete discussion of the risk factors beginning on page 16.
The Offering:
.. The shares will be offered on a best efforts basis to investors at $10 per
share.
.. We will pay selling commissions to broker-dealers of 7% and a dealer
manager fee for reimbursement of marketing expenses of 2.5% out of the
offering proceeds raised.
.. We will invest approximately 84% of the offering proceeds raised in real
estate properties, and the balance will be used to pay fees and expenses.
.. The offering will terminate on or before December 19, 2002.
Neither the Securities and Exchange Commission, the Attorney General of the
State of New York nor any other state securities regulator has approved or
disapproved of these securities or determined if this prospectus is truthful or
complete. It is a criminal offense if someone tells you otherwise.
The use of projections or forecasts in this offering is prohibited. No one
is permitted to make any oral or written predictions about the cash benefits or
tax consequences you will receive from your investment.
WELLS INVESTMENT SECURITIES, INC.
December 20, 2000
TABLE OF CONTENTS
Questions and Answers About this Offering.................................................... 1
Prospectus Summary........................................................................... 9
Risk Factors................................................................................. 16
Investment Risks.......................................................................... 16
Real Estate Risks......................................................................... 20
Federal Income Tax Risks.................................................................. 24
Retirement Plan Risks..................................................................... 24
Suitability Standards........................................................................ 25
Estimated Use of Proceeds.................................................................... 26
Management................................................................................... 28
General................................................................................... 28
Committees of the Board of Directors...................................................... 30
Executive Officers and Directors.......................................................... 31
Compensation of Directors................................................................. 34
Independent Director Stock Option Plan.................................................... 34
Independent Director Warrant Plan......................................................... 36
2000 Employee Stock Option Plan........................................................... 37
Limited Liability and Indemnification of Directors, Officers, Employees and other
Agents................................................................................... 37
The Advisor............................................................................... 39
The Advisory Agreement.................................................................... 40
Shareholdings............................................................................. 43
Affiliated Companies...................................................................... 43
Management Decisions...................................................................... 45
Management Compensation...................................................................... 46
Stock Ownership.............................................................................. 49
Conflicts of Interest........................................................................ 51
Interests in Other Real Estate Programs................................................... 51
Other Activities of Wells Capital and its Affiliates...................................... 52
Competition............................................................................... 52
Affiliated Dealer Manager................................................................. 53
Affiliated Property Manager............................................................... 53
Lack of Separate Representation........................................................... 53
Joint Ventures with Affiliates of Wells Capital........................................... 53
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates................ 53
Certain Conflict Resolution Procedures.................................................... 54
Investment Objectives and Criteria........................................................... 55
General................................................................................... 55
Acquisition and Investment Policies....................................................... 56
Development and Construction of Properties................................................ 58
Acquisition of Properties from Wells Development Corporation.............................. 58
Terms of Leases and Tenant Creditworthiness............................................... 60
Joint Venture Investments................................................................. 61
Borrowing Policies........................................................................ 62
Disposition Policies...................................................................... 62
Investment Limitations.................................................................... 63
Change in Investment Objectives and Limitations........................................... 65
Description of Properties.................................................................... 65
i
General................................................................................... 65
Joint Ventures with Affiliates............................................................ 67
The Motorola Plainfield Building.......................................................... 69
The Quest Building........................................................................ 70
The Delphi Building....................................................................... 71
The Avnet Building........................................................................ 71
The Siemens Building...................................................................... 72
The Motorola Tempe Building............................................................... 73
The ASML Building......................................................................... 74
The Dial Building......................................................................... 75
The Metris Building....................................................................... 76
The Cinemark Building..................................................................... 77
The Gartner Building...................................................................... 78
The Marconi Building...................................................................... 79
The Johnson Matthey Building.............................................................. 80
The Alston Power Richmond Building........................................................ 81
The Sprint Building....................................................................... 83
The EYBL CarTex Building.................................................................. 84
The Matsushita Building................................................................... 85
The AT&T Building......................................................................... 86
The PwC Building.......................................................................... 88
The Fairchild Building.................................................................... 89
The Cort Furniture Building............................................................... 90
The Iomega Building....................................................................... 91
The Interlocken Building.................................................................. 91
The Ohmeda Building....................................................................... 93
The Alston Power Knoxville Building....................................................... 94
The Auaya Building........................................................................ 95
Property Management Fees.................................................................. 96
Real Estate Loans......................................................................... 96
Management's Discussion and Analysis of Financial Condition and Results of Operations........ 97
Liquidity and Capital Resources........................................................... 97
Cash Flows From Operating Activities...................................................... 99
Cash Flow From Investing Activities....................................................... 99
Cash Flows From Financing Activities...................................................... 99
Results of Operations..................................................................... 100
Subsequent Events......................................................................... 100
Property Operations....................................................................... 100
Inflation................................................................................. 114
Prior Performance Summary.................................................................... 114
Publicly Offered Unspecified Real Estate Programs......................................... 115
Federal Income Tax Considerations............................................................ 123
General................................................................................... 123
Requirements for Qualification as a REIT.................................................. 125
Failure to Qualify as a REIT.............................................................. 130
Sale-Leaseback Transactions............................................................... 130
Taxation of U.S. Shareholders............................................................. 130
Treatment of Tax-Exempt Shareholders...................................................... 132
Special Tax Considerations for Non-U.S. Shareholders...................................... 133
Statement of Stock Ownership.............................................................. 135
State and Local Taxation.................................................................. 135
ii
Tax Aspects of Our Operating Partnership........................................... 135
ERISA Considerations.................................................................. 139
Plan Asset Considerations.......................................................... 140
Other Prohibited Transactions...................................................... 141
Annual Valuation................................................................... 142
Description of Shares................................................................. 142
Common Stock....................................................................... 143
Preferred Stock.................................................................... 143
Meetings and Special Voting Requirements........................................... 143
Restriction on Ownership of Shares................................................. 144
Dividends.......................................................................... 145
Dividend Reinvestment Plan......................................................... 146
Share Redemption Program........................................................... 146
Restrictions on Roll-Up Transactions............................................... 147
Business Combinations.............................................................. 149
Control Share Acquisitions......................................................... 149
The Operating Partnership Agreement................................................... 150
General............................................................................ 150
Capital Contributions.............................................................. 151
Operations......................................................................... 151
Exchange Rights.................................................................... 152
Transferability of Interests....................................................... 153
Plan of Distribution.................................................................. 153
Supplemental Sales Material........................................................... 158
Legal Opinions........................................................................ 159
Experts............................................................................... 159
Audited Financial Statements....................................................... 159
Unaudited Financial Statements..................................................... 159
Additional Information................................................................ 160
Glossary.............................................................................. 160
Financial Statements.................................................................. 161
Prior Performance Tables.............................................................. 215
Subscription Agreement................................................................ Exhibit A
Amended and Restated Dividend Reinvestment Plan....................................... Exhibit B
iii
Questions and Answers About this Offering
Below we have provided some of the more frequently asked questions and
answers relating to an offering of this type. Please see the "Prospectus
Summary" and the remainder of this prospectus for more detailed information
about this offering.
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Q: What is a REIT?
A: In general, a REIT is a company that:
. pays dividends to investors of at least 95% of its taxable income each
year for years prior to 2001 and 90% of its taxable income for all
future years beginning with the year 2001;
. avoids the "double taxation" treatment of income that generally
results from investments in a corporation because a REIT is not
generally subject to federal corporate income taxes on its net income,
provided certain income tax requirements are satisfied;
. combines the capital of many investors to acquire or provide financing
for real estate properties; and
. offers the benefit of a diversified real estate portfolio under
professional management.
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Q: What is Wells Real Estate Investment Trust, Inc.?
A: Our REIT was formed in 1997 as a Maryland corporation to acquire commercial
real estate properties such as high grade office buildings and lease them
on a triple-net basis to companies that typically have a net worth in
excess of $100,000,000.
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Q: Who will choose which real estate properties to invest in?
A: Wells Capital, Inc. (Wells Capital) is our advisor and makes
recommendations on all property acquisitions to our board of directors. Our
board of directors must approve all of our acquisitions.
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Q: Who is Wells Capital?
A: Wells Capital is a Georgia corporation formed in 1984. As of September 30,
2000, Wells Capital had sponsored public real estate programs which have
raised in excess of $567,927,422 from approximately 32,868 investors and
which own and operate a total of 52 commercial real estate properties.
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Q: Does Wells Capital use any specific criteria when selecting a potential
property acquisition?
A: Yes. Wells Capital generally seeks to acquire office buildings located in
densely populated suburban markets leased to large corporations on a
triple-net basis. Typically, each of our corporate tenants have a net worth
in excess of $100,000,000. Current tenants of public real
1
estate programs sponsored by Wells Capital include The Coca-Cola Company,
Motorola, Fairchild Technologies, Siemens Automotive,
PricewaterhouseCoopers, IBM, and Dial Corporation.
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Q. Do you currently own any real estate properties?
A. Yes. As of the date of this prospectus, our REIT has acquired and owns
interests in 26 real estate properties.
We own the following properties directly:
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Tenant Building Type Location Occupancy
------------------------------------------------------------------------------------------------------------------
Motorola, Inc. Office Building Plainfield, New Jersey 100%
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Delphi Automotive Systems, Inc. Office Building Troy, Michigan 100%
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Avnet, Inc. Office Building Tempe, Arizona 100%
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Motorola, Inc. Office Building Tempe, Arizona 100%
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ASM Lithography, Inc. Office and Warehouse Building Tempe, Arizona 100%
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Dial Corporation Office Building Scottsdale, Arizona 100%
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Metris Direct, Inc. Office Building Tulsa, Oklahoma 100%
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Cinemark USA, Inc. and Office Building Plano, Texas 100%
The Coca-Cola Company
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Marconi Data Systems, Office, Assembly and Wood Dale, Illinois 100%
Inc. Manufacturing Building
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Alstom Power, Inc. Office Building Richmond, Virginia 100%
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Matsushita Avionics Systems Corporation Office Building Lake Forest, California 100%
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Pennsylvania Cellular Telephone Corp. Office Building Harrisburg, Pennsylvania 100%
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PricewaterhouseCoopers Office Building Tampa, Florida 100%
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We own interests in the following real estate properties through joint
ventures with affiliates:
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Tenant Building Type Location Occupancy
-------------------------------------------------------------------------------------------------------------------
Quest Software, Inc. Office Building Irvine, California 100%
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Siemens Automotive Corporation Office Building Troy, Michigan 100%
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Gartner Group, Inc. Office Building Ft. Myers, Florida 100%
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Johnson Matthey, Inc. Research and Development, Tredyffrin Township, 100%
Office and Warehouse Pennsylvania
Building
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Sprint Communications Office Building Leawood, Kansas 100%
Company L.P.
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EYBL CarTex, Inc. Manufacturing and Office Fountain Inn, South 100%
Building Carolina
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2
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Tenant Building Type Location Occupancy
--------------------------------------------------------------------------------------------------------------------
Fairchild Technologies U.S.A., Inc. Manufacturing and Office Fremont, California 100%
Building
--------------------------------------------------------------------------------------------------------------------
Cort Furniture Rental Corporation Office and Warehouse Building Fountain Valley, 100%
California
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Iomega Corporation Office Building Ogden City, Utah 100%
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ODS Technologies, L.P. and GAIAM, Inc. Office Building Broomfield, Colorado 100%
--------------------------------------------------------------------------------------------------------------------
Ohmeda, Inc. Office Building Louisville, Colorado 100%
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Alstom Power, Inc. Office Building Knoxville, Tennessee 100%
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Avaya, Inc. Office Building Oklahoma City, Oklahoma 100%
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If you want to read more detailed information about each of these
properties, see the "Description of Properties" section of this prospectus.
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Q: Why do you acquire properties in joint ventures?
A: We acquire some of our properties in joint ventures in order to diversify
our portfolio of properties in terms of geographic region, property type
and industry group of our tenants.
--------------------------------------------------------------------------------
Q: What steps do you take to make sure you purchase environmentally compliant
property?
A: We always obtain a Phase I environmental assessment of each property
purchased. In addition, we generally obtain a representation from the
seller that, to its knowledge, the property is not contaminated with
hazardous materials.
--------------------------------------------------------------------------------
Q: What are the terms of your leases?
A: Our leases are "triple-net" leases, generally having terms of seven to ten
years, many of which have renewal options for an additional five to ten
years. "Triple-net" means that the tenant is responsible for repairs,
maintenance, property taxes, utilities, insurance and other operating
costs. We often enter into leases where we have responsibility for
replacement of specific structural components of a property such as the
roof of the building or the parking lot.
--------------------------------------------------------------------------------
Q: How does the Wells REIT own its real estate properties?
A: We own all of our real estate properties through an "UPREIT" called Wells
Operating Partnership, L.P. (Wells OP). Wells OP was organized to own,
operate and manage real properties on our behalf. The Wells REIT is the
sole general partner of Wells OP.
--------------------------------------------------------------------------------
Q: What is an "UPREIT"?
A: UPREIT stands for "Umbrella Partnership Real Estate Investment Trust." We
use this structure because a sale of property directly to the REIT is
generally a taxable transaction to the selling
3
property owner. In an UPREIT structure, a seller of a property who desires
to defer taxable gain on the sale of his property may transfer the property
to the UPREIT in exchange for limited partnership units in the UPREIT and
defer taxation of gain until the seller later exchanges his UPREIT units on
a one-for-one basis for REIT shares. If the REIT shares are publicly
traded, the former property owner will achieve liquidity for his
investment. Using an UPREIT structure gives us an advantage in acquiring
desired properties from persons who may not otherwise sell their properties
because of unfavorable tax results.
--------------------------------------------------------------------------------
Q: If I buy shares, will I receive dividends and how often?
A: We have been making and intend to continue to make dividend distributions
on a quarterly basis to our shareholders. The amount of each dividend
distribution is determined by the board of directors and typically depends
on the amount of distributable funds, current and projected cash
requirements, tax considerations and other factors. However, in order to
remain qualified as a REIT, we must make distributions of at least 95% of
our REIT taxable income each year for years prior to 2001 and 90% of our
REIT taxable income for all future years beginning with the year 2001.
--------------------------------------------------------------------------------
Q: How do you calculate the payment of dividends to shareholders?
A: We calculate our quarterly dividends using daily record and declaration
dates so your dividend benefits will begin to accrue immediately upon
becoming a shareholder.
--------------------------------------------------------------------------------
Q: What have your dividend payments been since you began operations on June 5,
1998?
A: We have paid the following dividends since we began operations:
Annualized
Percentage Return
on an Investment
Quarter Amount of $10 per Share
------- ------ ----------------
3/rd/ Qtr. 1998 $0.15 per share 6.00%
4/th/ Qtr. 1998 $0.16 per share 6.50%
1/st/ Qtr. 1999 $0.17 per share 7.00%
2/nd/ Qtr. 1999 $0.17 per share 7.00%
3/rd/ Qtr. 1999 $0.17 per share 7.00%
4/th/ Qtr. 1999 $0.17 per share 7.00%
1/st/ Qtr. 2000 $0.17 per share 7.00%
2/nd/ Qtr. 2000 $0.18 per share 7.25%
3/rd/ Qtr. 2000 $0.19 per share 7.50%
4/th/ Qtr. 2000 $0.19 per share 7.50%
4
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Q: May I reinvest the dividends I am supposed to receive in shares of the
Wells REIT?
A: Yes. You may participate in our dividend reinvestment plan by checking the
appropriate box on the Subscription Agreement or by filling out an
enrollment form we will provide to you at your request. The purchase price
for shares purchased under the dividend reinvestment plan is currently $10
per share.
--------------------------------------------------------------------------------
Q: Will the dividends I receive be taxable as ordinary income?
A: Yes and No. Generally, dividends that you receive, including dividends that
are reinvested pursuant to our dividend reinvestment plan, will be taxed as
ordinary income to the extent they are from current or accumulated earnings
and profits. We expect that some portion of your dividends will not be
subject to tax in the year received due to the fact that depreciation
expenses reduce taxable income but do not reduce cash available for
distribution. Amounts not subject to tax immediately will reduce the tax
basis of your investment. This, in effect, defers a portion of your tax
until your investment is sold or the Wells REIT is liquidated, at which
time you will be taxed at capital gains rates. However, because each
investor's tax considerations are different, we suggest that you consult
with your tax advisor. You should also review the section of the prospectus
entitled "Federal Income Tax Considerations."
--------------------------------------------------------------------------------
Q: What will you do with the money raised in this offering?
A: We will use your investment proceeds to purchase commercial real estate
such as high grade office buildings. We intend to invest a minimum of 84%
of the proceeds from this offering to acquire real estate properties, and
the remaining proceeds will be used to pay fees and expenses of this
offering and acquisition-related expenses. The payment of these fees and
expenses will not reduce your invested capital. Your initial invested
capital amount will remain $10 per share, and your dividend yield will be
based on your $10 per share investment.
Until we invest the proceeds of this offering in real estate, we may invest
in short-term, highly liquid investments. These short-term investments will
not earn as high of a return as we expect to earn on our real estate
investments, and we cannot guarantee how long it will take to fully invest
the proceeds in real estate.
We received approximately $132,181,919 in gross offering proceeds from the
sale of 13,218,192 shares of common stock in our initial public offering,
which commenced on January 30, 1998 and was terminated on December 19,
1999. Of the $132,181,919 raised in the initial offering, we invested a
total of $111,032,812 in real estate properties. As of December 10, 2000,
we had received approximately $169,671,659 in gross offering proceeds from
the sale of 16,967,166 shares of common stock in our second offering, which
commenced on December 20, 1999 and was terminated on December 19, 2000. Of
this additional $169,671,659 raised in the second offering, we invested or
expect to invest approximately $142,524,194 in real estate properties.
5
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Q: What kind of offering is this?
A: We are offering the public up to 125,000,000 shares of common stock on a
"best efforts" basis.
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Q: How does a "best efforts" offering work?
A: When shares are offered to the public on a "best efforts" basis, the
brokers participating in the offering are only required to use their best
efforts to sell the shares and have no firm commitment or obligation to
purchase any of the shares.
--------------------------------------------------------------------------------
Q: How long will this offering last?
A: The offering will not last beyond December 19, 2002.
--------------------------------------------------------------------------------
Q: Who can buy shares?
A: You can buy shares pursuant to this prospectus provided that you have
either (1) a net worth of at least $45,000 and an annual gross income of at
least $45,000, or (2) a net worth of at least $150,000. For this purpose,
net worth does not include your home, home furnishings and personal
automobiles. These minimum levels may be higher in certain states, so you
should carefully read the more detailed description in the "Suitability
Standards" section of this prospectus.
--------------------------------------------------------------------------------
Q: Is there any minimum investment required?
A: Yes. Generally, you must invest at least $1,000. Except in Maine,
Minnesota, Nebraska and Washington, investors who already own our shares or
who have purchased units from an affiliated Wells public real estate
program can make purchases for less than the minimum investment. These
minimum investment levels may be higher in certain states, so you should
carefully read the more detailed description of the minimum investment
requirements appearing later in the "Suitability Standards" section of this
prospectus.
--------------------------------------------------------------------------------
Q: How do I subscribe for shares?
A: If you choose to purchase shares in this offering, you will need to fill
out a Subscription Agreement, like the one contained in this prospectus as
Exhibit A, for a specific number of shares and pay for the shares at the
time you subscribe. The purchase price will be placed into an account with
Bank of America, N.A., where your funds will be held, along with those of
other subscribers, until we withdraw funds for the acquisition of real
estate properties or the payment of fees and expenses.
6
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Q: If I buy shares in this offering, how may I later sell them?
A: At the time you purchase the shares, they will not be listed for trading on
any national securities exchange or over-the-counter market. In fact, we
expect that there will not be any public market for the shares when you
purchase them, and we cannot be sure if one will ever develop. As a result,
you may find it difficult to find a buyer for your shares and realize a
return on your investment. You may sell your shares to any buyer unless
such sale would cause the buyer to own more than 9.8% of the outstanding
stock. See "Description of Shares -- Restriction on Ownership of Shares."
In addition, after you have held your shares for at least one year, you may
be able to have your shares repurchased by the Wells REIT pursuant to our
share redemption program. See the "Description of Shares -- Share
Redemption Program" section of the prospectus.
If we have not listed the shares on a national securities exchange or over-
the-counter market by January 30, 2008, our articles of incorporation
require us to begin selling our properties and other assets and return the
net proceeds from these sales to our shareholders through distributions.
--------------------------------------------------------------------------------
Q: What is the experience of your officers and directors?
A: Our management team has extensive previous experience investing in and
managing commercial real estate. Below is a short description of the
background of each of our directors. See the "Management -- Executive
Officers and Directors" section on page 31 of this prospectus for a more
detailed description of the background and experience of each of our
directors.
. Leo F. Wells, III - President of the Wells REIT and founder of Wells
Real Estate Funds in 1985 and has been involved in real estate sales,
management and brokerage services for over 27 years;
. Douglas P. Williams - Executive Vice President, Secretary and
Treasurer of the Wells REIT and former accounting executive at
OneSource, Inc., a supplier of janitorial and landscape services;
. John L. Bell - Former owner and Chairman of Bell-Mann, Inc., the
largest flooring contractor in the Southeast;
. Richard W. Carpenter - President and a director of Realmark Holdings
Corp., a residential and commercial real estate developer;
. Bud Carter - Former broadcast news director and anchorman and current
Senior Vice President for The Executive Committee, an organization
established to aid corporate presidents and CEOs;
. William H. Keogler, Jr. - Founder and former executive officer and
director of Keogler, Morgan & Company, Inc., a full service brokerage
firm;
. Donald S. Moss - Former executive officer of Avon Products, Inc.;
7
. Walter W. Sessoms - Former executive officer of BellSouth
Telecommunications, Inc.; and
. Neil H. Strickland - Founder of Strickland General Agency, Inc., a
property and casualty general insurance agency concentrating on
commercial customers.
--------------------------------------------------------------------------------
Q: Will I be notified of how my investment is doing?
A: You will receive periodic updates on the performance of your investment
with us, including:
. Four detailed quarterly dividend reports;
. Three quarterly financial reports;
. An annual report; and
. An annual IRS Form 1099.
--------------------------------------------------------------------------------
Q: When will I get my detailed tax information?
A: Your Form 1099 tax information will be placed in the mail by January 31 of
each year.
--------------------------------------------------------------------------------
Q: Who can help answer my questions?
A: If you have more questions about the offering or if you would like
additional copies of this prospectus, you should contact your registered
representative or contact:
Investor Services Department
Wells Capital, Inc.
Suite 250
6200 The Corners Parkway
Norcross, Georgia 30092
(800) 448-1010 or (770) 449-7800
www.wellsref.com
8
Prospectus Summary
This prospectus summary highlights selected information contained
elsewhere in this prospectus. It is not complete and does not contain all of
the information that is important to your decision whether to invest in the
Wells REIT. To understand this offering fully, you should read the entire
prospectus carefully, including the "Risk Factors" section and the financial
statements.
Wells Real Estate Investment Trust, Inc.
Wells Real Estate Investment Trust, Inc. is a REIT that owns net leased
commercial real estate properties. We currently own interests in 26
commercial real estate properties located in 15 states. Our office is located
at 6200 The Corners Parkway, Suite 250, Norcross, Georgia 30092. Our
telephone number outside the State of Georgia is 800-448-1010 (770-449-7800
in Georgia). We refer to Wells Real Estate Investment Trust, Inc. as the
Wells REIT in this prospectus.
Our Advisor
Our advisor is Wells Capital, Inc., which is responsible for managing
our affairs on a day-to-day basis and for identifying and making acquisitions
on our behalf. We refer to Wells Capital, Inc. as Wells Capital in this
prospectus.
Our Management
Our board of directors must approve each real property acquisition
proposed by Wells Capital, as well as certain other matters set forth in our
articles of incorporation. We have nine members on our board of directors.
Seven of the directors are independent of Wells Capital and have
responsibility for reviewing its performance. Our directors are elected
annually by the shareholders.
Our REIT Status
As a REIT, we generally are not subject to federal income tax on income
that we distribute to our shareholders. Under the Internal Revenue Code,
REITs are subject to numerous organizational and operational requirements,
including a requirement that they distribute at least 95% of their taxable
income for years prior to 2001 and at least 90% of their taxable income for
all future years beginning with the year 2001. If we fail to qualify for
taxation as a REIT in any year, our income will be taxed at regular corporate
rates, and we may be precluded from qualifying for treatment as a REIT for
the four-year period following our failure to qualify. Even if we qualify as
a REIT for federal income tax purposes, we may still be subject to state and
local taxes on our income and property and to federal income and excise taxes
on our undistributed income.
Summary Risk Factors
Following are the most significant risks relating to your investment:
. There is no public trading market for the shares, and we cannot
assure you that one will ever develop. Until the shares are
publicly traded, you will have a difficult time trying to sell
your shares.
. You must rely on Wells Capital, our advisor, for the day-to-day
management of our business and the selection of our real estate
properties.
9
. To ensure that we continue to qualify as a REIT, our articles of
incorporation prohibit any shareholder from owning more than 9.8%
of our outstanding shares.
. We may not remain qualified as a REIT for federal income tax
purposes, which would subject us to the payment of tax on our
income at corporate rates and reduce the amount of funds
available for payment of dividends to our shareholders.
. You will not have preemptive rights as a shareholder so any
shares we issue in the future may dilute your interest in the
Wells REIT.
. We will pay significant fees to Wells Capital and its affiliates.
. Real estate investments are subject to cyclical trends which are
out of our control.
. You will not have an opportunity to evaluate all of the
properties that will be in our portfolio prior to investing.
. Loans we obtain will be secured by some of our properties, which
will put those properties at risk of forfeiture if we are unable
to pay our debts.
. Our investment in vacant land to be developed may create risks
relating to the builder's ability to control construction costs,
failure to perform or failure to build in conformity with plans,
specifications and timetables.
. The vote of shareholders owning at least a majority of the shares
will bind all of the shareholders as to certain matters such as
the election of directors and amendment of our articles of
incorporation.
. If we do not obtain listing of the shares on a national exchange
by January 30, 2008, our articles of incorporation provide that
we must begin to sell all of our properties and distribute the
net proceeds to our shareholders.
. Our advisor will face various conflicts of interest resulting
from its activities with affiliated entities.
Before you invest in the Wells REIT, you should see the complete
discussion of the "Risk Factors" beginning on page 16 of this prospectus.
Description of Properties
Please refer to the "Description of Properties" section of this
prospectus for a description of the real estate properties we have purchased
to date and the various real estate loans we have outstanding. Wells Capital
is currently evaluating additional potential property acquisitions. When we
either acquire a property or believe that there is a reasonable probability
that we will acquire a particular property, we will provide a supplement to
this prospectus to describe the property. You should not assume that we will
actually acquire any property that we describe in a supplement as a
reasonable probability acquisition because one or more contingencies to the
purchase may prevent the acquisition.
10
Estimated Use of Proceeds of Offering
We anticipate that we will invest at least 84% of the proceeds of this
offering in real estate properties. We will use the remainder of the offering
proceeds to pay selling commissions, fees and expenses relating to the selection
and acquisition of properties and the costs of the offering.
Investment Objectives
Our investment objectives are:
. to maximize cash dividends paid to you;
. to preserve, protect and return your capital contribution;
. to realize growth in the value of our properties upon our ultimate
sale of such properties; and
. to provide you with liquidity of your investment by listing the shares
on a national exchange or, if we do not obtain listing of the shares
by January 30, 2008, by selling our properties and distributing the
cash to you.
We may only change these investment objectives upon a majority vote of the
shareholders. See the "Investment Objectives and Criteria" section of this
prospectus for a more complete description of our business and objectives.
Conflicts of Interest
Wells Capital, as our advisor, will experience conflicts of interest in
connection with the management of our business affairs, including the following:
. Wells Capital will have to allocate its time between the Wells REIT
and other real estate programs and activities in which it is involved;
. Wells Capital must determine which Wells program or other entity
should enter into a joint venture with the Wells REIT for the
acquisition and operation of specific properties;
. Wells Capital may compete with other Wells programs for the same
tenants in negotiating leases or in selling similar properties at the
same time; and
. Wells Capital and its affiliates will receive fees in connection with
transactions involving the purchase, management and sale of our
properties regardless of the quality of the property acquired or the
services provided to us.
See the "Conflicts of Interest" section of this prospectus on page 51 for a
detailed discussion of the various conflicts of interest relating to your
investment, as well as the procedures that we have established to resolve a
number of these potential conflicts.
11
The following chart shows the ownership structure of the various Wells
entities that are affiliated with Wells Capital.
-----------------------------
LEO F. WELLS, III
(President)
-----------------------------
100%
--------------------------------------------------------
Wells Real Estate Funds, Inc.
--------------------------------------------------------
100% 100% 100%
--------------- ---------------------- ----------------
Wells
Management Wells Wells Capital,
Company, Investment Inc.
Inc. Securities, Inc. (Advisor)
(Property (Dealer Manager)
Manager)
--------------- ---------------------- ----------------
100% Advisory
Agreement
--------------- ----------------
Wells
Development Wells REIT
Corporation
--------------- ----------------
Prior Offering Summary
Wells Capital and its affiliates have previously sponsored 13 publicly
offered real estate limited partnerships and the Wells REIT on an unspecified
property or "blind pool" basis. As of September 30, 2000, they have raised
approximately $567,927,422 from approximately 36,868 investors in these 14
public real estate programs. The "Prior Performance Summary" on page 114 of this
prospectus contains a discussion of the Wells programs sponsored to date.
Certain statistical data relating to the Wells programs with investment
objectives similar to ours is also provided in the "Prior Performance Tables"
included at the end of this prospectus.
The Offering
We are offering up to 125,000,000 shares to the public at $10 per share. We
are also offering up to 10,000,000 shares pursuant to our dividend reinvestment
plan at $10 per share, and up to 5,000,000 shares to broker-dealers pursuant to
warrants whereby participating broker-dealers will have the right to purchase
one share for every 25 shares they sell in this offering. The exercise price for
shares purchased pursuant to the warrants is $12 per share.
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Terms of the Offering
We will begin selling shares in this offering upon the effective date of
this prospectus, and this offering will terminate on or before December 19,
2002. However, we may terminate this offering at any time prior to such
termination date. We will hold your investment proceeds in our account until we
withdraw funds for the acquisition of real estate properties or the payment of
fees and expenses. We generally admit shareholders to the Wells REIT on a daily
basis.
Compensation to Wells Capital
Wells Capital and its affiliates will receive compensation and fees for
services relating to this offering and the investment and management of our
assets. The most significant items of compensation are included in the following
table:
-------------------------------------------------------------------------------------------------
Estimated $$
Amount for
Maximum Offering
(135,000,000
Type of Compensation Form of Compensation shares)
-------------------------------------------------------------------------------------------------
Offering Stage
-------------------------------------------------------------------------------------------------
Sales Commissions 7.0% of gross offering proceeds $94,500,000
-------------------------------------------------------------------------------------------------
Dealer Manager Fee 2.5% of gross offering proceeds $33,750,000
-------------------------------------------------------------------------------------------------
Offering Expenses 3.0% of gross offering proceeds $18,600,000
-------------------------------------------------------------------------------------------------
Acquisition and Development Stage
-------------------------------------------------------------------------------------------------
Acquisition and 3.0% of gross offering proceeds $40,500,000
Advisory Fees
-------------------------------------------------------------------------------------------------
Acquisition Expenses 0.5% of gross offering proceeds $ 6,750,000
-------------------------------------------------------------------------------------------------
Operational Stage
-------------------------------------------------------------------------------------------------
Property Management and 4.5% of gross revenues N/A
Leasing Fees
-------------------------------------------------------------------------------------------------
Initial Lease-Up Fee for Competitive fee for geographic N/A
Newly Constructed Property location of property based on a
survey of brokers and agents
(customarily equal to the first
month's rent)
-------------------------------------------------------------------------------------------------
Real Estate Commission 3.0% of contract price for properties N/A
sold after investors receive a return
of capital plus an 8.0% return on
capital
-------------------------------------------------------------------------------------------------
Subordinated Participation in 10.0% of remaining amounts of net N/A
Net Sale Proceeds (Payable sale proceeds after return of capital
Only if the Wells REIT is not plus payment to investors of an 8.0%
Listed on an exchange) cumulative non-compounded return on
the capital contributed by investors
-------------------------------------------------------------------------------------------------
Subordinated Incentive Listing 10.0% of the amount by which the N/A
Fee (Payable only if the Wells adjusted market value of the Wells
REIT is listed on an exchange) REIT exceeds the aggregate capital
contributions contributed by
investors
-------------------------------------------------------------------------------------------------
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There are many additional conditions and restrictions on the amount of
compensation Wells Capital and its affiliates may receive. There are also some
smaller items of compensation and expense reimbursements that Wells Capital may
receive. For a more detailed explanation of these fees and expenses payable to
Wells Capital and its affiliates, please see the "Management Compensation"
section of this prospectus on page 46.
Dividend Policy
In order to remain qualified as a REIT, we are required to distribute
95% of our annual taxable income to our shareholders in all years prior to 2001
and 90% of our annual taxable income for all future years beginning with the
year 2001. We have paid dividends to our shareholders at least quarterly since
the first quarter after we commenced operations on June 5, 1998. We calculate
our quarterly dividends based upon daily record and dividend declaration dates
so investors will be entitled to dividends immediately upon purchasing shares.
We expect to pay dividends to you on a quarterly basis.
Listing
We anticipate listing our shares on a national securities exchange on
or before January 30, 2008. In the event we do not obtain listing prior to that
date, our articles of incorporation require us to begin the sale of our
properties and liquidation of our assets.
Dividend Reinvestment Plan
You may participate in our dividend reinvestment plan pursuant to which
you may have the dividends you receive reinvested in shares of the Wells REIT.
If you participate, you will be taxed on your share of our taxable income even
though you will not receive the cash from your dividends. As a result, you may
have a tax liability without receiving cash dividends to pay such liability. We
may terminate the dividend reinvestment plan in our discretion at any time upon
10 days notice to you. (See "Description of Shares -- Dividend Reinvestment
Plan.")
Share Redemption Program
We may use proceeds received from the sale of shares pursuant to our
dividend reinvestment plan to redeem your shares. After you have held your
shares for a minimum of one year, our share redemption program provides an
opportunity for you to redeem your shares, subject to certain restrictions and
limitations, for the lesser of (1) $10 per share, or (2) the price you actually
paid for your shares. The board of directors reserves the right to reject any
request for redemption of shares or to amend or terminate the share redemption
program at any time. You will have no right to request redemption of your shares
after the shares are listed on a national exchange. (See "Description of Shares
-- Share Redemption Program.")
Wells Operating Partnership, L.P.
We own all of our real estate properties through Wells Operating
Partnership, L.P. (Wells OP), our operating partnership. We are the sole general
partner of Wells OP. Wells Capital is currently the only limited partner based
on its initial contribution of $200,000. Our ownership of properties in Wells OP
is referred to as an "UPREIT." The UPREIT structure allows us to acquire real
estate properties in exchange for limited partnership units in Wells OP. This
structure will also allow sellers of properties to transfer their properties to
Wells OP in exchange for units of Wells OP and defer gain recognition for tax
purposes with respect to such transfers of properties. At present, we have no
plans to acquire any specific
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properties in exchange for units of Wells OP. The holders of units in Wells OP
may have their units redeemed for cash under certain circumstances. (See "The
Operating Partnership Agreement.")
ERISA Considerations
The section of this prospectus entitled "ERISA Considerations"
describes the effect the purchase of shares will have on individual retirement
accounts (IRAs) and retirement plans subject to the Employee Retirement Income
Security Act of 1974, as amended (ERISA), and/or the Internal Revenue Code.
ERISA is a federal law that regulates the operation of certain tax-advantaged
retirement plans. Any retirement plan trustee or individual considering
purchasing shares for a retirement plan or an IRA should read this section of
the prospectus very carefully.
Description of Shares
General
-------
Your investment will be recorded on our books only. We will not issue
stock certificates. If you wish to transfer your shares, you will be required to
send an executed transfer form to us. We will provide the required form to you
upon request.
Shareholder Voting Rights and Limitations
-----------------------------------------
We hold annual meetings of our shareholders for the purpose of electing
our directors or conducting other business matters that may be presented at such
meetings. We may also call a special meeting of shareholders from time to time
for the purpose of conducting certain matters. You are entitled to one vote for
each share you own at any of these meetings.
Restriction on Share Ownership
------------------------------
Our articles of incorporation contain a restriction on ownership of the
shares that prevents one person from owning more than 9.8% of the outstanding
shares. (See "Description of Shares -- Restriction on Ownership of Shares.")
These restrictions are designed to enable us to comply with share accumulation
restrictions imposed on REITs by the Internal Revenue Code.
For a more complete description of the shares, including restrictions
on the ownership of shares, please see the "Description of Shares" section of
this prospectus on page 142.
15
Risk Factors
Your purchase of shares involves a number of risks. In addition to
other risks discussed in this prospectus, you should specifically consider the
following:
Investment Risks
Marketability Risk
There is no public trading market for your shares.
There is no current public market for the shares and, therefore, it
will be difficult for you to sell your shares promptly. In addition, the price
received for any shares sold is likely to be less than the proportionate value
of the real estate we own. Therefore, you should purchase the shares only as a
long-term investment. See "Description of Shares - Share Redemption Program" for
a description of our share redemption program.
Management Risks
You must rely on Wells Capital for selection of properties.
Our ability to achieve our investment objectives and to pay dividends
is dependent upon the performance of Wells Capital, our advisor, in the
acquisition of real estate properties, the selection of tenants and the
determination of any financing arrangements. Except for the investments
described in this prospectus, you will have no opportunity to evaluate the terms
of transactions or other economic or financial data concerning our investments.
You must rely entirely on the management ability of Wells Capital and the
oversight of the board of directors.
We depend on key personnel.
Our success depends to a significant degree upon the continued
contributions of certain key personnel, including Leo F. Wells, III, Douglas P.
Williams, M. Scott Meadows, Michael C. Berndt and Allen G. Delenick, each of
whom would be difficult to replace. If any of our key personnel were to cease
employment with us, our operating results could suffer. We also believe that our
future success depends, in large part, upon our ability to hire and retain
highly skilled managerial, operational and marketing personnel. Competition for
such personnel is intense, and we cannot assure you that we will be successful
in attracting and retaining such skilled personnel.
Conflicts of Interest Risks
Wells Capital will face conflicts of interest relating to time
management.
Wells Capital and its affiliates are general partners and sponsors of
other real estate programs having investment objectives and legal and financial
obligations similar to the Wells REIT. Because Wells Capital and its affiliates
have interests in other real estate programs and also engage in other business
activities, they may have conflicts of interest in allocating their time between
our business and these other activities. During times of intense activity in
other programs and ventures, they may devote less time and resources to our
business than is necessary or appropriate. (See "Conflicts of Interest.")
16
Wells Capital will face conflicts of interest relating to the purchase
and leasing of properties.
We may be buying properties at the same time as one or more of the
other Wells programs are buying properties. There is a risk that Wells Capital
will choose a property that provides lower returns to us than a property
purchased by another Wells program. We may acquire properties in geographic
areas where other Wells programs own properties. If one of the Wells programs
attracts a tenant that we are competing for, we could suffer a loss of revenue
due to delays in locating another suitable tenant. (See "Conflicts of
Interest.")
Wells Capital will face conflicts of interest relating to joint
ventures with affiliates.
We have entered into joint ventures in the past and are likely to
continue in the future to enter into joint ventures with other Wells programs
for the acquisition, development or improvement of properties, including Wells
Real Estate Fund XII, L.P. (Wells Fund XII) or Wells Real Estate Fund XIII, L.P.
(Wells Fund XIII). We may also purchase and develop properties in joint ventures
or in partnerships, co-tenancies or other co-ownership arrangements with the
sellers of the properties, affiliates of the sellers, developers or other
persons. Such investments may involve risks not otherwise present with an
investment in real estate, including, for example:
. the possibility that our co-venturer, co-tenant or partner in an
investment might become bankrupt;
. that such co-venturer, co-tenant or partner may at any time have
economic or business interests or goals which are or which become
inconsistent with our business interests or goals; or
. that such co-venturer, co-tenant or partner may be in a position
to take action contrary to our instructions or requests or
contrary to our policies or objectives.
Actions by such a co-venturer, co-tenant or partner might have the result of
subjecting the property to liabilities in excess of those contemplated and may
have the effect of reducing your returns.
Affiliates of Wells Capital are currently sponsoring a public offering
on behalf of Wells Fund XII and are currently in the process of registering a
public offering on behalf of Wells Fund XIII, both of which are or will be
unspecified property real estate programs. (See "Prior Performance Summary.") In
the event that we enter into a joint venture with Wells Fund XII, Wells Fund
XIII or any other Wells program or joint venture, we may face certain additional
risks and potential conflicts of interest. For example, Wells Fund XII, Wells
Fund XIII and the other Wells public limited partnerships will never have an
active trading market. Therefore, if we become listed on a national exchange, we
may no longer have similar goals and objectives with respect to the resale of
properties in the future. In addition, in the event that the Wells REIT is not
listed on a securities exchange by January 30, 2008, our organizational
documents provide for an orderly liquidation of our assets. In the event of such
liquidation, any joint venture between the Wells REIT and another Wells program
may be required to sell its properties at such time. The Wells program we have
entered into a joint venture with may not desire to sell the properties at that
time. Although the terms of any joint venture agreement between the Wells REIT
and another Wells program would grant the other Wells program a right of first
refusal to buy such properties, it is unlikely that they would have sufficient
funds to exercise the right of first refusal under these circumstances.
Under certain joint venture arrangements, neither co-venturer may have
the power to control the venture, and an impasse could be reached regarding
matters pertaining to the joint venture, which might have a negative influence
on the joint venture and decrease potential returns to you. In the event that a
17
co-venturer has a right of first refusal to buy out the other co-venturer, it
may be unable to finance such buy-out at that time. It may also be difficult for
us to sell our interest in any such joint venture or partnership or as a
co-tenant in property. In addition, to the extent that our co-venturer, partner
or co-tenant is an affiliate of Wells Capital, certain conflicts of interest
will exist. (See "Conflicts of Interest -- Joint Ventures with Affiliates of
Wells Capital.")
General Investment Risks
Maryland Corporation Law may prevent a business combination involving
the Wells REIT.
Provisions of Maryland Corporation Law applicable to us prohibit
business combinations with:
. any person who beneficially owns 10% or more of the voting power
of our outstanding shares;
. any of our affiliates who, at any time within the two year period
prior to the date in question, was the beneficial owner of 10% or
more of the voting power of our outstanding shares (interested
shareholder); or
. an affiliate of an interested shareholder.
These prohibitions last for five years after the most recent date on
which the interested shareholder became an interested shareholder. Thereafter,
any business combination must be recommended by our board of directors and
approved by the affirmative vote of at least 80% of the votes entitled to be
cast by holders of our outstanding shares and two-thirds of the votes entitled
to be cast by holders of our shares other than shares held by the interested
shareholder. These requirements could have the effect of inhibiting a change in
control even if a change in control were in your best interest. These provisions
of Maryland law do not apply, however, to business combinations that are
approved or exempted by our board of directors prior to the time that someone
becomes an interested shareholder. (See "Description of Shares -- Business
Combinations.")
A limit on the number of shares a person may own may discourage a
takeover.
Our articles of incorporation restrict ownership by one person to no
more than 9.8% of the outstanding shares. This restriction may discourage a
change of control of the Wells REIT and may deter individuals or entities from
making tender offers for shares, which offers might be financially attractive to
shareholders or which may cause a change in the management of the Wells REIT.
(See "Description of Shares -- Restriction on Ownership of Shares.")
You are bound by the majority vote on matters on which you are entitled
to vote.
You may vote on certain matters at any annual or special meeting of
shareholders, including the election of directors. However, you will be bound by
the majority vote on matters requiring approval of a majority of the
shareholders even if you do not vote with the majority on any such matter.
You are limited in your ability to sell your shares pursuant to the
share redemption program.
Even though our share redemption program provides you with the
opportunity to redeem your shares for $10 per share (or the price you paid for
the shares, if lower than $10) after you have held them for a period of one
year, you should be fully aware that our share redemption program contains
certain restrictions and limitations. Shares will be redeemed on a first-come,
first-served basis and will be
18
limited to the lesser of (1) during any calendar year, three percent (3%) of the
weighted average number of shares outstanding during the prior calendar year, or
(2) the proceeds we receive from the sale of shares under our dividend
reinvestment plan such that in no event shall the aggregate amount of
redemptions under our share redemption program exceed aggregate proceeds
received from the sale of shares pursuant to our dividend reinvestment plan. In
addition, the board of directors reserves the right to reject any request for
redemption or to amend or terminate the share redemption program at any time.
Therefore, in making a decision to purchase shares of the Wells REIT, you should
not assume that you will be able to sell any of your shares back to us pursuant
to our share redemption program. (See "Description of Shares - Share Redemption
Program.")
We established the offering price on an arbitrary basis.
Our board of directors has arbitrarily determined the selling price of
the shares and such price bears no relationship to any established criteria for
valuing issued or outstanding shares.
Your interest in the Wells REIT may be diluted if we issue additional
shares.
Existing shareholders and potential investors in this offering do not
have preemptive rights to any shares issued by the Wells REIT in the future.
Therefore, in the event that we (1) sell shares in this offering or sell
additional shares in the future, including those issued pursuant to the dividend
reinvestment plan, (2) sell securities that are convertible into shares, (3)
issue shares in a private offering of securities to institutional investors, (4)
issue shares of common stock upon the exercise of the options granted to our
independent directors or employees of Wells Capital and Wells Management or the
warrants issued and to be issued to participating broker-dealers or our
independent directors, or (5) issue shares to sellers of properties acquired by
us in connection with an exchange of limited partnership units from Wells OP,
existing shareholders and investors purchasing shares in this offering may
experience dilution of their equity investment in the Wells REIT.
Payment of fees to Wells Capital and its affiliates will reduce cash
available for investment and distribution.
Wells Capital and its affiliates will perform services for us in
connection with the offer and sale of the shares, the selection and acquisition
of our properties, and the management and leasing of our properties. They will
be paid substantial fees for these services, which will reduce the amount of
cash available for investment in properties or distribution to shareholders.
(See "Management Compensation.")
The availability and timing of cash dividends is uncertain.
We bear all expenses incurred in our operations, which are deducted
from cash funds generated by operations prior to computing the amount of cash
dividends to be distributed to the shareholders. In addition, our board of
directors, in its discretion, may retain any portion of such funds for working
capital. We cannot assure you that sufficient cash will be available to pay
dividends to you.
We are uncertain of our sources for funding of future capital needs.
Substantially all of the gross proceeds of the offering will be used
for investment in properties and for payment of various fees and expenses. (See
"Estimated Use of Proceeds.") In addition, we do not anticipate that we will
maintain any permanent working capital reserves. Accordingly, in the event that
we develop a need for additional capital in the future for the improvement of
our properties or for any
19
other reason, we have not identified any sources for such funding, and we cannot
assure you that such sources of funding will be available to us for potential
capital needs in the future.
Real Estate Risks
General Real Estate RisksReal Estate Risks
Your investment will be affected by adverse economic and regulatory
changes.
We will be subject to risks generally incident to the ownership of real
estate, including:
. changes in general economic or local conditions;
. changes in supply of or demand for similar or competing
properties in an area;
. changes in interest rates and availability of permanent mortgage
funds which may render the sale of a property difficult or
unattractive;
. changes in tax, real estate, environmental and zoning laws; and
. periods of high interest rates and tight money supply.
For these and other reasons, we cannot assure you that we will be profitable or
that we will realize growth in the value of our real estate properties.
A property that incurs a vacancy could be difficult to sell or
re-lease.
A property may incur a vacancy either by the continued default of a
tenant under its lease or the expiration of one of our leases. Most of our
properties are specifically suited to the particular needs of our tenants.
Therefore, we may have difficulty obtaining a new tenant for any vacant space we
have in our properties. If the vacancy continues for a long period of time, we
may suffer reduced revenues resulting in less cash dividends to be distributed
to shareholders. In addition, the resale value of the property could be
diminished because the market value of a particular property will depend
principally upon the value of the leases of such property.
We are dependent on tenants for our revenue.
Most of our properties are occupied by a single tenant and, therefore,
the success of our investments are materially dependant on the financial
stability of our tenants. Lease payment defaults by tenants could cause us to
reduce the amount of distributions to shareholders. A default of a tenant on its
lease payments to us would cause us to lose the revenue from the property and
cause us to have to find an alternative source of revenue to meet the mortgage
payment and prevent a foreclosure if the property is subject to a mortgage. In
the event of a default, we may experience delays in enforcing our rights as
landlord and may incur substantial costs in protecting our investment and
re-letting our property. If a lease is terminated, we cannot assure you that we
will be able to lease the property for the rent previously received or sell the
property without incurring a loss.
We rely on certain tenants.
Motorola, Inc and Marconi Data Systems, Inc. are two of the major
tenants in properties which we currently own. In the aggregate, rental income
from these two tenants represents approximately 27.9% of our total gross rental
revenues. Rental income from Motorola, Inc. represents approximately
20
18.0% of our gross rental revenues and rental income from Marconi Data Systems,
Inc. represents approximately 9.9% of our gross rental revenues. The revenues
generated by the properties these two tenants occupy are substantially reliant
upon the financial condition of these tenants and, accordingly, any event of
bankruptcy, insolvency or a general downturn in the business of either of these
tenants may result in the failure or delay of such tenant's rental payments
which may have a substantial adverse effect on our financial performance. (See
"Description of Properties" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations.")
We may not have funding for future tenant improvements.
When a tenant at one of our properties does not renew its lease or
otherwise vacates its space in one of our buildings, it is likely that, in order
to attract one or more new tenants, we will be required to expend substantial
funds for tenant improvements and tenant refurbishments to the vacated space.
Substantially all of our net offering proceeds will be invested in real estate
properties, and we do not anticipate that we will maintain permanent working
capital reserves. We also have no identified funding source to provide funds
which may be required in the future for tenant improvements and tenant
refurbishments in order to attract new tenants. We cannot assure you that we
will have any sources of funding available to us for such purposes in the
future.
Uninsured losses relating to real property may adversely affect your
returns.
Wells Capital will attempt to ensure that all of our properties are
adequately insured to cover casualty losses. However, in the event that any of
our properties incurs a casualty loss which is not fully covered by insurance,
the value of our assets will be reduced by any such uninsured loss. In addition,
we have no source of funding to repair or reconstruct the damaged property, and
we cannot assure you that any such sources of funding will be available to us
for such purposes in the future.
Development and construction of properties may result in delays and
increased costs and risks.
We may invest some or all of the proceeds available for investment in
the acquisition and development of properties upon which we will develop and
construct improvements at a fixed contract price. We will be subject to risks
relating to the builder's ability to control construction costs or to build in
conformity with plans, specifications and timetables. The builder's failure to
perform may necessitate legal action by us to rescind the purchase or the
construction contract or to compel performance. Performance may also be affected
or delayed by conditions beyond the builder's control. Delays in completion of
construction could also give tenants the right to terminate preconstruction
leases for space at a newly developed project. We may incur additional risks
when we make periodic progress payments or other advances to such builders prior
to completion of construction. Factors such as those discussed above can result
in increased costs of a project or loss of our investment. In addition, we will
be subject to normal lease-up risks relating to newly constructed projects.
Furthermore, we must rely upon projections of rental income and expenses and
estimates of the fair market value of property upon completion of construction
when agreeing upon a price to be paid for the property at the time of
acquisition of the property. If our projections are inaccurate, we may pay too
much for a property.
If we contract with Wells Development Corporation for newly developed
property, we cannot guarantee that our earnest money deposit made to Wells
Development Corporation will be fully refunded.
We may enter into one or more contracts, either directly or indirectly
through joint ventures with affiliates, to acquire real property from Wells
Development Corporation (Wells Development), an affiliate
21
of Wells Capital. Properties acquired from Wells Development may be either
existing income-producing properties or properties to be developed or under
development. We anticipate that we will be obligated to pay a substantial
earnest money deposit at the time of contracting to acquire such properties. In
the case of properties to be developed by Wells Development, we anticipate we
will be required to close the purchase of the property upon completion of the
development of the property by Wells Development and the tenant taking
possession of the property. At the time of contracting and the payment of the
earnest money deposit by us, Wells Development typically will not have acquired
title to any real property. Wells Development will only have a contract to
acquire land, a development agreement to develop a building on the land and an
agreement with a tenant to lease the property upon its completion. We may enter
into such a contract with Wells Development even if at the time of contracting
we have not yet raised sufficient proceeds in our offering to enable us to close
the purchase of such property. However, we will not be required to close a
purchase from Wells Development, and will be entitled to a refund of our earnest
money, in the following circumstances:
. Wells Development fails to develop the property;
. the tenant fails to take possession under its lease for any
reason; or
. we are unable to raise sufficient proceeds from our offering to
pay the purchase price at closing.
The obligation of Wells Development to refund our earnest money is
unsecured, and it is unlikely that we would be able to obtain a refund of such
earnest money deposit from it under these circumstances since Wells Development
is an entity without substantial assets or operations. Although Wells
Development's obligation to refund the earnest money deposit to us under these
circumstances will be guaranteed by Wells Management Company, Inc., an
affiliated entity (Wells Management), Wells Management has no substantial assets
other than contracts for property management and leasing services pursuant to
which it receives substantial monthly fees. Therefore, we cannot assure you that
Wells Management would be able to refund all of our earnest money deposit in a
lump sum. If we were forced to collect our earnest money deposit by enforcing
the guaranty of Wells Management, we will likely be required to accept
installment payments over time payable out of the revenues of Wells Management's
property management and leasing operations. We cannot assure you that we would
be able to collect the entire amount of our earnest money deposit under such
circumstances. (See "Investment Objectives and Criteria -- Acquisition of
Properties from Wells Development Corporation.")
Competition for investments may increase costs and reduce returns.
We will experience competition for real property investments from
individuals, corporations and bank and insurance company investment accounts, as
well as other real estate investment trusts, real estate limited partnerships,
and other entities engaged in real estate investment activities. Competition for
investments may have the effect of increasing costs and reducing your returns.
Delays in acquisitions of properties may have adverse effects on your
investment.
Delays we encounter in the selection, acquisition and development of
properties could adversely affect your returns. Where properties are acquired
prior to the start of construction or during the early stages of construction,
it will typically take several months to complete construction and rent
available space. Therefore, you could suffer delays in the distribution of cash
dividends attributable to those particular properties.
22
Uncertain market conditions and the broad discretion of Wells Capital
relating to the future disposition of properties could adversely affect the
return on your investment.
We generally will hold the various real properties in which we invest
until such time as Wells Capital determines that a sale or other disposition
appears to be advantageous to achieve our investment objectives or until it
appears that such objectives will not be met. Otherwise, Wells Capital, subject
to approval of the board, may exercise its discretion as to whether and when to
sell a property, and we will have no obligation to sell properties at any
particular time, except upon a liquidation of the Wells REIT if we do not list
the shares by January 30, 2008. We cannot predict with any certainty the various
market conditions affecting real estate investments which will exist at any
particular time in the future. Due to the uncertainty of market conditions which
may affect the future disposition of our properties, we cannot assure you that
we will be able to sell our properties at a profit in the future. Accordingly,
the extent to which you will receive cash distributions and realize potential
appreciation on our real estate investments will be dependent upon fluctuating
market conditions.
Discovery of previously undetected environmentally hazardous conditions
may adversely affect our operating results.
Under various federal, state and local environmental laws, ordinances
and regulations, a current or previous owner or operator of real property may be
liable for the cost of removal or remediation of hazardous or toxic substances
on such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. Environmental laws also may impose restrictions on the manner
in which property may be used or businesses may be operated, and these
restrictions may require expenditures. Environmental laws provide for sanctions
in the event of noncompliance and may be enforced by governmental agencies or,
in certain circumstances, by private parties. In connection with the acquisition
and ownership of our properties, we may be potentially liable for such costs.
The cost of defending against claims of liability, of compliance with
environmental regulatory requirements or of remediating any contaminated
property could materially adversely affect the business, assets or results of
operations of the Wells REIT and, consequently, amounts available for
distribution to you.
Financing Risks
If we fail to make our debt payments, we could lose our investment in a
property.
Loans obtained to fund property acquisitions will generally be secured
by first priority mortgages on some of our properties. If we are unable to make
our debt payments as required, a lender could foreclose on the property or
properties securing its debt. This could cause us to lose part or all of our
investment which in turn could cause the value of the shares and the dividends
payable to shareholders to be reduced. (See "Description of Properties -- Real
Estate Loans.")
Lenders may require us to enter into restrictive covenants relating to
our operations.
In connection with obtaining certain financing, a lender could impose
restrictions on us which affect our ability to incur additional debt and our
distribution and operating policies. Loan documents we enter into may contain
customary negative covenants which may limit our ability to further mortgage the
property, to discontinue insurance coverage, replace Wells Capital as our
advisor or impose other limitations.
23
If we enter into financing arrangements involving balloon payment
obligations, it may adversely affect our ability to pay dividends.
Some of our financing arrangements may require us to make a lump-sum or
"balloon" payment at maturity. We may finance more properties in this manner.
Our ability to make a balloon payment at maturity is uncertain and may depend
upon our ability to obtain additional financing or our ability to sell the
property. At the time the balloon payment is due, we may or may not be able to
refinance the balloon payment on terms as favorable as the original loan or sell
the property at a price sufficient to make the balloon payment. The effect of a
refinancing or sale could affect the rate of return to shareholders and the
projected time of disposition of our assets. In addition, payments of principal
and interest made to service our debts may leave us with insufficient cash to
pay the distributions that we are required to pay to maintain our qualification
as a REIT.
Federal Income Tax Risks
Failure to qualify as a REIT could adversely affect our operations and
our ability to make distributions.
If we fail to qualify as a REIT for any taxable year, we will be
subject to federal income tax on our taxable income at corporate rates. In
addition, we would generally be disqualified from treatment as a REIT for the
four taxable years following the year of losing our REIT status. Losing our REIT
status would reduce our net earnings available for investment or distribution to
shareholders because of the additional tax liability. In addition, distributions
to shareholders would no longer qualify for the distributions paid deduction and
we would no longer be required to make distributions. We might be required to
borrow funds or liquidate some investments in order to pay the applicable tax.
Qualification as a REIT is subject to the satisfaction of tax
requirements and various factual matters and circumstances which are not
entirely within our control. New legislation, regulations, administrative
interpretations or court decisions could change the tax laws with respect to
qualification as a REIT or the federal income tax consequences of being a REIT.
Legislative or regulatory action could adversely affect investors.
In recent years, numerous legislative, judicial and administrative
changes have been made in the provisions of the federal income tax laws
applicable to investments similar to an investment in shares of the Wells REIT.
Additional changes to tax laws are likely to continue to occur in the future,
and we cannot assure you that any such changes will not adversely affect the
taxation of a shareholder. Any such changes could have an adverse effect on an
investment in shares or on the market value or the resale potential of our
properties. You are urged to consult with your own tax advisor with respect to
the impact of recent legislation on your investment in shares and the status of
legislative, regulatory or administrative developments and proposals and their
potential effect on an investment in shares.
Retirement Plan Risks
There are special considerations that apply to pension or profit
sharing trusts or IRAs investing in shares.
If you are investing the assets of a pension, profit sharing, 401(k),
Keogh or other qualified retirement plan or the assets of an IRA in the Wells
REIT, you should satisfy yourself that:
. your investment is consistent with your fiduciary obligations
under ERISA and the Internal Revenue Code;
24
. your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your plan's
investment policy;
. your investment satisfies the prudence and diversification
requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
. your investment will not impair the liquidity of the plan or IRA;
. your investment will not produce "unrelated business taxable
income" for the plan or IRA;
. you will be able to value the assets of the plan annually in
accordance with ERISA requirements; and
. your investment will not constitute a prohibited transaction
under Section 406 of ERISA or Section 4975 of the Internal
Revenue Code.
For a more complete discussion of the foregoing issues and other risks
associated with an investment in shares by retirement plans, please see the
"ERISA Considerations" section of this prospectus on page 139.
Suitability Standards
The shares we are offering are suitable only as a long-term investment
for persons of adequate financial means. Initially, we do not expect to have a
public market for the shares, which means that it may be difficult for you to
sell your shares. You should not buy these shares if you need to sell them
immediately or will need to sell them quickly in the future.
In consideration of these factors, we have established suitability
standards for initial shareholders and subsequent transferees. These suitability
standards require that a purchaser of shares have either:
. a net worth of at least $150,000; or
. a gross annual income of at least $45,000 and a net worth,
excluding the value of a purchaser's home, furnishings and
automobiles of at least $45,000.
The minimum purchase is 100 shares ($1,000), except in certain states
as described below. You may not transfer less shares than the minimum purchase
requirement. In addition, you may not transfer, fractionalize or subdivide your
shares so as to retain less than the number of shares required for the minimum
purchase. In order to satisfy the minimum purchase requirements for retirement
plans, unless otherwise prohibited by state law, a husband and wife may jointly
contribute funds from their separate IRAs, provided that each such contribution
is made in increments of $100. You should note that an investment in shares of
the Wells REIT will not, in itself, create a retirement plan and that, in order
to create a retirement plan, you must comply with all applicable provisions of
the Internal Revenue Code.
The minimum purchase for Maine, New York and North Carolina residents
is 250 shares ($2,500), except for IRAs which must purchase a minimum of 100
shares ($1,000). The minimum purchase for Minnesota residents is 250 shares
($2,500), except for IRAs and other qualified retirement plans which must
purchase a minimum of 200 shares ($2,000).
Except in the states of Maine, Minnesota, Nebraska and Washington, if
you have satisfied the minimum purchase requirements and have purchased units in
other Wells programs or units or shares in
25
other public real estate programs, you may purchase less than the minimum number
of shares set forth above, but in no event less than 2.5 shares ($25). After you
have purchased the minimum investment, any additional purchase must be in
increments of at least 2.5 shares ($25), except for (1) purchases made by
residents of Maine and Minnesota, who must still meet the minimum investment
requirements set forth above, and (2) purchases of shares pursuant to the
dividend reinvestment plan of the Wells REIT or reinvestment plans of other
public real estate programs, which may be in lesser amounts.
Several states have established suitability standards different from
those we have established. Shares will be sold only to investors in these states
who meet the special suitability standards set forth below.
Arizona, Iowa, Massachusetts, Missouri, North Carolina and Tennessee -
Investors must have either (1) a net worth of at least $225,000 or (2) gross
annual income of $60,000 and a net worth of at least $60,000.
Maine - Investors must have either (1) a net worth of at least
$200,000, or (2) gross annual income of $50,000 and a net worth of at least
$50,000.
Michigan, Ohio, Oregon and Pennsylvania - In addition to our
suitability requirements, investors must have a net worth of at least ten times
their investment in the Wells REIT.
Missouri - Investors must have either (1) a net worth of at least
$250,000, or (2) gross annual income of $75,000 and a net worth of at least
$75,000.
New Hampshire - Investors must have either (1) a net worth of at least
$250,000, or (2) taxable income of $50,000 and a net worth of at least $125,000.
In the case of sales to fiduciary accounts, these suitability standards
must be met by the fiduciary account, by the person who directly or indirectly
supplied the funds for the purchase of the shares or by the beneficiary of the
account. These suitability standards are intended to help ensure that, given the
long-term nature of an investment in our shares, our investment objectives and
the relative illiquidity of our shares, shares of the Wells REIT are an
appropriate investment for those of you who become investors. Each participating
broker-dealer must make every reasonable effort to determine that the purchase
of shares is a suitable and appropriate investment for each shareholder based on
information provided by the shareholder in the Subscription Agreement. Each
participating broker-dealer is required to maintain for six years records of the
information used to determine that an investment in the shares is suitable and
appropriate for a shareholder.
Estimated Use of Proceeds
The following tables set forth information about how we intend to use
the proceeds raised in this offering assuming that we sell 62,000,000 shares and
135,000,000 shares, respectively, pursuant to this offering. Many of the figures
set forth below represent management's best estimate since they cannot be
precisely calculated at this time. We expect that at least 84.0% of the money
you invest will be used to buy real estate, while the remaining up to 16.0% will
be used for working capital and to pay expenses and fees including the payment
of fees to Wells Capital, our advisor, and Wells Investment Securities, our
Dealer Manager.
26
62,000,000 Shares 135,000,000 Shares
----------------- ------------------
Amount(1) Percent Amount(2) Percent
--------- ------- --------- -------
Gross Offering Proceeds $620,000,000 100% $1,350,000,000 100.0%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (3) 58,900,000 9.5% 128,250,000 9.5%
Organization and Offering Expenses (4) 18,600,000 3.0% 18,600,000 1.4%
------------ ----- -------------- ------
Amount Available for Investment (5) $542,500,000 87.5% $1,203,150,000 89.1%
Acquisition and Development:
Acquisition and Advisory Fees (6) 18,600,000 3.0% 40,500,000 3.0%
Acquisition Expenses (7) 3,100,000 0.5% 6,750,000 0.5%
Initial Working Capital Reserve (8) (8) -- (8) --
------------ ----- -------------- -----
Amount Invested in Properties (5)(9) $520,800,000 84.0% $1,155,900,000 85.6%
============ ===== ============== =====
1. Assumes that an aggregate of $620,000,000 will be raised in this offering
for purposes of illustrating the percentage of estimated organization and
offering expenses at two different sales levels. See Note 4 below.
_________________________
(Footnotes to "Estimated Use of Proceeds")
2. Assumes the maximum offering is sold which includes 125,000,000 shares
offered to the public at $10 per share and 10,000,000 shares offered
pursuant to our dividend reinvestment plan at $10 per share. Excludes
5,000,000 shares to be issued upon exercise of the soliciting dealer
warrants.
3. Includes selling commissions equal to 7.0% of aggregate gross offering
proceeds which commissions may be reduced under certain circumstances
and a dealer manager fee equal to 2.5% of aggregate gross offering
proceeds, both of which are payable to the Dealer Manager, an affiliate
of the advisor. The Dealer Manager, in its sole discretion, may reallow
selling commissions of up to 7.0% of gross offering proceeds to other
broker-dealers participating in this offering attributable to the units
sold by them and may reallow out of its dealer manager fee up to 1.5%
of gross offering proceeds in marketing fees and due diligence expenses
to broker-dealers participating in this offering based on such factors
as the volume of units sold by such participating broker-dealers,
marketing support provided by such participating broker-dealers and
bona fide conference fees incurred. The amount of selling commissions
may often be reduced under certain circumstances for volume discounts.
See the "Plan of Distribution" section of this prospectus for a
description of such provisions.
4. Organization and offering expenses consist of reimbursement of actual
legal, accounting, printing and other accountable offering expenses,
including amounts to reimburse Wells Capital, our advisor, for
marketing, salaries and direct expenses of its employees while engaged
in registering and marketing the shares and other marketing and
organization costs, other than selling commissions and the dealer
manager fee. Wells Capital and its affiliates will be responsible for
the payment of organization and offering expenses, other than selling
commissions and the dealer manager fee, to the extent they exceed 3.0%
of gross offering proceeds without recourse against or reimbursement by
the Wells REIT. We currently estimate that approximately $18,600,000 of
organization and offering costs will be incurred if the maximum
offering of 135,000,000 shares is sold.
5. Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the offering and,
thereafter, the working capital reserves of the Wells REIT,
27
may be invested in short-term, highly-liquid investments including
government obligations, bank certificates of deposit, short-term debt
obligations and interest-bearing accounts.
6. Acquisition and advisory fees are defined generally as fees and
commissions paid by any party to any person in connection with the
purchase, development or construction of properties. We will pay Wells
Capital, as our advisor, acquisition and advisory fees up to a maximum
amount of 3.0% of gross offering proceeds in connection with the
acquisition of the real estate properties. Acquisition and advisory
fees do not include acquisition expenses.
7. Acquisition expenses include legal fees and expenses, travel expenses,
costs of appraisals, nonrefundable option payments on property not
acquired, accounting fees and expenses, title insurance premiums and
other closing costs and miscellaneous expenses relating to the
selection, acquisition and development of real estate properties.
8. Because the vast majority of leases for the properties acquired by the
Wells REIT will provide for tenant reimbursement of operating expenses,
we do not anticipate that a permanent reserve for maintenance and
repairs of real estate properties will be established. However, to the
extent that we have insufficient funds for such purposes, we may apply
an amount of up to 1.0% of gross offering proceeds for maintenance and
repairs of real estate properties. We also may, but are not required
to, establish reserves from gross offering proceeds, out of cash flow
generated by operating properties or out of nonliquidating net sale
proceeds, defined generally to mean the net cash proceeds received by
the Wells REIT from any sale or exchange of properties.
9. Includes amounts anticipated to be invested in properties net of fees
and expenses. We estimate that at least approximately 84.0% of the
proceeds received from the sale of shares will be used to acquire
properties.
Management
General
We operate under the direction of our board of directors, the members
of which are accountable to us and our shareholders as fiduciaries. The board is
responsible for the management and control of our affairs. The board has
retained Wells Capital to manage our day-to-day affairs and the acquisition and
disposition of our investments, subject to the board's supervision. The articles
of incorporation of the Wells REIT were reviewed and ratified by the board of
directors, including the independent directors, at their initial meeting. This
ratification by the board of directors was required by the NASAA Guidelines.
Our articles of incorporation and bylaws provide that the number of
directors of the Wells REIT may be established by a majority of the entire board
of directors but may not be fewer than three nor more than 15. We currently have
a total of nine directors. The articles of incorporation also provide that a
majority of the directors must be independent directors. An "independent
director" is a person who is not an officer or employee of the Wells REIT, Wells
Capital or their affiliates and has not otherwise been affiliated with such
entities for the previous two years. Of the nine current directors, seven of our
directors are considered independent directors.
Proposed transactions are often discussed before being brought to a
final board vote. During these discussions, independent directors often offer
ideas for ways in which deals can be changed to make them acceptable and these
suggestions are taken into consideration when structuring transactions. Each
director will serve until the next annual meeting of shareholders or until his
successor has been duly
28
elected and qualified. Although the number of directors may be increased or
decreased, a decrease shall not have the effect of shortening the term of any
incumbent director.
Any director may resign at any time and may be removed with or without
cause by the shareholders upon the affirmative vote of at least a majority of
all the votes entitled to be cast at a meeting called for the purpose of the
proposed removal. The notice of the meeting shall indicate that the purpose, or
one of the purposes, of the meeting is to determine if the director shall be
removed. The term "cause" as used in this context is a term used in the Maryland
Corporation Law. Since the Maryland Corporation Law does not define the term
"cause," shareholders may not know exactly what actions by a director may be
grounds for removal.
Unless filled by a vote of the shareholders as permitted by Maryland
Corporation Law, a vacancy created by an increase in the number of directors or
the death, resignation, removal, adjudicated incompetence or other incapacity of
a director shall be filled by a vote of a majority of the remaining directors
and,
. in the case of a director who is not an independent director
(affiliated director), by a vote of a majority of the remaining
affiliated directors, or
. in the case of an independent director, by a vote of a majority
of the remaining independent directors,
unless there are no remaining affiliated directors or independent directors, as
the case may be. In such case a majority vote of the remaining directors shall
be sufficient. If at any time there are no independent or affiliated directors
in office, successor directors shall be elected by the shareholders. Each
director will be bound by the articles of incorporation and the bylaws.
The directors are not required to devote all of their time to our
business and are only required to devote the time to our affairs as their duties
require. The directors will meet quarterly or more frequently if necessary. We
do not expect that the directors will be required to devote a substantial
portion of their time to discharge their duties as our directors. Consequently,
in the exercise of their fiduciary responsibilities, the directors will be
relying heavily on Wells Capital. The board is empowered to fix the compensation
of all officers that it selects and may pay compensation to directors for
services rendered to us in any other capacity.
Our general investment and borrowing policies are set forth in this
prospectus. The directors may establish further written policies on investments
and borrowings and shall monitor our administrative procedures, investment
operations and performance to ensure that the policies are fulfilled and are in
the best interest of the shareholders. We will follow the policies on
investments and borrowings set forth in this prospectus unless and until they
are modified by the directors.
The board is also responsible for reviewing our fees and expenses on at
least an annual basis and with sufficient frequency to determine that the
expenses incurred are in the best interest of the shareholders. In addition, a
majority of the independent directors and a majority of directors not otherwise
interested in the transaction must approve all transactions with Wells Capital
or its affiliates. The independent directors will also be responsible for
reviewing the performance of Wells Capital and determining that the compensation
to be paid to Wells Capital is reasonable in relation to the nature and quality
of services to be performed and that the provisions of the advisory agreement
are being carried out. Specifically, the independent directors will consider
factors such as:
29
. the amount of the fee paid to Wells Capital in relation to the
size, composition and performance of our investments;
. the success of Wells Capital in generating appropriate investment
opportunities;
. rates charged to other REITs and other investors by advisors
performing similar services;
. additional revenues realized by Wells Capital and its affiliates
through their relationship with us, whether we pay them or they
are paid by others with whom we do business;
. the quality and extent of service and advice furnished by Wells
Capital and the performance of our investment portfolio; and
. the quality of our portfolio relative to the investments
generated by Wells Capital for its other clients.
Neither the directors nor their affiliates will vote or consent to the
voting of shares they now own or hereafter acquire on matters submitted to the
shareholders regarding either (1) the removal of Wells Capital, any director or
any affiliate, or (2) any transaction between us and Wells Capital, any director
or any affiliate.
Committees of the Board of Directors
Our entire board of directors considers all major decisions concerning
our business, including any property acquisitions. However, our board has
established an Audit Committee and a Compensation Committee so that these
important areas can be addressed in more depth than may be possible at a full
board meeting.
Audit Committee
The Audit Committee meets on a regular basis at least three times a
year. The Audit Committee members are Messrs. Bell, Carpenter, Carter, Keogler,
Moss, Sessoms and Strickland. The board of directors adopted our Audit Committee
Charter at its quarterly board meeting held September 27, 2000. The Audit
Committee's primary function is to assist the board of directors in fulfilling
its oversight responsibilities by reviewing the financial information to be
provided to the shareholders and others, the system of internal controls which
management has established, and the audit and financial reporting process.
Compensation Committee
Our board of directors has also established a Compensation Committee to
administer the 2000 Employee Stock Option Plan, as described below, which was
approved by the shareholders at our annual shareholders meeting held June 28,
2000. The Compensation Committee is comprised of Messrs. Bell, Carpenter,
Carter, Keogler, Moss, Sessoms and Strickland. The primary function of the
Compensation Committee is to administer the granting of stock options to
selected employees of Wells Capital and Wells Management based upon
recommendations from Wells Capital, and to set the terms and conditions of such
options in accordance with the 2000 Employee Stock Option Plan.
30
Executive Officers and Directors
We have provided below certain information about our executive officers
and directors.
Name Position(s) Age
---- ----------- ---
Leo F. Wells, III President and Director 56
Douglas P. Williams Executive Vice President, Secretary, Treasurer 50
and Director
John L. Bell Director 60
Richard W. Carpenter Director 63
Bud Carter Director 62
William H. Keogler, Jr. Director 55
Donald S. Moss Director 64
Walter W. Sessoms Director 66
Neil H. Strickland Director 64
Leo F. Wells, III is the President and a director of the Wells REIT and
the President, Treasurer and sole director of Wells Capital, our advisor. He is
also the sole shareholder and sole director of Wells Real Estate Funds, Inc.,
the parent corporation of Wells Capital. Mr. Wells is President of Wells &
Associates, Inc., a real estate brokerage and investment company formed in 1976
and incorporated in 1978, for which he serves as principal broker. He is also
the President, Treasurer and sole director of:
. Wells Management Company, Inc., our Property Manager;
. Wells Investment Securities, Inc., our Dealer Manager;
. Wells Advisors, Inc., a company he organized in 1991 to act as a
non-bank custodian for IRAs; and
. Wells Development Corporation, a company he organized in 1997 to
develop real properties.
Mr. Wells was a real estate salesman and property manager from 1970 to
1973 for Roy D. Warren & Company, an Atlanta-based real estate company, and he
was associated from 1973 to 1976 with Sax Gaskin Real Estate Company, during
which time he became a Life Member of the Atlanta Board of Realtors Million
Dollar Club. From 1980 to February 1985 he served as Vice President of
Hill-Johnson, Inc., a Georgia corporation engaged in the construction business.
Mr. Wells holds a Bachelor of Business Administration degree in economics from
the University of Georgia. Mr. Wells is a member of the International
Association for Financial Planning (IAFP) and a registered NASD principal.
Mr. Wells has over 27 years of experience in real estate sales,
management and brokerage services. In addition to being the President and a
director of the Wells REIT, he is currently a co-general partner in a total of
26 real estate limited partnerships formed for the purpose of acquiring,
developing and operating office buildings and other commercial properties. As of
September 30, 2000, these 26 real estate limited partnerships represented
investments totaling approximately $313,562,916 from approximately 27,322
investors.
Douglas P. Williams is the Executive Vice President, Secretary,
Treasurer and a director of the Wells REIT. He is also a Senior Vice President
of Wells Capital, our advisor, and is also a Vice President of:
. Wells Investment Securities, Inc., our Dealer Manager;
. Wells Real Estate Funds, Inc.; and
. Wells Advisors, Inc.
31
Mr. Williams previously served as Vice President, Controller of
OneSource, Inc., a leading supplier of janitorial and landscape services, from
1996 to 1999 where he was responsible for corporate-wide accounting activities
and financial analysis. Mr. Williams was employed by ECC International Inc.
("ECC"), a supplier to the paper industry and to the paint, rubber and plastic
industries, from 1982 to 1995. While at ECC, Mr. Williams served in a number of
key accounting positions, including Corporate Accounting Manager, U.S.
Operations, Division Controller, Americas Region and Corporate Controller,
America/Pacific Division. Prior to joining ECC and for one year after leaving
ECC, Mr. Williams was employed by Lithonia Lighting, a manufacturer of lighting
fixtures, as a Cost and General Accounting Manager and Director of Planning and
Control. Mr. Williams started his professional career as an auditor for KPMG
Peat Marwick LLP.
Mr. Williams is a member of the American Institute of Certified Public
Accountants and the Georgia Society of Certified Public Accountants. Mr.
Williams received a bachelor of arts degree from Dartmouth College and a Masters
of Business Administration degree from the Amos Tuck School of Graduate Business
Administration at Dartmouth College.
John L. Bell was the owner and Chairman of Bell-Mann, Inc., the largest
commercial flooring contractor in the Southeast from February 1971 to February
1996. Mr. Bell also served on the Board of Directors of Realty South Investors,
a REIT traded on the American Stock Exchange, and was the founder and served as
a director of both the Chattahoochee Bank and the Buckhead Bank. In 1997, Mr.
Bell initiated and implemented a "Dealer Acquisition Plan" for Shaw Industries,
Inc., a floor covering manufacturer and distributor, which plan included the
acquisition of Bell-Mann.
Mr. Bell currently serves on the Board of Directors of Electronic
Commerce Systems, Inc. and the Cullasaja Club of Highlands, North Carolina. Mr.
Bell is also extensively involved in buying and selling real estate both
individually and in partnership with others. Mr. Bell graduated from Florida
State University majoring in accounting and marketing.
Richard W. Carpenter served as General Vice President of Real Estate
Finance of The Citizens and Southern National Bank from 1975 to 1979, during
which time his duties included the establishment and supervision of the United
Kingdom Pension Fund, U.K.-American Properties, Inc. which was established
primarily for investment in commercial real estate within the United States.
Mr. Carpenter is currently President and director of Realmark Holdings
Corp., a residential and commercial real estate developer, and has served in
that position since October 1983. Mr. Carpenter is also a managing partner of
Carpenter Properties, L.P., a real estate limited partnership. He is also
President and director of Commonwealth Oil Refining Company, Inc., a position he
has held since 1984.
Mr. Carpenter previously served as Vice Chairman of the Board of
Directors of both First Liberty Financial Corp. and Liberty Savings Bank, F.S.B.
and Chairman of the Audit Committee of First Liberty Financial Corp. He has been
a member of The National Association of Real Estate Investment Trusts and served
as President and Chairman of the Board of Southmark Properties, an Atlanta-based
REIT investing in commercial properties. Mr. Carpenter is a past Chairman of the
American Bankers Association Housing and Real Estate Finance Division Executive
Committee. Mr. Carpenter holds a Bachelor of Science degree from Florida State
University, where he was named the outstanding alumnus of the School of Business
in 1973.
Bud Carter was an award-winning broadcast news director and anchorman
for several radio and television stations in the Midwest for over 20 years. From
1975 to 1980, Mr. Carter served as General Manager of WTAZ-FM, a radio station
in Peoria, Illinois and served as editor and publisher of The Peoria
32
Press, a weekly business and political journal in Peoria, Illinois. From 1981
until 1989, Mr. Carter was also an owner and General Manager of Transitions,
Inc., a corporate outplacement company in Atlanta, Georgia.
Mr. Carter currently serves as Senior Vice President for The Executive
Committee, a 43-year old international organization established to aid
presidents and CEOs to share ideas on ways to improve the management and
profitability of their respective companies. The Executive Committee operates in
numerous large cities throughout the United States, Canada, Australia, France,
Italy, Malaysia, Brazil, the United Kingdom and Japan. The Executive Committee
has more than 7,000 presidents and CEOs who are members. In addition, Mr. Carter
was the first Chairman of the organization recruited in Atlanta and still serves
as Chairman of the first two groups formed in Atlanta, each comprised of 14
noncompeting CEOs and presidents. Mr. Carter is a graduate of the University of
Missouri where he earned degrees in journalism and social psychology.
William H. Keogler, Jr. was employed by Brooke Bond Foods, Inc. as a
Sales Manager from June 1965 to September 1968. From July 1968 to December 1974,
Mr. Keogler was employed by Kidder Peabody & Company, Inc. and Dupont, Glore,
Forgan as a corporate bond salesman responsible for managing the industrial
corporate bond desk and the utility bond area. From December 1974 to July 1982,
Mr. Keogler was employed by Robinson-Humphrey, Inc. as the Director of Fixed
Income Trading Departments responsible for all municipal bond trading and
municipal research, corporate and government bond trading, unit trusts and
SBA/FHA loans, as well as the oversight of the publishing of the Robinson-
Humphrey Southeast Unit Trust, a quarterly newsletter. Mr. Keogler was elected
to the Board of Directors of Robinson-Humphrey, Inc. in 1982. From July 1982 to
October 1984, Mr. Keogler was Executive Vice President, Chief Operating Officer,
Chairman of the Executive Investment Committee and member of the Board of
Directors and Chairman of the MFA Advisory Board for the Financial Service
Corporation. He was responsible for the creation of a full service trading
department specializing in general securities with emphasis on municipal bonds
and municipal trusts. Under his leadership, Financial Service Corporation grew
to over 1,000 registered representatives and over 650 branch offices. In March
1985, Mr. Keogler founded Keogler, Morgan & Company, Inc., a full service
brokerage firm, and Keogler Investment Advisory, Inc., in which he served as
Chairman of the Board of Directors, President and Chief Executive Officer. In
January 1997, both companies were sold to SunAmerica, Inc., a publicly traded
New York Stock Exchange company. Mr. Keogler continued to serve as President and
Chief Executive Officer of these companies until his retirement in January 1998.
Mr. Keogler serves on the Board of Trustees of Senior Citizens Services
of Atlanta. He graduated from Adelphi University in New York where he earned a
degree in psychology.
Donald S. Moss was employed by Avon Products, Inc. from 1957 until his
retirement in 1986. While at Avon, Mr. Moss served in a number of key positions,
including Vice President and Controller from 1973 to 1976, Group Vice President
of Operations-Worldwide from 1976 to 1979, Group Vice President of
Sales-Worldwide from 1979 to 1980, Senior Vice President-International from 1980
to 1983 and Group Vice President-Human Resources and Administration from 1983
until his retirement in 1986. Mr. Moss was also a member of the board of
directors of Avon Canada, Avon Japan, Avon Thailand, and Avon Malaysia from
1980-1983.
Mr. Moss is currently a director of The Atlanta Athletic Club. He
formerly was the National Treasurer and a director of the Girls Clubs of America
from 1973 to 1976. Mr. Moss graduated from the University of Illinois where he
received a degree in business.
Walter W. Sessoms was employed by Southern Bell and its successor
company, BellSouth, from 1956 until his retirement in June 1997. While at
BellSouth, Mr. Sessoms served in a number of key
33
positions, including Vice President-Residence for the State of Georgia from June
1979 to July 1981, Vice President-Transitional Planning Officer from July 1981
to February 1982, Vice President-Georgia from February 1982 to June 1989, Senior
Vice President-Regulatory and External Affairs from June 1989 to November 1991,
and Group President-Services from December 1991 until his retirement on June 30,
1997.
Mr. Sessoms currently serves as a director of the Georgia Chamber of
Commerce for which he is a past Chairman of the Board, the Atlanta Civic
Enterprises and the Salvation Army's Board of Visitors of the Southeast Region.
Mr. Sessoms is also a past executive advisory council member for the University
of Georgia College of Business Administration and past member of the executive
committee of the Atlanta Chamber of Commerce. Mr. Sessoms is a graduate of
Wofford College where he earned a degree in economics and business
administration. He is a member of the Governor's Education Reform Commission.
Neil H. Strickland was employed by Loyalty Group Insurance (which
subsequently merged with America Fore Loyalty Group and is now known as The
Continental Group) as an automobile insurance underwriter. From 1957 to 1961,
Mr. Strickland served as Assistant Supervisor of the Casualty Large Lines
Retrospective Rating Department. From 1961 to 1964, Mr. Strickland served as
Branch Manager of Wolverine Insurance Company, a full service property and
casualty service company, where he had full responsibility for underwriting of
insurance and office administration in the State of Georgia. In 1964, Mr.
Strickland and a non-active partner started Superior Insurance Service, Inc., a
property and casualty wholesale general insurance agency. Mr. Strickland served
as President and was responsible for the underwriting and all other operations
of the agency. In 1967, Mr. Strickland sold his interest in Superior Insurance
Service, Inc. and started Strickland General Agency, Inc., a property and
casualty general insurance agency concentrating on commercial customers. Mr.
Strickland is currently the Senior Operation Executive of Strickland General
Agency, Inc. and devotes most of his time to long-term planning, policy
development and senior administration.
Mr. Strickland is a past President of the Norcross Kiwanis Club and
served as both Vice President and President of the Georgia Surplus Lines
Association. He also served as President and a director of the National
Association of Professional Surplus Lines Offices. Mr. Strickland currently
serves as a director of First Capital Bank, a community bank located in the
State of Georgia. Mr. Strickland attended Georgia State University where he
majored in business administration. He received his L.L.B. degree from Atlanta
Law School.
Compensation of Directors
We pay each of our independent directors $500 per month plus $125 for
each board meeting he attends. In addition, we have reserved 100,000 shares of
common stock for future issuance upon the exercise of stock options granted to
the independent directors pursuant to our Independent Director Stock Option Plan
and 500,000 shares for future issuance upon the exercise of warrants to be
granted to the independent directors pursuant to our Independent Director
Warrant Plan. All directors receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with attendance at meetings of the board of
directors. If a director also is an officer of the Wells REIT, we do not pay
separate compensation for services rendered as a director.
Independent Director Stock Option Plan
Our Independent Director Stock Option Plan (Director Option Plan) was
approved by our shareholders at the annual shareholders meeting held June 16,
1999. We issued non-qualified stock options to purchase 2,500 shares (Initial
Options) to each independent director pursuant to our Director
34
Option Plan. In addition, we issued options to purchase 1,000 shares to each
independent director in connection with the 2000 annual meeting of stockholders
and will continue to issue options to purchase 1,000 shares (Subsequent Options)
to each independent director then in office on the date of each annual
stockholder's meeting. The Initial Options and the Subsequent Options are
collectively referred to as the "Director Options." Director Options may not be
granted at any time when the grant, along with grants to other independent
directors, would exceed 10% of our issued and outstanding shares. As of
September 30, 2000, each independent director had been granted options to
purchase a total of 3,500 shares under the Director Option Plan, of which 1,000
of those shares were exercisable. The exercise price for the Initial Options is
$12.00 per share. The exercise price for the Subsequent Options is the greater
of (1) $12.00 per share or (2) the fair market value of the shares on the date
they are granted. Fair market value is defined generally to mean:
. the average closing price for the five consecutive trading days
ending on such date if the shares are traded on a national
exchange;
. the average of the high bid and low asked prices if the shares
are quoted on NASDAQ;
. the average of the last 10 sales made pursuant to a public
offering if there is a current public offering and no market
maker for the shares;
. the average of the last 10 purchases (or fewer if less than 10
purchases) under our share redemption program if there is no
current public offering; or
. the price per share under the dividend reinvestment plan if
there are no purchases under the share redemption program.
One-fifth of the Initial Options were exercisable beginning on the date
we granted them, one-fifth of the Initial Options became exercisable beginning
in July 2000 and an additional one-fifth of the Initial Options will become
exercisable on each anniversary of the date we granted them for a period of
three years until 100% of the shares become exercisable. The Subsequent Options
granted under the Director Option Plan will become exercisable on the second
anniversary of the date we grant them.
A total of 100,000 shares have been authorized and reserved for
issuance under the Director Option Plan. If the number of outstanding shares is
changed into a different number or kind of shares or securities through a
reorganization or merger in which the Wells REIT is the surviving entity, or
through a combination, recapitalization or otherwise, an appropriate adjustment
will be made in the number and kind of shares that may be issued pursuant to
exercise of the Director Options. A corresponding adjustment to the exercise
price of the Director Options granted prior to any change will also be made. Any
such adjustment, however, will not change the total payment, if any, applicable
to the portion of the Director Options not exercised, but will change only the
exercise price for each share.
Options granted under the Director Option Plan shall lapse on the first
to occur of (1) the tenth anniversary of the date we grant them, (2) the removal
for cause of the independent director as a member of the board of directors, or
(3) three months following the date the independent director ceases to be a
director for any reason other than death or disability, and may be exercised by
payment of cash or through the delivery of common stock. Director Options
granted under the Director Option Plan are generally exercisable in the case of
death or disability for a period of one year after death or the disabling event.
No Director Option issued may be exercised if such exercise would jeopardize our
status as a REIT under the Internal Revenue Code.
35
The independent directors may not sell pledge, assign or transfer their
options other than by will or the laws of descent or distribution.
Upon the dissolution or liquidation of the Wells REIT, upon our
reorganization, merger or consolidation with one or more corporations as a
result of which we are not the surviving corporation or upon sale of all or
substantially all of our properties, the Director Option Plan will terminate,
and any outstanding Director Options will terminate and be forfeited. The board
of directors may provide in writing in connection with any such transaction for
any or all of the following alternatives:
. for the assumption by the successor corporation of the Director
Options granted or the replacement of the Director Options with
options covering the stock of the successor corporation, or a
parent or subsidiary of such corporation, with appropriate
adjustments as to the number and kind of shares and exercise
prices;
. for the continuance of the Director Option Plan and the Director
Options by such successor corporation under the original terms;
or
. for the payment in cash or shares of common stock in lieu of and
in complete satisfaction of such options.
Independent Director Warrant Plan
Our Independent Director Warrant Plan of the Wells REIT (Director
Warrant Plan) was approved by our shareholders at the annual shareholders
meeting held June 28, 2000. Our Director Warrant Plan provides for the issuance
of warrants to purchase shares of our common stock (Warrants) to independent
directors based on the number of shares of common stock that they purchase in
the future. The purpose of the Director Warrant Plan is to encourage our
independent directors to purchase shares of our common stock. Beginning on the
effective date of the Director Warrant Plan and continuing until the earlier to
occur of (1) the termination of the Director Warrant Plan by action of the board
of directors or otherwise, or (2) 5:00 p.m. EST on the date of listing of our
shares on a national securities exchange, each independent director will receive
one Warrant for every 25 shares of common stock he purchases. The exercise price
of the Warrants will be $12.00 per share.
A total of 500,000 Warrants have been authorized and reserved for
issuance under the Director Warrant Plan, each of which will be redeemable for
one share of our common stock. Upon our dissolution or liquidation, or upon a
reorganization, merger or consolidation, where we are not the surviving
corporation, or upon our sale of all or substantially all of our properties, the
Director Warrant Plan shall terminate, and any outstanding Warrants shall
terminate and be forfeited; provided, however, that holders of Warrants may
exercise any Warrants that are otherwise exercisable immediately prior to the
effective date of the dissolution, liquidation, consolidation or merger.
Notwithstanding the above, the board of directors may provide in writing in
connection with any such transaction for any or all of the following
alternatives: (1) for the assumption by the successor corporation of the
Warrants theretofore granted or the substitution by such corporation for such
Warrants of awards covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (2) for the continuance of the Director Warrant Plan by such
successor corporation in which event the Director Warrant Plan and the Warrants
shall continue in the manner and under the terms so provided; or (3) for the
payment in cash or shares in lieu of and in complete satisfaction of such
Warrants.
No Warrant may be sold, pledged, assigned or transferred by an
independent director in any manner other than by will or the laws of descent or
distribution. All Warrants exercised during the
36
independent director's lifetime shall be exercised only by the independent
director or his legal representative. Any transfer contrary to the Director
Warrant Plan will nullify and render void the Warrant. Notwithstanding any other
provisions of the Director Warrant Plan, Warrants granted under the Director
Warrant Plan shall continue to be exercisable in the case of death or disability
of the independent director for a period of one year after the death or
disabling event, provided that the death or disabling event occurs while the
person is an independent director. No Warrant issued may be exercised if such
exercise would jeopardize our status as a REIT under the Internal Revenue Code.
2000 Employee Stock Option Plan
Our 2000 Employee Stock Option Plan of the Wells REIT (Employee Option
Plan) was approved by our shareholders at the annual shareholders meeting held
June 28, 2000. Our Employee Option Plan is designed to enable Wells Capital and
Wells Management to obtain or retain the services of employees considered
essential to our long range success and the success of Wells Capital and Wells
Management by offering such employees an opportunity to participate in the
growth of the Wells REIT through ownership of our common stock.
The Employee Option Plan provides for the formation of a Compensation
Committee consisting of two or more of our independent directors. (See
"Committees of the Board of Directors.") The Compensation Committee shall
conduct the general administration of the Employee Option Plan. The Compensation
Committee is authorized to grant "non-qualified" stock options (Employee
Options) to selected employees of Wells Capital and Wells Management based upon
the recommendation of Wells Capital and subject to the absolute discretion of
the Compensation Committee and applicable limitations of the Employee Option
Plan. The exercise price for the Employee Options shall be the greater of (1)
$11.00 per share or (2) the fair market value of the shares on the date the
option is granted. A total of 750,000 shares have been authorized and reserved
for issuance under the Employee Option Plan.
The Compensation Committee shall set the term of the Employee Options
in its discretion, although no Employee Option shall have a term greater than
five years from the later of (i) the date our shares become listed on a national
securities exchange, or (ii) the date the Employee Option is granted. The
employee receiving Employee Options shall agree to remain in employment with his
employer for a period of one year after the Employee Option is granted. The
Compensation Committee shall set the period during which the right to exercise
an option vests in the holder of the option. No Employee Option issued may be
exercised, however, if such exercise would jeopardize our status as a REIT under
the Internal Revenue Code. In addition, no option may be sold, pledged, assigned
or transferred by an employee in any manner other than by will or the laws of
descent or distribution.
In the event that the Compensation Committee determines that any
dividend or other distribution, recapitalization, stock split, reorganization,
merger, liquidation, dissolution, or sale, transfer, exchange or other
disposition of all or substantially all of our assets, or other similar
corporate transaction or event, affects the shares such that an adjustment is
determined by the Compensation Committee to be appropriate in order to prevent
dilution or enlargement of the benefits or potential benefits intended to be
made available under the Employee Option Plan or with respect to an Employee
Option, then the Compensation Committee shall, in such manner as it may deem
equitable, adjust the number and kind of shares or the exercise price with
respect to any option.
Limited Liability and Indemnification of Directors, Officers, Employees and
Other Agents
Our organizational documents limit the personal liability of our
shareholders, directors and officers for monetary damages to the fullest extent
permitted under current Maryland Corporation Law. We also maintain a directors
and officers liability insurance policy. Maryland Corporation Law allows
37
directors and officers to be indemnified against judgments, penalties, fines,
settlements and expenses actually incurred in a proceeding unless the following
can be established:
. an act or omission of the director or officer was material to the
cause of action adjudicated in the proceeding, and was committed
in bad faith or was the result of active and deliberate
dishonesty;
. the director or officer actually received an improper personal
benefit in money, property or services; or
. with respect to any criminal proceeding, the director or officer
had reasonable cause to believe his act or omission was unlawful.
Any indemnification or any agreement to hold harmless is recoverable only out of
our assets and not from the shareholders. Indemnification could reduce the legal
remedies available to us and the shareholders against the indemnified
individuals, however.
This provision does not reduce the exposure of directors and officers
to liability under federal or state securities laws, nor does it limit the
shareholder's ability to obtain injunctive relief or other equitable remedies
for a violation of a director's or an officer's duties to us or our
shareholders, although the equitable remedies may not be an effective remedy in
some circumstances.
In spite of the above provisions of Maryland Corporation Law, our
articles of incorporation provide that the directors, Wells Capital and its
affiliates will be indemnified by us for losses arising from our operation only
if all of the following conditions are met:
. the directors, Wells Capital or its affiliates have determined,
in good faith, that the course of conduct which caused the loss
or liability was in our best interests;
. the directors, Wells Capital or its affiliates were acting on our
behalf or performing services for us;
. in the case of affiliated directors, Wells Capital or its
affiliates, the liability or loss was not the result of
negligence or misconduct by the party seeking indemnification;
. in the case of independent directors, the liability or loss was
not the result of gross negligence or willful misconduct by the
party seeking indemnification; and
. the indemnification or agreement to hold harmless is recoverable
only out of our net assets and not from the shareholders.
We have agreed to indemnify and hold harmless Wells Capital and its
affiliates performing services for us from specific claims and liabilities
arising out of the performance of its obligations under the advisory agreement.
As a result, we and our shareholders may be entitled to a more limited right of
action than they would otherwise have if these indemnification rights were not
included in the advisory agreement.
The general effect to investors of any arrangement under which any of
our controlling persons, directors or officers are insured or indemnified
against liability is a potential reduction in distributions resulting from our
payment of premiums associated with insurance. In addition, indemnification
could
38
reduce the legal remedies available to the Wells REIT and our shareholders
against the officers and directors.
The Securities and Exchange Commission takes the position that
indemnification against liabilities arising under the Securities Act of 1933 is
against public policy and unenforceable. Indemnification of the directors,
officers, Wells Capital or its affiliates will not be allowed for liabilities
arising from or out of a violation of state or federal securities laws, unless
one or more of the following conditions are met:
. there has been a successful adjudication on the merits of each
count involving alleged securities law violations;
. such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction; or
. a court of competent jurisdiction approves a settlement of the
claims against the indemnitee and finds that indemnification of
the settlement and the related costs should be made, and the
court considering the request for indemnification has been
advised of the position of the Securities and Exchange Commission
and of the published position of any state securities regulatory
authority in which the securities were offered as to
indemnification for violations of securities laws.
Indemnification will be allowed for settlements and related expenses of
lawsuits alleging securities laws violations and for expenses incurred in
successfully defending any lawsuits, provided that a court either:
. approves the settlement and finds that indemnification of the
settlement and related costs should be made; or
. dismisses with prejudice or there is a successful adjudication on
the merits of each count involving alleged securities law
violations as to the particular indemnitee and a court approves
the indemnification.
The Advisor
The advisor of the Wells REIT is Wells Capital. Some of our officers
and directors are also officers and directors of Wells Capital. Wells Capital
has contractual responsibility to the Wells REIT and its stockholders pursuant
to the advisory agreement.
The directors and executive officers of Wells Capital are as follows:
Name Age Position
---- --- --------
Leo F. Wells, III 56 President, Treasurer and sole director
Douglas P. Williams 50 Senior Vice President and Assistant Secretary
Stephen G. Franklin 53 Senior Vice President
Kim R. Comer 45 Vice President
Linda L. Carson 57 Vice President
Allen G. Delenick 44 Vice President
39
The backgrounds of Messrs. Wells and Williams are described in the
"Management -- Executive Officers and Directors" section of this prospectus.
Below is a brief description of the other executive officers of Wells Capital.
Stephen G. Franklin, Ph.D. is a Senior Vice President of Wells Capital.
Mr. Franklin is responsible for marketing, sales and coordination of
broker-dealer relations. Mr. Franklin also serves as Vice President of Wells
Real Estate Funds, Inc. Prior to joining Wells Capital in 1999, Mr. Franklin
served as President of Global Access Learning, an international executive
education and management development firm. From 1997 to 1999, Mr. Franklin
served as President, Chief Academic Officer and Director of EduTrek
International, a publicly traded provider of international post-secondary
education that owns the American InterContinental University, with campuses in
Atlanta, Ft. Lauderdale, Los Angeles, Washington, D.C., London and Dubai. While
at EduTrek, he was instrumental in developing the Masters and Bachelors of
Information Technology, International MBA and Adult Evening BBA programs. Prior
to joining EduTrek, Mr. Franklin was Associate Dean of the Goizueta Business
School at Emory University and a former tenured Associate Professor of Business
Administration. He served on the founding Executive MBA faculty, and has taught
graduate, undergraduate and executive courses in Management and Organizational
Behavior, Human Resources Management and Entrepreneurship. He is also co-founder
and Director of the Center for Healthcare Leadership in the Emory University
School of Medicine. Mr. Franklin was a frequent guest lecturer at universities
throughout North America, Europe and South Africa.
In 1984, Mr. Franklin took a sabbatical from Emory University and
became Executive Vice President and a principal shareholder of Financial Service
Corporation ("FSC"), an independent financial planning broker-dealer. Mr.
Franklin and the other shareholders of FSC later sold their interests in FSC to
Mutual of New York Life Insurance Company.
Kim R. Comer rejoined Wells Capital as National Vice President of
Marketing in April 1997 after working for Wells Capital in similar capacities
from January 1992 through September 1995. Mr. Comer currently serves as Vice
President and Director of Customer Care Services. In prior positions with Wells
Capital, he served as Vice President of Marketing for the southeast and
northeast regions. Mr. Comer has over ten years experience in the securities
industry and is a registered representative and financial principal with the
NASD. Additionally, he has substantial financial experience including experience
as controller and chief financial officer of two regional broker-dealers. In
1976, Mr. Comer graduated with honors from Georgia State University with a BBA
degree in accounting.
Linda L. Carson is a Vice President of Wells Capital. She is primarily
responsible for fund, property and corporate accounting, SEC reporting and
coordination of all audits by the independent public accountants. Ms. Carson
also serves as Secretary of Wells Investment Securities, Inc., our Dealer
Manager. Ms. Carson joined Wells Capital in 1989 as Staff Accountant, became
Controller in 1991 and assumed her current position in 1996. Prior to joining
Wells Capital, Ms. Carson was an accountant with an electrical distributor. She
is a graduate of City College of New York and has completed additional
accounting courses at Kennesaw State. She is also a member of the National
Society of Accountants.
Allen G. Delenick is a Vice President of Wells Capital. He is primarily
responsible for identifying and analyzing properties for acquisition by
conducting due diligence and preparing discounted cash flow analyses on
potential acquisitions. Prior to joining Wells Capital in 1998, Mr. Delenick
worked for Carter & Associates in Atlanta. In this capacity, he was responsible
for project financings, development analysis, acquisitions and dispositions
analysis, and occupancy cost analysis. Mr. Delenick previously worked for
Portman Properties in Atlanta and Rosewood Properties in Dallas. His primary
responsibilities included real estate financial analysis and acquisitions and
development due diligence.
40
He graduated from Lehigh University with a B.S. in business and economics. Mr.
Delenick also received an M.B.A. in finance and an M.S. in real estate from
Southern Methodist University.
Wells Capital employs personnel, in addition to the directors and
executive officers listed above, who have extensive experience in selecting and
managing commercial properties similar to the properties sought to be acquired
by the Wells REIT.
The Advisory Agreement
Many of the services to be performed by Wells Capital in managing our
day-to-day activities are summarized below. This summary is provided to
illustrate the material functions which Wells Capital will perform for us as our
advisor and it is not intended to include all of the services which may be
provided to us by third parties. Under the terms of the advisory agreement,
Wells Capital undertakes to use its best efforts to present to us investment
opportunities consistent with our investment policies and objectives as adopted
by the board of directors. In its performance of this undertaking, Wells
Capital, either directly or indirectly by engaging an affiliate, shall, subject
to the authority of the board:
. find, present and recommend to us real estate investment
opportunities consistent with our investment policies and
objectives;
. structure the terms and conditions of transactions pursuant to
which acquisitions of properties will be made;
. acquire properties on our behalf in compliance with our
investment objectives and policies;
. arrange for financing and refinancing of properties; and
. enter into leases and service contracts for the properties
acquired.
The term of the current advisory agreement ends on January 30, 2001 and
may be renewed for an unlimited number of successive one-year periods.
Additionally, the advisory agreement may be terminated:
. immediately by us for "cause" or upon the bankruptcy of Wells
Capital or a material breach of the advisory agreement by Wells
Capital;
. without cause by a majority of the independent directors of the
Wells REIT or a majority of the directors of Wells Capital upon
60 days' written notice; or
. immediately with "good reason" by Wells Capital.
"Good reason" is defined in the advisory agreement to mean either:
. any failure by us to obtain a satisfactory agreement from our
successor to assume and agree to perform our obligations under
the advisory agreement; or
. any material breach of the advisory agreement of any nature
whatsoever by us.
"Cause" is defined in the advisory agreement to mean fraud, criminal
conduct, willful misconduct or willful or negligent breach of fiduciary duty by
Wells Capital or a breach of the advisory agreement by Wells Capital.
41
Wells Capital and its affiliates expect to engage in other business
ventures and, as a result, their resources will not be dedicated exclusively to
our business. However, pursuant to the advisory agreement, Wells Capital must
devote sufficient resources to the administration of the Wells REIT to discharge
its obligations. Wells Capital may assign the advisory agreement to an affiliate
upon approval of a majority of the independent directors. We may assign or
transfer the advisory agreement to a successor entity.
Wells Capital may not make any acquisition of property or financing of
such acquisition on our behalf without the prior approval of a majority of our
independent directors. The actual terms and conditions of transactions involving
investments in properties shall be determined in the sole discretion of Wells
Capital, subject at all times to such board approval.
We will reimburse Wells Capital for all of the costs it incurs in
connection with the services it provides to us, including, but not limited to:
. organization and offering expenses in an amount up to 3.0% of
gross offering proceeds, which include actual legal, accounting,
printing and expenses attributable to preparing the SEC
registration statement, qualification of the shares for sale in
the states and filing fees incurred by Wells Capital, as well as
reimbursements for marketing, salaries and direct expenses of its
employees while engaged in registering and marketing the shares
and other marketing and organization costs, other than selling
commissions and the dealer manager fee;
. the annual cost of goods and materials used by us and obtained
from entities not affiliated with Wells Capital, including
brokerage fees paid in connection with the purchase and sale of
securities;
. administrative services including personnel costs; provided,
however, that no reimbursement shall be made for costs of
personnel to the extent that personnel are used in transactions
for which Wells Capital receives a separate fee; and
. acquisition expenses, which are defined to include expenses
related to the selection and acquisition of properties, at the
lesser of actual cost or 90% of competitive rates charged by
unaffiliated persons providing similar services.
Wells Capital must reimburse us at least annually for reimbursements
paid to Wells Capital in any year to the extent that such reimbursements to
Wells Capital cause our operating expenses to exceed the greater of (1) 2% of
our average invested assets, which generally consists of the average book value
of our real estate properties before reserves for depreciation or bad debts, or
(2) 25% of our net income, which is defined as our total revenues less total
expenses for any given period excluding reserves for depreciation and bad debt.
Such operating expenses do not include amounts payable out of capital
contributions which are capitalized for tax and accounting purposes such as the
acquisition and advisory fees payable to Wells Capital. To the extent that
operating expenses payable or reimbursable by us exceed this limit and the
independent directors determine that the excess expenses were justified based on
unusual and nonrecurring factors which they deem sufficient, Wells Capital may
be reimbursed in future years for the full amount of the excess expenses, or any
portion thereof, but only to the extent the reimbursement would not cause our
operating expenses to exceed the limitation in any year. Within 60 days after
the end of any of our fiscal quarters for which total operating expenses for the
12 months then ended exceed the limitation, there shall be sent to the
shareholders a written disclosure, together with an explanation of the factors
the independent directors considered in arriving at the conclusion that the
excess expenses were justified.
42
Wells Capital and its affiliates will be paid fees in connection with
services provided to us. (See "Management Compensation.") In the event the
advisory agreement is terminated, Wells Capital will be paid all accrued and
unpaid fees and expense reimbursements, and any subordinated acquisition fees
earned prior to the termination. We will not reimburse Wells Capital or its
affiliates for services for which Wells Capital or its affiliates are entitled
to compensation in the form of a separate fee.
Shareholdings
Wells Capital currently owns 20,000 limited partnership units of Wells
OP, our operating partnership, for which it contributed $200,000 and which
constitutes 100% of the limited partner units outstanding at this time. Wells
Capital may not sell any of these units during the period it serves as our
advisor. Wells Capital, also owns 100 shares of the Wells REIT, which it
acquired upon the initial formation of the Wells REIT. (See "The Operating
Partnership Agreement.") Any resale of the shares that Wells Capital currently
owns and the resale of any shares which may be acquired by our affiliates are
subject to the provisions of Rule 144 promulgated under the Securities Act of
1933, which rule limits the number of shares that may be sold at any one time
and the manner of such resale. Although Wells Capital and its affiliates are not
prohibited from acquiring additional shares, Wells Capital has no options or
warrants to acquire any additional shares and has no current plans to acquire
additional shares. Wells Capital has agreed to abstain from voting any shares it
now owns or hereafter acquires in any vote for the election of directors or any
vote regarding the approval or termination of any contract with Wells Capital or
any of its affiliates.
Affiliated Companies
Property Manager
Our properties will be managed and leased initially by Wells Management
Company, Inc. (Wells Management), our Property Manager. Wells Real Estate Funds,
Inc. is the sole shareholder of Wells Management, and Mr. Wells is the
President, Treasurer and sole director of Wells Management. (See "Conflicts of
Interest.") The other principal officers of Wells Management are as follows:
Name Age Positions
---- --- ---------
M. Scott Meadows 36 Senior Vice President and Secretary
Michael C. Berndt 53 Vice President and Chief Investment Officer
Michael L. Watson 55 Vice President
The background of Mr. Wells is described in the "Management --
Executive Officers and Directors" section of this prospectus. Below is a brief
description of the other executive officers of Wells Management.
M. Scott Meadows is a Senior Vice President and Secretary of Wells
Management. He is primarily responsible for the acquisition, operation,
management and disposition of real estate investments. Prior to joining Wells
Management in 1996, Mr. Meadows served as Senior Property Manager for The
Griffin Company, a full-service commercial real estate firm in Atlanta, where he
was responsible for managing a 500,000 square foot office and retail portfolio.
Mr. Meadows previously managed real estate as a Property Manager for Sea Pines
Plantation Company. He graduated from University of Georgia with a B.B.A. in
management. Mr. Meadows is a Georgia real estate broker and holds the Real
Property Administrator (RPA) designation of the Building Owners and Managers
Institute International. He is currently completing the final phase to receive
the Certified Property Manager (CPM) designation from the Institute of Real
Estate Management.
43
Michael C. Berndt is a Vice President and Chief Investment Officer of
Wells Management. He is primarily responsible for performing due diligence on
properties for acquisition, reviewing all major leasing activities and
development and being the primary contact for Wells Management's banks,
attorneys, and outside accountants. Prior to joining Wells Management in 1996,
Mr. Berndt held several positions with financial, investment and real estate
organizations, including Ernst & Young (formerly Ernst & Ernst) and Roe, Martin
& Neiman, Inc., a registered investment advisory firm. He also primarily served
as in-house counsel and Senior Vice President of Acquisitions for Combined
Equities, Inc. and President of Phoenix Financial Corporation, an NASD broker-
dealer. He graduated from Samford University with a B.S. in Accounting. Mr.
Berndt also received a J.D. from Cumberland Law School and an LL.M. in Taxation
from New York University School of Law. Mr. Berndt is a licensed attorney in the
State of Alabama and a Certified Public Accountant.
Michael L. Watson is a Vice President of Wells Management. He is
primarily responsible for overseeing construction and tenant improvement
projects including design, engineering, and progress-monitoring functions. Prior
to joining Wells Management in 1995, Mr. Watson was Senior Project Manager with
Abrams Construction in Atlanta from 1982 to 1995. His primary responsibilities
included supervising a variety of projects consisting of high-rise office
buildings, military bases, state projects, and neighborhood shopping centers. He
graduated from University of Miami with a B.S. in Civil Engineering.
Wells Management is engaged in the business of real estate management.
It was organized and commenced active operations in 1983 to lease and manage
real estate projects which Wells Capital and its affiliates operate or in which
they own an interest. As of September 30, 2000, Wells Management was managing in
excess of 4,293,000 square feet of office buildings and shopping centers. We
will pay Wells Management property management and leasing fees not exceeding the
lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the net asset value of the
properties (excluding vacant properties) owned by the Wells REIT, calculated on
an annual basis. For purposes of this calculation, net asset value shall be
defined as the excess of (1) the aggregate of the fair market value of all
properties owned by the Wells REIT (excluding vacant properties), over (2) the
aggregate outstanding debt of the Wells REIT (excluding debts having maturities
of one year or less). In addition, we may pay Wells Management a separate fee
for the one-time initial rent-up or leasing-up of newly constructed properties
in an amount not to exceed the fee customarily charged in arm's length
transactions by others rendering similar services in the same geographic area
for similar properties as determined by a survey of brokers and agents in such
area (customarily equal to the first month's rent).
In the event that Wells Management assists a tenant with tenant
improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5.0% of the cost of the tenant improvements.
Wells Management derives all of its income from its property management
and leasing operations. For the fiscal year ended December 31, 1999, Wells
Management reported $1,983,066 in gross operating revenues and $400,937 in net
income.
Wells Management will hire, direct and establish policies for employees
who will have direct responsibility for each property's operations, including
resident managers and assistant managers, as well as building and maintenance
personnel. Some or all of the other employees may be employed on a part-time
basis and may also be employed by one or more of the following:
. Wells Capital;
. Wells Management;
44
. partnerships organized by Wells Management and its affiliates;
and
. other persons or entities owning properties managed by Wells
Management.
Wells Management will also direct the purchase of equipment and supplies and
will supervise all maintenance activity.
The management fees to be paid to Wells Management will cover, without
additional expense to the Wells REIT, the property manager's general overhead
costs such as its expenses for rent and utilities.
The principal office of Wells Management is located at 6200 The Corners
Parkway, Suite 250, Norcross, Georgia 30092.
Dealer Manager
Wells Investment Securities, Inc. (Wells Investment Securities), our
Dealer Manager, is a member firm of the National Association of Securities
Dealers, Inc. (NASD). Wells Investment Securities was organized in May 1984 for
the purpose of participating in and facilitating the distribution of securities
of Wells programs.
Wells Investment Securities will provide certain wholesaling, sales
promotional and marketing assistance services to the Wells REIT in connection
with the distribution of the shares offered pursuant to this prospectus. It may
also sell a limited number of shares at the retail level. (See "Plan of
Distribution" and "Management Compensation.")
Wells Real Estate Funds, Inc. is the sole shareholder of Wells
Investment Securities, and Mr. Wells is the President, Treasurer and sole
director of Wells Investment Securities. (See "Conflicts of Interest.")
IRA Custodian
Wells Advisors, Inc. (Wells Advisors) was organized in 1991 for the
purpose of acting as a non-bank custodian for IRAs investing in the securities
of Wells real estate programs. Wells Advisors currently charges no fees for such
services. Wells Advisors was approved by the Internal Revenue Service to act as
a qualified non-bank custodian for IRAs on March 20, 1992. In circumstances
where Wells Advisors acts as an IRA custodian, the authority of Wells Advisors
is limited to holding limited partnership units or REIT shares on behalf of the
beneficiary of the IRA and making distributions or reinvestments in such units
or shares solely at the direction of the beneficiary of the IRA. Well Advisors
is not authorized to vote any of such units or shares held in any IRA except in
accordance with the written instructions of the beneficiary of the IRA. Mr.
Wells is the President and sole director and owns 50% of the common stock and
all of the preferred stock of Wells Advisors. As of September 30, 2000, Wells
Advisors was acting as the IRA custodian for in excess of $85,843,000 in Wells
real estate program investments.
Management Decisions
The primary responsibility for the management decisions of Wells
Capital and its affiliates, including the selection of investment properties to
be recommended to our board of directors, the negotiation for these investments,
and the property management and leasing of these investment properties will
reside in Leo F. Wells, III, Douglas P. Williams, M. Scott Meadows, Michael C.
Berndt and Allen G. Delenick. Wells Capital seeks to invest in commercial
properties that satisfy our investment objectives, typically office buildings
located in densely populated suburban markets in which the major
45
tenant is a company with a net worth of in excess of $100,000,000. The board of
directors must approve all acquisitions of real estate properties.
Management Compensation
The following table summarizes and discloses all of the compensation
and fees, including reimbursement of expenses, to be paid by the Wells REIT to
Wells Capital and its affiliates.
Form of
Compensation Estimated
and Entity Determination Maximum
Receiving of Amount Dollar Amount(1)
--------- --------- ----------------
Organizational and Offering Stage
Selling Up to 7.0% of gross offering proceeds before reallowance $94,500,000
Commissions - of commissions earned by participating broker-dealers.
Wells Investment Wells Investment Securities, our Dealer Manager, intends
Securities to reallow 100% of commissions earned to participating
broker-dealers.
Dealer Manager Up to 2.5% of gross offering proceeds before reallowance $33,750,000
Fee - Wells to participating broker-dealers. Wells Investment
Investment Securities, in its sole discretion, may reallow a portion
Securities of its dealer manager fee of up to 1.5% of the gross
offering proceeds to be paid to such participating
broker-dealers as a marketing fee and due diligence
expense reimbursement, based on such factors as the volume
of shares sold by such participating broker-dealers,
marketing support and bona fide conference fees incurred.
Reimbursement Up to 3.0% of gross offering proceeds. All organization $18,600,000
of Organization and offering expenses (excluding selling commissions and
and Offering the dealer manager fee) will be advanced by Wells Capital
Expenses - Wells or its affiliates and reimbursed by the Wells REIT up to
Capital or its 3.0% of gross offering proceeds. We currently estimate
Affiliates that approximately $18,600,000 of organization and
offering costs will be incurred if the maximum offering of
135,000,000 shares is sold.
Acquisition and Development Stage
Acquisition and Up to 3.0% of gross offering proceeds for the review and $40,500,000
Advisory evaluation of potential real property acquisitions.
Fees - Wells
Capital or its
Affiliates (2)
Reimbursement Up to 0.5% of gross offering proceeds for reimbursement $6,750,000
of Acquisition of expenses related to real property acquisitions,
Expenses - Wells such as legal fees, travel expenses, property appraisals,
Capital or its title insurance premium expenses and other closing costs.
Affiliates (2)
46
Operational Stage
Property For the management and leasing of our properties, we will Actual amounts
Management and pay Wells Management, our Property Manager, property are dependent
Leasing Fees - management and leasing fees equal to 4.5% of gross upon results of
Wells revenues; provided, however, that aggregate property operations and
management and leasing fees payable to Wells therefore cannot
Management may not exceed the lesser of: (A) 4.5% of be determined at
gross revenues, or (B) 0.6% of the net asset value of the the present time.
properties (excluding vacant properties) owned by the Wells
REIT, calculated on an annual basis. For purposes of this
calculation, net asset value shall be defined as the excess of
(1) the aggregate of the fair market value of all properties
owned by the Wells REIT (excluding vacant properties), over (2)
the aggregate outstanding debt of the Wells REIT (excluding
debts having maturities of one year or less). In addition, we
may pay Wells Management a separate fee for the one-time
initial rent-up or leasing-up of newly constructed properties
in an amount not to exceed the fee customarily charged in arm's
length transactions by others rendering
similar services in the same geographic area for similar
properties as determined by a survey of brokers and agents in
such area (customarily equal to the first month's rent).
Real Estate In connection with the sale of properties, an amount not Actual amounts
Commissions - exceeding the lesser of: (A) 50% of the reasonable, are dependent
Wells Capital or customary and competitive real estate brokerage upon results of
its Affiliates commissions customarily paid for the sale of a operations and
comparable property in light of the size, type and location therefore cannot
of the property, or (B) 3.0% of the contract price of each be determined at
property sold, subordinated to distributions to the present time.
investors from sale proceeds of an amount which, together
with prior distributions to the investors, will equal (1)
100% of their capital contributions plus (2) an 8.0%
annual cumulative, noncompounded return on their net
capital contributions.
Subordinated After investors have received a return of their net capital Actual amounts
Participation in contributions and an 8.0% per year cumulative, are dependent
Net Sale noncompounded return, then Wells Capital is entitled to upon results of
Proceeds - Wells receive 10.0% of remaining net sale proceeds. operations and
Capital (3) therefore cannot
be determined at
the present time.
47
Subordinated Upon listing, a fee equal to 10.0% of the amount by which Actual amounts
Incentive (1) the market value of the outstanding stock of the Wells are dependent
Listing Fee - REIT plus distributions paid by the Wells REIT prior to upon results of
Wells Capital listing, exceeds (2) the sum of the total amount of capital operations and
(4)(5) raised from investors and the amount of cash flow therefore cannot
necessary to generate an 8.0% per year cumulative, be determined at
noncompounded return to investors. the present time.
The Wells REIT may not reimburse any entity for
operating expenses in excess of the greater of 2% of our
average invested assets or 25% of our net income for the
year.
___________________________
(Footnotes to "Management Compensation")
1. The estimated maximum dollar amounts are based on the sale of a maximum
of 125,000,000 shares to the public at $10 per share and the sale of
10,000,000 shares at $10 per share pursuant to our dividend reinvestment
plan.
2. Notwithstanding the method by which we calculate the payment of
acquisition fees and expenses, as described in the table, the total of
all such acquisition fees and acquisition expenses shall not exceed, in
the aggregate, an amount equal to 6.0% of the contract price of all of
the properties which we will purchase, as required by the NASAA
Guidelines.
3. The subordinated participation in net sale proceeds and the subordinated
incentive listing fee to be received by Wells Capital are mutually
exclusive of each other. In the event that the Wells REIT becomes listed
and Wells Capital receives the subordinated incentive listing fee prior
to its receipt of the subordinated participation in net sale proceeds,
Wells Capital shall not be entitled to any such participation in net
sale proceeds.
4. If at any time the shares become listed on a national securities
exchange or included for quotation on Nasdaq, we will negotiate in good
faith with Wells Capital a fee structure appropriate for an entity with
a perpetual life. A majority of the independent directors must approve
the new fee structure negotiated with Wells Capital. In negotiating a
new fee structure, the independent directors shall consider all of the
factors they deem relevant, including but not limited to:
. the size of the advisory fee in relation to the size, composition
and profitability of our portfolio;
. the success of Wells Capital in generating opportunities that
meet our investment objectives;
. the rates charged to other REITs and to investors other than
REITs by advisors performing similar services;
. additional revenues realized by Wells Capital through their
relationship with us;
. the quality and extent of service and advice furnished by Wells
Capital;
48
. the performance of our investment portfolio, including income,
conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations;
and
. the quality of our portfolio in relationship to the investments
generated by Wells Capital for the account of other clients.
The board, including a majority of the independent directors, may not
approve a new fee structure that is, in its judgment, more favorable to
Wells Capital than the current fee structure.
5. The market value of the outstanding stock of the Wells REIT will be
calculated based on the average market value of the shares issued and
outstanding at listing over the 30 trading days beginning 180 days after
the shares are first listed on a stock exchange.
We have the option to pay the listing fee in the form of stock, cash, a
promissory note or any combination thereof. In the event the
subordinated incentive listing fee is paid to Wells Capital as a result
of the listing of the shares, we will not be required to pay Wells
Capital any further subordinated participation in net sale proceeds.
In addition, Wells Capital and its affiliates will be reimbursed only
for the actual cost of goods, services and materials used for or by the Wells
REIT. Wells Capital may be reimbursed for the administrative services necessary
to the prudent operation of the Wells REIT provided that the reimbursement shall
be at the lower of the advisor's actual cost or the amount the Wells REIT would
be required to pay to independent parties for comparable administrative services
in the same geographic location. We will not reimburse Wells Capital or its
affiliates for services for which they are entitled to compensation by way of a
separate fee.
Since Wells Capital and its affiliates are entitled to differing levels
of compensation for undertaking different transactions on behalf of the Wells
REIT such as the property management fees for operating the properties and the
subordinated participation in net sale proceeds, the advisor has the ability to
affect the nature of the compensation it receives by undertaking different
transactions. However, Wells Capital is obligated to exercise good faith and
integrity in all its dealings with respect to our affairs pursuant to the
advisory agreement. (See "Management -- The Advisory Agreement.") Because these
fees or expenses are payable only with respect to certain transactions or
services, they may not be recovered by Wells Capital or its affiliates by
reclassifying them under a different category.
Stock Ownership
The following table shows, as of September 30, 2000, the amount of our
common stock beneficially owned (unless otherwise indicated) by (1) any person
who is known by us to be the beneficial owner of more than 5% of the outstanding
shares of common stock, (2) our directors, (3) our executive officers, and (4)
all of our directors and executive officers as a group.
----------------------------------------------------------------------- ------------------------------------------
Shares Beneficially Owned
----------------------------------------------------------------------- ------------------ -----------------------
Shares Percentage
----------------------------------------------------------------------- ------------------ -----------------------
Name and Address of Beneficial Owner
----------------------------------------------------------------------- ------------------ -----------------------
Leo F. Wells, III (1) 344 *
6200 The Corners Parkway, Suite 250
Norcross, GA 30092
----------------------------------------------------------------------- ------------------ -----------------------
Douglas P. Williams (1) 100 *
6200 The Corners Parkway, Suite 250
Norcross, GA 30092
----------------------------------------------------------------------- ------------------ -----------------------
49
----------------------------------------------------------------------- ------------------------------------------
Shares Beneficially Owned
----------------------------------------------------------------------- ------------------ -----------------------
Shares Percentage
----------------------------------------------------------------------- ------------------ -----------------------
John L. Bell (2) 1,000 *
800 Mt. Vernon Highway, Suite 230
Atlanta, GA 30328
----------------------------------------------------------------------- ------------------ -----------------------
Richard W. Carpenter (2) 1,000 *
Realmark Holdings Corporation
P.O. Box 421669 (30342)
5570 Glenridge Drive
Atlanta, GA 30342
----------------------------------------------------------------------- ------------------ -----------------------
Bud Carter (2) 1,000 *
The Executive Committee
100 Mount Shasta Lane
Alpharetta, GA 30022-5440
----------------------------------------------------------------------- ------------------ -----------------------
William H. Keogler, Jr. (2) 1,000 *
469 Atlanta Country Club Drive
Marietta, GA 30067
----------------------------------------------------------------------- ------------------ -----------------------
Donald S. Moss (2) 12,378 *
114 Summerour Vale
Duluth, GA 30097
----------------------------------------------------------------------- ------------------ -----------------------
Walter W. Sessoms (2) 3,761 *
5995 River Chase Circle NW
Atlanta, GA 30328
----------------------------------------------------------------------- ------------------ -----------------------
Neil H. Strickland (2) 1,000 *
Strickland General Agency, Inc.
3109 Crossing Park
P.O. Box 129
Norcross, GA 30091
----------------------------------------------------------------------- ------------------ -----------------------
Northern Trust Co., Custodian for 2,230,262 8.52%
Wayne County Employees'
Retirement System
Attn: Laura Santiago
P.O. Box 92996
Chicago, IL 60675
----------------------------------------------------------------------- ------------------ -----------------------
Police & Fireman Retirement System 2,083,333 7.96%
City of Detroit
Attn: Ronald J. Stempin
908 Coleman A. Young Municipal Center
Detroit, MI 48226
----------------------------------------------------------------------- ------------------ -----------------------
All directors and executive officers 21,139 *
as a group /(1)(3)/
----------------------------------------------------------------------- ------------------ -----------------------
* Less than 1% of the outstanding common stock.
(1) Includes 100 shares owned by Wells Capital, which is a wholly-owned
subsidiary of Wells Real Estate Funds, Inc. Messrs. Wells and Williams are
both control persons of Wells Capital, and Mr. Wells is a control person of
Wells Real Estate Funds, Inc. Mr. Williams disclaims beneficial ownership
of the shares owned by Wells Capital.
50
(2) Includes options to purchase up to 1,000 shares of common stock, which
are exercisable within 60 days of September 30, 2000.
(3) Includes options to purchase an aggregate of up to 7,000 shares of common
stock, which are exercisable within 60 days of September 30, 2000.
Conflicts of Interest
We are subject to various conflicts of interest arising out of our
relationship with Wells Capital, our advisor, and its affiliates, including
conflicts related to the arrangements pursuant to which Wells Capital and its
affiliates will be compensated by the Wells REIT. (See "Management
Compensation.")
The independent directors have an obligation to function on our behalf
in all situations in which a conflict of interest may arise and will have a
fiduciary obligation to act on behalf of the shareholders. These conflicts
include, but are not limited to, the following:
Interests in Other Real Estate Programs
Wells Capital and its affiliates are general partners of other Wells
programs, including partnerships which have investment objectives similar to
those of the Wells REIT, and we expect that they will organize other such
partnerships in the future. Wells Capital and such affiliates have legal and
financial obligations with respect to these partnerships which are similar to
their obligations to the Wells REIT. As general partners, they may have
contingent liability for the obligations of such partnerships as well as those
of the Wells REIT which, if such obligations were enforced against them, could
result in substantial reduction of their net worth.
Wells Capital and its affiliates are currently sponsoring a real
estate program known as Wells Real Estate Fund XII, L.P. (Wells Fund XII). The
registration statement of Wells Fund XII was declared effective by the
Securities and Exchange Commission (SEC) on March 22, 1999 for the offer and
sale to the public of up to 7,000,000 units of limited partnership interest at a
price of $10.00 per unit. In addition, the initial registration statement of
Wells Real Estate Fund XIII, L.P. (Wells Fund XIII) was filed with the SEC on
October 31, 2000 for the registration of up to 4,500,000 units of limited
partnership interest at a price of $10 per unit. It is intended that the
registration of Wells Fund XIII become effective immediately following the
termination of the offering of Wells Fund XII, which will occur on or about
March 21, 2001.
As described in the "Prior Performance Summary," Wells Capital and its
affiliates have sponsored the following 13 other public real estate programs
with substantially identical investment objectives as those of the Wells REIT:
1. Wells Real Estate Fund I (Wells Fund I),
2. Wells Real Estate Fund II (Wells Fund II),
3. Wells Real Estate Fund II-OW (Wells Fund II-OW),
4. Wells Real Estate Fund III, L.P. (Wells Fund III),
5. Wells Real Estate Fund IV, L.P. (Wells Fund IV),
6. Wells Real Estate Fund V, L.P. (Wells Fund V),
7. Wells Real Estate Fund VI, L.P. (Wells Fund VI),
8. Wells Real Estate Fund VII, L.P. (Wells Fund VII),
9. Wells Real Estate Fund VIII, L.P. (Wells Fund VIII),
10. Wells Real Estate Fund IX, L.P. (Wells Fund IX),
11. Wells Real Estate Fund X, L.P. (Wells Fund X),
12. Wells Real Estate Fund XI, L.P. (Wells Fund XI), and
13. Wells Real Estate Fund XII, L.P. (Wells Fund XII).
In the event that the Wells REIT, or any other Wells program or other
entity formed or managed by Wells Capital or its affiliates is in the market for
similar properties, Wells Capital will review the
51
investment portfolio of each such affiliated entity prior to making a decision
as to which Wells program will purchase such properties. (See "Certain Conflict
Resolution Procedures.")
Wells Capital may acquire, for its own account or for private
placement, properties which it deems not suitable for purchase by the Wells
REIT, whether because of the greater degree of risk, the complexity of
structuring inherent in such transactions, financing considerations or for other
reasons, including properties with potential for attractive investment returns.
Other Activities of Wells Capital and its Affiliates
We rely on Wells Capital for the day-to-day operation of our business.
As a result of its interests in other Wells programs and the fact that it has
also engaged and will continue to engage in other business activities, Wells
Capital and its affiliates will have conflicts of interest in allocating their
time between the Wells REIT and other Wells programs and activities in which
they are involved. (See "Risk Factors -- Investment Risks.") However, Wells
Capital believes that it and its affiliates have sufficient personnel to
discharge fully their responsibilities to all of the Wells programs and ventures
in which they are involved.
In addition to the real estate programs sponsored by Wells Capital and
its affiliates discussed above, they are also sponsoring an index mutual fund
which invests in various REIT stocks known as the Wells S&P REIT Index Fund
(REIT Fund). The REIT Fund is a mutual fund which seeks to provide investment
results corresponding to the performance of the S&P REIT Index by investing in
the REIT stocks included in the S&P REIT Index.
Wells Capital or any of its affiliates may temporarily enter into
contracts relating to investment in properties to be assigned to the Wells REIT
prior to closing or may purchase property in their own name and temporarily hold
title for the Wells REIT provided that such property is purchased by the Wells
REIT at a price no greater than the cost of such property, including acquisition
and carrying costs, to Wells Capital or the affiliate. Further, Wells Capital or
such affiliate may not have held title to any such property on our behalf for
more than 12 months prior to the commencement of this offering; Wells Capital or
its affiliates shall not sell property to the Wells REIT if the cost of the
property exceeds the funds reasonably anticipated to be available for the Wells
REIT to purchase any such property; and all profits and losses during the period
any such property is held by the Wells REIT or its affiliates will accrue to the
Wells REIT. In no event may the Wells REIT:
. loan funds to Wells Capital or any of its affiliates; or
. enter into agreements with Wells Capital or its affiliates for
the provision of insurance covering the Wells REIT or any of
our properties.
Competition
Conflicts of interest will exist to the extent that we may acquire
properties in the same geographic areas where properties owned by other Wells
programs are located. In such a case, a conflict could arise in the leasing of
properties in the event that the Wells REIT and another Wells program were to
compete for the same tenants in negotiating leases, or a conflict could arise in
connection with the resale of properties in the event that the Wells REIT and
another Wells program were to attempt to sell similar properties at the same
time. (See "Risk Factors -- Investment Risks"). Conflicts of interest may also
exist at such time as the Wells REIT or our affiliates managing property on our
behalf seek to employ developers, contractors or building managers as well as
under other circumstances. Wells Capital will seek to reduce conflicts relating
to the employment of developers, contractors or building managers by making
prospective employees aware of all such properties seeking to employ such
persons. In
52
addition, Wells Capital will seek to reduce conflicts which may arise with
respect to properties available for sale or rent by making prospective
purchasers or tenants aware of all such properties. However, these conflicts
cannot be fully avoided in that Wells Capital may establish differing
compensation arrangements for employees at different properties or differing
terms for resales or leasing of the various properties.
Affiliated Dealer Manager
Since Wells Investment Securities, our Dealer Manager, is an affiliate
of Wells Capital, we will not have the benefit of an independent due diligence
review and investigation of the type normally performed by an unaffiliated,
independent underwriter in connection with the offering of securities. (See
"Plan of Distribution.")
Affiliated Property Manager
Since we anticipate that properties we acquire will be managed and
leased by Wells Management, our Property Manager, we will not have the benefit
of independent property management. (See "Management -- Affiliated Companies.")
Lack of Separate Representation
Holland & Knight LLP is counsel to the Wells REIT, Wells Capital,
Wells Investment Securities and their affiliates in connection with this
offering and may in the future act as counsel to the Wells REIT, Wells Capital,
Wells Investment Securities and their affiliates. There is a possibility that in
the future the interests of the various parties may become adverse. In the event
that a dispute were to arise between the Wells REIT and Wells Capital, Wells
Investment Securities or any of their affiliates, separate counsel for such
matters will be retained as and when appropriate.
Joint Ventures with Affiliates of Wells Capital
We have entered into joint ventures with other Wells programs to
acquire and own properties and are likely to enter into one or more joint
venture agreements with other Wells programs for the acquisition, development or
improvement of properties. (See "Investment Objectives and Criteria -- Joint
Venture Investments.") Wells Capital and its affiliates may have conflicts of
interest in determining which Wells program should enter into any particular
joint venture agreement. The co-venturer may have economic or business interests
or goals which are or which may become inconsistent with our business interests
or goals. In addition, should any such joint venture be consummated, Wells
Capital may face a conflict in structuring the terms of the relationship between
our interests and the interest of the affiliated co-venturer and in managing the
joint venture. Since Wells Capital and its affiliates will control both the
Wells REIT and the affiliated co-venturer, agreements and transactions between
the co-venturers with respect to any such joint venture will not have the
benefit of arm's-length negotiation of the type normally conducted between
unrelated co-venturers. (See "Risk Factors -- Investment Risks.")
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates
A transaction involving the purchase and sale of properties may result
in the receipt of commissions, fees and other compensation by Wells Capital and
its affiliates, including acquisition and advisory fees, the dealer manager fee,
property management and leasing fees, real estate brokerage commissions, and
participation in nonliquidating net sale proceeds. However, the fees and
compensation payable to Wells Capital and its affiliates relating to the sale of
properties are subordinated to the return to the shareholders of their capital
contributions plus cumulative returns on such capital. Subject to oversight by
the board of directors, Wells Capital has considerable discretion with respect
to all decisions
53
relating to the terms and timing of all transactions. Therefore, Wells Capital
may have conflicts of interest concerning certain actions taken on our behalf,
particularly due to the fact that such fees will generally be payable to Wells
Capital and its affiliates regardless of the quality of the properties acquired
or the services provided to the Wells REIT. (See "Management Compensation.")
Every transaction we enter into with Wells Capital or its affiliates
is subject to an inherent conflict of interest. The board may encounter
conflicts of interest in enforcing our rights against any affiliate in the event
of a default by or disagreement with an affiliate or in invoking powers, rights
or options pursuant to any agreement between us and any affiliate. A majority of
the independent directors who are otherwise disinterested in the transaction
must approve each transaction between us and Wells Capital or any of its
affiliates as being fair and reasonable to us and on terms and conditions no
less favorable to us than those available from unaffiliated third parties.
Certain Conflict Resolution Procedures
In order to reduce or eliminate certain potential conflicts of
interest, our articles of incorporation contain a number of restrictions
relating to (1) transactions we enter into with Wells Capital and its
affiliates, (2) certain future offerings, and (3) allocation of properties among
affiliated entities. These restrictions include, among others, the following:
. We will not accept goods or services from Wells Capital or its
affiliates unless a majority of the directors, including a
majority of the independent directors, not otherwise
interested in the transactions approve such transactions as
fair and reasonable to the Wells REIT and on terms and
conditions not less favorable to the Wells REIT than those
available from unaffiliated third parties.
. We will not purchase or lease properties in which Wells
Capital or its affiliates has an interest without a
determination by a majority of the directors, including a
majority of the independent directors, not otherwise
interested in such transaction, that such transaction is
competitive and commercially reasonable to the Wells REIT and
at a price to the Wells REIT no greater than the cost of the
property to Wells Capital or its affiliates unless there is
substantial justification for any amount that exceeds such
cost and such excess amount is determined to be reasonable. In
no event will we acquire any such property at an amount in
excess of its appraised value. We will not sell or lease
properties to Wells Capital or its affiliates or to our
directors unless a majority of the directors, including a
majority of the independent directors, not otherwise
interested in the transaction, determine the transaction is
fair and reasonable to the Wells REIT.
. We will not make any loans to Wells Capital or its affiliates
or to our directors. In addition, Wells Capital and its
affiliates will not make loans to us or to joint ventures in
which we are a joint venture partner for the purpose of
acquiring properties. Any loans made to us by Wells Capital or
its affiliates or to our directors for other purposes must be
approved by a majority of the directors, including a majority
of the independent directors, not otherwise interested in the
transaction, as fair, competitive and commercially reasonable,
and no less favorable to the Wells REIT than comparable loans
between unaffiliated parties. Wells Capital and its affiliates
shall be entitled to reimbursement, at cost, for actual
expenses incurred by them on behalf of the Wells REIT or joint
ventures in which we are a joint venture partner, subject to
the limitation on reimbursement of operating expenses to the
extent that they exceed the greater of 2% of our average
invested assets or 25% of our net income, as described in the
"Management-- The Advisory Agreement" section of this
prospectus.
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. In the event that an investment opportunity becomes available
which is suitable, under all of the factors considered by
Wells Capital, for the Wells REIT and one or more other public
or private entities affiliated with Wells Capital and its
affiliates, then the entity which has had the longest period
of time elapse since it was offered an investment opportunity
will first be offered such investment opportunity. In
determining whether or not an investment opportunity is
suitable for more than one program, Wells Capital, subject to
approval by the board of directors, shall examine, among
others, the following factors:
. the cash requirements of each program;
. the effect of the acquisition both on diversification
of each program's investments by type of commercial
property and geographic area, and on diversification
of the tenants of its properties;
. the policy of each program relating to leverage of
properties;
. the anticipated cash flow of each program;
. the income tax effects of the purchase of each
program;
. the size of the investment; and
. the amount of funds available to each program and the
length of time such funds have been available for
investment.
If a subsequent development, such as a delay in the closing of a
property or a delay in the construction of a property, causes any such
investment, in the opinion of our board of directors and Wells Capital, to be
more appropriate for a program other than the program that committed to make the
investment, Wells Capital may determine that another program affiliated with
Wells Capital or its affiliates will make the investment. Our board of directors
has a duty to ensure that the method used by Wells Capital for the allocation of
the acquisition of properties by two or more affiliated programs seeking to
acquire similar types of properties shall be reasonable.
Investment Objectives and Criteria
General
We invest in commercial real estate properties, including properties
which are under development or construction, are newly constructed or have been
constructed and have operating histories. Our investment objectives are:
. to maximize cash dividends paid to you;
. to preserve, protect and return your capital contributions;
. to realize growth in the value of our properties upon our
ultimate sale of such properties; and
. to provide you with liquidity of your investment by listing
the shares on a national exchange or, if we do not obtain
listing of the shares by January 30, 2008, by selling our
properties and distributing the net proceeds from such sales
to you.
55
We cannot assure you that we will attain these objectives or that our capital
will not decrease. We may not change our investment objectives, except upon
approval of shareholders holding a majority of the shares.
Decisions relating to the purchase or sale of properties will be made
by Wells Capital, as our advisor, subject to approval by the board of directors.
See "Management" for a description of the background and experience of the
directors and executive officers.
Acquisition and Investment Policies
We will seek to invest substantially all of the offering proceeds
available for investment after the payment of fees and expenses in the
acquisition of high grade commercial office buildings, which are newly
constructed, under construction, or which have been previously constructed and
have operating histories. We are not limited to such investments, however. We
may invest in other commercial properties such as shopping centers, business and
industrial parks, manufacturing facilities and warehouse and distribution
facilities. We will primarily attempt to acquire commercial properties which are
less than five years old, the space in which has been leased or preleased to one
or more large corporate tenants who satisfy our standards of creditworthiness.
(See "Terms of Leases and Tenant Creditworthiness.") The trend of Wells Capital
and its affiliates in the most recently sponsored Wells programs, including the
Wells REIT, has been to invest primarily in office buildings located in densely
populated suburban markets. (See "Description of Properties" and "Prior
Performance Summary.")
We will seek to invest in properties that will satisfy the primary
objective of providing cash dividends to shareholders. However, because a
significant factor in the valuation of income-producing real properties is their
potential for future income, we anticipate that the majority of properties we
acquire will have both the potential for growth in value and providing cash
dividends to shareholders. To the extent feasible, we will strive to invest in a
diversified portfolio of properties, in terms of geography, type of property and
industry group of our tenants, that will satisfy our investment objectives of
maximizing cash available for payment of dividends, preserving our capital and
realizing growth in value upon the ultimate sale of our properties.
We anticipate that a minimum of 84% of the proceeds from the sale of
shares will be used to acquire real estate properties and the balance will be
used to pay various fees and expenses. (See "Estimated Use of Proceeds.")
We will not invest more than 10% of the net offering proceeds
available for investment in properties in unimproved or non-income producing
properties. A property which is expected to produce income within two years of
its acquisition will not be considered a non-income producing property.
Our investment in real estate generally will take the form of holding
fee title or a long-term leasehold estate. We will acquire such interests either
directly in Wells OP (See "The Operating Partnership Agreement") or indirectly
through limited liability companies or through investments in joint ventures,
general partnerships, co-tenancies or other co-ownership arrangements with the
developers of the properties, affiliates of Wells Capital or other persons. (See
"Joint Venture Investments" below.) In addition, we may purchase properties and
lease them back to the sellers of such properties. While we will use our best
efforts to structure any such sale-leaseback transaction such that the lease
will be characterized as a "true lease" so that we will be treated as the owner
of the property for federal income tax purposes, we cannot assure you that the
IRS will not challenge such characterization. In the event that any such
sale-leaseback transaction is recharacterized as a financing transaction for
federal income tax purposes, deductions for depreciation and cost recovery
relating to such property would be disallowed. (See "Federal Income Tax
Considerations -- Sale-Leaseback Transactions.")
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Although we are not limited as to the geographic area where we may
conduct our operations, we intend to invest in properties located in the United
States.
We are not specifically limited in the number or size of properties we
may acquire or on the percentage of net proceeds of this offering which we may
invest in a single property. The number and mix of properties we acquire will
depend upon real estate and market conditions and other circumstances existing
at the time we are acquiring our properties and the amount of proceeds we raise
in this offering.
In making investment decisions for us, Wells Capital will consider
relevant real estate property and financial factors, including the location of
the property, its suitability for any development contemplated or in progress,
its income-producing capacity, the prospects for long-range appreciation, its
liquidity and income tax considerations. In this regard, Wells Capital will have
substantial discretion with respect to the selection of specific investments.
Our obligation to close the purchase of any investment will generally
be conditioned upon the delivery and verification of certain documents from the
seller or developer, including, where appropriate:
. plans and specifications;
. environmental reports;
. surveys;
. evidence of marketable title subject to such liens and
encumbrances as are acceptable to Wells Capital;
. audited financial statements covering recent operations of
properties having operating histories unless such statements
are not required to be filed with the Securities and Exchange
Commission and delivered to shareholders; and
. title and liability insurance policies.
We will not close the purchase of any property unless and until we
obtain an environmental assessment, a minimum of a Phase I review, for each
property purchased and are generally satisfied with the environmental status of
the property.
We may also enter into arrangements with the seller or developer of a
property whereby the seller or developer agrees that if during a stated period
the property does not generate a specified cash flow, the seller or developer
will pay in cash to the Wells REIT a sum necessary to reach the specified cash
flow level, subject in some cases to negotiated dollar limitations.
In determining whether to purchase a particular property, we may, in
accordance with customary practices, obtain an option on such property. The
amount paid for an option, if any, is normally surrendered if the property is
not purchased and is normally credited against the purchase price if the
property is purchased.
In purchasing, leasing and developing real estate properties, we will
be subject to risks generally incident to the ownership of real estate,
including:
. changes in general economic or local conditions;
. changes in supply of or demand for similar or competing
properties in an area;
57
. changes in interest rates and availability of permanent
mortgage funds which may render the sale of a property
difficult or unattractive;
. changes in tax, real estate, environmental and zoning laws;
. periods of high interest rates and tight money supply which
may make the sale of properties more difficult;
. tenant turnover; and
. general overbuilding or excess supply in the market area.
Development and Construction of Properties
We may invest substantially all of the proceeds available for
investment in properties on which improvements are to be constructed or
completed although we may not invest in excess of 10% of the offering proceeds
available for investment in properties which are not expected to produce income
within two years of their acquisition. To help ensure performance by the
builders of properties which are under construction, completion of properties
under construction shall be guaranteed at the price contracted either by an
adequate completion bond or performance bond. Wells Capital may rely upon the
substantial net worth of the contractor or developer or a personal guarantee
accompanied by financial statements showing a substantial net worth provided by
an affiliate of the person entering into the construction or development
contract as an alternative to a completion bond or performance bond. Development
of real estate properties is subject to risks relating to a builder's ability to
control construction costs or to build in conformity with plans, specifications
and timetables. (See "Risk Factors -- Real Estate Risks.")
We may directly employ one or more project managers to plan, supervise
and implement the development of any unimproved properties which we may acquire.
Such persons would be compensated directly by the Wells REIT.
Acquisition of Properties from Wells Development Corporation
Although we have rarely done so in the past, we may acquire
properties, directly or through joint ventures with affiliated entities, from
Wells Development Corporation (Wells Development), a corporation formed by Wells
Management as a wholly-owned subsidiary for the purposes of (1) acquiring
existing income-producing commercial real estate properties, and (2) acquiring
land, developing commercial real properties, securing tenants for such
properties, and selling such properties upon completion to the Wells REIT or
other Wells programs. In the case of properties to be developed by Wells
Development and sold to the Wells REIT, we anticipate that Wells Development
will:
. acquire a parcel of land;
. enter into contracts for the construction and development of a
commercial building thereon;
. enter into an agreement with one or more tenants to lease all
or a majority of the property upon its completion; and
. secure a financing commitment from a commercial bank or other
institutional lender to finance the acquisition and
development of the property.
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Contracts between Wells Development and the Wells REIT will generally
provide for the Wells REIT to acquire the developed property upon its completion
and upon the tenant taking possession under its lease.
We will be required to pay a substantial sum to Wells Development at
the time of entering into the contract as a refundable earnest money deposit to
be credited against the purchase price at closing, which Wells Development will
apply to the cost of acquiring the land and initial development costs. We expect
that the earnest money deposit will represent approximately twenty to thirty
percent (20-30%) of the purchase price of the developed property set forth in
the purchase contract.
In the case of properties we acquire from Wells Development that have
already been developed, Wells Development will be required to obtain an
appraisal for the property prior to our contracting with them, and the purchase
price we will pay under the purchase contract will not exceed the fair market
value of the property as determined by the appraisal. In the case of properties
we acquire from Wells Development which have not yet been constructed at the
time of contracting, Wells Development will be required to obtain an independent
"as built" appraisal for the property prior to our contracting with them, and
the purchase price we will pay under the purchase contract will not exceed the
anticipated fair market value of the developed property as determined by the
appraisal.
We anticipate that Wells Development will use the earnest money
deposit received from the Wells REIT upon execution of a purchase contract as
partial payment for the cost of the acquisition of the land and construction
expenditures. Wells Development will borrow the remaining funds necessary to
complete the development of the property from an independent commercial bank or
other institutional lender by pledging the real property, development contracts,
leases and all other contract rights relating to the project as security for
such borrowing. Our contract with Wells Development will require it to deliver
to us at closing title to the property, as well as an assignment of leases.
Wells Development will hold the title to the property on a temporary basis only
for the purpose of facilitating the acquisition and development of the property
prior to its resale to the Wells REIT and other affiliates of Wells Capital.
We may enter into a contract to acquire property from Wells
Development notwithstanding the fact that at the time of contracting, we have
not yet raised sufficient proceeds to enable us to pay the full amount of the
purchase price at closing. We anticipate that we will be able to raise
sufficient additional proceeds from the offering during the period between
execution of the contract and the date provided in the contract for closing. In
the case of properties to be developed by Wells Development, the contract will
likely provide that the closing will occur immediately following the completion
of the development by Wells Development. However, the contract may also provide
that we may elect to close the purchase of the property before the development
has been completed, in which case we would obtain an assignment of the
construction and development contracts from Wells Development and would complete
the construction either directly or through a joint venture with an affiliate.
Any contract between the Wells REIT, directly or indirectly through a joint
venture with an affiliate, and Wells Development for the purchase of property to
be developed by Wells Development will provide that we will be obligated to
purchase the property only if:
. Wells Development completes the development of the
improvements in accordance with the specifications of the
contract, and an approved tenant takes possession of the
building under a lease satisfactory to our advisor; and
. we have sufficient proceeds available for investment in
properties at closing to pay the balance of the purchase price
remaining after payment of the earnest money deposit.
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Wells Capital will not cause the Wells REIT to enter into a contract
to acquire property from Wells Development if it does not reasonably anticipate
that funds will be available to purchase the property at the time of closing. If
we enter into a contract to acquire property from Wells Development and, at the
time for closing, are unable to purchase the property because we do not have
sufficient proceeds available for investment, we will not be required to close
the purchase of the property and will be entitled to a refund of our earnest
money deposit from Wells Development. Because Wells Development is an entity
without substantial assets or operations, however, Wells Development's
obligation to refund our earnest money deposit will be guaranteed by Wells
Management. See the "Management -- Affiliated Companies" section of this
prospectus for a description of Wells Management.
If Wells Management is required to make good on its guaranty, we may
not be able to obtain the earnest money deposit from Wells Management in a lump
sum since Wells Management's only significant assets are its contracts for
property management and leasing services, in which case we would more than
likely be required to accept installment payments over some period of time out
of Wells Management's operating revenues. (See "Risk Factors -- Real Estate
Risks.")
Terms of Leases and Tenant Creditworthiness
The terms and conditions of any lease we enter into with our tenants
may vary substantially from those we describe in this prospectus. However, we
expect that a majority of our leases will be what is generally referred to as
"triple net" leases. A "triple net" lease provides that the tenant will be
required to pay or reimburse the Wells REIT for all real estate taxes, sales and
use taxes, special assessments, utilities, insurance and building repairs, and
other building operation and management costs, in addition to making its lease
payments.
Wells Capital has developed specific standards for determining the
creditworthiness of potential tenants of our properties. While authorized to
enter into leases with any type of tenant, we anticipate that a majority of our
tenants will be large corporations or other entities which have a net worth in
excess of $100,000,000 or whose lease obligations are guaranteed by another
corporation or entity with a net worth in excess of $100,000,000. As of
September 30, 2000, approximately 75% of the aggregate gross rental income of
the Wells REIT was derived from tenants which are corporations, each of which at
the time of lease execution had a net worth of at least $100,000,000 or whose
lease obligations were guaranteed by another corporation having a net worth of
at least $100,000,000.
In an attempt to limit or avoid speculative purchases, to the extent
possible, Wells Capital will seek to secure, on our behalf, leases with tenants
at or prior to the closing of our acquisitions of properties.
We anticipate that tenant improvements required to be funded by the
landlord in connection with newly acquired properties will be funded from our
offering proceeds. However, at such time as a tenant at one of our properties
does not renew its lease or otherwise vacates its space in one of our buildings,
it is likely that, in order to attract new tenants, we will be required to
expend substantial funds for tenant improvements and tenant refurbishments to
the vacated space. Since we do not anticipate maintaining permanent working
capital reserves, we may not have access to funds required in the future for
tenant improvements and tenant refurbishments in order to attract new tenants to
lease vacated space. (See "Risk Factors -- Real Estate Risks.")
60
Joint Venture Investments
We have entered into joint ventures in the past, and are likely to enter
into joint ventures in the future with affiliated entities for the acquisition,
development or improvement of properties for the purpose of diversifying our
portfolio of assets. (See "Description of Properties -- Joint Ventures with
Affiliates.") In this connection, we will likely enter into joint ventures with
Wells Fund XII, Wells Fund XIII or other Wells programs. Wells Capital also has
the authority to cause us to enter into joint ventures, general partnerships,
co-tenancies and other participations with real estate developers, owners and
others for the purpose of developing, owning and operating real properties. (See
"Conflicts of Interest.") In determining whether to invest in a particular joint
venture, Wells Capital will evaluate the real property which such joint venture
owns or is being formed to own under the same criteria described elsewhere in
this prospectus for the selection of real estate property investments of the
Wells REIT. (See generally "Investment Objectives and Criteria.")
At such time as Wells Capital believes that a reasonable probability exists
that we will enter into a joint venture with another Wells program for the
acquisition or development of a specific property, this prospectus will be
supplemented to disclose the terms of such proposed investment transaction.
Based upon Wells Capital's experience, in connection with the development of a
property which is currently owned by a Wells program, this would normally occur
upon the signing of legally binding purchase agreement for the acquisition of a
specific property or leases with one or more major tenants for occupancy at a
particular property and the satisfaction of all major contingencies contained in
such purchase agreement, but may occur before or after any such time, depending
upon the particular circumstances surrounding each potential investment. You
should not rely upon such initial disclosure of any proposed transaction as an
assurance that we will ultimately consummate the proposed transaction or that
the information we provide in any supplement to this prospectus concerning any
proposed transaction will not change after the date of the supplement.
We intend to enter into joint ventures with other Wells programs for the
acquisition of properties, but we may only do so provided that:
. a majority of our directors, including a majority of the independent
directors, approve the transaction as being fair and reasonable to the
Wells REIT;
. the investment by the Wells REIT and such affiliate are on
substantially the same terms and conditions; and
. we will have a right of first refusal to buy if such co-venturer
elects to sell its interest in the property held by the joint venture.
In the event that the co-venturer were to elect to sell property held in any
such joint venture, however, we may not have sufficient funds to exercise our
right of first refusal to buy the other co-venturer's interest in the property
held by the joint venture. In the event that any joint venture with an
affiliated entity holds interests in more than one property, the interest in
each such property may be specially allocated based upon the respective
proportion of funds invested by each co-venturer in each such property. Entering
into joint ventures with other Wells programs will result in certain conflicts
of interest. (See "Conflicts of Interest -- Joint Ventures with Affiliates of
Wells Capital.")
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Borrowing Policies
While we strive for diversification, the number of different properties we
can acquire will be affected by the amount of funds available to us. See
"Description of Properties -- Real Estate Loans" for a description of our
existing loans and the outstanding loan balances.
Our ability to increase our diversification through borrowing could be
adversely impacted by banks and other lending institutions reducing the amount
of funds available for loans secured by real estate. When interest rates on
mortgage loans are high or financing is otherwise unavailable on a timely basis,
we may purchase certain properties for cash with the intention of obtaining a
mortgage loan for a portion of the purchase price at a later time.
There is no limitation on the amount we may invest in any single improved
property or on the amount we can borrow for the purchase of any property. The
NASAA Guidelines only limit our borrowing to 75% of the value of all properties
unless any excess borrowing is approved by a majority of the independent
directors and is disclosed to shareholders in our next quarterly report.
However, under our articles of incorporation, we have a self-imposed limitation
on borrowing which precludes us from borrowing in the aggregate in excess of 50%
of the value of all of our properties. As of December 10, 2000, we had an
aggregate debt leverage ratio of 10% of the value of our properties.
By operating on a leveraged basis, we will have more funds available for
investment in properties. This will allow us to make more investments than would
otherwise be possible, resulting in a more diversified portfolio. Although our
liability for the repayment of indebtedness is expected to be limited to the
value of the property securing the liability and the rents or profits derived
therefrom, our use of leveraging increases the risk of default on the mortgage
payments and a resulting foreclosure of a particular property. (See "Risk
Factors -- Real Estate Risks.") To the extent that we do not obtain mortgage
loans on our properties, our ability to acquire additional properties will be
restricted. Wells Capital will use its best efforts to obtain financing on the
most favorable terms available to us. Lenders may have recourse to assets not
securing the repayment of the indebtedness.
Wells Capital will refinance properties during the term of a loan only in
limited circumstances, such as when a decline in interest rates makes it
beneficial to prepay an existing mortgage, when an existing mortgage matures or
if an attractive investment becomes available and the proceeds from the
refinancing can be used to purchase such investment. The benefits of the
refinancing may include an increased cash flow resulting from reduced debt
service requirements, an increase in dividend distributions from proceeds of the
refinancing, if any, and/or an increase in property ownership if some
refinancing proceeds are reinvested in real estate.
We may not borrow money from any of our directors or from Wells Capital and
its affiliates for the purpose of acquiring real properties. Any loans by such
parties for other purposes must be approved by a majority of the directors,
including a majority of the independent directors, not otherwise interested in
the transaction, as fair, competitive and commercially reasonable and no less
favorable to the Wells REIT than comparable loans between unaffiliated parties.
Disposition Policies
We intend to hold each property we acquire for an extended period. However,
circumstances might arise which could result in the early sale of some
properties. A property may be sold before the end of the expected holding period
if:
. the tenant has involuntarily liquidated;
62
. in the judgment of Wells Capital, the value of a property might
decline substantially;
. an opportunity has arisen to improve other properties;
. we can increase cash flow through the disposition of the property;
. the tenant is in default under the lease; or
. in our judgment, the sale of the property is in our best interests.
The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of relevant factors,
including prevailing economic conditions, with a view to achieving maximum
capital appreciation. We cannot assure you that this objective will be realized.
The selling price of a property which is net leased will be determined in large
part by the amount of rent payable under the lease. If a tenant has a repurchase
option at a formula price, we may be limited in realizing any appreciation. In
connection with our sales of properties we may lend the purchaser all or a
portion of the purchase price. In these instances, our taxable income may exceed
the cash received in the sale. (See "Federal Income Considerations -- Failure to
Qualify as a REIT.") The terms of payment will be affected by custom in the area
in which the property being sold is located and the then-prevailing economic
conditions.
If our shares are not listed for trading on a national securities exchange
or included for quotation on Nasdaq by January 30, 2008, our articles of
incorporation require us to begin the sale of all of our properties and
distribution of the net sale proceeds to you in liquidation of the Wells REIT.
In making the decision to apply for listing of our shares, the directors will
try to determine whether listing our shares or liquidating our assets will
result in greater value for the shareholders. It cannot be determined at this
time the circumstances, if any, under which the directors will agree to list our
shares. Even if our shares are not listed or included for quotation, we are
under no obligation to actually sell our portfolio within this period since the
precise timing will depend on real estate and financial markets, economic
conditions of the areas in which the properties are located and federal income
tax effects on shareholders which may prevail in the future. Furthermore, we
cannot assure you that we will be able to liquidate our assets, and it should be
noted that we will continue in existence until all properties are sold and our
other assets are liquidated.
Investment Limitations
Our articles of incorporation place numerous limitations on us with respect
to the manner in which we may invest our funds in accordance with various NASAA
Guideline provisions. These limitations cannot be changed unless our articles of
incorporation are amended, which requires the approval of the shareholders.
Unless the articles are amended, we will not:
. invest in commodities or commodity futures contracts, except for
futures contracts when used solely for the purpose of hedging in
connection with our ordinary business of investing in real estate
assets and mortgages;
. invest in real estate contracts of sale, otherwise known as land sale
contracts, unless the contract is in recordable form and is
appropriately recorded in the chain of title;
. make or invest in mortgage loans except in connection with a sale or
other disposition of a property;
63
. make or invest in mortgage loans unless an appraisal is obtained
concerning the underlying property except for those mortgage loans
insured or guaranteed by a government or government agency. Mortgage
debt on any property shall not exceed such property's appraised value.
In cases where the board of directors determines, and in all cases in
which the transaction is with any of our directors or Wells Capital and
its affiliates, such appraisal shall be obtained from an independent
appraiser. We will maintain such appraisal in our records for at least
five years and it will be available for your inspection and
duplication. We will also obtain a mortgagee's or owner's title
insurance policy as to the priority of the mortgage;
. make or invest in mortgage loans that are subordinate to any mortgage
or equity interest of any of our directors, Wells Capital or its
affiliates;
. make or invest in mortgage loans, including construction loans, on any
one property if the aggregate amount of all mortgage loans on such
property would exceed an amount equal to 85% of the appraised value of
such property as determined by appraisal unless substantial
justification exists because of the presence of other underwriting
criteria;
. invest in junior debt secured by a mortgage on real property which is
subordinate to the lien or other senior debt except where the amount of
such junior debt plus any senior debt exceeds 90% of the appraised
value of such property, if after giving effect thereto, the value of
all such mortgage loans of the Wells REIT would not then exceed 25% of
our net assets, which shall mean our total assets less our total
liabilities;
. borrow in excess of 50% of the aggregate value of all properties owned
by us, provided that we may borrow in excess of 50% of the value of an
individual property;
. engage in any short sale or borrow on an unsecured basis, if the
borrowing will result in asset coverage of less than 300%. "Asset
coverage," for the purpose of this clause, means the ratio which the
value of our total assets, less all liabilities and indebtedness for
unsecured borrowings, bears to the aggregate amount of all of our
unsecured borrowings;
. make investments in unimproved property or indebtedness secured by a
deed of trust or mortgage loans on unimproved property in excess of 10%
of our total assets;
. issue equity securities on a deferred payment basis or other similar
arrangement;
. issue debt securities in the absence of adequate cash flow to cover
debt service;
. issue equity securities which are non-voting or assessable;
. issue "redeemable securities" as defined in Section 2(a)(32) of the
Investment Company Act of 1940;
. grant warrants or options to purchase shares to officers or affiliated
directors or to Wells Capital or its affiliates except on the same
terms as the options or warrants are sold to the general public and the
amount of the options or warrants does not exceed an amount equal to
10% of the outstanding shares on the date of grant of the warrants and
options;
. engage in trading, as compared with investment activities, or engage in
the business of underwriting or the agency distribution of securities
issued by other persons;
64
. invest more than 5% of the value of our assets in the securities of
any one issuer if the investment would cause us to fail to qualify as
a REIT;
. invest in securities representing more than 10% of the outstanding
voting securities of any one issuer if the investment would cause us
to fail to qualify as a REIT; or
. lend money to Wells Capital or its affiliates.
Wells Capital will continually review our investment activity to attempt to
ensure that we do not come within the application of the Investment Company Act
of 1940. Among other things, Wells Capital will attempt to monitor the
proportion of our portfolio that is placed in various investments so that we do
not come within the definition of an "investment company" under the act. If at
any time the character of our investments could cause us to be deemed an
investment company for purposes of the Investment Company Act of 1940, we will
take the necessary action to attempt to ensure that we are not deemed to be an
"investment company."
Change in Investment Objectives and Limitations
Our articles of incorporation require that the independent directors review
our investment policies at least annually to determine that the policies we are
following are in the best interest of the shareholders. Each determination and
the basis therefor shall be set forth in our minutes. The methods of
implementing our investment policies also may vary as new investment techniques
are developed. The methods of implementing our investment objectives and
policies, except as otherwise provided in the organizational documents, may be
altered by a majority of the directors, including a majority of the independent
directors, without the approval of the shareholders.
Description of Properties
General
As of December 10, 2000, we had purchased interests in 26 real estate
properties located in 15 states, all of which are leased to tenants on a triple-
net basis. The cost of each of the properties will be depreciated for tax
purposes over a 40 year period on a straight-line basis. We believe all of the
properties are adequately covered by insurance and are suitable for their
intended purposes. The following table provides certain additional information
about these properties.
--------------------------------------------------------------------------------------------------------------------
Property % Purchase Square Annual Lease
Tenant Location Owned Price Feet Rent Expiration
--------------------------------------------------------------------------------------------------------------------
Motorola, Inc. Plainfield, NJ 100% $33,648,156 236,710 $3,324,428 10/2010
--------------------------------------------------------------------------------------------------------------------
Quest Software, Inc. Irvine, CA 13.9% $ 7,193,000 65,006 $1,287,119 12/2003
--------------------------------------------------------------------------------------------------------------------
Delphi Automotive Troy, MI 100% $19,800,000 107,152 $1,848,372 04/2007
Systems, LLC
--------------------------------------------------------------------------------------------------------------------
Avnet, Inc. Tempe, AZ 100% $13,250,000 132,070 $1,516,164 04/2010
--------------------------------------------------------------------------------------------------------------------
Siemens Automotive Troy, MI 50% $14,265,000 77,054 $1,309,918 08/2010
Corp.
--------------------------------------------------------------------------------------------------------------------
Motorola, Inc. Tempe, AZ 100% $16,000,000 133,225 $1,843,834 08/2005
--------------------------------------------------------------------------------------------------------------------
ASM Lithography, Inc. Tempe, AZ 100% $17,355,000 95,133 $1,927,788 06/2013
--------------------------------------------------------------------------------------------------------------------
Dial Corporation Scottsdale, AZ 100% $14,250,000 129,689 $1,387,672 08/2008
--------------------------------------------------------------------------------------------------------------------
65
----------------------------------------------------------------------------------------------------------------------------------
Property % Purchase Square Annual Lease
Tenant Location Owned Price Feet Rent Expiration
----------------------------------------------------------------------------------------------------------------------------------
Metris Direct, Inc. Tulsa, OK 100% $12,700,000 101,100 $1,187,925 01/2010
----------------------------------------------------------------------------------------------------------------------------------
Cinemark USA, Inc./ Plano, TX 100% $21,800,000 66,024/ $1,366,491/ 12/2009
The Coca Cola Co. 52,084 $1,302,100 11/2006
----------------------------------------------------------------------------------------------------------------------------------
The Gartner Group, Inc. Ft. Myers, FL 56.8% $ 8,320,000 62,400 $ 790,642 12/2008
----------------------------------------------------------------------------------------------------------------------------------
Marconi Data Systems, Inc. Wood Dale, IL 100% $32,630,940 250,354 $2,838,952 11/2011
----------------------------------------------------------------------------------------------------------------------------------
Johnson Matthey, Inc. Tredyffrin 57% $ 8,000,000 130,000 $ $789,750 06/2007
Township, PA
----------------------------------------------------------------------------------------------------------------------------------
Alstom Power, Inc.(1) Richmond, VA 100% $11,400,000 102,000 $1,183,731 07/2007
----------------------------------------------------------------------------------------------------------------------------------
Sprint Communications Company, L.P. Leawood, KA 56.8% $ 9,500,000 68,900 $ 999,048 05/2007
----------------------------------------------------------------------------------------------------------------------------------
EYBL Cartex, Inc. Greenville, SC 56.8% $ 5,085,000 169,510 $ 508,530 02/2008
----------------------------------------------------------------------------------------------------------------------------------
Matsushita Avionics Lake Forest, CA 100% $18,400,000 150,000 $1,830,000 01/2007
Systems Corporation(1)
----------------------------------------------------------------------------------------------------------------------------------
Pennsylvania Cellular Harrisburg, PA 100% $12,291,200 81,859 $1,416,221 11/2007
Telephone Corp.
----------------------------------------------------------------------------------------------------------------------------------
Pricewaterhouse-Coopers, LLP Tampa, FL 100% $21,127,854 130,091 $1,915,741 12/2008
----------------------------------------------------------------------------------------------------------------------------------
Fairchild Technologies U.S.A., Inc. Fremont, CA 77.5% $ 8,900,000 58,424 $ 867,324 11/2004
----------------------------------------------------------------------------------------------------------------------------------
Cort Furniture Rental Corporation Fountain Valley, CA 43.7% $ 6,400,000 52,000 $ 758,964 10/2003
----------------------------------------------------------------------------------------------------------------------------------
Iomega Corporation Ogden City, UT 3.7% $ 5,025,000 108,000 $ 659,868 07/2006
----------------------------------------------------------------------------------------------------------------------------------
ODS Technologies, Broomfield, CO 3.7% $ 8,275,000 51,974 $ 913,908 10/2001
L.P. and GAIAM, Inc.
----------------------------------------------------------------------------------------------------------------------------------
Ohmeda, Inc. Louisville, CO 3.7% $10,325,000 106,750 $1,004,520 01/2005
----------------------------------------------------------------------------------------------------------------------------------
Alstom Power, Inc. Knoxville, TN 3.7% $ 7,900,000 87,000 $1,106,520 12/2007
----------------------------------------------------------------------------------------------------------------------------------
Avaya, Inc. Oklahoma City, OK 3.7% $ 5,504,276 55,017 $ 508,383 01/2008
----------------------------------------------------------------------------------------------------------------------------------
(1) Includes the actual costs incurred by Wells OP to develop and construct the
building in addition to the purchase price of the land.
66
Joint Ventures with Affiliates
The Wells Fund VIII-Fund IX-REIT Joint Venture
Wells OP entered into a Joint Venture Agreement with the Fund VIII-IX Joint
Venture known as the Wells Fund VIII-Fund IX-REIT Joint Venture (VIII-IX-REIT
Joint Venture) for the purpose of the ownership, leasing, operation, sale and
management of the Quest Building. The investment objectives of Wells Fund VIII
and Wells Fund IX are substantially identical to our investment objectives.
The Quest Building was originally purchased by the Fund VIII-IX Joint
Venture in January 1997. On June 9, 2000, the Fund VIII-IX Joint Venture entered
into a lease for the Quest Building with Quest Software, Inc. (Quest) and
subsequently contributed the Quest Building to the VIII-IX-REIT Joint Venture as
its capital contribution at an agreed upon value of $7,612,733. Wells OP is
anticipated to contribute a total of approximately $1,250,000 as its capital
contribution to the VIII-IX-REIT Joint Venture to fund the necessary tenant
improvements required under the lease with Quest, leasing commissions and costs
and expenses associated with the transfer of the Quest Building to the VIII-IX-
REIT Joint Venture.
The VIII-IX-REIT Joint Venture Agreement provides that all income, loss,
profit, net cash flow, resale gain and sale proceeds of the VIII-IX-REIT Joint
Venture are to be allocated and distributed between Wells OP, Wells Fund VIII
and Wells Fund IX based upon their respective capital contributions to the joint
venture. As of December 10, 2000, the joint venture partners of the VIII-IX-REIT
Joint Venture had made the following contributions and held the following equity
percentage interests:
-------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
-------------------------------------------------------------------
Wells OP $1,230,826 13.9%
-------------------------------------------------------------------
Wells Fund VIII $4,171,778 47.2%
-------------------------------------------------------------------
Wells Fund IX $3,440,955 38.9%
-------------------------------------------------------------------
The Wells Fund XII-REIT Joint Venture
Wells Fund XII and Wells OP entered into a Joint Venture Partnership
Agreement for the purpose of acquiring, owning, leasing, operating and managing
real properties. The joint venture partnership is known as the Wells Fund XII-
REIT Joint Venture Partnership (XII-REIT Joint Venture). The investment
objectives of Wells Fund XII are substantially identical to our investment
objectives.
The XII-REIT Joint Venture Agreement provides that all income, loss,
profit, net cash flow, resale gain and sale proceeds of the XII-REIT Joint
Venture are to be allocated and distributed between Wells OP and Wells Fund XII
based upon their respective capital contributions to the joint venture. As of
December 10, 2000, the joint venture partners of the XII-REIT Joint Venture had
made the following contributions and held the following equity percentage
interests:
-------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
-------------------------------------------------------------------
Wells OP $7,096,245 50.00%
-------------------------------------------------------------------
Wells Fund XII $7,096,245 50.00%
-------------------------------------------------------------------
The XII-REIT Joint Venture owns the Siemens Building, which is described
below.
67
The Wells Fund XI-Fund XII-REIT Joint Venture
Wells OP entered into an Amended and Restated Joint Venture Partnership
Agreement with Wells Fund XI and Wells Fund XII for the purpose of the
acquisition, ownership, development, leasing, operation, sale and management of
real properties known as The Wells Fund XI-Fund XII-REIT Joint Venture (XI-XII-
REIT Joint Venture). The XI-XII-REIT Joint Venture was originally formed on May
1, 1999 between Wells OP and Wells Fund XI. On June 21, 1999, Wells Fund XII was
admitted to the XI-XII-REIT Joint Venture as a joint venture partner. The
investment objectives of Wells Fund XI and Wells Fund XII are substantially
identical to our investment objectives.
The XI-XII-REIT Joint Venture Agreement provides that all income, profit,
loss, cash flow, resale gain, resale loss and sale proceeds of the XI-XII-REIT
Joint Venture will be allocated and distributed among Wells OP, Wells Fund XI
and Wells Fund XII based on their respective capital contributions to the joint
venture. As of December 10, 2000, the joint venture partners of the XI-XII-REIT
Joint Venture had made the following contributions and held the following equity
percentage interests:
-------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
-------------------------------------------------------------------
Wells OP $ 17,641,211 56.77%
-------------------------------------------------------------------
Wells Fund XI $ 8,131,351 26.17%
-------------------------------------------------------------------
Wells Fund XII $ 5,300,000 17.06%
-------------------------------------------------------------------
The XI-XII-REIT Joint Venture owns the EYBL CarTex Building, the Sprint
Building, the Johnson Matthey Building and the Gartner Building, which are
described below.
The Fund IX, Fund X, Fund XI and REIT Joint Venture
Wells OP entered into an Amended and Restated Joint Venture Agreement with
Wells Fund IX, Wells Fund X and Wells Fund XI, known as The Fund IX, Fund X,
Fund XI and REIT Joint Venture (IX-X-XI-REIT Joint Venture) for the purpose of
the acquisition, ownership, development, leasing, operation, sale and management
of real properties. The IX-X-XI-REIT Joint Venture, formerly known as Fund IX
and X Associates, was originally formed on March 20, 1997 between Wells Fund IX
and Wells Fund X. On June 11, 1998, Wells OP and Wells Fund XI were admitted as
joint venture partners to the IX-X-XI-REIT Joint Venture. The investment
objectives of Wells Fund IX, Wells Fund X and Wells Fund XI are substantially
identical to our investment objectives.
The IX-X-XI-REIT Joint Venture Agreement provides that all income, profit,
loss, cash flow, resale gain, resale loss and sale proceeds of the IX-X-XI-REIT
Joint Venture will be allocated and distributed among Wells OP, Wells Fund IX,
Wells Fund X and Wells Fund XI based on their respective capital contributions
to the IX-X-XI-REIT Joint Venture. As of December 10, 2000, the joint venture
partners of the IX-X-XI-REIT Joint Venture had made the following contributions
and held the following equity percentage interests:
-------------------------------------------------------------------
Joint Venture Partner Capital Contribution Equity Interest
-------------------------------------------------------------------
Wells OP $ 1,421,466 3.74%
-------------------------------------------------------------------
Wells Fund IX $14,833,708 39.00%
-------------------------------------------------------------------
Wells Fund X $18,420,162 48.43%
-------------------------------------------------------------------
Wells Fund XI $ 3,357,436 8.83%
-------------------------------------------------------------------
68
The IX-X-XI-REIT Joint Venture owns the Avaya Building, the Alstom Power
Knoxville Building, the Ohmeda Building, the Interlocken Building and the Iomega
Building, which are described below.
The Fremont Joint Venture
Wells OP entered into a Joint Venture Agreement known as Wells/Fremont
Associates (Fremont Joint Venture) with Fund X and Fund XI Associates (X-XI
Joint Venture), a joint venture between Wells Fund X and Wells Fund XI. The
purpose of the Fremont Joint Venture is the acquisition, ownership, leasing,
operation, sale and management of real properties, including, but not limited
to, the Fairchild Building.
As of December 10, 2000, Wells OP had made total capital contributions to
the Fremont Joint Venture of $6,983,110 and held an equity percentage interest
in the Fremont Joint Venture of 77.50%, and the Fund X-XI Joint Venture had made
total capital contributions to the Fremont Joint Venture of $2,000,000 and held
an equity percentage interest in the Fremont Joint Venture of 22.50%.
The Cort Joint Venture
Wells OP entered into a Joint Venture Agreement with the X-XI Joint Venture
known as Wells/Orange County Associates (Cort Joint Venture) for the purpose of
the acquisition, ownership, leasing, operation, sale and management of real
properties, including, but not limited to, the Cort Furniture Building.
As of December 10, 2000, Wells OP had made total capital contributions to
the Cort Joint Venture of $2,871,430 and held an equity percentage interest in
the Cort Joint Venture of 43.67%, and the Fund X-XI Joint Venture made total
capital contributions to the Cort Joint Venture of $3,695,000 and held an equity
percentage interest in the Cort Joint Venture of 56.33%.
General Provisions of Joint Venture Agreements
Wells OP is acting as the initial Administrative Venturer of the VIII-IX-
REIT Joint Venture, the XII-REIT Joint Venture, the XI-XII-REIT Joint Venture,
the IX-X-XI-REIT Joint Venture, the Fremont Joint Venture and the Cort Joint
Venture and, as such, is responsible for establishing policies and operating
procedures with respect to the business and affairs of each of these joint
ventures. However, approval of the other joint venture partners will be required
for any major decision or any action which materially affects these joint
ventures or their real property investments.
The XII-REIT Joint Venture Agreement, the XI-XII-REIT Joint Venture
Agreement and the IX-X-XI-REIT Joint Venture Agreement each allow any joint
venture partner to make a buy/sell election upon receipt by any other joint
venture partner of a bona fide third-party offer to purchase all or
substantially all of the properties or the last remaining property of the
respective joint venture. Upon receipt of notice of such third-party offer, each
joint venture partner must elect within 30 days after receipt of the notice to
either (1) purchase the entire interest of each venture partner that wishes to
accept the offer on the same terms and conditions as the third-party offer to
purchase, or (2) consent to the sale of the properties or last remaining
property pursuant to such third-party offer.
The Motorola Plainfield Building
The Motorola Plainfield Building is a three-story office building
containing approximately 236,710 rentable square feet on a 34.5 acre tract of
land. Wells OP purchased the Motorola Plainfield Building on November 1, 2000
for a purchase price of $33,648,156. In consideration for a reduction of the
69
purchase price and immediate occupancy of the Motorola Plainfield Building,
Wells OP agreed to assume a liability in the amount of $424,760 in the form of a
rental guaranty from Motorola, Inc. (Motorola) for the remainder of Motorola's
previous lease. Construction of the Motorola Plainfield Building was completed
in 1976.
The Motorola Plainfield Building is located near Rutgers University in
Middlesex County, partially in the Borough of South Plainfield and partially in
the Township of Edison.
The Motorola Plainfield Building is leased to Motorola. Motorola is a
global leader in providing integrated communications solutions and embedded
electronic solutions, including software-enhanced wireless telephones, two-way
radios and digital and analog systems and set-top terminals for broadband cable
television operators.
The initial term of the Motorola lease is ten years which commenced on
November 1, 2000 and expires on October 31, 2010. Motorola has the right to
extend the Motorola lease for two additional five-year periods of time for a
base rent equal to the greater of (i) the last year's rent, or (ii) 95% of the
then-current "fair market rental rate." The base rent payable for the initial
lease term is as follows:
--------------------------------------------
Lease Years Annual Rent Monthly Rent
--------------------------------------------
Years 1-5 $ 3,324,428 $ 277,036
--------------------------------------------
Years 6-10 $ 3,557,819 $ 296,485
--------------------------------------------
The Motorola lease grants Motorola a right of first refusal to purchase the
Motorola Plainfield Building if Wells OP attempts to sell the property during
the term of the lease.
Additionally, upon giving written notice to Wells OP, Motorola has an
expansion right for an additional 143,000 rentable square feet. Upon completion
of the expansion, the term of the Motorola lease shall be extended an additional
ten years after Motorola occupies the expansion space. The base rent for the
expansion space shall be determined by the construction costs and fees for the
expansion. The base rent for the original building for the extended ten-year
period shall be the greater of (i) the then-current base rent, or (ii) 95% of
the then-current "fair market rental rate."
The Quest Building
The Quest Building (formerly the Bake Parkway Building) is a two-story
office building containing approximately 65,006 rentable square feet on a 4.4
acre tract of land in Irvine, California. Construction of the Quest Building was
completed in 1984 and the building was refurbished in 1996. The VIII-IX Joint
Venture purchased the Quest Building on January 10, 1997 for a purchase price of
$7,193,000. On July 1, 2000, the VIII-IX Joint Venture contributed the Quest
Building to the VIII-IX-REIT Joint Venture and was credited with making a
capital contribution to the joint venture in the amount of $7,612,733. (See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources.")
The Quest Building is currently leased to Quest Software, Inc. (Quest).
Quest is a publicly traded corporation that provides software database
management and disaster recovery services for its clients. Quest was established
in April 1987 to develop and market software products to help insure
uninterrupted, high performance access to enterprise and custom computing
applications and databases. Quest has organized their product offerings to
target application development and deployment, performance and availability, and
information delivery needs of the Oracle and other open systems markets. Quest
has grown to more than 1,000 people worldwide and has more than 5,000 installed
70
customer sites.
The initial term of the lease is 42 months which commenced on June 9, 2000
and expires on December 31, 2003. The base rent payable for the initial six
months of the lease was $326,700. The annual base rent payable for the remaining
portion of the initial lease term is $1,287,119. Quest has the right to extend
the lease for two additional one-year periods of time at an annual base rent of
$1,365,126.
The Delphi Building
The Delphi Building is a three-story office building containing
approximately 107,152 rentable square feet on a 5.52 acre tract of land. Wells
OP purchased the Delphi Building on June 29, 2000 for a purchase price of
$19,800,000. Construction of the Delphi Building was completed in May 2000.
The Delphi Building is located in Troy, Oakland County, Michigan, in the
heart of what is generally called "Automation Alley."
The Delphi Building is leased to Delphi Automotive Systems LLC (Delphi
LLC). Delphi LLC is a wholly-owned subsidiary of Delphi Automotive Systems
Corporation (Delphi), formally the Automotive Components Group of General
Motors, which was spun off from General Motors in May 1999. Delphi is the
world's largest automotive components supplier and sells its products to almost
every major manufacturer of light vehicles in the world.
The initial term of the Delphi lease is seven years which commenced on May
1, 2000 and expires on April 30, 2007. Delphi LLC has the right to extend the
Delphi lease for two additional five-year periods of time at 95% of the then-
current fair market rental rate. The base rent payable for the initial lease
term is as follows:
------------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
-------------------------------------------------------------------------
Year 1 $ 1,848,372 $ 154,031
-------------------------------------------------------------------------
Year 2 $ 1,901,948 $ 158,496
-------------------------------------------------------------------------
Year 3 $ 1,955,524 $ 162,960
-------------------------------------------------------------------------
Year 4 $ 2,009,100 $ 167,425
-------------------------------------------------------------------------
Year 5 $ 2,062,676 $ 171,890
-------------------------------------------------------------------------
Year 6 $ 2,116,252 $ 176,354
-------------------------------------------------------------------------
Year 7 $ 2,169,828 $ 180,819
-------------------------------------------------------------------------
The Avnet Building
The Avnet Building is a two-story office building containing approximately
132,070 rentable square feet on a 9.63 acre tract of land located in Tempe,
Arizona. Wells OP purchased the Avnet Building on June 12, 2000 for a purchase
price of $13,250,000. Construction of the Avnet Building was completed in April
2000.
The Avnet Building is located on a 9.63 acre tract of land within the
Arizona State University Research Park. The land upon which the Avnet Building
is situated is subject to a long-term ground lease with Price-Elliott Research
Park, Inc.
The Avnet Building is subject to a first priority mortgage in favor of
SouthTrust securing a SouthTrust Line of Credit, which is more particularly
described in the "Real Estate Loans" section of this prospectus.
71
The Avnet Building is leased to Avnet, Inc. (Avnet). Avnet is a Fortune 300
company and one of the world's largest industrial distributors of electronic
components and computer products, including microprocessors, semi-conductors and
electromechanical devices, serving customers in 60 countries. Additionally,
Avnet distributes a variety of computer products to consumers and resellers.
Avnet sells products of more than 100 of the world's leading component
manufacturers to customers around the world.
The initial term of the Avnet lease is ten years which commenced on May 1,
2000 and expires on April 30, 2010. Avnet has the right to extend the Avnet
lease for two additional five-year periods of time. The yearly rent payable for
the first three years of each extension period will be at the current fair
market rental rate at the end of the preceding term. The yearly rent payable for
the fourth and fifth years of each extension period will be the current fair
market rental rate at the end of the preceding term multiplied by a factor of
1.093.
The base rent payable for the initial lease term is as follows:
--------------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
--------------------------------------------------------------------
Years 1-3 $ 1,516,164 $ 126,347
--------------------------------------------------------------------
Years 4-6 $ 1,657,479 $ 138,123
--------------------------------------------------------------------
Years 7-10 $ 1,812,000 $ 151,000
--------------------------------------------------------------------
Avnet has a right of first refusal to purchase the Avnet Building if Wells
OP attempts to sell the Avnet Building during the term of the Avnet lease.
Avnet also has an expansion option which allows Avnet the ability to expand
the Avnet Building during the term of the Avnet lease. Wells OP has the option
to undertake the expansion or allow Avnet to undertake the expansion at its own
expense, subject to certain terms and conditions.
The Avnet ground lease commenced on April 5, 1999 and expires on September
30, 2083. The ground lease payments required pursuant to the Avnet ground lease
are as follows:
--------------------------------------------------------------------
Lease Years Annual Rent
--------------------------------------------------------------------
Years 1-10 $ 230,777
--------------------------------------------------------------------
Years 11-20 $ 302,108
--------------------------------------------------------------------
Years 21-30 $ 390,223
--------------------------------------------------------------------
Years 31-40 10% of fair market value of land in year 30
--------------------------------------------------------------------
Years 41-50 Rent from year 45 plus 3% per year increase
--------------------------------------------------------------------
Years 51-60 Rent from year 55 plus 3% per year increase
--------------------------------------------------------------------
Years 61-70 10% of fair market value of land in Year 65
--------------------------------------------------------------------
Years 71-85 Rent from year 75 plus 3% per year increase
--------------------------------------------------------------------
Wells OP has the right to terminate the Avnet ground lease prior to the
expiration of the 30/th/ year.
The Siemens Building
The Siemens Building is a three-story office building containing
approximately 77,054 rentable square feet on a 5.3 acre tract of land located in
Troy, Michigan. The XII-REIT Joint Venture purchased the Siemens Building on May
10, 2000 for a purchase price of $14,265,000. The Siemens Building is located at
4685 Investment Drive in Troy Michigan in the heart of "Automation Alley."
72
The Siemens Building is leased to Siemens Automotive Corporation (Siemens).
Siemens is a subsidiary of Siemens Corporation USA, a domestic corporation which
conducts the American operations of Siemens AG, the world's second largest
manufacturer of electronic capital goods. Siemens, part of the worldwide
Automotive Systems Group of Siemens AG, is a supplier of advanced electronic and
electrical products and systems to automobile manufacturers.
The initial term of the Siemens lease is ten years which commenced on March
3, 2000 and expires on August 31, 2010. Siemens has the right to extend the
Siemens lease for two additional five-year periods of time at 95% of the then-
current fair market rental rate. The base rent payable for the initial lease
term is as follows:
------------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
------------------------------------------------------------------------
Year 1 $ 1,309,918 $ 109,160
------------------------------------------------------------------------
Year 2 $ 1,342,281 $ 111,857
------------------------------------------------------------------------
Year 3 $ 1,374,643 $ 114,554
------------------------------------------------------------------------
Year 4 $ 1,407,006 $ 117,251
------------------------------------------------------------------------
Year 5 $ 1,439,369 $ 119,947
------------------------------------------------------------------------
Year 6 $ 1,471,731 $ 122,644
------------------------------------------------------------------------
Year 7 $ 1,504,094 $ 125,341
------------------------------------------------------------------------
Year 8 $ 1,536,457 $ 128,038
------------------------------------------------------------------------
Year 9 $ 1,568,819 $ 130,735
------------------------------------------------------------------------
Year 10 and first 6 $ 1,601,182 $ 133,432
months of Year 11
------------------------------------------------------------------------
Siemens has a one-time right to cancel the Siemens lease effective after
the 90th month of the lease term if Siemens (a) provides written notice of such
cancellation on or before the last day of the 78th month, and (b) pays a
cancellation fee to the XII-REIT Joint Venture currently calculated to be
approximately $1,234,160.
The Motorola Tempe Building
The Motorola Tempe Building is a two-story office building containing
approximately 133,225 rentable square feet in Tempe, Arizona. Wells OP purchased
the Motorola Tempe Building on March 29, 2000 for a purchase price of
$16,000,000. Construction of the Motorola Tempe Building was completed in July
1998.
The Motorola Tempe Building is located on a 12.44 acre tract of land at
8075 South River Parkway within the Arizona State University Research Park. The
land upon which the Motorola Tempe Building is situated is subject to a long-
term ground lease with Price-Elliott Research Park, Inc.
The Motorola Tempe Building is subject to a first priority mortgage in
favor of SouthTrust securing a SouthTrust Line of Credit, which is more
particularly described in the "Real Estate Loans" section of this prospectus.
The Motorola Tempe Building is leased to Motorola, Inc. (Motorola). The
Motorola Tempe Building is occupied by Motorola's Satellite Communications
Division (SATCOM). SATCOM is a worldwide developer and manufacturer of space and
ground communications equipment and systems. SATCOM is the prime contractor for
the Iridium System and is primarily engaged in computer design and development
functions.
The initial term of the Motorola lease is seven years which commenced on
August 17, 1998 and
73
expires on August 31, 2005. Motorola has the right to extend the Motorola lease
for four additional five-year periods of time at the then-prevailing market
rental rate. The rent payable under the Motorola lease, out of which Wells OP
will be required to make the ground lease payments described below, is as
follows:
-------------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
-------------------------------------------------------------------
Years 1-4 $ 1,843,834 $ 153,653
-------------------------------------------------------------------
Years 5-7 $ 2,054,329 $ 171,194
-------------------------------------------------------------------
Motorola has an expansion option which allows Motorola the ability to
expand the building between 21,000 and 40,000 rentable square feet with
additional parking spaces to be constructed by Wells OP. Motorola must exercise
its expansion right before August 17, 2001. In the event that Motorola exercises
its expansion option, the rent on the expansion space will be calculated based
upon a 10.5% return on costs of the expansion, including construction costs, and
Wells OP will be entitled to a development fee in an amount equal to 8% of the
cost of the construction of the expansion building shell.
The Motorola ground lease commenced November 19, 1997 and expires on
December 31, 2082. The ground lease payments required pursuant to the Motorola
ground lease are as follows:
-------------------------------------------------------------------
Lease Years Annual Rent
-------------------------------------------------------------------
Years 1-15 $ 243,825
-------------------------------------------------------------------
Years 16-25 $ 357,240
-------------------------------------------------------------------
Years 26-35 $ 466,015
-------------------------------------------------------------------
Years 36-45 10% of Fair Market Value of Land in year 35
-------------------------------------------------------------------
Years 46-55 Rent from year 45 plus 3% per year increase
-------------------------------------------------------------------
Years 56-65 Rent from year 55 plus 3% per year increase
-------------------------------------------------------------------
Years 66-75 10% of Fair Market Value in year 65
-------------------------------------------------------------------
Years 76-85 Rent from year 75 plus 3% per year increase
-------------------------------------------------------------------
Wells OP has the right to terminate the Motorola ground lease prior to the
expiration of the 30th year and prior to the expiration of each subsequent ten-
year period thereafter.
The ASML Building
The ASML Building is a two-story office and warehouse building containing
approximately 95,133 rentable square feet located in Tempe, Arizona. Wells OP
purchased the ASML Building on March 29, 2000 for a purchase price of
$17,355,000. Construction on the ASML Building was completed in June 1995.
The ASML Building is located on a 9.51 acre tract of land at 8555 South
River Parkway within the Arizona State University Research Park. The land upon
which the ASML Building is situated is subject to a long-term ground lease with
Price-Elliott Research Park, Inc.
The ASML Building is subject to a first priority mortgage in favor of
SouthTrust securing a SouthTrust Line of Credit, which is more particularly
described in the "Real Estate Loans" section of this prospectus.
The ASML Building is leased to ASM Lithography, Inc. (ASML). ASML is a
wholly-owned subsidiary of ASM Lithography Holdings NV (ASML Holdings), a Dutch
multi-national corporation that supplies lithography systems used for printing
integrated circuit designs onto very thin disks of silicon, commonly referred to
as wafers. These systems are supplied to integrated circuit manufacturers
throughout the United States, Asia and Western Europe. ASML Holdings is 24%
owned by Philips Electronics and has
74
strategic partnerships with a number of major companies including Lucent
Technologies, Applied Materials, Samsung, Hyundai and Motorola.
The initial term of the ASML lease is 15 years which commenced on June 4,
1998 and expires on June 30, 2013. The base rent payable for the ASML Building,
out of which Wells OP will be required to make the ground lease payments
described below, is as follows:
-------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
-------------------------------------------------------------
Years 1-5 $ 1,927,788 $ 160,649
-------------------------------------------------------------
Years 6-10 $ 2,130,124 $ 177,510
-------------------------------------------------------------
Years 11-15 $ 2,354,021 $ 196,168
-------------------------------------------------------------
ASML has an expansion option which allows ASML the ability to expand the
building into at least an additional 30,000 rentable square feet, to be
constructed by Wells OP. If the expansion option exercised is for less than
30,000 square feet, Wells OP may reject the exercise at its sole discretion. In
the event that ASML exercises its expansion option after the first five years of
the initial lease term, such lease term will be extended to ten years from the
date of such expansion.
The ASML ground lease commenced on August 22, 1997 and expires on December
31, 2082. The ground lease payments required pursuant to the ASML ground lease
are as follows:
-------------------------------------------------------------
Lease Years Annual Rent
-------------------------------------------------------------
Years 1-15 $ 186,368
-------------------------------------------------------------
Years 16-25 $ 273,340
-------------------------------------------------------------
Years 26-35 $ 356,170
-------------------------------------------------------------
Years 36-45 10% of Fair Market Value of Land in year 35
-------------------------------------------------------------
Years 46-55 Rent from year 45 plus 3% per year increase
-------------------------------------------------------------
Years 56-65 Rent from year 55 plus 3% per year increase
-------------------------------------------------------------
Years 66-75 10% of Fair Market Value in Year 65
-------------------------------------------------------------
Years 76-85 Rent from year 75 plus 3% per year increase
-------------------------------------------------------------
Wells OP has the right to terminate the ASML ground lease prior to the
expiration of the 30th year, and prior to the expiration of each subsequent
ten-year period thereafter.
The Dial Building
The Dial Building is a two-story office building containing approximately
129,689 rentable square feet located in Scottsdale, Arizona. Wells OP purchased
the Dial Building on March 29, 2000 for a purchase price of $14,250,000.
Construction of the Dial Building was completed in 1997.
The Dial Building is located at 15501 N. Dial Boulevard within the
Scottsdale Airpark Development in the City of Scottsdale which is eight miles
northeast of the center of Phoenix and is an integral part of metropolitan
Phoenix.
The Dial Building is subject to a first priority mortgage in favor of
SouthTrust securing a SouthTrust Line of Credit, which is more particularly
described in the "Real Estate Loans" section of this prospectus.
The Dial Building is leased to Dial Corporation (Dial). Dial currently has
its headquarters in the Dial Building and is one of the leading consumer product
manufacturers in the United States. Dial's brands include Dial soap, Purex
detergents, Renuzit air fresheners, Armour canned meats, and a variety of other
leading consumer products.
75
The initial term of the Dial lease is 11 years which commenced on August
14, 1997 and expires on August 31, 2008. Dial has the right to extend the Dial
lease for two additional five-year periods of time at 95% of the then-current
fair market rental rate. The annual rent payable for the initial term of the
Dial lease is $1,387,672.
The Metris Building
The Metris Building is a three-story office building containing
approximately 101,100 rentable square feet located in Tulsa, Oklahoma. Wells OP
purchased the Metris Building on February 11, 2000 for a purchase price of
$12,740,000. Construction of the Metris Building was completed on January 14,
2000.
The Metris Building is located on a 14.6 acre tract of land located at 4848
South 129th East Avenue in the Silos Corporate Center, a prominent 126 acre
mixed-use park owned by State Farm Insurance Companies. The site is about 11
miles southeast of the Tulsa Commercial Business District and is bordered by the
Broken Arrow Expressway, the primary east-west thoroughfare linking the suburb
of Broken Arrow to downtown Tulsa.
Wells OP borrowed $8,000,000 from an existing revolving credit facility
(Metris Loan) at the time it purchased the Metris Building. The Metris Loan,
which is more particularly described in the "Real Estate Loans" section of this
prospectus, is secured by a first mortgage against the Metris Building.
The Metris Building is leased to Metris Direct, Inc. (Metris). Metris is a
principal subsidiary of Metris Companies Inc. (Metris Companies), a publicly
traded company on the New York Stock Exchange and guarantor of the Metris lease.
Metris Companies is an information-based direct marketer of consumer credit
products and fee-based services primarily to moderate income consumers. Metris
Companies' consumer credit products are primarily unsecured credit cards issued
by its subsidiary, Direct Merchants Credit Card Bank. The company's customers
and prospects include individuals for whom credit bureau information is
available and existing customers of a former affiliate, Fingerhut Corporation.
The initial term of the Metris lease is ten years which commenced on
February 1, 2000 and expires on January 31, 2010. Metris has the right to extend
the Metris lease for two additional five-year periods of time. The base rent
payable for the Metris lease is as follows:
-------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
-------------------------------------------------------------
Years 1-5 $1,187,925 $ 98,994
-------------------------------------------------------------
Years 6-10 $1,306,718 $108,893
-------------------------------------------------------------
The monthly base rent payable for the renewal terms of the Metris lease
shall be equal to the then-current market rate based on the then existing rates
for comparable space of equivalent quality in suburban Tulsa, Oklahoma taking
into account location, quality, age of the office building, size of premises and
any other relevant term or condition in making such fair market value rental
rate determination as of 12 months prior to commencement of the renewal term. If
the parties are unable to agree upon the market rate within 11 months prior to
commencement of the renewal term, the market rate shall then be determined by
arbitration.
The Cinemark Building
The Cinemark Building is a five-story office building containing
approximately 118,108 rentable square feet located in Plano, Texas. Wells OP
purchased the Cinemark Building on December 21, 1999 for a purchase price of
$21,800,000. Construction of the Cinemark Building was completed in September
1999.
76
The Cinemark Building is located on a 3.52-acre tract of land located at
3900 Dallas Parkway in Plano, Texas. The site is in a good location with quick
access to and visibility from the toll road. The City of Plano is located
approximately 20 miles north of downtown Dallas and is the largest city in
Collin County with a population of nearly 200,000 people.
The Cinemark Building is subject to a first priority mortgage in favor of
SouthTrust securing a SouthTrust Line of Credit, which is more particularly
described in the "Real Estate Loans" section of this prospectus.
The entire 118,108 rentable square feet of the Cinemark Building is
currently leased to two tenants. Cinemark USA, Inc. (Cinemark) occupies 66,024
rentable square feet of the Cinemark Building, and The Coca-Cola Company (Coca-
Cola) occupies the remaining 52,084 rentable square feet of the Cinemark
Building.
Cinemark, a privately owned company, is one of the largest motion picture
exhibitors in North and South America. Cinemark currently operates in excess of
2,575 screens in 32 states within the United States and internationally in
countries such as Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, El
Salvador, Honduras, Nicaragua, Mexico and Peru.
The initial term of the Cinemark lease is ten years which commenced on
December 21, 1999 and expires on December 20, 2009. Cinemark has the right to
extend the Cinemark lease for two additional five-year periods of time. The base
rent payable for the Cinemark lease and first renewal term is as follows:
-------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
-------------------------------------------------------------
Years 1-7 $1,366,491 $113,874
-------------------------------------------------------------
Years 8-10 $1,481,738 $123,478
-------------------------------------------------------------
Years 11-15 $1,567,349 $130,612
-------------------------------------------------------------
The monthly base rent payable for the second renewal term of the Cinemark
lease shall be equal to 95% of the then-current market rate based on the then
existing rates for comparable space of equivalent quality in Plano, Texas taking
into account location, quality, age of the office building, size of premises and
any other relevant term or condition in making such fair market value rental
rate determination. If the parties are unable to agree upon the market rate
within 15 business days after receipt of the renewal notice, each party shall
appoint a real estate appraiser to determine the market rate. If the two
appraisers cannot agree upon the market rate within 15 days of the commencement
of their deliberation, they shall appoint a third appraiser. The market rate
shall then be determined by the agreement of any two of the appraisers or the
average of the two closest rates if two appraisers cannot agree.
Cinemark shall have a right of first refusal to lease any of the remaining
rentable area of the Cinemark Building which subsequently becomes vacant and in
which Wells OP receives or makes an acceptable offer or proposal to lease such
vacant space to a bona fide third party. Wells OP shall offer to Cinemark in
writing the right to include the vacant space under its lease at the rental rate
set forth in the third party offer. Cinemark shall then have 15 days to exercise
this right of first refusal.
Coca-Cola is the global soft-drink industry leader with world headquarters
in Atlanta, Georgia. Coca-Cola manufactures and sells syrups, concentrates and
beverage bases for Coca-Cola, the company's flagship brand, and over 160 other
soft drink brands in nearly 200 countries around the world.
77
The initial term of the Coca-Cola lease is seven years which commenced on
December 1, 1999 and expires on November 30, 2006. The base rent payable for the
remainder of the Coca-Cola lease term is as follows:
------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
------------------------------------------------------------
Year 2 $1,302,100 $108,508
------------------------------------------------------------
Year 3 $1,354,184 $112,848
------------------------------------------------------------
Year 4 $1,406,268 $117,189
------------------------------------------------------------
Year 5 $1,458,352 $121,529
------------------------------------------------------------
Year 6 $1,510,436 $125,870
------------------------------------------------------------
Year 7 $1,562,520 $130,210
------------------------------------------------------------
Coca-Cola has the right to extend the lease for two additional five-year
periods of time upon 240 days advance notice prior to the end of the term.
Within 30 days of the delivery of the renewal notice by Coca-Cola, Wells OP
shall deliver a rental notice to Coca-Cola stating the base rent payable during
the renewal term, which base rent shall be based upon the prevailing rental
rates for space of similar quality, size, utility, location, length of renewal
term and credit standing of the tenant. Coca-Cola must then notify Wells OP of
its intent to renew the lease on such terms within 30 days of delivery of the
rental notice by Wells OP.
The Gartner Building
The Gartner Building is a two-story office building containing
approximately 62,400 rentable square feet located in Fort Myers, Florida. The
XI-XII-REIT Joint Venture purchased the Gartner Building on September 20, 1999
for a purchase price of $8,320,000. Construction of the Gartner Building was
completed in 1998.
The site is a 4.9 acre tract of land within the Gateway development at
12600 Gateway Boulevard. Gateway is a mixed-use development with over 3,000
acres planned for residential purposes and over 800 acres planned for commercial
purposes. Sony Electronics and Ford Motor Credit Company are two of the
commercial tenants in this development.
The Gartner Building is currently leased to The Gartner Group, Inc.
(Gartner). The Gartner Building will be occupied by Gartner's Financial Services
Division. Gartner, which was founded in 1979, is one of the world's leading
independent providers of research and analysis related to information and
technology solutions. Gartner serves as a consultant to business clients for
their information technology purchasing decisions. Gartner has over 80 locations
worldwide and over 12,000 clients.
The initial term of the Gartner lease is ten years which commenced on
February 1, 1998 and expires on January 31, 2008. Gartner has the right to
extend the lease for two additional five-year periods of time. The base rent
payable for the remainder of the lease term is as follows:
-------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
-------------------------------------------------------------
Year 3 $790,642 $65,887
-------------------------------------------------------------
Year 4 $810,408 $67,534
-------------------------------------------------------------
Year 5 $830,668 $69,222
-------------------------------------------------------------
Year 6 $851,435 $70,953
-------------------------------------------------------------
Year 7 $872,721 $72,727
-------------------------------------------------------------
Year 8 $894,539 $74,545
-------------------------------------------------------------
Year 9 $916,902 $76,409
-------------------------------------------------------------
Year 10 $939,825 $78,319
-------------------------------------------------------------
78
The monthly base rent payable for each extended term of the lease will be
equal to the lesser of (i) the prior rate increased by 2.5%, or (ii) 95% of the
then-current market rate which is calculated as a full-service rental rate less
anticipated annual operating expenses on a rentable square foot basis charged
for space of comparable location, size and conditions in comparable office
buildings in the Fort Myers area.
Gartner also has two expansion options for additional buildings under the
Gartner lease. The two option plans are described in the lease as the "Small
Option Building" and the "Large Option Building".
The "Small Option Building" and the "Large Option Building" expansion
options allow Gartner the ability to expand into separate, free standing
facilities of 30,000 to 32,000 rentable square feet and 60,000 to 75,000
rentable square feet, respectively. Gartner may exercise its rights for either
expansion option by providing notice in writing to the joint venture on or
before February 15, 2002. In the event that Gartner exercises either expansion
option, the parties shall enter into a separate lease within 30 days of such
notice by Gartner with a guaranteed ten year lease term and yearly base rent to
be determined by mutual agreement of the parties.
The Marconi Building
The Marconi Building (formerly known as the Videojet Building) is a two-
story office, assembly and manufacturing building containing approximately
250,354 rentable square located in Wood Dale, Illinois. Wells OP purchased the
Marconi Building on September 10, 1999 for a purchase price of $32,630,940.
Construction of the Marconi Building was completed in 1991.
The site is a 15.3 acre tract of land located within the Chancellory
Business Park which is adjacent to the western entrance to O'Hare International
Airport. The site is also situated very convenient to most of Chicago's major
interstates, including the Elgin/O'Hare Expressway which, when finished, will
extend along Thorndale Road adjacent to the main entrance to the Chancellory
Business Park. The Chancellory Business Park consists of good quality office,
manufacturing and warehouse buildings mostly occupied by national tenants such
as Sony, Mitsubishi, NEC Minolta and United Airlines.
The Marconi Building is subject to a first priority mortgage in favor of
Bank of America, N.A. securing the BOA Loan, which is more particularly
described in the "Real Estate Loans" section of this prospectus.
The Marconi Building is leased to Marconi Data Systems, Inc. (formerly
known as Videojet Systems International, Inc. until a December 1999 name
change). Marconi Data Systems, Inc. (Marconi) is the world's leading producer of
state-of-the-art industrial ink jet marking and coding products. Marconi
manufactures and distributes industrial ink jet printers, digital imaging
systems, laser coding systems, inks and fluids to customers worldwide. The
Marconi lease is guaranteed by GEC Incorporated, a Delaware corporation which is
a wholly-owned subsidiary of Marconi, p.l.c. (formerly known as General Electric
Company, p.l.c.), a publicly traded United Kingdom corporation that ranks among
the largest electronic system and equipment manufacturers in the world.
The initial term of the Marconi lease is 20 years which commenced in
November 1991 and expires in November 2011. Marconi has the right to extend the
Marconi lease for one additional five-year period of time. The base rent payable
for the remainder of the lease term is as follows:
79
-------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
-------------------------------------------------------------
Year 9-10 $2,838,952 $236,579
-------------------------------------------------------------
Years 11-20 $3,376,746 $281,396
-------------------------------------------------------------
Extension Term $4,667,439 $388,953
-------------------------------------------------------------
The Johnson Matthey Building
The Johnson Matthey Building is a 130,000 square foot research and
development, office and warehouse building. The XI-XII-REIT Joint Venture
purchased the Johnson Matthey Building on August 17, 1999 for a purchase price
of $8,000,000. The Johnson Matthey Building was first constructed in 1973 as a
multi-tenant facility and it was subsequently converted into a single-tenant
facility in 1998.
The site consists of a 10.0 acre tract of land located at 434-436 Devon
Park Drive in Tredyffrin Township, Chester County, Pennsylvania. The site is
located along the Route 202 "high tech" corridor close to King of Prussia and is
considered a suburb of Philadelphia. The site is within five minutes of Route
422, the Pennsylvania Turnpike and Interstate 76.
The Johnson Matthey Building is currently leased to Johnson Matthey, Inc.
(Johnson Matthey). Johnson Matthey is a wholly-owned subsidiary of Johnson
Matthey, PLC of the United Kingdom, a world leader in advanced materials
technology. Johnson Matthey, PLC applies the latest technology to add value to
precious metals and other specialized materials. Johnson Matthey, PLC is a
publicly traded company that is over 175 years old, has operations in 38
countries and employs 12,000 people.
Johnson Matthey is one of the parent company's primary operating companies
in the U.S. and includes the Catalytic Systems Division (CSD). The CSD is the
world's leading supplier of catalytic converters for automotive exhaust emission
and air pollution control. In addition, Johnson Matthey is the largest U.S.
supplier of diesel catalytic converters, which enable customers to meet
constantly tightening regulatory requirements.
The lease term of the Johnson Matthey lease is ten years which commenced in
July 1998 and expires in June 2007. Johnson Matthey has the right to extend the
lease for two additional three-year periods of time. The base rent payable under
the Johnson Matthey lease for the remainder of the lease term is as follows:
-------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
-------------------------------------------------------------
Year 3 $789,750 $65,813
-------------------------------------------------------------
Year 4 $809,250 $67,438
-------------------------------------------------------------
Year 5 $828,750 $69,063
-------------------------------------------------------------
Year 6 $854,750 $71,229
-------------------------------------------------------------
Year 7 $874,250 $72,854
-------------------------------------------------------------
Year 8 $897,000 $74,750
-------------------------------------------------------------
Year 9 $916,500 $76,375
-------------------------------------------------------------
Year 10 $939,250 $78,271
-------------------------------------------------------------
The monthly base rent payable for each extension term will be equal to the
fair market rent taking into consideration rental rates for comparable
industrial and research and development properties in the local market area. If
the parties cannot agree upon the fair market rent, the matter shall be
submitted to arbitration.
80
Johnson Matthey has a right of first refusal to purchase the Johnson
Matthey Building in the event that the XI-XII-REIT Joint Venture desires to sell
the building to an unrelated third-party. The XI-XII-REIT Joint Venture must
give Johnson Matthey written notice of its intent to sell the Johnson Matthey
Building, and Johnson Matthey will have ten days from the date of such notice to
provide written notice of its intent to purchase the building. If Johnson
Matthey exercises its right of first refusal, it must purchase the Johnson
Matthey Building on the same terms contained in the offer.
The Alstom Power Richmond Building
The Alstom Power Richmond Building (formerly known as the ABB Richmond
Building) is a four-story brick office building containing 102,000 gross square
feet located in Midlothian, Virginia. Wells REIT, LLC - VA I (Wells LLC - VA), a
limited liability company wholly-owned by Wells OP, purchased a 7.49 acre tract
of land on July 22, 1999 for a purchase price of $936,250. Wells LLC - VA
completed construction of the Alstom Power Richmond Building in July 2000 at an
aggregate cost of approximately $11,400,000, including the cost of the land.
The Alstom Power Richmond Building is part of a 250-acre office park in the
Clover Hill District of Chesterfield County, one of the fastest growing counties
in Virginia. Midlothian is located approximately nine miles southwest of the
Richmond central business district.
Wells OP originally obtained a construction loan from SouthTrust Bank, N.A.
in the maximum principal amount of $9,280,000 to fund the development and
construction of the Alstom Power Richmond Building. This loan, which is more
specifically detailed in the "Real Estate Loans" section of this prospectus, was
recently converted to a line of credit and is secured by a first priority
mortgage against the Alstom Power Richmond Building, an assignment of the
landlord's interest in the Alstom Power Richmond lease and a $4,000,000 letter
of credit issued by Unibank.
The Alstom Power Richmond Building is leased to Alstom Power, Inc. (Alstom
Power). Alstom Power is the result of the December 30, 1999, merger between ABB
Power Generation, Inc. (ABB Power) and ABB Alstom Power, Inc. As of June 22,
2000, ABB Alstom Power, Inc. changed its name to Alstom Power, Inc. ABB Power
was a subsidiary of Asea Brown Boveri, Inc., a large multi-national engineering
and construction company headquartered in Switzerland.
The initial term of the Alstom Power Richmond lease is seven years which
commenced on July 24, 2000 and expires on July 23, 2007. Alstom Power has the
right to extend the lease for two additional five-year periods of time. Each
extension option must be exercised by giving notice to the landlord at least 12
months prior to the expiration of the then-current lease term. The base rent
payable under the Alstom Power lease will be as follows:
-----------------------------------------------------
Lease Year Annual Rent Monthly Rent
-----------------------------------------------------
Year 1 $1,183,731 $ 98,644
-----------------------------------------------------
Year 2 $1,213,324 $101,110
-----------------------------------------------------
Year 3 $1,243,657 $103,638
-----------------------------------------------------
Year 4 $1,274,748 $106,229
-----------------------------------------------------
Year 5 $1,306,618 $108,885
-----------------------------------------------------
Year 6 $1,339,283 $111,607
-----------------------------------------------------
Year 7 $1,372,765 $114,397
-----------------------------------------------------
The monthly base rent payable for each extended term of the Alstom
Power lease will be equal to the "Market Rate" for new leases of office space in
that portion of the Richmond, Virginia market that is located south of the James
River and west of I-95 for space similar to the premises. In the event the
81
parties are unable to agree upon the Market Rate, then each party shall appoint
a real estate appraiser. If the appraisers are unable to agree upon the Market
Rate, they shall appoint a third appraiser and each shall make a determination
of the Market Rate. The appraisal that is farthest from the middle appraisal
shall be disregarded and the remaining two appraisals shall be averaged to
establish the Market Rate.
Alstom Power has a one-time option to terminate the Alstom Power Richmond
lease as to a portion of the premises containing between 12,500 and 13,000
rentable square feet as of the third anniversary of the rental commencement
date. If Alstom Power elects to exercise this termination option, Alstom Power
is required to pay a termination fee equal to eight times the sum of the next
due installments of rent plus the unamortized portions of the base improvement
allowance, additional allowance and broker commission, each being amortized in
equal monthly installments of principal and interest over the initial term of
the lease at a rate of ten percent (10%) per annum. Alstom Power must give
notice of its intent to exercise such option to terminate at least seven months
in advance of the third anniversary; provided, however, that Alstom Power may
pay a penalty, as stipulated in the lease, to provide less than seven months
notice.
In the event that Alstom Power exercises its termination option as of the
third anniversary of the rental commencement date, Alstom Power has a one-time
option to terminate the Alstom Power Richmond lease as to a portion of the
premises containing between 12,500 and 13,000 rentable square feet as of the
fifth anniversary of the rental commencement date. If Alstom Power elects to
exercise this termination option, Alstom Power is required to pay a termination
fee equal to six times the sum of the next due installments of rent plus the
unamortized portions of the base improvement allowance, additional allowance and
broker commission, each being amortized in equal monthly installments of
principal and interest over the initial term of the lease at a rate of ten
percent (10%) per annum. Alstom Power must give notice of its intent to exercise
such option to terminate at least seven months in advance of the fifth
anniversary; provided, however, that Alstom Power may pay a penalty, as
stipulated in the lease, to provide less than seven months notice.
In the event that Alstom Power does not exercise its termination option as
of the third anniversary of the rental commencement date, Alstom Power has a
one-time option to terminate the Alstom Power lease as to a portion of the
premises containing between 24,500 and 25,500 rentable square feet as of the
fifth anniversary of the rental commencement date. If Alstom Power elects to
exercise this termination option, Alstom Power is required to pay a termination
fee equal to six times the sum of the next due installments of rent plus the
unamortized portions of the base improvement allowance, additional allowance and
broker commission, each being amortized in equal monthly installments of
principal and interest over the initial term of the lease at a rate of ten
percent (10%) per annum. Alstom Power must give notice of its intent to exercise
such option to terminate at least nine months in advance of the fifth
anniversary; provided, however, that Alstom Power may pay a penalty, as
stipulated in the lease, to provide less than nine months notice.
The Sprint Building
The Sprint Building is a three-story office building with approximately
68,900 rentable square feet. The XI-XII-REIT Joint Venture purchased the Sprint
Building on July 2, 1999 for a purchase price of $9,500,000. Construction of the
Sprint Building was completed in 1992.
The Sprint Building is located on a 7.1 acre tract of land located adjacent
to the Leawood Country Club in Leawood, Kansas near the affluent Overland Park
suburb of Kansas City. The site is within walking distance of Ward Parkway Mall
and is convenient to downtown Kansas City and I-435, the interstate loop around
Kansas City.
82
The Sprint Building is leased to Sprint Communications Company L.P.
(Sprint). Sprint is the nation's third largest long distance phone company,
which operates on an all-digital long distance telecommunications network using
state-of-the-art fiber optic and electronic technology. Sprint provides domestic
and international voice, video and data communications services as well as
integration management and support services for computer networks.
The initial term of the Sprint lease is ten years which commenced on May
19, 1997 and expires in May 2007, subject to Sprint's right to extend the lease
for two additional five year periods of time. The annual base rent payable under
the Sprint lease is $999,048 through May 18, 2002, and $1,102,404 for the
remainder of the lease term. The monthly base rent payable for each extended
term of the Sprint lease will be equal to 95% of the then-current market rate
for comparable office buildings in the suburban south Kansas City, Missouri and
south Johnson County, Kansas areas. If the parties are unable to agree upon the
current market rate within 30 days of the date negotiations begin, the current
market rate shall be determined by three licensed real estate brokers, one of
which will be selected by Sprint, one of which will be selected by the XI-XII-
REIT Joint Venture and the final appraiser will be selected by the two
appraisers previously selected.
The Sprint lease contains a termination option which may be exercised by
Sprint effective as of May 18, 2004 provided that Sprint has not exercised
either expansion option, as described below. Sprint must provide notice to the
XI-XII-REIT Joint Venture of its intent to exercise its termination option on or
before August 21, 2003. If Sprint exercises its termination option, it will be
required to pay the joint venture a termination payment equal to $6.53 per
square foot, or $450,199.
Sprint also has an expansion option for an additional 20,000 square feet of
office space which may be exercised in two expansion phases. Sprint's expansion
rights involve building on unfinished ground level space that is currently used
as covered parking within the existing building footprint and shell. At each
exercise of an expansion option, the remaining lease term will be extended to be
a minimum of an additional five years from the date of the completion of such
expansion space.
Sprint must give written notice to the XI-XII-REIT Joint Venture of its
election to exercise each expansion option at least 270 days prior to the date
Sprint will require delivery of the expansion space.
If Sprint exercises either expansion option, the XI-XII-REIT Joint Venture
will be required to construct the expansion improvements in accordance with the
specific drawings and plans attached as an exhibit to the Sprint lease. The
joint venture will be required to fund the expansion improvements and to fund to
Sprint a tenant finish allowance of $10 per square foot for the expansion space.
The base rental per square foot for the expansion space shall be determined
by the XI-XII-REIT Joint Venture taking into consideration the value of the
joint venture's work related to such expansion space and the base rental rate
increase per square foot applicable at the end of year five of the lease term.
The expansion space base rental rate shall be presented to Sprint no later than
45 days after delivery to the XI-XII-REIT Joint Venture of each expansion
notice. In no event shall such rental rate be greater than the base rental rate
for the Sprint Building as of the date of the expansion space commencement date.
The EYBL CarTex Building
The EYBL CarTex Building is a manufacturing and office building consisting
of a total of 169,510 square feet located in Greenville, South Carolina. The XI-
XII-REIT Joint Venture purchased the EYBL CarTex Building on May 18, 1999 for a
purchase price of $5,085,000. Construction of the EYBL CarTex Building was
originally completed in the early 1980s and an addition was completed in 1989.
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The EYBL CarTex Building is located on an 11.9 acre tract of land at 111
SouthChase Boulevard in the SouthChase Industrial Park, which is located
adjacent to I-385 in southwest Greenville, South Carolina.
The EYBL CarTex Building is leased to EYBL CarTex, Inc. (EYBL CarTex). EYBL
CarTex produces automotive textiles for BMW, Mercedes, GM Bali, VW Mexico and
Golf A4. EYBL CarTex is a wholly-owned subsidiary of EYBL International, AG,
Krems/Austria. EYBL International is the world's largest producer of circular
knit textile products and loop pile plushes for the automotive industry. It has
plants in Austria, Germany, Hungary, Slovakia, Brazil and the United States.
The initial term of the EYBL CarTex lease is ten years which commenced on
March 1, 1998 and expires in February 2008, subject to EYBL CarTex's right to
extend the lease for two additional five-year periods of time. The base rent
payable under the EYBL CarTex lease for the remainder of the lease term shall be
as follows:
---------------------------------------------------------
Lease Years Annual Rent Monthly Rent
---------------------------------------------------------
Years 3-4 $508,530 $42,378
---------------------------------------------------------
Years 5-6 $550,908 $45,909
---------------------------------------------------------
Years 7-8 $593,285 $49,440
---------------------------------------------------------
Years 9-10 $610,236 $50,853
---------------------------------------------------------
The monthly base rent payable for each extended term of the lease will be
equal to the fair market rent as submitted by the landlord. If the tenant does
not agree to the proposed rent by the landlord for the extension term, tenant
may require the fair market rent be determined by three appraisers, one of which
will be selected by the tenant, one by the landlord and the final appraiser
shall be selected by the first two appraisers.
Under the lease, EYBL CarTex has an option to purchase the EYBL CarTex
Building at the expiration of the initial lease term by giving notice to the
landlord by March 1, 2007. Within 30 days after landlord receives notice of
tenant's intent to exercise its purchase option, landlord shall submit a
proposed purchase price for the EYBL CarTex Building based upon its good faith
estimate of the fair market value of the building. If tenant does not agree to
the purchase price, tenant may require that the purchase price be established by
three appraisers, one of which will be selected by the tenant, one of which will
be selected by the landlord and the final appraiser shall be selected by the
first two appraisers. In no event, however, will the purchase price under the
purchase option be less than $5,500,000.
The Matsushita Building
The Matsushita Building is a two-story office building containing 150,000
rentable square feet. Wells OP purchased an 8.8 acre tract of land on March 15,
1999, for a purchase price of $4,450,230. Wells OP completed construction of the
Matsushita Building on January 4, 2000 at an aggregate cost of approximately
$18,400,000, including the cost of the land.
The site is located in the Pacific Commercentre, which is a 33 acre master-
planned business park positioned near the Irvine Spectrum in the heart of
Southern California's Technology Coast. Pacific Commercentre is a nine building
complex featuring office, technology, and light manufacturing uses, and is
located in the city of Lake Forest in southern Orange County.
The Matsushita Building is leased to Matsushita Avionics Systems
Corporation (Matsushita Avionics). Matsushita Avionics is a wholly-owned
subsidiary of Matsushita Electric Corporation of America (Matsushita Electric).
Matsushita Avionics manufactures and sells audio-visual products to the airline
industry for passenger use in airplanes. Matsushita Electric is a wholly-owned
subsidiary of
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Matsushita Electric Industrial Co., Ltd. (Matsushita Industrial), a Japanese
company which is the world's largest consumer electronics manufacturer.
Matsushita Electric has guaranteed the obligations of Matsushita Avionics under
the Matsushita lease.
The initial term of the Matsushita lease is seven years which commenced on
January 4, 2000 and expires in January 2007. Matsushita Avionics has the option
to extend the initial term of the Matsushita lease for two successive five-year
periods. Each extension option must be exercised not more than 19 months and not
less than 15 months prior to the expiration of the then-current lease term. The
base rent payable under the Matsushita lease shall be as follows:
--------------------------------------------------
Lease Years Annual Rent Monthly Rent
--------------------------------------------------
Years 1-2 $1,830,000 $152,500
--------------------------------------------------
Years 3-4 $1,947,120 $162,260
--------------------------------------------------
Years 5-6 $2,064,240 $172,020
--------------------------------------------------
Year 7 $2,181,360 $181,780
--------------------------------------------------
The monthly base rent payable during the option term shall be 95% of the
stated rental rate at which, as of the commencement of the option term, tenants
are leasing non-expansion, non-affiliated, non-sublease, non-encumbered, non-
equity space comparable in size, location and quality to the Matsushita project
for a term of five years in the Lake Forest and Irvine area of Southern
California. The monthly base rent during the option term shall be adjusted
upward during the option term at the beginning of the 24th and 48th month of
each option term by an amount equal to 6% of the monthly base rent payable
immediately preceding such period. Within 30 days of tenant providing written
notice of its intent to exercise a renewal option, Wells OP shall deliver to
Matsushita Avionics notice containing the proposed rent for the option term. If,
after reasonable good faith efforts, landlord and tenant are unable to agree
upon the option rent before the 13th month prior to the expiration of the
appropriate lease term, option rent shall be determined by arbitration.
The AT&T Building
The AT&T Building (formerly known as the Vanguard Cellular Building) is a
four-story office building containing approximately 81,859 rentable square feet
located in Harrisburg, Pennsylvania. Wells OP purchased the AT&T Building on
February 4, 1999 for a purchase price of $12,291,200. Construction of the AT&T
Building was completed in November 1998.
The AT&T Building is located on 10.5 acres of land in Commerce Park, which
is located in the Lower Paxton Township, a planned business park, at the
intersection of Progress Avenue and Interstate Drive just off of the Progress
Avenue exit of Interstate 81.
Wells OP obtained a loan from Bank of America, N.A. (BOA Loan) in
connection with its original purchase of the AT&T Building. The BOA Loan, which
is more particularly described in the "Real Estate Loans" section of this
prospectus, is secured in part by a first priority mortgage against the AT&T
Building.
The AT&T Building is leased to Pennsylvania Cellular Telephone Corp.
(Pennsylvania Telephone), a subsidiary of Vanguard Cellular Systems, Inc.
(Vanguard Cellular), and the obligations of Pennsylvania Telephone under the
Vanguard Cellular lease are guaranteed by Vanguard Cellular. Vanguard Cellular
is an independent operator of cellular telephone systems in the United States
with over 664,000 subscribers located in 26 markets in the Mid-Atlantic, Ohio
Valley and New England regions of the United States. Vanguard Cellular markets
its wireless products and services under the name CellularOne, a nationally
recognized brand name partially owned by Vanguard Cellular. Vanguard
85
Cellular operates primarily in suburban and rural areas that are close in
proximity to major urban areas, which it believes affords several advantages
over its traditional urban competitors, including (1) greater network capacity,
(2) greater roaming revenue opportunities, (3) lower distribution costs, and (4)
higher barriers to entry by competitors.
On May 3, 1999, Vanguard Cellular was merged with and became a wholly-owned
subsidiary of AT&T Corp.
The initial term of the Vanguard Cellular lease is ten years which
commenced on November 16, 1998 and expires in November 2007. Vanguard has the
option to extend the initial term of the Vanguard Cellular lease for three
additional five-year periods and one additional four year and 11-month period.
Each extension option must be exercised by giving written notice to the landlord
at least 12 months prior to the expiration date of the then-current lease term.
The following table summarizes the annual base rent payable during the remainder
of the initial term of the Vanguard Cellular lease:
-------------------------------------------------
Lease Year Annual Rent Monthly Rent
-------------------------------------------------
Year 3 $1,416,221 $118,018
-------------------------------------------------
Year 4 $1,442,116 $120,176
-------------------------------------------------
Year 5 $1,468,529 $122,377
-------------------------------------------------
Year 6 $1,374,011 $114,501
-------------------------------------------------
Year 7 $1,401,491 $116,791
-------------------------------------------------
Year 8 $1,429,521 $119,127
-------------------------------------------------
Year 9 $1,458,111 $121,509
-------------------------------------------------
Year 10 $1,487,274 $123,939
-------------------------------------------------
The annual base rent for each extended term under the lease will be equal
to 93% of the "fair market rent" determined either (1) as agreed upon by the
parties, or (2) as determined by appraisal pursuant to the terms and conditions
of the Vanguard Cellular lease. The fair market rent shall be multiplied by the
"fair market escalator" (which represents the yearly rate of increases in the
fair market rent for the entire renewal term), if any. If the fair market rent
is to be determined by appraisal, both the landlord and the tenant shall
designate an independent appraiser, and both appraisers shall mutually designate
a third appraiser. After their appointment, the appraisers shall determine the
fair market rent and the fair market escalator by submitting independent
appraisals. The fair market rent and fair market escalator shall be deemed to be
the middle appraisal of the three submitted.
In addition, the Vanguard Cellular lease contains an option to expand the
premises to create additional office space of not less than 40,000 gross square
feet and not more than 90,000 gross square feet, as well as additional parking
to accommodate such office space. If Pennsylvania Telephone exercises its option
for the expansion improvements, Wells OP will be obligated to expend the funds
necessary to construct the expansion improvements. Pennsylvania Telephone may
exercise its expansion option by delivering written notice to Wells OP at any
time before the last business day of the 96th month of the initial term of the
Vanguard Cellular lease.
Within 60 days after Wells OP's receipt of the expansion notice, Wells OP
shall consult with Pennsylvania Telephone concerning Pennsylvania Telephone's
specific requirements with regard to the expansion improvements and, within such
60 day period, Wells OP shall notify Pennsylvania Telephone in writing of the
total estimated expansion costs to be incurred in planning and constructing the
expansion improvements. Within 60 days after Pennsylvania Telephone receives
Wells OP's written notification of the costs for the expansion improvements,
Pennsylvania Telephone shall notify Wells OP in writing either (1) that
Pennsylvania Telephone authorizes Wells OP to proceed with the construction of
the expansion improvements, (2) that Pennsylvania Telephone intends to submit
revised specifications within 60 days to
86
reduce the estimated costs of the expansion improvements to an amount
satisfactory to Pennsylvania Telephone, or (3) that Pennsylvania Telephone
elects not to expand the premises. If Pennsylvania Telephone fails to deliver
its notice to proceed within the above mentioned 60 day period, then
Pennsylvania Telephone shall be deemed to have elected not to expand.
If Pennsylvania Telephone delivers its notice to proceed with the expansion
improvements, Pennsylvania Telephone shall be deemed to have exercised its
option for such full or partial renewal terms such that, as of the date of
substantial completion of the expansion improvements, the remaining lease term
shall be ten years from such date of substantial completion. Pennsylvania
Telephone shall continue to have the right to exercise its option for any of the
renewal terms discussed above which remain beyond the ten year additional term;
provided that, if the remaining portion of a renewal term after the ten year
extension shall be less than one year, then the ten year term shall be further
extended to include the remaining portion of the renewal term which is less than
one year.
The annual base rent for the expansion improvements for the first 12 months
shall be equal to the product of (a) the expansion costs, multiplied by (b) a
factor of 1.07, multiplied by (c) the greater of (X) 10.50%, or (Y) an annual
interest rate equal to 375 basis points in excess of the ten-year United States
Treasury Note Rate then most recently announced by the United States Treasury as
of the commencement date of the expansion improvements. Thereafter, the annual
base rent for the expansion improvements shall be increased annually by the
lesser of (1) 5%, or (2) 75% of the percentage by which the United States,
Bureau of Labor Statistics, Consumer Price Index for All Items - All Urban Wage
Earners and Clerical Workers for the Philadelphia Area published nearest to the
expiration date of each 12 month period subsequent to the expansion commencement
date is greater than the CPI Index most recently published prior to the
commencement date.
The PwC Building
The PwC Building is a four-story office building containing approximately
130,090 rentable square feet located in Tampa, Florida. Wells OP purchased the
PwC Building on December 31, 1998 for a purchase price of $21,127,854.
Construction of the PwC Building was completed in 1998.
The PwC Building is located on approximately 9.0 acres of land located in
Sunforest Business Park between Eisenhower Boulevard and George Road
approximately 1,250 feet south of West Hillsborough Avenue. The Sunforest
Business Park is located in the Westshore Business District, which is a suburban
business center surrounding Tampa International Airport.
Wells OP purchased the PwC Building subject to a loan from SouthTrust Bank,
N.A. (SouthTrust Loan). The SouthTrust Loan, which is more particularly
described in the "Real Estate Loans" section of this prospectus, is secured by a
first priority mortgage against the PwC Building.
The PwC Building is leased to PricewaterhouseCoopers (PwC). PwC provides a
full range of business advisory services to leading global, national and local
companies and to public institutions. These services include audit, accounting
and tax advice; management, information technology and human resource
consulting; financial advisory services including mergers and acquisitions,
business recovery, project finance and litigation support; business process
outsourcing services; and legal advice through a global network of affiliated
law firms. PwC employs more than 140,000 people in 152 countries.
The initial term of the PwC lease is ten years which commenced on December
28, 1998 and expires in December 2008, subject to PwC's right to extend the
lease for two additional five-year periods of time. The current annual base rent
payable under the PwC lease is $1,973,213 ($15.17 per square foot) payable in
equal monthly installments of $164,434 during 2000. The base rent escalates at
the rate of 3%
87
per year throughout the ten year lease term. In addition, PwC is required to pay
a "reserve" of $13,009 ($.10 per square foot) as additional rent.
The annual base rent for each renewal term under the lease will be equal to
the greater of (a) 90% of the "market rent rate" for such space multiplied by
the rentable area of the leased premises, or (b) 100% of the base rent paid
during the last lease year of the initial term, or the then-current renewal
term, as the case may be. If the base rent for the first lease year under the
renewal term is determined pursuant to clause (a) above, then the base rent for
each lease year of such renewal term after the first lease year shall be 103% of
the base rent for the immediately preceding lease year. If the base rent for the
first lease year of a renewal term is determined pursuant to clause (b) above,
then there shall be no escalation of the base rent until such time that the
total base rent paid during the renewal term is equal to the total base rent
that would have been paid during such renewal term if the base rent had been
determined pursuant to clause (a) above; and thereafter, the base rent for each
subsequent lease year of such renewal term shall be 103% of the base rent for
the immediately preceding lease year.
The "market rent rate" under the PwC lease shall be determined by agreement
of the parties within 30 days after the date on which PwC delivers its notice of
renewal. If Wells OP and PwC are unable to reach agreement on the market rent
rate within said 30 day period, then each party shall simultaneously submit to
the other in a sealed envelope its good faith estimate of the market rent rate
within seven days of expiration of the 30 day period. If the higher of such
estimates is not more than 105% of the lower of such estimates then the market
rent rate shall be the average of the two estimates. Otherwise, within five days
either party may request in writing to resolve the dispute by arbitration. The
"market rate rent" shall be based upon the fair market rent then being charged
by landlords under new leases of office space in the Westshore Business District
for similar space in a building of comparable quality with comparable amenities.
In addition, the PwC lease contains an option to expand the premises to
include a second three or four-story building with an amount of square feet up
to a total of 132,000 square feet which, if exercised by PwC, will require Wells
OP to expend funds necessary to construct the expansion building. PwC may
exercise its expansion option by delivering written notice to Wells OP at any
time between the 60th day after the rental commencement date and the expiration
of the initial term of the lease. If PwC for any reason fails to deliver the
expansion notice on or prior to the last day of the initial term, the expansion
option shall automatically expire. Upon PwC's delivery of the expansion notice
and commencement of construction of the improvements by Wells OP, the term of
the lease shall automatically be extended for an additional period of ten years
from the date of substantial completion of the expansion building, without
further action by either PwC or Wells OP. During the first five lease years of
the initial term, Wells OP shall be obligated to construct the expansion
building if PwC delivers the expansion notice. Wells OP and PwC have agreed that
Wells OP shall not be required to construct the expansion building, however, if
PwC delivers the expansion notice after the end of the fifth lease year and,
following delivery of such expansion notice, Wells OP determines not to
construct the expansion building based upon the base rent it would receive for
the expansion building. If Wells OP notifies PwC in writing of such
determination within 30 days after Wells OP's receipt of the expansion notice,
PwC shall have the right to exercise its option to purchase the PwC building.
If PwC elects to exercise its expansion option, in addition to the
construction of a second building which is of a quality equal to or better than
the PwC building, Wells OP will be required to expand the parking garage such
that a sufficient number of parking spaces, at least equal to four parking
spaces per 1,000 square feet of rentable area, is maintained. Wells OP agrees to
fund the cost of the design, development and construction of the expansion
building up to a maximum of $150.00 per square foot of rentable area, as
increased by increases in the Consumer Price Index between the rental
commencement
88
date and the date of expansion notice. PwC shall be responsible for the payment
of any costs of the expansion building in excess of the maximum expansion cost.
The base rent per square foot of rentable area payable for the expansion
building in the first lease year of such building shall be an amount equal to
the product of (a) the expansion building cost per square foot of rentable area
multiplied by (b) the sum of 300 basis points plus the weekly average yield on
United States Treasury Obligations, amortized on an annual basis over a period
of 20 years. The base rent for each subsequent lease year shall be 103% of the
base rent for the immediately preceding lease year.
In the event that PwC elects to exercise its expansion option and Wells OP
determines not to proceed with the construction of the expansion building as
described above, or if Wells OP is otherwise required to construct the expansion
building and fails to do so in a timely basis pursuant to the PwC lease, PwC may
exercise its purchase option by giving Wells OP written notice of such exercise
within 30 days after either such event. If PwC properly exercises its purchase
option, PwC must simultaneously deliver a deposit in the amount of $50,000. The
purchase price for the PwC Building pursuant to the purchase option shall be
equal to (a) the average of the monthly base rent for each month remaining in
the initial term as of the closing date on the Purchase Option multiplied by 12,
and (b) such average annual base rent shall be multiplied by 11.
The Fairchild Building
The Fairchild Building is a two-story manufacturing and office building
with 58,424 rentable square feet located in Fremont, Alameda County, California.
The Fremont Joint Venture purchased the Fairchild Building on July 21, 1998 for
a purchase price of $8,900,000. Construction of the Fairchild Building was
completed in 1985.
The Fairchild Building is located on approximately 3 acres at 47320 Kato
Road on the corner of Kato Road and Auburn Road in the City of Fremont,
California.
The Fairchild Building is leased to Fairchild Technologies U.S.A., Inc.
(Fairchild). Fairchild is a global leader in the design and manufacture of
production equipment for semiconductor and compact disk manufacturing. The
semiconductor equipment group recently unveiled a new line of semiconductor
wafer processing equipment which will provide alternatives to the traditional
semiconductor chip production methods.
Fairchild is a wholly-owned subsidiary of the Fairchild Corporation
(Fairchild Corp). Fairchild Corp is the largest aerospace fastener and fastening
system manufacturer and is one of the largest independent aerospace parts
distributors in the world. Fairchild Corp is a leading supplier to aircraft
manufacturers such as Boeing, Airbus, Lockheed Martin, British Aerospace and
Bombardier and to airlines such as Delta Airlines and U.S. Airways. The
obligations of Fairchild under the Fairchild lease are guaranteed by Fairchild
Corp.
The initial term of the Fairchild lease is seven years which commenced on
December 1, 1997 and expires in November 2004, subject to Fairchild's right to
extend the Fairchild lease for an additional five year period. The base rent
payable under the remainder of the Fairchild lease is as follows:
----------------------------------------
Year Annual Rent Monthly Rent
----------------------------------------
Year 4 $867,324 $72,277
----------------------------------------
Year 5 $893,340 $74,445
----------------------------------------
Year 6 $920,136 $76,678
----------------------------------------
Year 7 $947,736 $78,978
----------------------------------------
89
The base rent during the first year of the extended term of the Fairchild
lease, if exercised by Fairchild, shall be 95% of the then-fair market rental
value of the Fairchild Building subject to the annual 3% increase adjustments.
If Fairchild and the Fremont Joint Venture are unable to agree upon the fair
rental value for the extended lease term, each party shall select an appraiser
and the two appraisers shall establish the rent by agreement.
The Cort Furniture Building
The Cort Furniture Building is a one-story office, showroom and warehouse
building with 52,000 rentable square feet located in Fountain Valley,
California. The Cort Joint Venture purchased the Cort Furniture Building on July
31, 1998 for a purchase price of $6,400,000. Construction of the Cort Furniture
Building was completed in 1975.
The Cort Furniture Building is located on two parcels of land totaling
approximately 3.6 acres at 10700 Spencer Street on the southeast corner of
Spencer Avenue and Mt. Langley Street adjacent on the south side to Interstate
405.
The Cort Furniture Building is leased to Cort Furniture Rental Corporation
(Cort). Cort uses the Cort Furniture Building as its regional corporate
headquarters with an attached clearance showroom and warehouse storage areas.
Cort is a wholly-owned subsidiary of Cort Business Services Corporation, a New
York Stock Exchange Company trading under the symbol CBZ (Cort Business
Services). Cort Business Services is the largest and only national provider of
high-quality office and residential rental furniture and related accessories.
Cort Business Services has operations that cover 32 states and the District of
Columbia and includes 119 rental showrooms. The obligations of Cort under the
Cort Furniture lease are guaranteed by Cort Business Services.
The initial term of the Cort lease is 15 years which commenced on November
1, 1988 and expires in October 2003. Cort has an option to extend the Cort lease
for an additional five-year period of time. The annual base rent payable under
the Cort lease is $758,964 through April 30, 2001 at which time the annual base
rent will be increased 10% to $834,888 for the remainder of the lease term. The
monthly base rent during the first year of the extended term shall be 90% of the
then-fair market rental value of the Cort Furniture Building, but will be no
less than the rent in the 15th year of the Cort lease. If Cort and the Cort
Joint Venture are unable to agree upon a fair rental value for the extended
lease term, each party shall select an appraiser and the two appraisers shall
provide appraisals on the Cort Furniture Building. If the appraisal values
established are within 10% of each other, the average of such appraised value
shall be the fair market rental value. If said appraisals are varied by more
than 10%, the two appraisers shall appoint a third appraiser and the middle
appraisal of the three shall be the fair rental value.
The Iomega Building
The Iomega Building is a warehouse and office building with 108,000
rentable square feet located in Ogden City, Utah. Wells Fund X originally
purchased the Iomega Building on April 1, 1998 for a purchase price of
$5,025,000 and contributed the Iomega Building to the IX-X-XI-REIT Joint Venture
on July 1, 1998.
The Iomega Building is located on an approximately 8.0 acre tract of land
at 2976 South Commerce Way in the Ogden Commercial and Industrial Park, which is
one mile north of Roy City, one mile northwest of Riverdale City and three miles
southwest of the Ogden central business district.
90
The Iomega Building is leased to Iomega Corporation (Iomega). Iomega, a
New York Stock Exchange company, is a manufacturer of computer storage devices
used by individuals, businesses, government and educational institutions,
including "Zip" drives and disks, "Jaz" one gigabyte drives and disks, and tape
backup drives and cartridges.
The initial term of the Iomega lease is ten years which commenced on
August 1, 1996 and expires in July 2006. In March 1999, the IX-X-XI-REIT Joint
Venture acquired an adjacent parcel of land and constructed additional parking
at the site at an aggregate cost of $874,625. As a result, Iomega increased its
monthly base rent and extended the term of its lease until April 30, 2009. The
Iomega lease contains no further extension provisions. Iomega's world
headquarters are located within one mile of the Iomega Building. The annual base
rent payable under the Iomega lease is $659,868. On March 1, 2003 and July 1,
2006, the monthly base rent payable under the Iomega lease will be increased to
reflect an amount equal to 100% of the increase in the Consumer Price Index
during the preceding 40 months; provided however, that in no event shall the
base rent be increased with respect to any one year by more than 6% or by less
than 3% per year, compounded annually, on a cumulative basis from the beginning
of the lease term.
The Interlocken Building
The Interlocken Building is a three-story multi-tenant office building
with 51,974 rentable square feet located in Broomfield, Colorado. The
IX-X-XI-REIT Joint Venture purchased the Interlocken Building on March 20, 1998
for a purchase price of $8,275,000. Construction of the Interlocken Building was
completed in December 1996.
The Interlocken Building is located on a 5.1 acre tract of land in the
Interlocken Business Park on Highway 36, the Boulder-Denver Turnpike, which is
the main thoroughfare between Boulder and Denver. The Interlocken Building is
located approximately eight miles southeast of Boulder and approximately 15
miles northwest of Denver. The Interlocken Building is currently leased as
follows:
---------------------------------------------------------
Floor Tenant Rentable Sq. Ft.
---------------------------------------------------------
1 Multiple 15,599
---------------------------------------------------------
2 ODS Technologies, L.P. 17,146
---------------------------------------------------------
3 GAIAM, Inc. 19,229
---------------------------------------------------------
The entire third floor of the Interlocken Building containing 19,229
rentable square feet (37% of the total rentable square feet) is currently under
lease to GAIAM, Inc. (GAIAM). GAIAM, formerly known as Transecom, Inc., is a
consumer distributor of environmental friendly products, including on-site video
and audio production of environmental and alternative health videos using
state-of-the-art electronics and sound stage. GAIAM was founded in 1988 and
currently employs approximately 60 people.
The GAIAM lease currently expires in October 2001, subject to GAIAM's
right to extend for one additional term of five years upon 180 days' notice. The
annual base rent payable under the GAIAM lease is approximately $313,800 for the
initial term of the lease. In accordance with the GAIAM lease, Golden Rule,
Inc., an affiliate of GAIAM, occupies 6,621 rentable square feet of the third
floor. GAIAM guarantees the entire payment due under the GAIAM lease. GAIAM also
leases 1,510 rentable square feet on the first floor. The base rent payable for
this space for the remainder of the lease term is as follows:
-----------------------------------------------
Year Annual Rent Monthly Rent
-----------------------------------------------
Year 2 $25,800 $2,150
-----------------------------------------------
Year 3 $26,400 $2,200
-----------------------------------------------
91
GAIAM currently subleases 2,910 rentable square feet on the first floor
from TECWorks, Inc./Enterprise Bank. The annual base rent payable for this space
is $48,012.
The entire second floor of the Interlocken Building containing 17,146
rentable square feet (34% of total rentable square feet) is currently under
lease to ODS Technologies, L.P. (ODS). ODS provides in-home financial
transaction services via telephone and television, and it has developed
interactive computer-based applications for such in-home purchasing. Originally
based in Tulsa, Oklahoma, ODS relocated its business to the Interlocken
Building.
The ODS lease expires in September 2003, subject to ODS's right to
extend for one additional term of three years upon 180 days' notice. The base
rent payable for the remainder of the ODS lease is as follows:
-----------------------------------------------
Year Annual Rent Monthly Rent
-----------------------------------------------
Year 3 $282,600 $23,550
-----------------------------------------------
Year 4 $288,600 $24,050
-----------------------------------------------
Year 5 $294,600 $24,550
-----------------------------------------------
The rental payments to be made by the tenant under the ODS lease are
also secured by the assignment of a $275,000 letter of credit which may be drawn
upon by the landlord in the event of a tenant default under the lease.
The first floor of the Interlocken Building containing 15,599 rentable
square feet is occupied by several tenants, in addition to GAIAM, whose leases
expire in 2002. The aggregate annual base rent payable under these leases for
2000 is approximately $243,696.
The Ohmeda Building
The Ohmeda Building is a two-story office building with approximately
106,750 rentable square feet located in Louisville, Colorado. The IX-X-XI-REIT
Joint Venture purchased the Ohmeda Building on February 13, 1998 for a purchase
price of $10,325,000. Construction of the Ohmeda Building was completed in
January 1988.
The Ohmeda Building is located on a 15.0 acre tract of land in the
Centennial Valley Business Park approximately five miles southeast of Boulder
and approximately 17 miles northwest of Denver. The Ohmeda Building is situated
near Highway 36, which is the main thoroughfare between Boulder and Denver.
The Ohmeda Building is leased to Ohmeda, Inc. (Ohmeda). Ohmeda is a
medical supply firm based in Boulder, Colorado and is a worldwide leader in
vascular access and hemodynamic monitoring for hospital patients. Ohmeda also
has a special products division, which produces neonatal and other oxygen care
products. Ohmeda recently extended an agreement with Hewlett-Packard to include
co-marketing and promotion of combined Ohmeda/H-P neonatal products.
On April 13, 1998, Instrumentarium Corporation, a Finnish company,
acquired the division of Ohmeda that occupies the Ohmeda Building.
Instrumentarium is an international health care company concentrating on
selected fields of medical technology manufacturing, marketing and distribution.
The Ohmeda lease currently expires in January 2005, subject to Ohmeda's
right to extend the Ohmeda Lease for two additional five-year periods of time.
The base rent payable under the Ohmeda lease is as follows:
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-------------------------------------------------
Years Annual Rent Monthly Rent
-------------------------------------------------
Years 1-5 $1,004,520 $83,710
-------------------------------------------------
Year 6 $1,054,692 $87,891
-------------------------------------------------
Year 7 $1,107,000 $92,250
-------------------------------------------------
The Ohmeda Lease contains an option to expand the premises by an amount
of square feet up to a total of 200,000 square feet which, if exercised by
Ohmeda, will require the IX-X-XI-REIT Joint Venture to expend funds necessary to
acquire additional land, if necessary, and to construct the expansion space.
Ohmeda's option to expand the premises is subject to deliverance of at least
four months' prior written notice to the IX-X-XI-REIT Joint Venture. During the
four months subsequent to the notice of Ohmeda's intention to expand the
premises, Ohmeda and the IX-X-XI-REIT Joint Venture shall negotiate in good
faith and enter into an amendment to the Ohmeda lease for the construction and
rental of the expansion space. If Ohmeda exercises its option to expand the
premises, the right to terminate clause described above will automatically be
canceled, and the primary lease term shall be extended for a period of ten years
from the date on which a certificate of occupancy is issued by the City of
Louisville with respect to the expansion space.
The base rental for the expansion space payable under the Ohmeda lease
shall be calculated to generate a rate of return to the IX-X-XI-REIT Joint
Venture on its project costs and any retrofit expenses with respect to the
existing premises incurred by landlord over the new, ten year extended primary
lease term, equal to the prime lending rate published by Norwest Bank, N.A. on
the first day of such extended primary lease term, plus 3%, plus full
amortization of the tenant finish costs with respect to the expansion space and
the existing premises. This base rental shall be payable through January 31,
2005. The base rental payable under the Ohmeda lease from February 1, 2005
through the remaining balance of the new, extended ten year primary lease term,
shall be based on a combined rental rate equal to the sum of (1) the base rental
payable by Ohmeda during lease year number seven for the existing premises, plus
(2) the base rent payable by Ohmeda during lease year number seven for the
expansion space, plus an amount equal to 2% of the combined rental rate.
Thereafter, the base rent payable for the entire premises shall be the base rent
payable during the previous lease year plus an amount equal to 2% of the base
rent payable during such previous lease year.
The Alstom Power Knoxville Building
The Alstom Power Knoxville Building (formerly known as the ABB
Knoxville Building) is a three-story multi-tenant steel-framed office building
containing approximately 84,404 square feet located in Knoxville, Tennessee.
Wells Fund IX purchased the land and constructed the Alstom Power Knoxville
Building. Wells Fund IX contributed the Alstom Power Knoxville Building to the
IX-X-XI-REIT Joint Venture on March 26, 1997 and was credited with making a
$7,900,000 capital contribution. Construction of the Alstom Power Knoxville
Building was completed in December 1997.
The Alstom Power Knoxville Building is located on approximately 5.6
acres located in an office park known as Center Point Business Park on
Pellissippi Parkway just north of the intersection of Interstates 40 and 75, in
Knox County, Tennessee approximately 10 miles west of the Knoxville central
business district.
The Alstom Power Knoxville Building is currently leased to Alstom
Power, Inc. (Alstom Power). Alstom Power is the result of the December 30, 1999,
merger between ABB Power Generation, Inc. (ABB Power) and ABB Alstom Power, Inc.
As of June 22, 2000, ABB Alstom Power, Inc. changed its name to Alstom Power,
Inc. ABB Power was a subsidiary of Asea Brown Boveri, Inc., a large multi-
national engineering and construction company headquartered in Switzerland.
93
As security for Alstom Power's obligations under its lease, Alstom
Power has provided to the IX-X-XI-REIT Joint Venture an irrevocable standby
letter of credit in accordance with the terms and conditions set forth in the
Alstom Power Knoxville lease. The letter of credit maintained by Alstom Power is
required to be in the amount of $4,000,000 until the seventh anniversary of the
rental commencement date, at which time it will be reduced by $1,000,000 each
year until the end of the lease term.
The initial term of the Alstom Power Knoxville lease is nine years and
11 months which commenced on January 1, 1998 and expires in December 2007. The
annual base rent payable under the Alstom Power Knoxville lease is $1,106,520
payable in equal monthly installments of $92,210 during the first five years of
the initial lease term, $1,233,120 payable in equal monthly installments of
$102,760 during the next two years of the initial lease term, and $1,220,484
payable in equal monthly installments of $101,707 during the last two years and
11 months of the initial lease term.
The IX-X-XI-REIT Joint Venture has agreed to provide Alstom Power on
the fifth anniversary of the rental commencement date a redecoration allowance
of an amount equal to (1) $5.00 per square foot of useable area of the premises
leased which has been leased and occupied by Alstom Power for at least three
consecutive years ending with such fifth anniversary reduced by (2) $177,000.
Alstom Power has a one-time option to terminate the Alstom Power
Knoxville lease as of the seventh anniversary of the rental commencement date
which is exercisable by written notice to the IX-X-XI-REIT Joint Venture at
least 12 months in advance of such seventh anniversary. If Alstom Power elects
to exercise this termination option, Alstom Power is required to pay to the
IX-X-XI-REIT Joint Venture, on or before 90 days prior to the seventh
anniversary of the rental commencement date, a termination payment intended to
compensate the IX-X-XI-REIT Joint Venture for the present value of certain sums
which the joint venture has expended in connection with the Alstom Power
Knoxville lease amortized over and attributable to the remaining lease term and
a rent payment equal to approximately 15 months of monthly base rental payments.
We currently anticipate that the termination payment required to be paid by
Alstom Power in the event it exercises its option to terminate the Alstom Power
Knoxville lease on the seventh anniversary would be approximately $1,800,000
based upon certain assumptions.
The Avaya Building
The Avaya Building (formerly known as the Lucent Technologies Building)
is a one-story office building containing approximately 57,186 rentable square
feet which was developed and constructed on certain real property located in
Oklahoma City, Oklahoma by Wells Development. The Avaya Building was purchased
by the IX-X-XI-REIT Joint Venture on June 24, 1998 for a purchase price of
$5,504,276, which was equal to the aggregate cost to Wells Development of the
acquisition, construction and development of the Avaya Building, including
interest and other carrying costs, and accordingly, Wells Development made no
profit from the sale of the Avaya Building to the IX-X-XI-REIT Joint Venture.
Construction of the Avaya Building was completed in January 1998.
The Avaya Building is located on approximately 5.3 acres located in the
Quail Springs Office Park, 1400 Hertz Quail Springs Parkway, in the northwest
sector of Oklahoma City.
The Avaya Building is leased to Avaya, Inc. (Avaya), the former
Enterprise Networks Group of Lucent Technologies Inc. (Lucent Technologies).
Lucent Technologies, the former tenant, assigned the lease to Avaya on September
30, 2000. Lucent Technologies, who remains liable on the lease, is a
telecommunications company which was spun off by AT&T in April 1996. Lucent
Technologies, which is traded on the New York Stock Exchange, is in the business
of designing, developing and marketing communications systems and technologies
ranging from microchips to whole networks and is one of the
94
world's leading designers, developers and manufacturers of telecommunications
system software and products.
The initial term of the Avaya lease is ten years which commenced on
January 5, 1998 and expires in January 2008. Avaya has the option to extend the
initial term of the Avaya lease for two additional five-year periods. The annual
base rent payable under the Avaya lease will be $508,383 payable in equal
monthly installments of $42,365 during the first five years of the initial lease
term, and $594,152 payable in equal monthly installments of $49,513 during the
second five years of the initial lease term. The annual base rent for each
extended term under the lease will be based upon the fair market rent then being
charged by landlords under new leases of office space in the metropolitan
Oklahoma City market for similar space in a building of comparable quality with
comparable amenities. The Avaya lease provides that if the parties cannot agree
upon the appropriate fair market value rate, the rate will be established by
real estate appraisers.
Under the Avaya lease, Avaya also has a one-time option to terminate
the Avaya lease on the seventh anniversary of the rental commencement date,
which is exercisable by written notice to the landlord at least 12 months in
advance of such seventh anniversary. If Avaya elects to exercise its option to
terminate the Avaya lease, Avaya would be required to pay a termination payment
intended to compensate the landlord for the present value of funds expended as a
construction allowance and leasing commissions relating to the Avaya lease,
amortized over and attributable to the remaining lease term, and a rental
payment equal to approximately 18 months of monthly rental payments. We
currently anticipate that the termination payment required to be paid by Avaya,
in the event it exercises its option to terminate the Avaya lease on the seventh
anniversary, would be approximately $1,339,000 based upon certain assumptions.
Property Management Fees
Wells Management, our Property Manager, has been retained to manage and
lease all of the properties currently owned by the IX-X-XI-REIT Joint Venture
and the VIII-IX-REIT Joint Venture. While Wells Fund XI and the Wells REIT are
authorized to pay aggregate management and leasing fees to Wells Management in
the amount of 4.5% of gross revenues, Wells Fund VIII, Wells Fund IX and Wells
Fund X are authorized to pay aggregate management and leasing fees to Wells
Management in the amount of 6% of gross revenues. Accordingly, a portion of the
gross revenues of these joint ventures will be subject to a 6% management and
leasing fee and a portion of gross revenues will be subject to a 4.5% management
and leasing fee based upon the respective ownership percentages in the joint
ventures.
Wells Management has been retained to manage and lease each of the
remaining buildings for fees not exceeding the lesser of: (A) 4.5% of gross
revenues, or (B) 0.6% of the net asset value of the properties (excluding vacant
properties) owned by the Wells REIT, calculated on an annual basis. For purposes
of this calculation, net asset value shall be defined as the excess of (1) the
aggregate of the fair market value of all properties owned by the Wells REIT
(excluding vacant properties), over (2) the aggregate outstanding debt of the
Wells REIT (excluding debts having maturities of one year or less). In addition,
we may pay Wells Management a separate fee for the one-time initial rent-up or
leasing-up of newly constructed properties in an amount not to exceed the fee
customarily charged in arm's length transactions by others rendering similar
services in the same geographic area for similar properties as determined by a
survey of brokers and agents in such area (customarily equal to the first
month's rent).
Wells Management received a one-time initial lease-up fee equal to the
first month's rent for the leasing of the Alstom Power Knoxville Building, the
Avaya Building, the Matsushita Building and the Alstom Power Richmond Building.
95
Real Estate Loans
The SouthTrust Loans
Wells OP has established various secured lines of credit with
SouthTrust Bank, N.A. (SouthTrust) whereby SouthTrust has agreed to loan in the
aggregate an amount of up to $72,140,000 to Wells OP in connection with its
purchase of real properties. The interest rate on each of these separate lines
of credit is an annual variable rate equal to the London InterBank Offered Rate
(LIBOR) for a 30 day period plus 175 basis points. Wells OP will be charged an
advance fee of 0.125% of the amount of each advance. As of December 15, 2000,
the interest rate was 8.44% per annum.
The $32,393,000 SouthTrust Line of Credit
The $32,393,000 SouthTrust line of credit requires monthly payments of
interest only and matures on June 10, 2002. This SouthTrust line of credit is
secured by first priority mortgages against the Cinemark Building, the Dial
Building and the ASML Building. As of December 15, 2000, the outstanding
principal balance of the $32,393,000 SouthTrust line of credit was $17,028,850.
The $12,844,000 SouthTrust Line of Credit
The $12,844,000 SouthTrust line of credit requires monthly payments of
interest only and matures on June 10, 2002. This SouthTrust line of credit is
secured by a first priority mortgage against the PwC Building. As of December
15, 2000, there was no outstanding principal balance on the $12,844,000
SouthTrust line of credit.
The $19,003,000 SouthTrust Line of Credit
The $19,003,000 SouthTrust line of credit requires monthly payments of
interest only and matures on June 10, 2002. This SouthTrust line of credit is
secured by first priority mortgages against the Avnet Building and the Motorola
Tempe Building. As of December 15, 2000, there was no outstanding principal
balance on the $17,800,000 SouthTrust line of credit.
The $7,900,000 SouthTrust Line of Credit
Wells LLC - VA originally obtained a loan from SouthTrust Bank, N.A. in
connection with the acquisition, development and construction of the Alstom
Power Richmond Building (formerly known as the ABB Richmond Building). After
completion of the construction, SouthTrust converted the construction loan into
a separate line of credit in the maximum principal amount up to $7,900,000. This
SouthTrust line of credit requires payments of interest only and matures on June
10, 2002. The $7,900,000 SouthTrust line of credit is secured by a first
priority mortgage against the Alstom Power Richmond Building, the Alstom Power
Richmond lease and a $4,000,000 letter of credit issued by Unibank. As of
December 15, 2000, there was no outstanding principal balance on the $7,900,000
SouthTrust line of credit.
The BOA Loan
Wells OP originally obtained a loan in the amount of $6,425,000 from
Bank of America, N.A. (BOA Loan), to fund a portion of the purchase price of the
AT&T Building (formerly the Vanguard Cellular Building) located in Harrisburg,
Pennsylvania. On November 23, 1999, the BOA Loan was converted to a revolving
credit loan in the maximum principal amount of $9,825,000 for the acquisition of
real properties by Wells OP. On February 24, 2000, the credit limit of the BOA
Loan was increased
96
further to $26,725,000. The BOA Loan requires monthly payments of interest only
and matures on January 4, 2002. The interest rate on the BOA Loan is a variable
rate per annum equal to the LIBOR for a thirty-day period plus 200 basis points.
As of December 15, 2000, the interest rate on the BOA Loan was 8.69% per annum.
The BOA Loan is secured by first priority mortgages against both the AT&T
Building and the Marconi Building. As of December 15, 2000, the outstanding
principal balance of the BOA Loan was $14,300,149.
The Metris Loan
Wells OP assumed a loan (Metris Loan) with Richter-Schroeder Company,
Inc. in connection with its purchase of the Metris Building. The Metris Loan
requires monthly payments of interest only and matures on February 11, 2003. The
interest rate on the Metris Loan is an annual variable rate equal to the LIBOR
for a thirty-day period plus 175 basis points. As of December 15, 2000, the
interest rate on the Metris Loan was 8.44% per annum. The Metris Loan is
secured by a first mortgage against the Metris Building. As of December 15,
2000, the outstanding principal balance of the Metris Loan was $8,000,000.
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction
with our accompanying financial statements and the notes thereto.
This section and other sections of the prospectus contain
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 Wells REIT, anticipated capital
expenditures required to complete certain projects, amounts of cash
distributions anticipated to be distributed to shareholders in the future and
certain other matters. Readers of this prospectus should be aware that there are
various factors that could cause actual results to differ materially from any
forward-looking statement made in this prospectus, which include changes in
general economic conditions, changes in real estate conditions, construction
costs which may exceed estimates, construction delays, increases in interest
rates, lease-up risks, inability to obtain new tenants upon the expiration of
existing leases, lack of availability of financing and the potential need to
fund tenant improvements or other capital expenditures out of operating cash
flow.
Liquidity and Capital Resources
We began active operations on June 5, 1998, when we received and
accepted subscriptions for 125,000 shares pursuant to our initial public
offering, which commenced on January 30, 1998. We terminated our initial public
offering on December 19, 1999, and on December 20, 1999, we commenced a
follow-on public offering of up to 22,200,000 shares of common stock at $10 per
share. As of December 31, 1999, we had raised an aggregate of $134,710,850 in
offering proceeds through the sale of 13,471,085 shares. As of December 31,
1999, we had paid $4,714,880 in acquisition and advisory fees and acquisition
expenses, $16,838,857 in selling commissions and organizational and offering
expenses, and $112,287,969 in capital contributions to Wells OP for investments
in joint ventures and acquisitions of real properties. As of December 31, 1999,
we were holding net offering proceeds of approximately $869,144 available for
investment in additional properties.
Between December 31, 1999, and September 30, 2000, we raised an
additional $127,695,246 in offering proceeds through the sale of an additional
12,769,524 shares. Accordingly, as of September 30, 2000, we had raised a total
of $262,406,096 in offering proceeds through the sale of 26,240,610 shares of
common stock. As of September 30, 2000, we had paid a total of $9,161,189 in
acquisition and advisory
97
fees and acquisition expenses, had paid a total of $32,718,532 in selling
commissions and organizational and offering expenses, had made capital
contributions of $211,641,497 to Wells OP for investments in joint ventures and
acquisitions of real property, had utilized $657,844 for the redemption of stock
pursuant to our share redemption program, and were holding net offering proceeds
of $8,227,034 available for investment in additional properties.
Cash and cash equivalents at September 30, 2000 and 1999 were
$12,257,161 and $2,850,263, respectively. The increase in cash and cash
equivalents resulted primarily from raising additional capital which was offset
by increased investments in real property acquisitions.
Operating cash flows are expected to increase as additional properties
are added to our investment portfolio. Dividends to be distributed to the
shareholders are determined by the board of directors and are dependent upon a
number of factors relating to the Wells REIT, including funds available for
payment of dividends, financial condition, capital expenditure requirements and
annual distribution requirements in order to maintain our status as a REIT under
the Internal Revenue Code.
As of September 30, 2000, we had acquired interests in 25 real estate
properties. These properties are generating sufficient cash flow to cover our
operating expenses and pay quarterly dividends. Dividends declared for the third
quarter of 2000 and the third quarter of 1999 totaled $0.1875 and $0.1750 per
share, respectively, which were declared on a daily record date basis in the
amount of $0.002038 and $0.001902, respectively, per share payable to the
shareholders of record at the close of business of each day during the quarter.
On February 18, 1999, Wells OP entered into a Rental Income Guaranty
Agreement with the VIII-IX Joint Venture. The Rental Income Guaranty Agreement
provided for a guarantee by Wells OP to the VIII-IX Joint Venture that it would
receive rental income on the Quest Building (formerly known as the Bake Parkway
Building) previously leased to Matsushita Avionics at least equal to the rental
and building expenses that the VIII-IX Joint Venture would have received over
the remaining term of its original lease with Matsushita Avionics. Matsushita
Avionics vacated the Quest Building in December 1999, with the existing lease
term ending in September 2003, in order to occupy the Matsushita Building
developed and constructed by Wells OP. On June 15, 2000, the VIII-IX-REIT Joint
Venture was formed between Wells OP and the VIII-IX Joint Venture for purposes
of owning and operating the Quest Building. On July 1, 2000, the VIII-IX Joint
Venture transferred the Quest Building to the VIII-IX-REIT Joint Venture as its
capital contribution. (See "Description of Properties -- Joint Ventures with
Affiliates.") Under the Rental Income Guaranty Agreement, Wells OP also
guaranteed that, if a joint venture such as the VIII-IX-REIT Joint Venture was
ever formed by the parties for the ownership and operation of the Quest
Building, Wells OP would guaranty to the VIII-IX Joint Venture that it would
receive monthly cash flow distributions from such joint venture at least equal
to the rent and building expenses guaranteed under the Rental Income Guaranty
Agreement. Currently the Quest Building is leased by Quest Software, Inc.
(Quest) pursuant to a 42 month lease that expires on December 31, 2003. (See
"Description of Properties -- The Quest Building.")
Wells OP had paid approximately $542,645 in rental income guaranty
payments to the VIII-IX Joint Venture through September 30, 2000, and will
continue making payments in the amount of $6,656 per month through February 2001
to cover initial rental concessions granted to Quest in order to induce Quest to
rent the Quest Building. Our maximum liability exposure to the VIII-IX Joint
Venture for rental income and building expenses potentially payable under this
Rental Income Guaranty Agreement of approximately $3,000,000 was taken into
account in the economic analysis performed in making the determination to go
forward with the development of the Matsushita Building. Although the lease of
the Quest Building by Quest has substantially reduced our financial exposure
under the Rental Income Guaranty Agreement, we cannot, at this time, determine
the amount of any future liability if Quest
98
defaults or otherwise fails to make the required payments under its lease. Wells
OP continues to guaranty payment under the Rental Income Guaranty Agreement and,
consequently, continues to bear some risk, even though their risk has been
substantially minimized by the lease with Quest. Payments made to the VIII-IX
Joint Venture under the Rental Income Guaranty Agreement are made from capital
proceeds raised and are being capitalized over the term of the lease with
Matsushita Avionics for the Matsushita Building.
Cash Flows From Operating Activities
Net cash provided by operating activities was $4,737,973 for the nine
months ended September 30, 2000 and $2,273,102 for the nine months ended
September 30, 1999. The increase in net cash provided by operating activities
was due primarily to the purchase of additional properties in late 1999 and
2000.
Cash Flows From Investing Activities
The increase in net cash used in investing activities from $75,420,671
for the nine months ended September 30, 1999 to $113,424,119 for the nine months
ended September 30, 2000 was due primarily to the raising of additional capital
and funds that have been invested in real property acquisitions.
Cash Flows From Financing Activities
The increase in net cash provided by financing activities from
$68,018,429 for the nine months ended September 30, 1999 to $118,013,503 for the
nine months ended September 30, 2000 was due primarily to the raising of
additional capital and the corresponding increase in funds borrowed to purchase
additional properties. We raised $127,695,243 in offering proceeds for the nine
months ended September 30, 2000, as compared to $76,927,944 for the nine months
ended September 30, 1999. In addition, we received loan proceeds from financing
secured by properties of $67,883,130 and repaid notes payable in the amount of
$52,903,328 for the nine months ended September 30, 2000.
Results of Operations
As of September 30, 2000, our real estate properties were 100% occupied
by tenants. Gross revenues for the nine months ended September 30, 1999 and for
the nine months ended September 30, 2000 were $3,996,290 and $15,734,638,
respectively. This increase in revenues was due to the purchase of additional
properties during late 1999 and 2000. The purchase of interests in additional
properties also resulted in an increase in operating expenses, management and
leasing fees, and depreciation expense. Our net income increased to $5,737,537
for the first nine months of 2000 as compared to $2,272,432 for the first nine
months of 1999.
Subsequent Events
On November 1, 2000, Wells OP acquired a three-story 236,710 square
foot office building (Motorola Plainfield Building) located at Durham Avenue on
Interstate 287 in South Plainfield, New Jersey for a purchase price of
$33,648,156, plus closing costs of $105,225. The Motorola Plainfield Building is
100% leased to Motorola, Inc. (See "Description of Properties -- The Motorola
Plainfield Building.")
Property Operations
As of September 30, 2000, we have provided the following operational
information relating to our real estate properties:
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The Alstom Power Knoxville Building (formerly the ABB Knoxville
Building)/ The IX-X-XI-REIT Joint Venture
Three Months Ended Nine Months Ended
------------------------ -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 288,969 $ 261,986 $ 895,551 $ 784,065
Interest income 19,871 15,024 53,575 46,765
--------- --------- --------- ---------
308,840 277,010 949,126 830,830
--------- --------- --------- ---------
Expenses:
Depreciation 98,454 135,499 295,362 403,699
Management and leasing expenses 36,277 32,260 112,232 93,666
Other operating expenses (26,544) (17,097) (69,178) (13,390)
--------- --------- --------- ---------
108,187 150,662 338,416 483,975
--------- --------- --------- ---------
Net income $ 200,653 $ 126,348 $ 610,710 $ 346,855
========= ========= ========= =========
Occupied percentage 100% 98.28% 100% 98.28%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 11,074 $ 9,855 $ 33,513 $ 28,263
========= ========= ========= =========
Net income allocated to the Wells REIT $ 7,451 $ 4,721 $ 22,700 $ 13,043
========= ========= ========= =========
Rental income increased in 2000, over 1999, due primarily to the
increased occupancy level of the property. Total expenses decreased due to a
decrease in depreciation expense. This decrease resulted from an accelerated
depreciation on tenant improvements for a short-term lease in 1999 for 23,092
square feet. Other operating expenses are negative due to an offset of tenant
reimbursements in operating costs, as well as management and leasing fee
reimbursements. Tenants are billed an estimated amount for the current year
common area maintenance (CAM) which is then reconciled the following year and
the difference billed to the tenant. Net income and cash distributions increased
in 2000, over 1999, due to a combination of increased rental income and
decreased operating expenses.
Our ownership percentage interest in the IX-X-XI-REIT Joint Venture
decreased slightly due to additional capital contributions made by Wells Fund IX
and Wells Fund X, respectively, to the IX-X-XI-REIT Joint Venture in the first
and second quarters of 2000 for funding of capital improvements.
The Ohmeda Building/The IX-X-XI-REIT Joint Venture
Three Months Ended Nine Months Ended
------------------------ -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 256,829 $ 256,829 $ 770,486 $ 770,486
--------- --------- --------- ---------
Expenses:
Depreciation 81,576 81,576 244,728 244,728
Management and leasing expenses 12,826 11,618 41,656 35,293
Other operating expenses (7,585) 3,899 73,410 (188)
--------- --------- --------- ---------
86,817 97,093 359,794 279,833
--------- --------- --------- ---------
Net income $ 170,012 $ 159,736 $ 410,692 $ 490,653
========= ========= ========= =========
100
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 9,130 $ 8,804 $ 23,726 $ 26,992
========= ========= ========= =========
Net income allocated to the Wells REIT $ 6,312 $ 5,969 $ 15,265 $ 18,438
========= ========= ========= =========
Net income decreased in 2000, as compared to 1999, due to an overall
increase in expenses. Operating expenses increased significantly due, in part,
to a significant rise in real estate taxes, which resulted from the revaluation
of the property by Boulder County authorities in 1999. A later reduction in
taxes resulting from an appeal in 2000 was offset by a CAM credit to the tenant.
Rental income remained stable for the three months ended September 30,
2000, as compared to the same period in 1999. Total expenses decreased for the
three month period ended September 30, 2000, as compared to the same period for
1999, due largely to other operating expenses being negative. This was due to an
offset of tenant reimbursements in operating costs, as well as management and
leasing fee reimbursements. Cash distributions and net income allocated to the
Wells REIT for the three month period ended September 30, 2000 increased
slightly as compared to 1999.
The Interlocken Building/The IX-X-XI-REIT Joint Venture
Three Months Ended Nine Months Ended
------------------------ -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 207,454 $ 207,791 $ 635,898 $ 622,070
--------- --------- --------- ---------
Expenses:
Depreciation 71,670 71,670 215,010 215,010
Management and leasing expenses 27,019 18,899 83,736 54,518
Other operating costs (2,165) (5,291) (54,699) 5,342
--------- --------- --------- ---------
96,524 85,278 244,047 274,870
--------- --------- --------- ---------
Net income $ 110,930 $ 122,513 $ 391,851 $ 347,200
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 6,800 $ 7,200 $ 22,679 $ 20,952
========= ========= ========= =========
Net income allocated to the Wells REIT $ 4,119 $ 4,578 $ 14,566 $ 13,041
========= ========= ========= =========
Rental income increased due to a tenant occupying additional space
previously leased to another tenant at a lower rate. Other operating expenses
are negative due to an offset of tenant reimbursements in operating costs, as
well as management and leasing fee reimbursements. Tenants are billed an
estimated amount for current year CAM which is then reconciled the following
year and the difference billed to the tenants. Due to these CAM reimbursements,
management and leasing fees increased since these fees are charged based on
actual receipts.
Cash distributions and net income allocated to the Wells REIT for the
quarter ended September 30, 2000 decreased in 2000, as compared to 1999, due to
a decrease in net income.
101
The Avaya Building (formerly the Lucent Technologies Building)/
The IX-X-XI-REIT Joint Venture
Three Months Ended Nine Months Ended
------------------------ -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 145,752 $ 145,752 $ 437,256 $ 437,256
--------- --------- --------- ---------
Expenses:
Depreciation 45,801 45,801 137,403 137,403
Management and leasing expenses 5,369 5,370 16,109 16,109
Other operating expenses 1,669 1,766 9,688 13,964
--------- --------- --------- ---------
52,839 52,937 163,200 167,476
--------- --------- --------- ---------
Net income $ 92,913 $ 92,815 $ 274,056 $ 269,780
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 4,723 $ 4,750 $ 14,048 $ 14,006
========= ========= ========= =========
Net income allocated to the Wells REIT $ 3,450 $ 3,468 $ 10,187 $ 10,140
========= ========= ========= =========
Rental income, depreciation, and management and leasing expenses
remained stable in 2000, as compared to 1999, while other operating expenses
were slightly lower, due primarily to a one-time charge for consulting fees in
1999 which did not occur in 2000.
On September 30, 2000, Lucent Technologies, Inc. assigned its interest
in the lease as tenant to Avaya, Inc., the former Enterprise Networks Group of
Lucent Technologies.
The Iomega Building/The IX-X-XI-REIT Joint Venture
Three Months Ended Nine Months Ended
------------------------ -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 168,250 $ 150,009 $ 504,750 $ 397,755
--------- --------- --------- ---------
Expenses:
Depreciation 55,062 48,495 165,186 145,485
Management and leasing expenses 7,319 8,291 21,879 17,629
Other operating expenses 2,253 1,290 12,620 3,815
--------- --------- --------- ---------
64,634 58,076 199,685 166,929
--------- --------- --------- ---------
Net income $ 103,616 $ 91,933 $ 305,065 $ 230,826
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 3.71% 3.74% 3.71% 3.74%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 5,713 $ 5,103 $ 16,940 $ 13,702
========= ========= ========= =========
Net income allocated to the Wells REIT $ 3,848 $ 3,435 $ 11,339 $ 8,672
========= ========= ========= =========
Rental income increased in 2000, as compared to 1999, due to the
completion of the parking lot complex in the second quarter of 1999. Total
expenses increased in 2000, over 1999, due to an increase in depreciation and
real estate tax expenses relating to the new parking lot. Cash distributions
increased in 2000, over 1999, due primarily to the increase in net income.
102
The Cort Furniture Building/The Cort Joint Venture
Three Months Ended Nine Months Ended
------------------------ -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 198,885 $ 198,885 $ 596,656 $ 596,656
--------- --------- --------- ---------
Expenses:
Depreciation 46,641 46,641 139,923 139,923
Management and leasing expenses 8,701 7,590 23,881 22,770
Other operating expenses 6,445 5,993 10,375 19,446
--------- --------- --------- ---------
61,787 60,224 174,179 182,139
--------- --------- --------- ---------
Net income $ 137,098 $ 138,661 $ 422,477 $ 414,517
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 43.7% 43.7% 43.7% 43.7%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 76,243 $ 76,926 $ 233,613 $ 230,137
========= ========= ========= =========
Net income allocated to the Wells REIT $ 59,867 $ 60,550 $ 184,484 $ 181,008
========= ========= ========= =========
Rental income, depreciation, and management and leasing expenses
remained stable in 2000, as compared to 1999, while other operating expenses are
lower due to common area maintenance (CAM) reimbursements billed in 2000 to the
tenants. Tenants are billed an estimated amount for CAM which is then reconciled
the following year, and the difference is billed to the tenant. No CAM was
charged to the tenant in 1999.
The Fairchild Building/The Fremont Joint Venture
Three Months Ended Nine Months Ended
------------------------ -----------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 225,195 $ 225,210 $ 675,585 $ 675,631
--------- --------- --------- ---------
Expenses:
Depreciation 71,382 71,382 214,146 214,146
Management and leasing expenses 9,175 9,303 27,525 27,970
Other operating expenses 3,244 6,457 9,856 13,772
--------- --------- --------- ---------
83,801 87,142 251,527 255,888
--------- --------- --------- ---------
Net income $ 141,394 $ 138,068 $ 424,058 $ 419,743
--------- --------- --------- ---------
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 77.5% 77.5% 77.5% 77.5%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 158,817 $ 151,627 $ 476,354 $ 459,174
========= ========= ========= =========
Net income allocated to the Wells REIT $ 109,587 $ 107,009 $ 328,663 $ 325,318
========= ========= ========= =========
Rental income, net income and cash distributions to the Wells REIT
remained stable in 2000, as compared to 1999.
103
The PwC Building
Three Months Ended Nine Months Ended
------------------------ ------------------------
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- ---------- ----------
Revenues:
Rental income $ 552,298 $ 552,297 $1,656,894 $1,656,637
--------- --------- ---------- ----------
Expenses:
Depreciation 206,037 205,236 618,111 616,257
Management and leasing expenses 37,760 37,612 116,142 111,147
Other operating expenses (28,672) (77,618) (134,352) 103,599
--------- --------- ---------- ----------
215,125 165,230 599,901 831,003
--------- --------- ---------- ----------
Net income $ 337,173 $ 387,067 $1,056,993 $ 825,634
========= ========= ========== ==========
Occupied percentage 100% 100% 100% 100%
========= ========= ========== ==========
Our ownership percentage 100% 100% 100% 100%
========= ========= ========== ==========
Cash distributed to the Wells REIT $ 488,547 $ 526,399 $1,512,625 $1,244,179
========= ========= ========== ==========
Net income allocated to the Wells REIT $ 337,173 $ 387,067 $1,056,993 $ 825,634
========= ========= ========== ==========
Rental income has remained stable. Other operating expenses are
negative due to increased CMA billings in 2000. Management and leasing fee
reimbursements are also included in other operating expenses. Tenants are billed
an estimated amount for current year CAM which is then reconciled the following
year, and the difference billed to the tenants.
The AT&T Building (formerly the Vanguard Cellular Building)
Nine Nine
Three Months Ended Months Months
------------------------ Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- ---------- ---------
Revenues:
Rental income $ 340,832 $ 455,471 $1,022,497 $ 930,145
--------- --------- ---------- ---------
Expenses:
Depreciation 120,744 120,750 362,232 321,972
Management and leasing expenses 15,525 20,532 46,201 29,082
Other operating expenses 831 3,362 6,941 12,931
Interest expense 2,915 27,470 9,331 206,046
--------- --------- ---------- ---------
140,015 172,114 424,705 570,031
--------- --------- ---------- ---------
Net income $ 200,817 $ 283,357 $ 597,792 $ 360,114
========= ========= ========== =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========== =========
Our ownership percentage 100% 100% 100% 100%
========= ========= ========== =========
Cash distributed to the Wells REIT $ 314,681 $ 300,004 $ 953,280 $ 579,189
========= ========= ========== =========
Net income allocated to the Wells REIT $ 200,817 $ 283,357 $ 597,792 $ 360,114
========= ========= ========== =========
Rental income decreased for the three months ended September 30, 2000,
as compared to the three months ended September 30, 1999, due to an
understatement of straight line rent in that was adjusted in the third quarter
of 1999. Interest expense has decreased in 2000 due to a substantial decrease in
the note payable related to this property.
104
Since the AT&T Building was purchased in February 1999, comparable
income and expenses figures for the prior period ended September 30, 1999
covered only eight months. Accordingly, the prior period is not comparable to
the nine months ended September 30, 2000.
The EYBL CarTex Building/The XI-XII-REIT Joint Venture
Three Three Nine Five
Months Months Months Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 142,207 $ 140,048 $ 422,385 $ 210,173
--------- --------- --------- ---------
Expenses:
Depreciation 49,902 49,902 149,702 83,170
Management and leasing expenses 16,197 3,814 27,415 14,663
Other operating expenses 3,416 5,165 16,163 5,165
--------- --------- --------- ---------
69,515 58,881 193,280 102,998
--------- --------- --------- ---------
Net income $ 72,692 $ 81,167 $ 229,105 $ 107,175
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 56.8% 56.8% 56.8% 70.1%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 67,917 $ 68,084 $ 190,825 $ 103,599
========= ========= ========= =========
Net income allocated to the Wells REIT $ 44,820 $ 46,791 $ 130,047 $ 65,039
========= ========= ========= =========
Since the acquisition of the property by the XI-XII-REIT Joint Venture,
the property has remained 100% occupied, and no significant changes have
occurred to its operations.
Rental income increased slightly for the three month period ended
September 30, 2000, as compared to the same period in 1999. Total expenses
increased for the three month period ended September 30, 2000, as compared to
the same period in 1999, due to an annual leasing commission paid to an outside
broker pursuant to the terms of the purchase agreement. Cash distributions and
net income allocated to the Wells REIT decreased for the three month period
ended September 30, 2000 because of the decrease in net income.
Since the EYBL CarTex Building was purchased in May 1999, comparable
income and expense figures for the prior period ended September 30, 1999 covered
only five months. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
Our ownership interest in the XI-XII-REIT Joint Venture decreased due
to the admittance of Wells Fund XII to the XI-REIT Joint Venture on June 21,
1999. Our ownership interest was 70.1% for May and June of 1999 and 56.8% for
July through September of 1999.
105
The Sprint Building/The XI-XII-REIT Joint Venture
Three Three Nine Three
Months Months Months Months
Ended Ended Ended Ended
Sept. 30, Sept. 30, Sept. 30, Sept. 30,
2000 1999 2000 1999
--------- --------- --------- ---------
Revenues:
Rental income $ 265,997 $ 264,654 $ 797,991 $ 264,654
--------- --------- --------- ---------
Expenses:
Depreciation 81,779 81,776 245,336 81,776
Management and leasing expenses 11,239 7,493 33,718 7,493
Other operating expenses 3,306 1,283 13,964 1,283
--------- --------- --------- ---------
96,324 90,552 293,018 90,552
--------- --------- --------- ---------
Net income $ 169,673 $ 174,102 $ 504,973 $ 174,102
========= ========= ========= =========
Occupied percentage 100% 100% 100% 100%
========= ========= ========= =========
Our ownership percentage 56.8% 56.8% 56.8% 56.8%
========= ========= ========= =========
Cash distributed to the Wells REIT $ 133,516 $ 137,150 $ 398,252 $ 137,150
========= ========= ========= =========
Net income allocated to the Wells REIT $ 96,311 $ 100,192 $ 286,638 $ 100,192
========= ========= ========= =========
Since the acquisition of the property by the XI-XII-REIT Joint Venture,
the property has remained 100% occupied, and no significant changes have
occurred to its operations.
Rental income increased slightly for the three months ended September
30, 2000, as compared to the same period in 1999. Total expenses increased for
the three months ended September 30, 2000, as compared to the same period in
1999, due largely to the increase in management and leasing fees as well as
other operating expenses. Cash distributions and net income allocated to the
Company decreased for the three months ended September 30, 2000 due to a
decrease in net income.
Since the Sprint Building was purchased in July 1999, comparative
income and expense figures for the prior period ended September 30, 1999 covered
only three months. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
106
The Johnson Matthey Building/The XI-XII-REIT Joint Venture
Three Months Two Months Nine Months
Ended Ended Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000
Revenues:
Rental income $ 219,349 $ 123,566 $ 648,297
---------- ---------- ----------
Expenses:
Depreciation 63,869 42,567 191,606
Management and leasing expenses 9,230 0 27,089
Other operating expenses (1,535) 470 8,594
---------- ---------- ----------
71,564 43,037 227,289
---------- ---------- ----------
Net income $ 147,785 $ 80,529 $ 421,008
========== ========== ==========
Occupied percentage 100% 100% 100%
========== ========== ==========
Our ownership percentage 56.8% 56.8% 56.8%
========== ========== ==========
Cash distributed to the Wells REIT $ 110,419 $ 66,517 $ 318,504
========== ========== ==========
Net income allocated to the Wells REIT $ 83,836 $ 44,409 $ 238,977
========== ========== ==========
Since the acquisition of the property by the XI-XII-REIT Joint Venture,
the property has remained 100% occupied, and no significant changes have
occurred to its operations.
Since the Johnson Matthey Building was purchased in August 1999,
comparative income and expense figures for the prior period covered only two
months. Accordingly, the prior period cannot be compared to the nine months
ended September 30, 2000.
The Gartner Building/The XI-XII-REIT Joint Venture
Three Months One Month Nine Months
Ended Ended Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000
Revenues:
Rental income $ 216,567 $ 32,502 $ 637,375
---------- --------- ----------
Expenses:
Depreciation 77,623 25,874 232,868
Management and leasing expenses 9,970 0 29,218
Other operating expenses (7,603) 0 (27,396)
---------- --------- ----------
79,990 25,874 234,690
---------- --------- ----------
Net income $ 136,577 $ 6,628 $ 402,685
========== ========= ==========
Occupied percentage 100% 100% 100%
========== ========= ==========
Our ownership percentage 56.8% 56.8% 56.8%
========== ========= ==========
Cash distributed to the Wells REIT $ 110,861 $ 10,374 $ 328,570
========== ========= ==========
Net income allocated to the Wells REIT $ 77,525 $ 3,763 $ 228,574
========== ========= ==========
Other operating expenses are negative due to an offset of tenant
reimbursements in operating costs both for the first quarter of 2000 as well as
the fourth quarter of 1999. Since the building was purchased in September of
1999, we were not able to estimate the amount to be billed for 1999 until the
first quarter of 2000.
107
Since the acquisition of the property by the XI-XII-REIT Joint Venture,
the property has remained 100% occupied, and no significant changes have
occurred to its operations.
Since the Gartner Building was purchased in September 1999, comparative
income and expense figures for the prior period ended September 30, 1999 covered
only one month. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
The Marconi Building (formerly the Videojet Building)
Three Months One Month Nine Months
Ended Ended Ended
Sept. 30, 2000 Sept. 30, 1999 Sept. 30, 2000
Revenues:
Rental income $ 817,819 $ 219,376 $ 2,453,457
--------- --------- -----------
Expenses:
Depreciation 293,352 97,774 880,056
Management and leasing expenses 35,510 10,679 108,472
Other operating expenses 4,433 254 16,928
--------- --------- -----------
333,295 108,707 1,005,456
--------- --------- -----------
Net income $ 484,524 $ 110,669 $ 1,448,001
========= ========= ===========
Occupied percentage 100% 100% 100%
========= ========= ===========
Our ownership percentage 100% 100% 100%
========= ========= ===========
Cash distributed to the Wells REIT $ 673,367 $ 157,899 $ 2,016,472
========= ========= ===========
Net income allocated to the Wells REIT $ 484,524 $ 110,669 $ 1,448,001
========= ========= ===========
Since the Marconi Building was purchased in September 1999, comparable
income and expense figures for the prior period ended September 30, 1999 covered
only one month. Accordingly, the prior period is not comparable to the nine
month period ended September 30, 2000.
The Matsushita Building
Three Months Nine Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $ 492,420 $ 1,509,449
Expenses:
Depreciation 244,909 754,423
Management and leasing expenses 48,022 138,940
Other operating expenses 17,211 51,891
------------ ------------
310,142 945,254
------------ ------------
Net income $ 182,278 $ 564,195
============ ============
Occupied percentage 100% 100%
============ ============
Our ownership percentage 100% 100%
============ ============
Cash distributed to the Wells REIT $ 441,254 $ 1,156,810
============ ============
Net income generated to the Wells REIT $ 182,278 $ 564,195
============ ============
108
Construction of the Matsushita Building is complete, and the aggregate
of all costs and expenses incurred by Wells OP with respect to the acquisition
and construction of the Matsushita Building was $18,576,701. The monthly base
rent for the Matsushita Building is $154,602.
Since the Matsushita Building opened in January 2000, comparable income
and expense figures for the prior period are not available.
The Cinemark Building
Three Months Nine Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $ 701,262 $ 2,104,128
Interest income 3,084 $ 4,332
--------- -----------
704,346 2,108,460
--------- -----------
Expenses:
Depreciation 212,310 636,896
Management and leasing expenses 38,127 100,167
Other operating expenses 144,809 453,912
--------- -----------
395,246 1,190,975
--------- -----------
Net income $ 309,100 $ 917,485
========= ===========
Occupied percentage 100% 100%
========= ===========
Our ownership percentage 100% 100%
========= ===========
Cash distributed to the Wells REIT $ 474,274 $ 1,412,711
========= ===========
Net income allocated to the Wells REIT $ 309,100 $ 917,485
========= ===========
Since the Cinemark Building was purchased in December 1999, comparable
income and expense figures for the prior period are not available.
The Metris Building
Three Months Nine Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $ 308,459 $ 790,503
--------- ---------
Expenses:
Depreciation 120,792 318,298
Management and leasing expenses 13,365 34,102
Other operating expenses 3,892 10,970
--------- ---------
138,049 363,370
--------- ---------
Net income $ 170,410 $ 427,133
========= =========
Occupied percentage 100% 100%
========= =========
Our ownership percentage 100% 100%
========= =========
Cash distributed to the Wells REIT $ 281,392 $ 717,190
========= =========
Net income allocated to the Wells REIT $ 170,410 $ 427,133
========= =========
Since the Metris Building was purchased in February 2000, comparable
income and expense figures for the prior period are not available.
109
The Dial Building
Three Months Seven Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $ 346,918 $ 705,027
--------- ---------
Expenses:
Depreciation 120,591 251,094
Management and leasing expenses 15,710 32,122
Other operating expenses 19,459 32,400
--------- ---------
155,760 315,616
--------- ---------
Net income $ 191,158 $ 389,411
--------- ---------
Occupied percentage 100% 100%
========= =========
Our ownership percentage 100% 100%
========= =========
Cash distributed to the Wells REIT $ 325,069 $ 667,145
========= =========
Net income allocated to the Wells REIT $ 191,158 $ 389,411
========= =========
Since the Dial Building was purchased in March 2000, comparable income
and expense figures for the prior period are not available.
The ASML Building
Three Months Seven Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $ 586,875 $ 1,189,297
--------- -----------
Expenses:
Depreciation 193,620 391,056
Management and leasing expenses 26,366 54,688
Other operating expenses 75,823 131,993
--------- -----------
295,809 577,737
--------- -----------
Net income $ 291,066 $ 611,560
========= ===========
Occupied percentage 100% 100%
========= ===========
Our ownership percentage 100% 100%
========= ===========
Cash distributed to the Wells REIT $ 401,031 $ 835,306
========= ===========
Net income allocated to the Wells REIT $ 291,066 $ 611,560
========= ===========
Since the ASML Building was purchased in March 2000, comparable income
and expense figures for the prior period are not available.
110
The Motorola Tempe Building
Three Months Seven Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $485,835 $986,539
------------ -------------
Expenses:
Depreciation 184,064 366,103
Management and leasing expenses 20,654 42,352
Other operating expenses 84,162 150,817
------------ -------------
288,880 559,272
------------ -------------
Net income $196,955 $427,267
============ =============
Occupied percentage 100% 100%
============ =============
Our ownership percentage 100% 100%
============ =============
Cash distributed to the Wells REIT $366,882 $764,851
============ =============
Net income allocated to the Wells REIT $196,955 $427,267
============ =============
Since the Motorola Tempe Building was purchased in March 2000, comparable
income and expense figures for the prior period are not available.
The Siemens Building/The XII-REIT Joint Venture
Three Months Five Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $376,103 $598,678
------------ -------------
Expenses:
Depreciation 106,736 176,070
Management and leasing expenses 14,736 18,020
Other operating expenses 1,805 2,032
------------ -------------
123,277 196,122
------------ -------------
Net income $252,826 $402,556
============ =============
Occupied percentage 100% 100%
============ =============
Our ownership percentage 50% 50%
============ =============
Cash distributed to the Wells REIT $155,462 $248,781
============ =============
Net income allocated to the Wells REIT $126,413 $201,278
============ =============
Since the Siemens Building was purchased in May 2000, comparative income
and expense figures for the prior period are not available.
111
The Avnet Building
Three Months Four Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $442,449 $533,037
------------ -------------
Expenses:
Depreciation 132,714 176,952
Management and leasing expenses 21,008 21,008
Other operating expenses 59,576 72,007
------------ -------------
213,298 269,967
------------ -------------
Net income $229,151 $263,070
============ =============
Occupied percentage 100% 100%
============ =============
Our ownership percentage 100% 100%
============ =============
Cash distributed to the Wells REIT $298,703 $366,292
============ =============
Net income allocated to the Wells REIT $229,151 $263,070
============ =============
Since the Avnet Building was purchased in June 2000, comparable income and
expense figures for the prior period are not available.
The Delphi Building
Three Months Four Months
Ended Ended
Sept. 30, 2000 Sept. 30, 2000
-------------- --------------
Revenues:
Rental income $516,205 $532,947
------------ -------------
Expenses:
Depreciation 216,137 219,372
Management and leasing expenses 22,167 22,167
Other operating expenses 1,650 8,782
------------ -------------
239,954 250,321
------------ -------------
Net income $276,251 $282,626
============ =============
Occupied percentage 100% 100%
============ =============
Our ownership percentage 100% 100%
============ =============
Cash distributed to the Wells REIT $458,077 $461,653
============ =============
Net income allocated to the Wells REIT $276,251 $282,626
============ =============
Since the Delphi Building was purchased in June 2000, comparable income and
expense figures for the prior period are not available.
112
The Alstom Power Richmond Building (formerly the ABB Richmond Building)
Three Months
Ended
Sept. 30, 2000
--------------
Revenues:
Rental income $228,597
------------
Expenses:
Depreciation 110,097
Management and leasing expenses 29,694
Other operating expenses (34,658)
------------
105,133
------------
Net income $123,634
============
Occupied percentage 100%
============
Our ownership percentage 100%
============
Cash distributed to the Wells REIT $243,186
============
Net income allocated to the Wells REIT $123,464
============
On July 24, 2000, Wells OP completed a build-to-suit four-story office
building containing approximately 99,057 rentable square feet on a 7.49 acre
tract of land in Richmond, Virginia (Alstom Power Richmond Building). The
aggregate of all costs and expenses incurred by Wells OP with respect to the
acquisition and construction of the Alstom Power Richmond Building was
$11,654,666.
The building is 100% leased to Alstom Power, Inc. with a lease expiration
of July 31, 2007. The monthly base rent for the Alstom Power Richmond Building
is $98,644. On December 30, 1999, ABB Power Generation, Inc. merged into ABB
Alstom Power, Inc., and on June 22, 2000, ABB Alstom Power, Inc. changed its
name to Alstom Power, Inc.
Since the Alstom Power Richmond Building was completed in July 2000,
comparable income and expense figures for the prior period are not available.
The Quest Building (formerly the Bake Parkway Building)/VIII-IX-REIT Joint
Venture
Three Months
Ended
Sept. 30, 2000
--------------
Revenues:
Rental income $259,148
-------------
Expenses:
Depreciation 46,368
Management and leasing expenses 0
Other operating expenses 16,283
62,651
-------------
Net income $196,497
=============
Occupied percentage 100%
=============
Our ownership percentage 7%
=============
Cash distributed to the Wells REIT $ 8,842
=============
Net income allocated to the Wells REIT $ 11,529
=============
113
On June 15, 2000, the VIII-IX-REIT Joint Venture was formed between Wells
OP and Fund VIII and IX Associates, a Georgia joint venture between Wells Fund
VIII and Wells Fund IX. On July 1, 2000, Fund VIII and IX Associates contributed
its interest in the two-story office building containing approximately 65,006
rentable square feet on a 4.4 acre tract of land located in Irvine, California
(Quest Building), formerly known as the Bake Parkway Building, to the VIII-IX-
REIT Joint Venture.
On August 1, 2000, Quest Software, Inc. commenced a 42 month lease for 100%
of the Quest Building.
Construction of tenant improvements to the Quest Building required
under the Quest lease and other costs and expenses related to the Quest Building
are being funded by capital contributions from Wells OP and are anticipated to
cost approximately $1,250,000 in the aggregate.
Inflation
The real estate market has not been affected significantly by inflation in
the past three years due to the relatively low inflation rate. There are
provisions in a majority of our tenant leases to protect us from the impact of
inflation. These leases contain common area maintenance charges, real estate tax
and insurance reimbursements on a per square foot basis, or in some cases,
annual reimbursement of operating expenses above a certain per square foot
allowance. These provisions should reduce our exposure to increases in costs and
operating expenses resulting from inflation.
Prior Performance Summary
The information presented in this section represents the historical
experience of real estate programs managed by Wells Capital and its affiliates.
Investors in the Wells REIT should not assume that they will experience returns,
if any, comparable to those experienced by investors in such prior Wells real
estate programs.
Of the 13 publicly offered real estate limited partnerships in which Leo F.
Wells, III has served as a general partner, 12 of such limited partnerships have
completed their respective offerings. These 12 limited partnerships and the year
in which each of their offerings was completed are:
1. Wells Real Estate Fund I (1986),
2. Wells Real Estate Fund II (1988),
3. Wells Real Estate Fund II-OW (1988),
4. Wells Real Estate Fund III, L.P. (1990),
5. Wells Real Estate Fund IV, L.P. (1992),
6. Wells Real Estate Fund V, L.P. (1993),
7. Wells Real Estate Fund VI, L.P. (1994),
8. Wells Real Estate Fund VII, L.P. (1995),
9. Wells Real Estate Fund VIII, L.P. (1996),
10. Wells Real Estate Fund IX, L.P. (1996),
11. Wells Real Estate Fund X, L.P. (1997), and
12. Wells Real Estate Fund XI, L.P. (1998).
In addition to the foregoing real estate limited partnerships, Wells
Capital and its affiliates sponsored the initial public offering of shares of
common stock of the Wells REIT. The initial public offering began on January 30,
1998 and was terminated on December 19, 1999. We received gross
114
proceeds of approximately $132,181,919 from the sale of approximately 13,218,192
shares from our initial public offering.
Wells Capital and its affiliates sponsored a second public offering of
shares of common stock of the Wells REIT. The second public offering began on
December 20, 1999 and was terminated on December 19, 2000. As of December 10,
2000, we had received gross proceeds of approximately $169,671,659 from the sale
of approximately 16,967,166 shares from our second public offering.
Wells Capital and its affiliates are currently also sponsoring a public
offering of 7,000,000 units on behalf of Wells Real Estate Fund XII, L.P., a
public limited partnership. Wells Fund XII began its offering on March 22, 1999
and, as of September 30, 2000, Wells Fund XII had raised $20,618,517 from 1,082
investors.
The Prior Performance Tables included in the back of this prospectus set
forth information as of the dates indicated regarding certain of these Wells
programs as to (1) experience in raising and investing funds (Table I); (2)
compensation to sponsor (Table II); and (3) annual operating results of prior
programs (Table III). No information is given as to results of completed
programs or sales or disposals of property because, as of December 31, 1999, the
date of the Prior Performance Tables, none of the Wells programs had sold any of
their properties.
In addition to the real estate programs sponsored by Wells Capital and its
affiliates discussed above, they are also sponsoring an index mutual fund which
invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT
Fund). The REIT Fund is a mutual fund which seeks to provide investment results
corresponding to the performance of the S&P REIT Index by investing in the REIT
stocks included in the S&P REIT Index. The REIT Fund began its offering on
January 12, 1998 and, as of September 30, 2000, the REIT Fund had raised
$48,330,317 from 2,080 investors.
Publicly Offered Unspecified Real Estate Programs
Wells Capital and its affiliates have previously sponsored the above listed
12 publicly offered real estate limited partnerships and are currently
sponsoring Wells Fund XII offered on an unspecified property or "blind pool"
basis. The total amount of funds raised from investors in the offerings of these
13 publicly offered limited partnerships, as of September 30, 2000, was
approximately $284,902,809, and the total number of investors in such programs
was approximately 25,627.
The investment objectives of each of the other Wells programs are
substantially identical to the investment objectives of the Wells REIT.
Substantially all of the proceeds of the offerings of Wells Fund I, Wells Fund
II, Wells Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund
VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X and Wells Fund
XI available for investment in real properties have been invested in properties.
As of September 30, 2000, approximately 65% of the aggregate gross rental income
of the 12 publicly offered programs listed above was derived from tenants which
are corporations, each of which at the time of lease execution had a net worth
of at least $100,000,000 or whose lease obligations were guaranteed by another
corporation with a net worth of at least $100,000,000.
Because of the cyclical nature of the real estate market, decreases in net
income of the public partnerships could occur at any time in the future when
economic conditions decline. Wells Fund I recently sold one of its buildings and
is in the process of marketing the remainder of its properties for sale.
However, none of the other Wells programs has liquidated its real estate
portfolio or, except for the one building recently sold by Wells Fund I, sold
any of its real properties to date. Accordingly, no
115
assurance can be made that the Wells programs will ultimately be successful in
meeting their investment objectives. (See "Risk Factors.")
The aggregate dollar amount of the acquisition and development costs of
the properties purchased by the previously sponsored Wells programs, as of
December 31, 1999, was $370,247,877 of which $332,000 (or approximately .09%)
had not yet been expended on the development of certain of the projects which
are still under construction. Of the aggregate amount, approximately 82% was or
will be spent on acquiring or developing office buildings, and approximately 18%
was or will be spent on acquiring or developing shopping centers. Of the
aggregate amount, approximately 9% was or will be spent on new properties, 58%
on existing or used properties and 33% on construction properties. Following is
a table showing a breakdown of the aggregate amount of the acquisition and
development costs of the properties purchased by the Wells REIT, Wells Fund XII
and the 12 Wells programs listed above as of September 30, 2000:
Type of Property New Used Construction
---------------- --- ---- ------------
Office Buildings 29.0% 38.2% 19.1%
Shopping Centers 0% 4.5% 9.2%
Wells Fund I terminated its offering on September 5, 1986, and received
gross proceeds of $35,321,000 representing subscriptions from 4,895 limited
partners. $24,679,000 of the gross proceeds were attributable to sales of Class
A Units, and $10,642,000 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund I have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund I owns
interests in the following properties:
. a three-story medical office building in Atlanta, Georgia;
. a commercial office building in Atlanta, Georgia;
. a shopping center in DeKalb County, Georgia having Kroger as the
anchor tenant;
. a shopping center in Knoxville, Tennessee;
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant; and
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia.
The prospectus of Wells Fund I provided that the properties purchased by
Wells Fund I would typically be held for a period of eight to 12 years, but that
the general partners may exercise their discretion as to whether and when to
sell the properties owned by Wells Fund I and that the general partners were
under no obligation to sell the properties at any particular time. Wells Fund I
recently sold one of two commercial office buildings known as Peachtree Place
located in a suburb of Atlanta, Georgia. Wells Fund I is in the process of
marketing the remainder of its properties for sale pending the outcome of a
proxy solicitation recommending that the Class A Limited Partners vote in favor
of an amendment to the Partnership Agreement to change the method of
distribution of net sale proceeds.
Wells Fund II and Wells Fund II-OW terminated their offerings on September
7, 1988, and received aggregate gross proceeds of $36,870,250 representing
subscriptions from 4,659 limited partners. $28,829,000 of the gross proceeds
were attributable to sales of Class A Units, and $8,041,250 of the gross
proceeds were attributable to sales of Class B Units. Limited partners in Wells
Fund II and Wells Fund II-OW have no right to change the status of their units
from Class A to Class B or vice versa. Wells Fund
116
II and Wells Fund II-OW own all of their properties through a joint venture,
which owns interests in the following properties:
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant;
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia;
. a two-story office building in Charlotte, North Carolina leased to
First Union Bank;
. a four-story office building in Houston, Texas leased to The Boeing
Company;
. a restaurant property in Roswell, Georgia leased to Brookwood Grill of
Roswell, Inc.; and
. a combined retail and office development in Roswell, Georgia.
The prospectus of Wells Fund II and Wells Fund II-OW provided that the
properties purchased by Wells Fund II and Wells Fund II-OW would typically be
held for a period of eight to 12 years, but that the general partners may
exercise their discretion as to whether and when to sell the properties owned by
Wells Fund II and Wells Fund II-OW and that the partnerships were under no
obligation to sell their properties at any particular time. Wells Fund II and
Wells Fund II-OW acquired their properties between 1987 and 1989, and have not
yet liquidated or sold any of their properties.
Wells Fund III terminated its offering on October 23, 1990, and received
gross proceeds of $22,206,310 representing subscriptions from 2,700 limited
partners. $19,661,770 of the gross proceeds were attributable to sales of Class
A Units, and $2,544,540 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund III have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund III owns
interests in the following properties:
. a four-story office building in Houston, Texas leased to The Boeing
Company;
. a restaurant property in Roswell, Georgia leased to Brookwood Grill of
Roswell, Inc.;
. a combined retail and office development in Roswell, Georgia;
. a two-story office building in Greenville, North Carolina leased to
International Business Machines Corporation (IBM);
. a shopping center in Stockbridge, Georgia having Kroger as the anchor
tenant; and
. a two-story office building in Richmond, Virginia leased to General
Electric.
Wells Fund IV terminated its offering on February 29, 1992, and received
gross proceeds of $13,614,655 representing subscriptions from 1,286 limited
partners. $13,229,150 of the gross proceeds were attributable to sales of Class
A Units, and $385,505 of the gross proceeds were attributable to sales of Class
B Units. Limited partners in Wells Fund IV have no right to change the status of
their units from Class A to Class B or vice versa. Wells Fund IV owns interests
in the following properties:
. a shopping center in Stockbridge, Georgia having Kroger as the anchor
tenant;
. a four-story office building in Jacksonville, Florida leased to IBM
and Customized Transportation Inc. (CTI);
. a two-story office building in Richmond, Virginia leased to General
Electric; and
117
. two two-story office buildings in Stockbridge, Georgia.
Wells Fund V terminated its offering on March 3, 1993, and received gross
proceeds of $17,006,020 representing subscriptions from 1,667 limited partners.
$15,209,666 of the gross proceeds were attributable to sales of Class A Units,
and $1,796,354 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund V who purchased Class B Units are entitled
to change the status of their units to Class A, but limited partners who
purchased Class A Units are not entitled to change the status of their units to
Class B. After taking into effect conversion elections made by limited partners
subsequent to their subscription for units, as of December 31, 1999, $15,664,160
of units of Wells Fund V were treated as Class A Units, and $1,341,860 of units
were treated as Class B Units. Wells Fund V owns interests in the following
properties:
. a four-story office building in Jacksonville, Florida leased to IBM
and CTI;
. two two-story office buildings in Stockbridge, Georgia;
. a four-story office building in Hartford, Connecticut leased to
Hartford Fire Insurance Company;
. two restaurant properties in Stockbridge, Georgia leased to Apple
Restaurants, Inc. and Glenn's Open Pit Bar-B-Que; and
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel.
Wells Fund VI terminated its offering on April 4, 1994, and received gross
proceeds of $25,000,000 representing subscriptions from 1,793 limited partners.
$19,332,176 of the gross proceeds were attributable to sales of Class A Units,
and $5,667,824 of the gross proceeds were attributable to sales of Class B
Units. Limited partners in Wells Fund VI are entitled to change the status of
their units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscription
for units, as of December 31, 1999, $21,959,690 of units of Wells Fund VI were
treated as Class A Units, and $3,040,310 of units were treated as Class B Units.
Wells Fund VI owns interests in the following properties:
. a four-story office building in Hartford, Connecticut leased to
Hartford Fire Insurance Company;
. two restaurant properties in Stockbridge, Georgia leased to Apple
Restaurants, Inc. and Glenn's Open Pit Bar-B-Que;
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel;
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant;
. a combined retail and office development in Roswell, Georgia;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.; and
118
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant.
Wells Fund VII terminated its offering on January 5, 1995, and received
gross proceeds of $24,180,174 representing subscriptions from 1,910 limited
partners. $16,788,095 of the gross proceeds were attributable to sales of Class
A Units, and $7,392,079 of the gross proceeds were attributable to sales of
Class B Units. Limited partners in Wells Fund VII are entitled to change the
status of their units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscriptions for units, as of December 31, 1999, $20,362,672 of units in Wells
Fund VII were treated as Class A Units, and $3,817,502 of units were treated as
Class B Units. Wells Fund VII owns interests in the following properties:
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel;
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
. a shopping center in Cherokee County, Georgia having Kroger as the
anchor tenant;
. a combined retail and office development in Roswell, Georgia;
. a two-story office building in Alachua County, Florida near
Gainesville leased to CH2M Hill, Engineers, Planners, Economists,
Scientists;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.;
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant; and
. a retail development in Clayton County, Georgia.
Certain financial information for Wells Fund VII is summarized below:
--------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------
Gross Revenues $962,630 $846,306 $816,237 $543,291 $925,246
--------------------------------------------------------------------------------------------------------
Net Income $895,795 $754,334 $733,149 $452,776 $804,043
--------------------------------------------------------------------------------------------------------
Wells Fund VIII terminated its offering on January 4, 1996, and received
gross proceeds of $32,042,689 representing subscriptions from 2,241 limited
partners. $26,135,339 of the gross proceeds were attributable to sales of Class
A Units, and $5,907,350 were attributable to sales of Class B Units. Limited
partners in Wells Fund VIII are entitled to change the status of their units
from Class A to Class B and vice versa. After taking into effect conversion
elections made by limited partners subsequent to their subscriptions for units
and certain repurchases made by Wells Fund VIII, as of December 31, 1999,
$4,748,439 of units in Wells Fund VIII were treated as Class A Units, and
$27,284,250 of units were treated as Class B Units. Wells Fund VIII owns
interests in the following properties:
. a two-story office building in Alachua County, Florida near Gainsville
leased to CH2M Hill, Engineers, Planners, Economists, Scientists;
119
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.;
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant;
. a retail development in Clayton County, Georgia;
. a four-story office building in Madison, Wisconsin leased to US
Cellular, a subsidiary of Bellsouth Corporation;
. a one-story office building in Farmers Branch, Texas leased to TCI
Valwood Limited Partnership I;
. a two-story office building in Orange County, California leased to
Quest Software, Inc.; and
. a two-story office building in Boulder County, Colorado leased to
Cirrus Logic, Inc.
Certain financial information for Wells Fund VIII is summarized below:
--------------------------------------------------------------------------------------------------------
1999 1998 1997 1996 1995
--------------------------------------------------------------------------------------------------------
Gross Revenues $1,360,497 $1,362,513 $1,204,018 $1,057,694 $402,428
--------------------------------------------------------------------------------------------------------
Net Income $1,266,946 $1,269,171 $1,102,567 $ 936,590 $273,914
--------------------------------------------------------------------------------------------------------
Wells Fund IX terminated its offering on December 30, 1996, and received
gross proceeds of $35,000,000 representing subscriptions from 2,098 limited
partners. $29,359,310 of the gross proceeds were attributable to sales of Class
A Units, and $5,640,690 were attributable to sales of Class B Units. After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units, as of December 31, 1999, $30,723,220 of units in
Wells Fund IX were treated as Class A Units, and $4,276,780 of units were
treated as Class B Units. Wells Fund IX owns interests in the following
properties:
. a one-story office building in Farmers Branch, Texas leased to TCI
Valwood Limited Partnership I;
. a four-story office building in Madison, Wisconsin leased to US
Cellular, a subsidiary of Bellsouth Corporation;
. a two-story office building in Orange County, California leased to
Quest Software, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Cirrus Logic, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a three-story office building in Knox County, Tennessee leased to
Alstom Power, Inc.;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a three-story office building in Boulder County, Colorado; and
. a one-story office building in Oklahoma City, Oklahoma leased to
Avaya, Inc.
120
Certain financial information for Wells Fund IX is summarized below:
---------------------------------------------------------------------------
1999 1998 1997 1996
---------------------------------------------------------------------------
Gross Revenues $1,593,734 $1,561,456 $1,199,300 $406,891
---------------------------------------------------------------------------
Net Income $1,490,331 $1,449,955 $1,091,766 $298,756
---------------------------------------------------------------------------
Wells Fund X terminated its offering on December 30, 1997, and received
gross proceeds of $27,128,912 representing subscriptions from 1,806 limited
partners. $21,160,992 of the gross proceeds were contributable to sales of Class
A Units, and $5,967,920 were attributable to sales of Class B Units. After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units, as of December 31, 1999, $21,669,662 of units in
Wells Fund X were treated as Class A Units and $5,454,250 of units were treated
as Class B Units. Wells Fund X owns interests in the following properties:
. a three-story office building in Knox County, Tennessee leased to
Alstom Power, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a three-story office building in Boulder County, Colorado;
. a one-story office building in Oklahoma City, Oklahoma leased to
Avaya, Inc.;
. a one-story office and warehouse building in Orange County, California
leased to Cort Furniture Rental Corporation; and
. a two-story office and manufacturing building in Alameda County,
California leased to Fairchild Technologies U.S.A., Inc.
Certain financial information for Wells Fund X is summarized below:
----------------------------------------------------------------------
1999 1998 1997
----------------------------------------------------------------------
Gross Revenues $1,309,281 $1,204,597 $372,507
----------------------------------------------------------------------
Net Income $1,192,318 $1,050,329 $278,025
----------------------------------------------------------------------
Wells Fund XI terminated its offering on December 30, 1998, and
received gross proceeds of $16,532,802 representing subscriptions from 1,345
limited partners. $13,029,424 of the gross proceeds were attributable to sales
of Class A Units and $3,503,378 were attributable to sales of Class B Units.
After taking into effect conversion elections made by limited partners
subsequent to their subscriptions for units, as of December 31, 1999,
$13,369,062 of units in Wells Fund XI were treated as Class A Units and
$3,163,740 of units were treated as Class B Units. Wells Fund XI owns interests
in the following properties:
. a three-story office building in Knox County, Tennessee leased to
Alstom Power, Inc.;
. a one-story office building in Oklahoma City, Oklahoma leased to
Avaya, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a three-story office building in Boulder County, Colorado;
121
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a one-story office and warehouse building in Orange County, California
leased to Cort Furniture Rental Corporation;
. a two-story office and manufacturing building in Alameda County,
California leased to Fairchild Technologies U.S.A., Inc.;
. a two-story manufacturing and office building in Greenville County,
South Carolina leased to EYBL CarTex, Inc.;
. a three-story office building in Johnson County, Kansas leased to
Sprint Communications Company L.P.;
. a two-story research and development office and warehouse building in
Chester County, Pennsylvania leased to Johnson Matthey, Inc.; and
. a two-story office building in Fort Myers, Florida leased to Gartner
Group, Inc.
Certain financial information for Wells Fund XI is summarized below:
-------------------------------------------------------
1999 1998
-------------------------------------------------------
Gross Revenues $766,586 $262,729
-------------------------------------------------------
Net Income $630,528 $143,295
-------------------------------------------------------
Wells Fund XII began its offering on March 22, 1999. As of September
30, 2000, Wells Fund XII had received gross proceeds of $20,618,517 representing
subscriptions from 1,082 limited partners. $15,959,857 of the gross proceeds
were attributable to sales of cash preferred units and $4,658,660 were
attributable to sales of tax preferred units. Wells Fund XII owns interests in
the following properties:
. a two-story manufacturing and office building in Greenville County,
South Carolina leased to EYBL CarTex, Inc.;
. a three-story office building In Johnson County, Kansas leased to
Sprint Communications Company L.P.;
. a two-story research and development office and warehouse building in
Chester County, Pennsylvania leased to Johnson Matthey, Inc.;
. a two-story office building in Fort Myers, Florida leased to Gartner
Group, Inc.; and
. a three-story office building in Troy, Michigan leased to Siemens
Automotive Corporation.
The information set forth above should not be considered indicative of
results to be expected from the Wells REIT.
The foregoing properties in which the above 13 limited partnerships have
invested have all been acquired on an all cash basis.
Leo F. Wells, III and Wells Partners, L.P. are the general partners of
Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII,
Wells Fund IX, Wells Fund X, Wells Fund XI and
122
Wells Fund XII. Wells Capital, which is the general partner of Wells Partners,
L.P., and Leo F. Wells, III are the general partners of Wells Fund I, Wells Fund
II, Wells Fund II-OW and Wells Fund III.
Potential investors are encouraged to examine the Prior Performance Tables
included in the back of the prospectus for more detailed information regarding
the prior experience of the sponsors. In addition, upon request, prospective
investors may obtain from us without charge copies of offering materials and any
reports prepared in connection with any of the Wells programs, including a copy
of the most recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission. For a reasonable fee, we will also furnish upon request
copies of the exhibits to any such Form 10-K. Any such request should be
directed to our secretary. Additionally, Table VI contained in Part II of the
registration statement, which is not part of this prospectus, gives certain
additional information relating to properties acquired by the Wells programs. We
will furnish, without charge, copies of such table upon request.
Federal Income Tax Considerations
General
The following is a summary of material federal income tax considerations
associated with an investment in the shares. This summary does not address all
possible tax considerations that may be material to an investor and does not
constitute tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to you, as a prospective shareholder, in light of your
personal circumstances; nor does it deal with particular types of shareholders
that are subject to special treatment under the Internal Revenue Code, such as
insurance companies, tax-exempt organizations, financial institutions or broker-
dealers, or foreign corporations or persons who are not citizens or residents of
the United States (Non-US Shareholders). The Internal Revenue Code provisions
governing the federal income tax treatment of REITs are highly technical and
complex, and this summary is qualified in its entirety by the express language
of applicable Internal Revenue Code provisions, Treasury Regulations promulgated
thereunder and administrative and judicial interpretations thereof.
We urge you, as a prospective investor, to consult your own tax advisor
regarding the specific tax consequences to you of a purchase of shares,
ownership and sale of the shares and of our election to be taxed as a REIT,
including the federal, state, local, foreign and other tax consequences of such
purchase, ownership, sale and election.
Opinion of Counsel
Holland & Knight LLP has acted as our counsel, has reviewed this summary
and is of the opinion that it fairly summarizes the federal income tax
considerations addressed that are material to shareholders. It is also the
opinion of our counsel that it is more likely than not that we qualified to be
taxed as a REIT under the Internal Revenue Code for our taxable year ended
December 31, 1999, provided that we have operated and will continue to operate
in accordance with various assumptions and the factual representations we made
to counsel concerning our business, properties and operations. It must be
emphasized that Holland & Knight LLP's opinion is based on various assumptions
and is conditioned upon the assumptions and representations we made concerning
our business and properties. Moreover, our qualification for taxation as a REIT
depends on our ability to meet the various qualification tests imposed under the
Internal Revenue Code discussed below, the results of which will not be reviewed
by Holland & Knight LLP. Accordingly, we cannot assure you that the actual
results of our operations for any one taxable year will satisfy these
requirements. (See "Risk Factors -- Failure to Qualify as a REIT.")
123
The statements made in this section of the prospectus and in the opinion of
Holland & Knight LLP are based upon existing law and Treasury Regulations, as
currently applicable, currently published administrative positions of the
Internal Revenue Service and judicial decisions, all of which are subject to
change, either prospectively or retroactively. We cannot assure you that any
changes will not modify the conclusions expressed in counsel's opinion.
Moreover, an opinion of counsel is not binding on the Internal Revenue Service
and we cannot assure you that the Internal Revenue Service will not successfully
challenge our status as a REIT.
Taxation of the Company
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on that portion of our ordinary income or capital
gain that we distribute currently to our shareholders, because the REIT
provisions of the Internal Revenue Code generally allow a REIT to deduct
distributions paid to its shareholders. This substantially eliminates the
federal "double taxation" on earnings (taxation at both the corporate level and
shareholder level) that usually results from an investment in a corporation.
Even if we qualify for taxation as a REIT, however, we will be subject to
federal income taxation as follows:
. we will be taxed at regular corporate rates on our undistributed REIT
taxable income, including undistributed net capital gains;
. under some circumstances, we will be subject to "alternative minimum
tax";
. if we have net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other non-qualifying income from
foreclosure property, we will be subject to tax at the highest
corporate rate on that income;
. if we have net income from prohibited transactions (which are, in
general, sales or other dispositions of property other than
foreclosure property held primarily for sale to customers in the
ordinary course of business), the income will be subject to a 100%
tax;
. if we fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but have nonetheless maintained our qualification as
a REIT because certain conditions have been met, we will be subject to
a 100% tax on an amount equal to the greater of the amount by which we
fail the 75% or 95% test multiplied by a fraction calculated to
reflect our profitability;
. if we fail to distribute during each year at least the sum of (i) 85%
of our REIT ordinary income for the year, (ii) 95% of our REIT capital
gain net income for such year and (iii) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on
the excess of the required distribution over the amounts actually
distributed; and
. if we acquire any asset from a C corporation (i.e., a corporation
generally subject to corporate-level tax) in a carryover-basis
transaction and we subsequently recognize gain on the disposition of
the asset during the ten year period beginning on the date on which we
acquired the asset, then a portion of the gains may be subject to tax
at the highest regular corporate rate, pursuant to guidelines issued
by the Internal Revenue Service (Built-In-Gain Rules).
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Requirements for Qualification as a REIT
We elected to be taxable as a REIT for our taxable year ended December 31,
1998. In order for us to qualify as a REIT, however, we had to meet and we must
continue to meet the requirements discussed below relating to our organization,
sources of income, nature of assets and distributions of income to our
shareholders.
Organizational Requirements
In order to qualify for taxation as a REIT under the Internal Revenue
Code, we must:
. be a domestic corporation;
. elect to be taxed as a REIT and satisfy relevant filing and other
administrative requirements;
. be managed by one or more trustees or directors;
. have transferable shares;
. not be a financial institution or an insurance company;
. use a calendar year for federal income tax purposes;
. have at least 100 shareholders for at least 335 days of each taxable
year of 12 months; and
. not be closely held.
As a Maryland corporation, we satisfy the first requirement, and we have
filed an election to be taxed as a REIT with the IRS. In addition, we are
managed by a board of directors, we have transferable shares and we do not
intend to operate as a financial institution or insurance company. We utilize
the calendar year for federal income tax purposes, and we have more than 100
shareholders. We would be treated as closely held only if five or fewer
individuals or certain tax-exempt entities own, directly or indirectly, more
than 50% (by value) of our shares at any time during the last half of our
taxable year. For purposes of the closely-held test, the Internal Revenue Code
generally permits a look-through for pension funds and certain other tax-exempt
entities to the beneficiaries of the entity to determine if the REIT is closely
held. Five or fewer individuals or tax-exempt entities have never owned more
than 50% of our outstanding shares during the last half of any taxable year.
We are authorized to refuse to transfer our shares to any person if the
sale or transfer would jeopardize our ability to satisfy the REIT ownership
requirements. There can be no assurance that a refusal to transfer will be
effective. However, based on the foregoing, we should currently satisfy the
organizational requirements, including the share ownership requirements.
Notwithstanding compliance with the share ownership requirements outlined above,
tax-exempt shareholders may be required to treat all or a portion of their
distributions from us as "unrelated business taxable income" if tax-exempt
shareholders, in the aggregate, exceed certain ownership thresholds set forth in
the Internal Revenue Code. (See "Taxation of Tax-Exempt Shareholders.")
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Ownership of Interests in Partnerships and Qualified REIT Subsidiaries
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share,
based on its interest in partnership capital, of the assets of the partnership
and is deemed to have earned its allocable share of partnership income. Also, if
a REIT owns a qualified REIT subsidiary, which is defined as a corporation
wholly-owned by a REIT, the REIT will be deemed to own all of the subsidiary's
assets and liabilities and it will be deemed to be entitled to treat the income
of that subsidiary as its own. In addition, the character of the assets and
gross income of the partnership or qualified REIT subsidiary shall retain the
same character in the hands of the REIT for purposes of satisfying the gross
income tests and asset tests set forth in the Internal Revenue Code.
Operational Requirements -- Gross Income Tests
To maintain our qualification as a REIT, we must satisfy annually two gross
income requirements.
. At least 75% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property. Gross income includes "rents from real
property" and, in some circumstances, interest, but excludes gross
income from dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business. Such
dispositions are referred to as "prohibited transactions." This is the
75% Income Test.
. At least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived from
the real property investments described above and from distributions,
interest and gains from the sale or disposition of stock or securities
or from any combination of the foregoing. This is the 95% Income Test.
. The rents we receive or that we are deemed to receive qualify as
"rents from real property" for purposes of satisfying the gross income
requirements for a REIT only if the following conditions are m et:
. the amount of rent received from a tenant generally must not be
based in whole or in part on the income or profits of any person,
however, an amount received or accrued generally will not be
excluded from the term "rents from real property" solely by
reason of being based on a fixed percentage or percentages of
gross receipts or sales;
. rents received from a tenant will not qualify as "rents from real
property" if an owner of 10% or more of the REIT directly or
constructively owns 10% or more of the tenant (a "Related Party
Tenant") or a subtenant of the tenant (in which case only rent
attributable to the subtenant is disqualified);
. if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total
rent received under the lease, then the portion of rent
attributable to the personal property will not qualify as "rents
from real property"; and
. the REIT must not operate or manage the property or furnish or
render services to tenants, other than through an "independent
contractor" who is adequately
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compensated and from whom the REIT does not derive any income.
However, a REIT may provide services with respect to its
properties, and the income derived therefrom will qualify as
"rents from real property," if the services are "usually or
customarily rendered" in connection with the rental of space only
and are not otherwise considered "rendered to the occupant." Even
if the services with respect to a property are impermissible
tenant services, the income derived therefrom will qualify as
"rents from real property" if such income does not exceed one
percent of all amounts received or accrued with respect to that
property.
If we acquire ownership of property by reason of the default of a borrower
on a loan or possession of property by reason of a tenant default, if the
property qualifies and we elect to treat it as foreclosure property, the income
from the property will qualify under the 75% Income Test and the 95% Income Test
notwithstanding its failure to satisfy these requirements for three years, or if
extended for good cause, up to a total of six years. In that event, we must
satisfy a number of complex rules, one of which is a requirement that we operate
the property through an independent contractor. We will be subject to tax on
that portion of our net income from foreclosure property that does not otherwise
qualify under the 75% Income Test.
Prior to the making of investments in properties, we may satisfy the 75%
Income Test and the 95% Income Test by investing in liquid assets such as
government securities or certificates of deposit, but earnings from those types
of assets are qualifying income under the 75% Income Test only for one year from
the receipt of proceeds. Accordingly, to the extent that offering proceeds have
not been invested in properties prior to the expiration of this one year period,
in order to satisfy the 75% Income Test, we may invest the offering proceeds in
less liquid investments such as mortgage-backed securities, maturing mortgage
loans purchased from mortgage lenders or shares in other REITs. We expect to
receive proceeds from the offering in a series of closings and to trace those
proceeds for purposes of determining the one year period for "new capital
investments." No rulings or regulations have been issued under the provisions of
the Internal Revenue Code governing "new capital investments," however, so that
there can be no assurance that the Internal Revenue Service will agree with this
method of calculation.
Except for amounts received with respect to certain investments of cash
reserves, we anticipate that substantially all of our gross income will be from
sources that will allow us to satisfy the income tests described above; however,
there can be no assurance given in this regard. Notwithstanding our failure to
satisfy one or both of the 75% Income and the 95% Income Tests for any taxable
year, we may still qualify as a REIT for that year if we are eligible for relief
under specific provisions of the Internal Revenue Code. These relief provisions
generally will be available if:
. our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
. we attach a schedule of our income sources to our federal income tax
return; and
. any incorrect information on the schedule is not due to fraud with
intent to evade tax.
It is not possible, however, to state whether, in all circumstances, we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally earn exceeds the limits on this income, the Internal Revenue
Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above in "Taxation of the Company," even if these
relief provisions apply, a tax would be imposed with respect to the excess net
income.
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Operational Requirements -- Asset Tests
At the close of each quarter of our taxable year, we also must satisfy
three tests (Asset Tests) relating to the nature and diversification of our
assets.
. First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government
securities. The term "real estate assets" includes real property,
mortgages on real property, shares in other qualified REITs and a
proportionate share of any real estate assets owned by a partnership
in which we are a partner or of any qualified REIT subsidiary of ours.
. Second, no more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
. Third, of the investments included in the 25% asset class, the value
of any one issuer's securities that we own may not exceed 5% of the
value of our total assets. Additionally, we may not own more than 10%
of any one issuer's outstanding voting securities.
The 5% test must generally be met for any quarter in which we acquire
securities. Further, if we meet the Asset Tests at the close of any quarter, we
will not lose our REIT status for a failure to satisfy the Asset Tests at the
end of a later quarter if such failure occurs solely because of changes in asset
values. If our failure to satisfy the Asset Tests results from an acquisition of
securities or other property during a quarter, we can cure the failure by
disposing of a sufficient amount of nonqualifying assets within 30 days after
the close of that quarter. We maintain, and will continue to maintain, adequate
records of the value of our assets to ensure compliance with the Asset Tests and
will take other action within 30 days after the close of any quarter as may be
required to cure any noncompliance.
Operational Requirements -- Annual Distribution Requirement
In order to be taxed as a REIT, we are required to make dividend
distributions, other than capital gain distributions, to our shareholders each
year in the amount of at least 95% of our REIT taxable income (computed without
regard to the dividends paid deduction and our capital gain and subject to
certain other potential adjustments) for all tax years prior to 2001 and at
least 90% of our REIT taxable income for all future years beginning with the
year 2001.
While we must generally pay dividends in the taxable year to which they
relate, we may also pay dividends in the following taxable year if (1) they are
declared before we timely file our federal income tax return for the taxable
year in question, and if (2) they are paid on or before the first regular
dividend payment date after the declaration.
Even if we satisfy the foregoing dividend distribution requirement and,
accordingly, continue to qualify as a REIT for tax purposes, we will still be
subject to tax on the excess of our net capital gain and our REIT taxable
income, as adjusted, over the amount of dividends distributed to shareholders.
In addition, if we fail to distribute during each calendar year at least
the sum of:
. 85% of our ordinary income for that year;
. 95% of our capital gain net income other than the capital gain net
income which we elect to retain and pay tax on for that year; and
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. any undistributed taxable income from prior periods,
we will be subject to a 4% excise tax on the excess of the amount of such
required distributions over amounts actually distributed during such year.
We intend to make timely distributions sufficient to satisfy this
requirement; however, it is possible that we may experience timing differences
between (1) the actual receipt of income and payment of deductible expenses, and
(2) the inclusion of that income. It is also possible that we may be allocated a
share of net capital gain attributable to the sale of depreciated property that
exceeds our allocable share of cash attributable to that sale.
In such circumstances, we may have less cash than is necessary to meet our
annual distribution requirement or to avoid income or excise taxation on certain
undistributed income. We may find it necessary in such circumstances to arrange
for financing or raise funds through the issuance of additional shares in order
to meet our distribution requirements, or we may pay taxable stock distributions
to meet the distribution requirement.
If we fail to satisfy the distribution requirement for any taxable year by
reason of a later adjustment to our taxable income made by the Internal Revenue
Service, we may be able to pay "deficiency dividends" in a later year and
include such distributions in our deductions for dividends paid for the earlier
year. In such event, we may be able to avoid being taxed on amounts distributed
as deficiency dividends, but we would be required in such circumstances to pay
interest to the Internal Revenue Service based upon the amount of any deduction
taken for deficiency dividends for the earlier year.
As noted above, we may also elect to retain, rather than distribute, our
net long-term capital gains. The effect of such an election would be as follows:
. we would be required to pay the tax on these gains;
. shareholders, while required to include their proportionate share of
the undistributed long-term capital gains in income, would receive a
credit or refund for their share of the tax paid by the REIT; and
. the basis of a shareholder's shares would be increased by the amount
of our undistributed long-term capital gains (minus the amount of
capital gains tax we pay) included in the shareholder's long-term
capital gains.
In computing our REIT taxable income, we will use the accrual method of
accounting and depreciate depreciable property under the alternative
depreciation system. We are required to file an annual federal income tax
return, which, like other corporate returns, is subject to examination by the
Internal Revenue Service. Because the tax law requires us to make many judgments
regarding the proper treatment of a transaction or an item of income or
deduction, it is possible that the Internal Revenue Service will challenge
positions we take in computing our REIT taxable income and our distributions.
Issues could arise, for example, with respect to the allocation of the purchase
price of properties between depreciable or amortizable assets and nondepreciable
or non-amortizable assets such as land and the current deductibility of fees
paid to Wells Capital or its affiliates. Were the Internal Revenue Service to
successfully challenge our characterization of a transaction or determination of
our REIT taxable income, we could be found to have failed to satisfy a
requirement for qualification as a REIT. If, as a result of a challenge, we are
determined to have failed to satisfy the distribution requirements for a taxable
year, we would be disqualified as a REIT, unless we were permitted to pay a
deficiency distribution to our
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shareholders and pay interest thereon to the Internal Revenue Service, as
provided by the Internal Revenue Code. A deficiency distribution cannot be used
to satisfy the distribution requirement, however, if the failure to meet the
requirement is not due to a later adjustment to our income by the Internal
Revenue Service.
Operational Requirements -- Recordkeeping
In order to continue to qualify as a REIT, we must maintain certain records
as set forth in applicable Treasury Regulations. Further, we must request, on an
annual basis, certain information designed to disclose the ownership of our
outstanding shares. We intend to comply with such requirements.
Failure to Qualify as a REIT
If we fail to qualify as a REIT for any reason in a taxable year and
applicable relief provisions do not apply, we will be subject to tax (including
any applicable alternative minimum tax) on our taxable income at regular
corporate rates. We will not be able to deduct dividends paid to our
shareholders in any year in which we fail to qualify as a REIT. We also will be
disqualified for the four taxable years following the year during which
qualification was lost unless we are entitled to relief under specific statutory
provisions. (See "Risk Factors -- Federal Income Tax Risks")
Sale-Leaseback TransactionsSale-Leaseback Transactions
Some of our investments may be in the form of sale-leaseback transactions.
In most instances, depending on the economic terms of the transaction, we will
be treated for federal income tax purposes as either the owner of the property
or the holder of a debt secured by the property. We do not expect to request an
opinion of counsel concerning the status of any leases of properties as true
leases for federal income tax purposes.
The Internal Revenue Service may take the position that a specific sale-
leaseback transaction which we treat as a true lease is not a true lease for
federal income tax purposes but is, instead, a financing arrangement or loan. We
may also structure some sale-leaseback transactions as loans. In this event, for
purposes of the Asset Tests and the 75% Income Test, each such loan likely would
be viewed as secured by real property to the extent of the fair market value of
the underlying property. We expect that, for this purpose, the fair market value
of the underlying property would be determined without taking into account our
lease. If a sale-leaseback transaction were so recharacterized, we might fail to
satisfy the Asset Tests or the Income Tests and, consequently, lose our REIT
status effective with the year of recharacterization. Alternatively, the amount
of our REIT taxable income could be recalculated which might also cause us to
fail to meet the distribution requirement for a taxable year.
Taxation of U.S. Shareholders
Definition
In this section, the phrase "U.S. shareholder" means a holder of shares
that for federal income tax purposes:
. is a citizen or resident of the United States;
. is a corporation, partnership or other entity created or organized in
or under the laws of the United States or of any political subdivision
thereof;
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. is an estate or trust, the income of which is subject to U.S.
federal income taxation regardless of its source; or
. a trust if a U.S. court is able to exercise primary supervision
over the administration of the trust and one or more U.S. persons
have the authority to control all substantial decisions of the
trust.
For any taxable year for which we qualify for taxation as a REIT, amounts
distributed to taxable U.S. shareholders will be taxed as described below.
Distributions Generally
Distributions to U.S. shareholders, other than capital gain
distributions discussed below, will constitute dividends up to the amount of our
current or accumulated earnings and profits and will be taxable to the
shareholders as ordinary income. These distributions are not eligible for the
dividends received deduction generally available to corporations. To the extent
that we make a distribution in excess of our current or accumulated earnings and
profits, the distribution will be treated first as a tax-free return of capital,
reducing the tax basis in each U.S. shareholder's shares, and the amount of each
distribution in excess of a U.S. shareholder's tax basis in its shares will be
taxable as gain realized from the sale of its shares. Distributions that we
declare in October, November or December of any year payable to a shareholder of
record on a specified date in any of these months will be treated as both paid
by us and received by the shareholder on December 31 of the year, provided that
we actually pay the distribution during January of the following calendar year.
U.S. shareholders may not include any of our losses on their own federal income
tax returns.
We will be treated as having sufficient earnings and profits to treat
as a dividend any distribution by us up to the amount required to be distributed
in order to avoid imposition of the 4% excise tax discussed above. Moreover, any
"deficiency distribution" will be treated as an ordinary or capital gain
distribution, as the case may be, regardless of our earnings and profits. As a
result, shareholders may be required to treat as taxable some distributions that
would otherwise result in a tax-free return of capital.
Capital Gain Distributions
Distributions to U.S. shareholders that we properly designate as
capital gain distributions will be treated as long-term capital gains, to the
extent they do not exceed our actual net capital gain, for the taxable year
without regard to the period for which the U.S. shareholder has held his stock.
Passive Activity Loss and Investment Interest Limitations
Our distributions and any gain you realize from a disposition of shares
will not be treated as passive activity income, and shareholders may not be able
to utilize any of their "passive losses" to offset this income in their personal
tax returns. Our distributions (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
limitations on the deduction of investment interest. Net capital gain from a
disposition of shares and capital gain distributions generally will be included
in investment income for purposes of the investment interest deduction
limitations only if, and to the extent, you so elect, in which case any such
capital gains will be taxed as ordinary income.
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Certain Dispositions of the Shares
In general, any gain or loss realized upon a taxable disposition of
shares by a U.S. shareholder who is not a dealer in securities will be treated
as long-term capital gain or loss if the shares have been held for more than 12
months and as short-term capital gain or loss if the shares have been held for
12 months or less. If, however, a U.S. shareholder has received any capital
gains distributions with respect to his shares, any loss realized upon a taxable
disposition of shares held for six months or less, to the extent of the capital
gains distributions received with respect to his shares, will be treated as
long-term capital loss. Also, the Internal Revenue Service is authorized to
issue Treasury Regulations that would subject a portion of the capital gain a
U.S. shareholder recognizes from selling his shares or from a capital gain
distribution to a tax at a 25% rate, to the extent the capital gain is
attributable to depreciation previously deducted.
Information Reporting Requirements and Backup Withholding for U.S.
Shareholders
Under some circumstances, U.S. shareholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, our shares. Backup withholding will apply only if the
shareholder:
. fails to furnish his or her taxpayer identification number
(which, for an individual, would be his or her Social Security
Number);
. furnishes an incorrect tax identification number;
. is notified by the Internal Revenue Service that he or she has
failed properly to report payments of interest and distributions
or is otherwise subject to backup withholding; or
. under some circumstances, fails to certify, under penalties of
perjury, that he or she has furnished a correct tax
identification number and that (a) he or she has not been
notified by the Internal Revenue Service that he or she is
subject to backup withholding for failure to report interest and
distribution payments or (b) he or she has been notified by the
Internal Revenue Service that he or she is no longer subject to
backup withholding.
Backup withholding will not apply with respect to payments made to some
shareholders, such as corporations and tax-exempt organizations. Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a U.S. shareholder will be allowed as a
credit against the U.S. shareholder's U.S. federal income tax liability and may
entitle the U.S. shareholder to a refund, provided that the required information
is furnished to the Internal Revenue Service. U.S. shareholders should consult
their own tax advisors regarding their qualifications for exemption from backup
withholding and the procedure for obtaining an exemption.
Treatment of Tax-Exempt Shareholders
Tax-exempt entities such as employee pension benefit trusts, individual
retirement accounts, charitable remainder trusts, etc. generally are exempt from
federal income taxation. Such entities are subject to taxation, however, on any
"unrelated business taxable income" (UBTI), as defined in the Internal Revenue
Code. The payment of dividends to a tax-exempt employee pension benefit trust or
other domestic tax-exempt shareholder generally will not constitute unrelated
business taxable income to such shareholder unless such shareholder has borrowed
to acquire or carry its shares.
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In the event that we were deemed to be "predominately held" by
qualified employee pension benefit trusts that each hold more than 10% (in
value) of our shares, such trusts would be required to treat a certain
percentage of the dividend distributions paid to them as unrelated business
taxable income. We would be deemed to be "predominately held" by such trusts if
either (1) one employee pension benefit trust owns more than 25% in value of our
shares, or (ii) any group of such trusts, each owning more than 10% in value of
our shares, holds in the aggregate more than 50% in value of our shares. If
either of these ownership thresholds were ever exceeded, any qualified employee
pension benefit trust holding more than 10% in value of our shares would be
subject to tax on that portion of our dividend distributions made to it which is
equal to the percentage of our income which would be UBTI if we were a qualified
trust, rather than a REIT. We will attempt to monitor the concentration of
ownership of employee pension benefit trusts in our shares, and we do not expect
our shares to be deemed to be "predominately held" by qualified employee pension
benefit trusts, as defined in the Internal Revenue Code, to the extent required
to trigger the treatment of our income as to such trusts.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Internal Revenue Code, respectively, income from an investment in our shares
will constitute UBTI unless the shareholder in question is able to deduct
amounts "set aside" or placed in reserve for certain purposes so as to offset
the unrelated business taxable income generated. Any such organization which is
a prospective shareholder should consult its own tax advisor concerning these
"set aside" and reserve requirements.
Special Tax Considerations for Non-U.S. Shareholders
The rules governing U.S. income taxation of non-resident alien
individuals, foreign corporations, foreign partnerships and foreign trusts and
estates (collectively, "Non-U.S. shareholders") are complex. The following
discussion is intended only as a summary of these rules. Non-U.S. investors
should consult with their own tax advisors to determine the impact of federal,
state and local income tax laws on an investment in our shares, including any
reporting requirements.
Income Effectively Connected With a U.S. Trade or Business
In general, Non-U.S. shareholders will be subject to regular U.S.
federal income taxation with respect to their investment in our shares if the
income derived therefrom is "effectively connected" with the Non-U.S.
shareholder's conduct of a trade or business in the United States. A corporate
Non-U.S. shareholder that receives income that is (or is treated as) effectively
connected with a U.S. trade or business also may be subject to a branch profits
tax under Section 884 of the Internal Revenue Code, which is payable in addition
to the regular U.S. federal corporate income tax.
The following discussion will apply to Non-U.S. shareholders whose
income derived from ownership of our shares is deemed to be not "effectively
connected" with a U.S. trade or business.
Distributions Not Attributable to Gain From the Sale or Exchange of a
United States Real Property Interest
A distribution to a Non-U.S. shareholder that is not attributable to
gain realized by us from the sale or exchange of a United States real property
interest and that we do not designate as a capital gain distribution will be
treated as an ordinary income distribution to the extent that it is made out of
current or accumulated earnings and profits. Generally, any ordinary income
distribution will be subject to a U.S. federal income tax equal to 30% of the
gross amount of the distribution unless this tax is reduced by the provisions of
an applicable tax treaty. Any such distribution in excess of our earnings and
profits will be
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treated first as a return of capital that will reduce each Non-U.S.
shareholder's basis in its shares (but not below zero) and then as gain from the
disposition of those shares, the tax treatment of which is described under the
rules discussed below with respect to dispositions of shares.
Distributions Attributable to Gain From the Sale or Exchange of a
United States Real Property Interest
Distributions to a Non-U.S. shareholder that are attributable to gain
from the sale or exchange of a United States real property interest will be
taxed to a Non-U.S. shareholder under Internal Revenue Code provisions enacted
by the Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). Under
FIRPTA, such distributions are taxed to a Non-U.S. shareholder as if the
distributions were gains "effectively connected" with a U.S. trade or business.
Accordingly, a Non-U.S. shareholder will be taxed at the normal capital gain
rates applicable to a U.S. shareholder (subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals). Distributions subject to FIRPTA also may be subject to a 30%
branch profits tax when made to a corporate Non-U.S. shareholder that is not
entitled to a treaty exemption.
Withholding Obligations With Respect to Distributions to Non-U.S.
Shareholders
Although tax treaties may reduce our withholding obligations, based on
current law, we will generally be required to withhold from distributions to
Non-U.S. shareholders, and remit to the Internal Revenue Service:
. 35% of designated capital gain distributions or, if greater, 35%
of the amount of any distributions that could be designated as
capital gain distributions; and
. 30% of ordinary income distributions (i.e., distributions paid
----
out of our earnings and profits).
In addition, if we designate prior distributions as capital gain distributions,
subsequent distributions, up to the amount of the prior distributions, will be
treated as capital gain distributions for purposes of withholding. A
distribution in excess of our earnings and profits will be subject to 30%
withholding if at the time of the distribution it cannot be determined whether
the distribution will be in an amount in excess of our current or accumulated
earnings and profits. If the amount of tax we withhold with respect to a
distribution to a Non-U.S. shareholder exceeds the shareholder's U.S. tax
liability with respect to that distribution, the Non-U.S. shareholder may file a
claim with the Internal Revenue Service for a refund of the excess.
Sale of Our Shares by a Non-U.S. Shareholder
A sale of our shares by a Non-U.S. shareholder will generally not be
subject to U.S. federal income taxation unless our shares constitute a "United
States real property interest" within the meaning of FIRPTA. Our shares will not
constitute a United States real property interest if we are a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT that at all times
during a specified testing period has less than 50% in value of its shares held
directly or indirectly by Non-U.S. shareholders. We currently anticipate that we
will be a domestically controlled REIT. Therefore, sales of our shares should
not be subject to taxation under FIRPTA. However, we cannot assure you that we
will continue to be a domestically controlled REIT. If we were not a
domestically controlled REIT, whether a Non-U.S. shareholder's sale of our
shares would be subject to tax under FIRPTA as a sale of a United States real
property interest would depend on whether our shares were "regularly traded" on
an established securities
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market and on the size of the selling shareholder's interest in us. Our shares
currently are not "regularly traded" on an established securities market.
If the gain on the sale of shares were subject to taxation under
FIRPTA, a Non-U.S. shareholder would be subject to the same treatment as a U.S.
shareholder with respect to the gain, subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals. In addition, distributions that are treated as gain from the
disposition of shares and are subject to tax under FIRPTA also may be subject to
a 30% branch profits tax when made to a corporate Non-U.S. shareholder that is
not entitled to a treaty exemption. Under FIRPTA, the purchaser of our shares
may be required to withhold 10% of the purchase price and remit this amount to
the Internal Revenue Service.
Even if not subject to FIRPTA, capital gains will be taxable to a
Non-U.S. shareholder if the Non-U.S. shareholder is a non-resident alien
individual who is present in the United States for 183 days or more during the
taxable year and some other conditions apply, in which case the non-resident
alien individual will be subject to a 30% tax on his or her U.S. source capital
gains.
Recently promulgated Treasury Regulations may alter the procedures for
claiming the benefits of an income tax treaty. Our Non-U.S. shareholders should
consult their tax advisors concerning the effect, if any, of these Treasury
Regulations on an investment in our shares.
Information Reporting Requirements and Backup Withholding for Non-U.S.
Shareholders
Additional issues may arise for information reporting and backup
withholding for Non-U.S. shareholders. Non-U.S. shareholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding requirements under the Internal Revenue Code.
Statement of Stock Ownership
We are required to demand annual written statements from the record
holders of designated percentages of our shares disclosing the actual owners of
the shares. Any record shareholder who, upon our request, does not provide us
with required information concerning actual ownership of the shares is required
to include specified information relating to his shares in his federal income
tax return. We also must maintain, within the Internal Revenue District in which
we are required to file our federal income tax return, permanent records showing
the information we have received about the actual ownership of shares and a list
of those persons failing or refusing to comply with our demand.
State and Local Taxation
We and any operating subsidiaries we may form may be subject to state
and local tax in states and localities in which we or they do business or own
property. The tax treatment of the Wells REIT, Wells OP, any operating
subsidiaries we may form and the holders of our shares in local jurisdictions
may differ from the federal income tax treatment described above.
Tax Aspects of Our Operating Partnership
The following discussion summarizes certain federal income tax
considerations applicable to our investment in Wells OP, our operating
partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
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Classification as a Partnership
We will be entitled to include in our income a distributive share of
Wells OP's income and to deduct our distributive share of Wells OP's losses only
if Wells OP is classified for federal income tax purposes as a partnership,
rather than as an association taxable as a corporation. Under applicable
Treasury Regulations (the "Check-the-Box-Regulations"), an unincorporated entity
with at least two members may elect to be classified either as an association
taxable as a corporation or as a partnership. If such an entity fails to make an
election, it generally will be treated as a partnership for federal income tax
purposes. Wells OP intends to be classified as a partnership for federal income
tax purposes and will not elect to be treated as an association taxable as a
corporation under the Check-the-Box-Regulations.
Even though Wells OP will elect to be treated as a partnership for
federal income tax purposes, it may be taxed as a corporation if it is deemed to
be a "publicly traded partnership." A publicly traded partnership is a
partnership whose interests are traded on an established securities market or
are readily tradable on a secondary market (or the substantial equivalent
thereof); provided, that even if the foregoing requirements are met, a publicly
traded partnership will not be treated as a corporation for federal income tax
purposes if at least 90% of such partnership's gross income for a taxable year
consists of "qualifying income" under Section 7704(d) of the Internal Revenue
Code. Qualifying income generally includes any income that is qualifying income
for purposes of the 95% Income Test applicable to REITs (90% Passive-Type Income
Exception). (See "Requirements for Qualification as a REIT -- Operational
Requirements - Gross Income Tests").
Under applicable Treasury Regulations (PTP Regulations), limited safe
harbors from the definition of a publicly traded partnership are provided.
Pursuant to one of those safe harbors (Private Placement Exclusion), interests
in a partnership will not be treated as readily tradable on a secondary market
or the substantial equivalent thereof if (i) all interests in the partnership
were issued in a transaction (or transactions) that was not required to be
registered under the Securities Act of 1933, as amended, and (ii) the
partnership does not have more than 100 partners at any time during the
partnership's taxable year. In determining the number of partners in a
partnership, a person owning an interest in a flow-through entity (such as a
partnership, grantor trust or S corporation) that owns an interest in the
partnership is treated as a partner in such partnership only if (a)
substantially all of the value of the owner's interest in the flow-through is
attributable to the flow-through entity's interest (direct or indirect) in the
partnership and (b) a principal purpose of the use of the flow-through entity is
to permit the partnership to satisfy the 100 partner limitation. Wells OP
qualifies for the Private Placement Exclusion. Even if Wells OP is considered a
publicly traded partnership under the PTP Regulations because it is deemed to
have more than 100 partners, however, Wells OP should not be treated as a
corporation because it should be eligible for the 90% Passive-Type Income
Exception described above.
We have not requested, and do not intend to request, a ruling from the
Internal Revenue Service that Wells OP will be classified as a partnership for
federal income tax purposes. Holland & Knight LLP is of the opinion, however,
that based on certain factual assumptions and representations, Wells OP will
more likely than not be treated for federal income tax purposes as a partnership
and not as an association taxable as a corporation, or as a publicly traded
partnership. Unlike a tax ruling, however, an opinion of counsel is not binding
upon the Internal Revenue Service, and no assurance can be given that the
Internal Revenue Service will not challenge the status of Wells OP as a
partnership for federal income tax purposes. If such challenge were sustained by
a court, Wells OP would be treated as a corporation for federal income tax
purposes, as described below. In addition, the opinion of Holland & Knight LLP
is based on existing law, which is to a great extent the result of
administrative and judicial interpretation. No assurance can be given that
administrative or judicial changes would not modify the conclusions expressed in
the opinion.
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If for any reason Wells OP were taxable as a corporation, rather than a
partnership, for federal income tax purposes, we would not be able to qualify as
a REIT. (See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Operational Requirements - Gross Income Tests" and
"Requirements for Qualification as a REIT -- Operational Requirements - Asset
Tests.") In addition, any change in Wells OP's status for tax purposes might be
treated as a taxable event, in which case we might incur a tax liability without
any related cash distribution. Further, items of income and deduction of Wells
OP would not pass through to its partners, and its partners would be treated as
shareholders for tax purposes. Consequently, Wells OP would be required to pay
income tax at corporate tax rates on its net income, and distributions to its
partners would constitute dividends that would not be deductible in computing
Wells OP's taxable income.
Income Taxation of the Operating Partnership and its Partners
Partners, Not a Partnership, Subject to Tax. A partnership is not a
taxable entity for federal income tax purposes. As a partner in Wells OP, we
will be required to take into account our allocable share of Wells OP's income,
gains, losses, deductions, and credits for any taxable year of Wells OP ending
within or with our taxable year, without regard to whether we have received or
will receive any distribution from Wells OP.
Partnership Allocations. Although a partnership agreement generally
determines the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes under Section 704(b) of the Internal
Revenue Code if they do not comply with the provisions of Section 704(b) of the
Internal Revenue Code and the Treasury Regulations promulgated thereunder. If an
allocation is not recognized for federal income tax purposes, the item subject
to the allocation will be reallocated in accordance with the partner's interests
in the partnership, which will be determined by taking into account all of the
facts and circumstances relating to the economic arrangement of the partners
with respect to such item. Wells OP's allocations of taxable income and loss are
intended to comply with the requirements of Section 704(b) of the Internal
Revenue Code and the Treasury Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to
Section 704(c) of the Internal Revenue Code, income, gain, loss, and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated for
federal income tax purposes in a manner such that the contributor is charged
with, or benefits from, the unrealized gain or unrealized loss associated with
the property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution. Under applicable
Treasury Regulations, partnerships are required to use a "reasonable method" for
allocating items subject to Section 704(c) of the Internal Revenue Code and
several reasonable allocation methods are described therein.
Under the partnership agreement for Wells OP, depreciation or
amortization deductions of Wells OP generally will be allocated among the
partners in accordance with their respective interests in Wells OP, except to
the extent that Wells OP is required under Section 704(c) to use a method for
allocating depreciation deductions attributable to its properties that results
in us receiving a disproportionately large share of such deductions. It is
possible that we may (1) be allocated lower amounts of depreciation deductions
for tax purposes with respect to contributed properties than would be allocated
to us if each such property were to have a tax basis equal to its fair market
value at the time of contribution, and (2) be allocated taxable gain in the
event of a sale of such contributed properties in excess of the economic profit
allocated to us as a result of such sale. These allocations may cause us to
recognize taxable income in excess of cash proceeds received by us, which might
adversely affect our ability to comply with the REIT
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distribution requirements, although we do not anticipate that this event will
occur. The foregoing principles also will affect the calculation of our earnings
and profits for purposes of determining which portion of our distributions is
taxable as a dividend. The allocations described in this paragraph may result in
a higher portion of our distributions being taxed as a dividend than would have
occurred had we purchased such properties for cash.
Basis in Operating Partnership Interest. The adjusted tax basis of our
partnership interest in Wells OP generally is equal to (1) the amount of cash
and the basis of any other property contributed to Wells OP by us, (2) increased
by (A) our allocable share of Wells OP's income and (B) our allocable share of
indebtedness of Wells OP, and (3) reduced, but not below zero, by (A) our
allocable share of Wells OP's loss and (B) the amount of cash distributed to us,
including constructive cash distributions resulting from a reduction in our
share of indebtedness of Wells OP.
If the allocation of our distributive share of Wells OP's loss would
reduce the adjusted tax basis of our partnership interest in Wells OP below
zero, the recognition of such loss will be deferred until such time as the
recognition of such loss would not reduce our adjusted tax basis below zero. If
a distribution from Wells OP or a reduction in our share of Wells OP's
liabilities (which is treated as a constructive distribution for tax purposes)
would reduce our adjusted tax basis below zero, any such distribution, including
a constructive distribution, would constitute taxable income to us. The gain
realized by us upon the receipt of any such distribution or constructive
distribution would normally be characterized as capital gain, and if our
partnership interest in Wells OP has been held for longer than the long-term
capital gain holding period (currently one year), the distribution would
constitute long-term capital gain.
Depreciation Deductions Available to the Operating Partnership. Wells
OP will use a portion of contributions made by the Wells REIT from offering
proceeds to acquire interests in properties. To the extent that Wells OP
acquires properties for cash, Wells OP's initial basis in such properties for
federal income tax purposes generally will be equal to the purchase price paid
by Wells OP. Wells OP plans to depreciate each such depreciable property for
federal income tax purposes under the alternative depreciation system of
depreciation (ADS). Under ADS, Wells OP generally will depreciate such buildings
and improvements over a 40-year recovery period using a straight-line method and
a mid-month convention and will depreciate furnishings and equipment over a
12-year recovery period. To the extent that Wells OP acquires properties in
exchange for units of Wells OP, Wells OP's initial basis in each such property
for federal income tax purposes should be the same as the transferor's basis in
that property on the date of acquisition by Wells OP. Although the law is not
entirely clear, Wells OP generally intends to depreciate such depreciable
property for federal income tax purposes over the same remaining useful lives
and under the same methods used by the transferors.
Sale of the Operating Partnership's Property
Generally, any gain realized by Wells OP on the sale of property held
for more than one year will be long-term capital gain, except for any portion of
such gain that is treated as depreciation or cost recovery recapture. Any gain
recognized by Wells OP upon the disposition of a property acquired by Wells OP
for cash will be allocated among the partners in accordance with their
respective percentage interests in Wells OP.
Our share of any gain realized by Wells OP on the sale of any property
held by Wells OP as inventory or other property held primarily for sale to
customers in the ordinary course of Wells OP's trade or business will be treated
as income from a prohibited transaction that is subject to a 100% penalty tax.
Such prohibited transaction income also may have an adverse effect upon our
ability to satisfy the Income Tests for maintaining our REIT status. (See
"Federal Income Tax Considerations -- Requirements for Qualification as a REIT
-- Gross Income Tests" above.) We, however, do not presently intend to acquire
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or hold or allow Wells OP to acquire or hold any property that represents
inventory or other property held primarily for sale to customers in the ordinary
course of our or Wells OP's trade or business.
ERISA Considerations
The following is a summary of some non-tax considerations associated
with an investment in our shares by a qualified employee pension benefit plan or
an IRA. This summary is based on provisions of ERISA and the Internal Revenue
Code, as amended through the date of this prospectus, and relevant regulations
and opinions issued by the Department of Labor and the Internal Revenue Service.
We cannot assure you that adverse tax decisions or legislative, regulatory or
administrative changes which would significantly modify the statements expressed
herein will not occur. Any such changes may or may not apply to transactions
entered into prior to the date of their enactment.
Each fiduciary of an employee pension benefit plan subject to ERISA,
such as a profit sharing, section 401(k) or pension plan, or of any other
retirement plan or account subject to Section 4975 of the Internal Revenue Code,
such as an IRA (Benefit Plans), seeking to invest plan assets in our shares
must, taking into account the facts and circumstances of such Benefit Plan,
consider, among other matters:
. whether the investment is consistent with the applicable
provisions of ERISA and the Internal Revenue Code;
. whether, under the facts and circumstances attendant to the
Benefit Plan in question, the fiduciary's responsibility to the
plan has been satisfied;
. whether the investment will produce UBTI to the Benefit Plan (see
"Federal Income Tax Considerations -- Treatment of Tax-Exempt
Shareholders"); and
. the need to value the assets of the Benefit Plan annually.
Under ERISA, a plan fiduciary's responsibilities include the following
duties:
. to act solely in the interest of plan participants and
beneficiaries and for the exclusive purpose of providing benefits
to them, as well as defraying reasonable expenses of plan
administration;
. to invest plan assets prudently;
. to diversify the investments of the plan unless it is clearly
prudent not to do so;
. to ensure sufficient liquidity for the plan; and
. to consider whether an investment would constitute or give rise
to a prohibited transaction under ERISA or the Internal Revenue
Code.
ERISA also requires that the assets of an employee benefit plan be held in trust
and that the trustee, or a duly authorized named fiduciary or investment
manager, have exclusive authority and discretion to manage and control the
assets of the plan.
Section 406 of ERISA and Section 4975 of the Internal Revenue Code
prohibit specified transactions involving the assets of a Benefit Plan which are
between the plan and any "party in interest" or "disqualified person" with
respect to that Benefit Plan. These transactions are prohibited regardless of
139
how beneficial they may be for the Benefit Plan. Prohibited transactions include
the sale, exchange or leasing of property, the lending of money or the extension
of credit between a Benefit Plan and a party in interest or disqualified person,
and the transfer to, or use by, or for the benefit of, a party in interest, or
disqualified person, of any assets of a Benefit Plan. A fiduciary of a Benefit
Plan also is prohibited from engaging in self-dealing, acting for a person who
has an interest adverse to the plan or receiving any consideration for its own
account from a party dealing with the plan in a transaction involving plan
assets. Furthermore, Section 408 of the Internal Revenue Code states that assets
of an IRA trust may not be commingled with other property except in a common
trust fund or common investment fund.
Plan Asset Considerations
In order to determine whether an investment in our shares by Benefit
Plans creates or gives rise to the potential for either prohibited transactions
or the commingling of assets referred to above, a fiduciary must consider
whether an investment in our shares will cause our assets to be treated as
assets of the investing Benefit Plans. Neither ERISA nor the Internal Revenue
Code define the term "plan assets," however, U.S. Department of Labor
Regulations provide guidelines as to whether, and under what circumstances, the
underlying assets of an entity will be deemed to constitute assets of a Benefit
Plan when the plan invests in that entity (the Plan Assets Regulation). Under
the Plan Assets Regulation, the assets of corporations, partnerships or other
entities in which a Benefit Plan makes an equity investment will generally be
deemed to be assets of the Benefit Plan unless the entity satisfies one of the
exceptions to this general rule. As discussed below, we have received an opinion
of counsel that, based on the Plan Assets Regulation, our underlying assets
should not be deemed to be "plan assets" of Benefit Plans investing in shares,
assuming the conditions set forth in the opinion are satisfied, based upon the
fact that at least one of the specific exemptions set forth in the Plan Assets
Regulation is satisfied, as determined below.
Specifically, the Plan Assets Regulation provides that the underlying
assets of REITs will not be treated as assets of a Benefit Plan investing
therein if the interest the Benefit Plan acquires is a "publicly-offered
security." A publicly-offered security must be:
. sold as part of a public offering registered under the
Securities Act of 1933, as amended, and be part of a class of
securities registered under the Securities Exchange Act of
1934, as amended, within a specified time period;
. part of a class of securities that is owned by 100 or more
persons who are independent of the issuer and one another; and
. "freely transferable."
Our shares are being sold as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act,
and are part of a class registered under the Securities Exchange Act. In
addition, we have over 100 independent shareholders. Thus, both the first and
second criterion of the publicly-offered security exception will be satisfied.
Whether a security is "freely transferable" depends upon the particular
facts and circumstances. Our shares are subject to certain restrictions on
transferability intended to ensure that we continue to qualify for federal
income tax treatment as a REIT. The regulation provides, however, that where the
minimum investment in a public offering of securities is $10,000 or less, the
presence of a restriction on transferability intended to prohibit transfers
which would result in a termination or reclassification of the entity for state
or federal tax purposes will not ordinarily affect a determination that such
securities are freely transferable. The minimum investment in our shares is less
than $10,000; thus, the restrictions
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imposed in order to maintain our status as a REIT should not cause the shares to
be deemed not freely transferable.
In the event that our underlying assets were treated by the Department
of Labor as the assets of investing Benefit Plans, our management would be
treated as fiduciaries with respect to each Benefit Plan shareholder, and an
investment in our shares might constitute an ineffective delegation of fiduciary
responsibility to Wells Capital, our advisor, and expose the fiduciary of the
Benefit Plan to co-fiduciary liability under ERISA for any breach by Wells
Capital of the fiduciary duties mandated under ERISA. Further, if our assets are
deemed to be "plan assets," an investment by an IRA in our shares might be
deemed to result in an impermissible commingling of IRA assets with other
property.
If our advisor or affiliates of our advisor were treated as fiduciaries
with respect to Benefit Plan shareholders, the prohibited transaction
restrictions of ERISA and the Internal Revenue Code would apply to any
transaction involving our assets. These restrictions could, for example, require
that we avoid transactions with entities that are affiliated with us or our
affiliates or restructure our activities in order to obtain an administrative
exemption from the prohibited transaction restrictions. Alternatively, we might
have to provide Benefit Plan shareholders with the opportunity to sell their
shares to us or we might dissolve or terminate.
If a prohibited transaction were to occur, the Internal Revenue Code
imposes an excise tax equal to 15% of the amount involved and authorizes the IRS
to impose an additional 100% excise tax if the prohibited transaction is not
"corrected." These taxes would be imposed on any disqualified person who
participates in the prohibited transaction. In addition, Wells Capital and
possibly other fiduciaries of Benefit Plan shareholders subject to ERISA who
permitted the prohibited transaction to occur or who otherwise breached their
fiduciary responsibilities, or a non-fiduciary participating in a prohibited
transaction, could be required to restore to the Benefit Plan any profits they
realized as a result of the transaction or breach, and make good to the Benefit
Plan any losses incurred by the Benefit Plan as a result of the transaction or
breach. With respect to an IRA that invests in our shares, the occurrence of a
prohibited transaction involving the individual who established the IRA, or his
or her beneficiary, would cause the IRA to lose its tax-exempt status under
Section 408(e)(2) of the Internal Revenue Code.
We have obtained an opinion from Holland & Knight LLP that our shares
more likely than not constitute "publicly-offered securities" and, accordingly,
it is more likely than not that our underlying assets should not be considered
"plan assets" under the Plan Assets Regulation, assuming the offering takes
place as described in this prospectus. If our underlying assets are not deemed
to be "plan assets," the problems discussed in the immediately preceding three
paragraphs are not expected to arise.
Other Prohibited Transactions
Regardless of whether the shares qualify for the "publicly-offered
security" exception of the Plan Assets Regulation, a prohibited transaction
could occur if the Wells REIT, Wells Capital, any selected dealer or any of
their affiliates is a fiduciary (within the meaning of Section 3(21) of ERISA)
with respect to any Benefit Plan purchasing the shares. Accordingly, unless an
administrative or statutory exemption applies, shares should not be purchased by
a Benefit Plan with respect to which any of the above persons is a fiduciary. A
person is a fiduciary with respect to a Benefit Plan under Section 3(21) of
ERISA if, among other things, the person has discretionary authority or control
with respect to "plan assets" or provides investment advice for a fee with
respect to "plan assets." Under a regulation issued by the Department of Labor,
a person shall be deemed to be providing investment advice if that person
renders advice as to the advisability of investing in our shares and that person
regularly provides investment advice to the Benefit Plan pursuant to a mutual
agreement or understanding (written or otherwise) (1) that
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the advice will serve as the primary basis for investment decisions, and (2)
that the advice will be individualized for the Benefit Plan based on its
particular needs.
Annual Valuation
A fiduciary of an employee benefit plan subject to ERISA is required
to determine annually the fair market value of each asset of the plan as of the
end of the plan's fiscal year and to file a report reflecting that value with
the Department of Labor. When the fair market value of any particular asset is
not available, the fiduciary is required to make a good faith determination of
that asset's "fair market value" assuming an orderly liquidation at the time the
determination is made. In addition, a trustee or custodian of an IRA must
provide an IRA participant with a statement of the value of the IRA each year.
In discharging its obligation to value assets of a plan, a fiduciary subject to
ERISA must act consistently with the relevant provisions of the plan and the
general fiduciary standards of ERISA.
Unless and until our shares are listed on a national securities
exchange or are included for quotation on Nasdaq, it is not expected that a
public market for the shares will develop. To date, neither the Internal Revenue
Service nor the Department of Labor has promulgated regulations specifying how a
plan fiduciary should determine the "fair market value" of the shares, namely
when the fair market value of the shares is not determined in the marketplace.
Therefore, to assist fiduciaries in fulfilling their valuation and annual
reporting responsibilities with respect to ownership of shares, we intend to
provide reports of our annual determinations of the current value of our net
assets per outstanding share to those fiduciaries (including IRA trustees and
custodians) who identify themselves to us and request the reports. Until
December 31, 2002, we intend to use the offering price of shares as the per
share net asset value. Beginning with the year 2003, the value of the properties
and our other assets will be based on a valuation. Such valuation will be
performed by a person independent of us and of Wells Capital.
We anticipate that we will provide annual reports of our determination
of value (1) to IRA trustees and custodians not later than January 15 of each
year, and (2) to other Benefit Plan fiduciaries within 75 days after the end of
each calendar year. Each determination may be based upon valuation information
available as of October 31 of the preceding year, up-dated, however, for any
material changes occurring between October 31 and December 31.
We intend to revise these valuation procedures to conform with any
relevant guidelines that the Internal Revenue Service or the Department of Labor
may hereafter issue. Meanwhile, we cannot assure you:
. that the value determined by us could or will actually be
realized by us or by shareholders upon liquidation (in part
because appraisals or estimated values do not necessarily
indicate the price at which assets could be sold and because
no attempt will be made to estimate the expenses of selling
any of our assets);
. that shareholders could realize this value if they were to
attempt to sell their shares; or
. that the value, or the method used to establish value, would
comply with the ERISA or IRA requirements described above.
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Description of Shares
The following description of the shares is not complete but is a
summary of portions of our articles of incorporation and is qualified in its
entirety by reference to the articles of incorporation.
Under our articles of incorporation, we have authority to issue a total
of 500,000,000 shares of capital stock. Of the total shares authorized,
350,000,000 shares are designated as common stock with a par value of $0.01 per
share, 50,000,000 shares are designated as preferred stock with a par value of
$0.01 per share and 100,000,000 shares are designated as shares-in-trust, which
would be issued only in the event we have purchases in excess of the ownership
limits described below.
As of December 10, 2000, approximately 30,185,358 shares of our common
stock were issued and outstanding, and no shares of preferred stock or
shares-in-trust were issued and outstanding.
Common Stock
The holders of common stock are entitled to one vote per share on all
matters voted on by shareholders, including election of our directors. Our
articles of incorporation do not provide for cumulative voting in the election
of directors. Therefore, the holders of a majority of the outstanding common
shares can elect our entire board of directors. Subject to any preferential
rights of any outstanding series of preferred stock, the holders of common stock
are entitled to such dividends as may be declared from time to time by our board
of directors out of legally available funds and, upon liquidation, are entitled
to receive all assets available for distribution to shareholders. All shares
issued in the offering will be fully paid and non-assessable shares of common
stock. Holders of shares of common stock will not have preemptive rights, which
means that you will not have an automatic option to purchase any new shares that
we issue.
We will not issue certificates for our shares. Shares will be held in
"uncertificated" form which will eliminate the physical handling and safekeeping
responsibilities inherent in owning transferable stock certificates and
eliminate the need to return a duly executed stock certificate to effect a
transfer. Wells Capital, our advisor, acts as our registrar and as the transfer
agent for our shares. Transfers can be effected simply by mailing to Wells
Capital a transfer and assignment form, which we will provide to you at no
charge.
Preferred Stock
Our articles of incorporation authorize our board of directors to
designate and issue one or more classes or series of preferred stock without
stockholder approval. The board of directors may determine the relative rights,
preferences and privileges of each class or series of preferred stock so issued,
which may be more beneficial than the rights, preferences and privileges
attributable to the common stock. The issuance of preferred stock could have the
effect of delaying or preventing a change in control of the Wells REIT. Our
board of directors has no present plans to issue preferred stock, but may do so
at any time in the future without shareholder approval.
Meetings and Special Voting Rrquirements
An annual meeting of the shareholders will be held each year, at least
30 days after delivery of our annual report. Special meetings of shareholders
may be called only upon the request of a majority of the directors, a majority
of the independent directors, the chairman, the president or upon the written
request of shareholders holding at least 10% of the shares. The presence of a
majority of the outstanding shares either in person or by proxy shall constitute
a quorum. Generally, the affirmative vote of a
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majority of all votes entitled to be cast is necessary to take shareholder
action authorized by our articles of incorporation, except that a majority of
the votes represented in person or by proxy at a meeting at which a quorum is
present is sufficient to elect a director.
Under Maryland Corporation Law and our articles of incorporation,
shareholders are entitled to vote at a duly held meeting at which a quorum is
present on (1) amendment of our articles of incorporation, (2) liquidation or
dissolution of the Wells REIT, (3) reorganization of the Wells REIT, (4) merger,
consolidation or sale or other disposition of substantially all of our assets,
and (5) termination of our status as a REIT. Shareholders voting against any
merger or sale of assets are permitted under Maryland Corporation Law to
petition a court for the appraisal and payment of the fair value of their
shares. In an appraisal proceeding, the court appoints appraisers who attempt to
determine the fair value of the stock as of the date of the shareholder vote on
the merger or sale of assets. After considering the appraisers' report, the
court makes the final determination of the fair value to be paid to the
dissenting shareholder and decides whether to award interest from the date of
the merger or sale of assets and costs of the proceeding to the dissenting
shareholders.
Our advisor is selected and approved annually by our directors. While
the shareholders do not have the ability to vote to replace Wells Capital or to
select a new advisor, shareholders do have the ability, by the affirmative vote
of a majority of the shares entitled to vote on such matter, to elect to remove
a director from our board.
Shareholders are entitled to receive a copy of our shareholder list
upon request. The list provided by us will include each shareholder's name,
address and telephone number, if available, and number of shares owned by each
shareholder and will be sent within ten days of the receipt by us of the
request. A shareholder requesting a list will be required to pay reasonable
costs of postage and duplication. We have the right to request that a requesting
shareholder represent to us that the list will not be used to pursue commercial
interests.
In addition to the foregoing, shareholders have rights under Rule 14a-
7 under the Securities Exchange Act, which provides that, upon the request of
investors and the payment of the expenses of the distribution, we are required
to distribute specific materials to shareholders in the context of the
solicitation of proxies for voting on matters presented to shareholders or, at
our option, provide requesting shareholders with a copy of the list of
shareholders so that the requesting shareholders may make the distribution of
proxies themselves.
Restriction on Ownership of Shares
In order for us to qualify as a REIT, not more than 50% of our
outstanding shares may be owned by any five or fewer individuals, including some
tax-exempt entities. In addition, the outstanding shares must be owned by 100 or
more persons independent of us and each other during at least 335 days of a
12-month taxable year or during a proportionate part of a shorter taxable year.
We may prohibit certain acquisitions and transfers of shares so as to ensure our
continued qualification as a REIT under the Internal Revenue Code. However, we
cannot assure you that this prohibition will be effective.
In order to assist us in preserving our status as a REIT, our articles
of incorporation contain a limitation on ownership which prohibits any person or
group of persons from acquiring, directly or indirectly, beneficial ownership of
more than 9.8% of our outstanding shares. Our articles of incorporation provide
that any transfer of shares that would violate our share ownership limitations
is null and void and the intended transferee will acquire no rights in such
shares, unless the transfer is approved by the board of directors based upon
receipt of information that such transfer would not violate the provisions of
the Internal Revenue Code for qualification as a REIT.
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The shares in excess of the ownership limit which are attempted to be
transferred will be designated as "shares-in-trust" and will be transferred
automatically to a trust effective on the day before the reported transfer of
such shares. The record holder of the shares that are designated as
shares-in-trust will be required to submit such number of shares to the Wells
REIT in the name of the trustee of the trust. We will designate a trustee of the
share trust that will not be affiliated with us. We will also name one or more
charitable organizations as a beneficiary of the share trust. Shares-in-trust
will remain issued and outstanding shares and will be entitled to the same
rights and privileges as all other shares of the same class or series. The
trustee will receive all dividends and distributions on the shares-in-trust and
will hold such dividends or distributions in trust for the benefit of the
beneficiary. The trustee will vote all shares-in-trust during the period they
are held in trust.
At our direction, the trustee will transfer the shares-in-trust to a
person whose ownership will not violate the ownership limits. The transfer shall
be made within 20 days of our receipt of notice that shares have been
transferred to the trust. During this 20-day period, we will have the option of
redeeming such shares. Upon any such transfer or redemption, the purported
transferee or holder shall receive a per share price equal to the lesser of (a)
the price per share in the transaction that created such shares-in-trust, or (b)
the market price per share on the date of the transfer or redemption.
Any person who (1) acquires shares in violation of the foregoing
restriction or who owns shares that were transferred to any such trust is
required to give immediate written notice to the Wells REIT of such event or (2)
transfers or receives shares subject to such limitations is required to give the
Wells REIT 15 days written notice prior to such transaction. In both cases, such
persons shall provide to the Wells REIT such other information as we may request
in order to determine the effect, if any, of such transfer on our status as a
REIT.
The foregoing restrictions will continue to apply until (1) the board
of directors determines it is no longer in the best interest of the Wells REIT
to continue to qualify as a REIT and (2) there is an affirmative vote of the
majority of shares entitled to vote on such matter at a regular or special
meeting of the shareholders of the Wells REIT.
The ownership limit does not apply to an offeror which, in accordance
with applicable federal and state securities laws, makes a cash tender offer,
where at least 85% of the outstanding shares are duly tendered and accepted
pursuant to the cash tender offer. The ownership limit also does not apply to
the underwriter in a public offering of shares. In addition, the ownership limit
does not apply to a person or persons which the directors so exempt from the
ownership limit upon appropriate assurances that our qualification as a REIT is
not jeopardized.
Any person who owns 5% or more of the outstanding shares during any
taxable year will be asked to deliver a statement or affidavit setting forth the
number of shares beneficially owned, directly or indirectly.
Dividends
Dividends will be paid on a quarterly basis regardless of the
frequency with which such distributions are declared. Dividends will be paid to
investors who are shareholders as of the record dates selected by the directors.
We currently calculate our quarterly dividends based upon daily record and
dividend declaration dates so our investors will be entitled to be paid
dividends immediately upon their purchase of shares. We then make quarterly
dividend payments following the end of each calendar quarter.
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We are required to make distributions sufficient to satisfy the
requirements for qualification as a REIT for tax purposes. Generally, income
distributed as dividends will not be taxable to us under the Internal Revenue
Code if we distribute at least 95% (90% beginning in year 2001) of our taxable
income. (See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT.")
Dividends will be declared at the discretion of the board of directors,
in accordance with our earnings, cash flow and general financial condition. The
board's discretion will be directed, in substantial part, by its obligation to
cause us to comply with the REIT requirements. Because we may receive income
from interest or rents at various times during our fiscal year, dividends may
not reflect our income earned in that particular distribution period but may be
made in anticipation of cash flow which we expect to receive during a later
quarter and may be made in advance of actual receipt of funds in an attempt to
make dividends relatively uniform. We may borrow money, issue new securities or
sell assets in order to make dividend distributions.
We are not prohibited from distributing our own securities in lieu of
making cash dividends to shareholders, provided that the securities distributed
to shareholders are readily marketable. Shareholders who receive marketable
securities in lieu of cash dividends may incur transaction expenses in
liquidating the securities.
Dividend Reinvestment Plan
We currently have a dividend reinvestment plan available that allows
you to have your dividends otherwise distributable to you invested in additional
shares of the Wells REIT.
You may purchase shares under the dividend reinvestment plan for $10
per share, less any discounts authorized in the "Plan of Distribution" section
of this prospectus, until all of the shares registered as part of this offering
have been sold. After this time, we may purchase shares either through purchases
on the open market, if a market then exists, or through an additional issuance
of shares. In any case, the price per share will be equal to the then-prevailing
market price, which shall equal the price on the securities exchange or
over-the-counter market on which such shares are listed at the date of purchase
if such shares are then listed. A copy of our Amended and Restated Dividend
Reinvestment Plan as currently in effect is included as Exhibit B to this
prospectus.
You may elect to participate in the dividend reinvestment plan by
completing the Subscription Agreement, the enrollment form or by other written
notice to the plan administrator. Participation in the plan will begin with the
next distribution made after receipt of your written notice. We may terminate
the dividend reinvestment plan for any reason at any time upon 10 days' prior
written notice to participants. Your participation in the plan will also be
terminated to the extent that a reinvestment of your distributions in our shares
would cause the percentage ownership limitation contained in our articles of
incorporation to be exceeded.
If you elect to participate in the dividend reinvestment plan and are
subject to federal income taxation, you will incur a tax liability for dividends
allocated to you even though you have elected not to receive the dividends in
cash but rather to have the dividends held pursuant to the dividend reinvestment
plan. Specifically, you will be treated as if you have received the dividend
from us in cash and then applied such dividend to the purchase of additional
shares. You will be taxed on the amount of such dividend as ordinary income to
the extent such dividend is from current or accumulated earnings and profits,
unless we have designated all or a portion of the dividend as a capital gain
dividend.
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Share Redemption Program
Prior to the time that our shares are listed on a national securities
exchange, shareholders of the Wells REIT who have held their shares for at least
one year may receive the benefit of limited interim liquidity by presenting for
redemption all or any portion of their shares to us at any time in accordance
with the procedures outlined herein. At that time, we may, subject to the
conditions and limitations described below, redeem the shares presented for
redemption for cash to the extent that we have sufficient funds available to us
to fund such redemption.
If you have held your shares for the required one-year period, you may
redeem your shares for a purchase price equal to the lesser of (1) $10 per
share, or (2) the purchase price per share that you actually paid for your
shares of the Wells REIT. In the event that you are redeeming all of your
shares, shares purchased pursuant to our dividend reinvestment plan may be
excluded from the foregoing one-year holding period requirement, in the
discretion of the board of directors. In addition, for purposes of the one-year
holding period, limited partners of Wells OP who exchange their limited
partnership units for shares in the Wells REIT shall be deemed to have owned
their shares as of the date they were issued their limited partnership units in
Wells OP. The board of directors reserves the right in its sole discretion at
any time and from time to time to (1) waive the one-year holding period in the
event of the death or bankruptcy of a shareholder or other exigent
circumstances, (2) reject any request for redemption, (3) change the purchase
price for redemptions, or (4) otherwise amend the terms of our share redemption
program.
Redemption of shares, when requested, will be made quarterly on a
first-come, first-served basis. Subject to funds being available, we will limit
the number of shares redeemed pursuant to our share redemption program as
follows: (1) during any calendar year, we will not redeem in excess of three
percent (3.0%) of the weighted average number of shares outstanding during the
prior calendar year; and (2) funding for the redemption of shares will come
exclusively from the proceeds we receive from the sale of shares under our
dividend reinvestment plan such that in no event shall the aggregate amount of
redemptions under our share redemption program exceed aggregate proceeds
received from the sale of shares pursuant to our dividend reinvestment plan. The
board of directors, in its sole discretion, may choose to terminate the share
redemption program or to reduce the number of shares purchased under the share
redemption program if it determines the funds otherwise available to fund our
share redemption program are needed for other purposes. (See "Risk Factors -
Investment Risks.")
We cannot guarantee that the funds set aside for the share redemption
program will be sufficient to accommodate all requests made in any year. If we
do not have such funds available, at the time when redemption is requested, you
can (1) withdraw your request for redemption, or (2) ask that we honor your
request at such time, if any, when sufficient funds become available. Such
pending requests will be honored on a first-come, first-served basis.
The share redemption program is only intended to provide interim
liquidity for shareholders until a secondary market develops for the shares. No
such market presently exists, and we cannot assure you that any market for your
shares will ever develop.
The shares we purchase under the share redemption program will be
cancelled, and will have the status of authorized, but unissued shares. We will
not reissue such shares unless they are first registered with the Securities and
Exchange Commission (Commission) under the Securities Act of 1933 and under
appropriate state securities laws or otherwise issued in compliance with such
laws.
If we terminate, reduce the scope of or otherwise change the share
redemption program, we will disclose the changes in reports filed with the
Commission.
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Restrictions on Roll-Up Transactions
In connection with any proposed transaction considered a "Roll-up
Transaction" involving the Wells REIT and the issuance of securities of an
entity (a Roll-up Entity) that would be created or would survive after the
successful completion of the Roll-up Transaction, an appraisal of all properties
shall be obtained from a competent independent appraiser. The properties shall
be appraised on a consistent basis, and the appraisal shall be based on the
evaluation of all relevant information and shall indicate the value of the
properties as of a date immediately prior to the announcement of the proposed
Roll-up Transaction. The appraisal shall assume an orderly liquidation of
properties over a 12-month period. The terms of the engagement of the
independent appraiser shall clearly state that the engagement is for our benefit
and the shareholders. A summary of the appraisal, indicating all material
assumptions underlying the appraisal, shall be included in a report to
shareholders in connection with any proposed Roll-up Transaction.
A "Roll-up Transaction" is a transaction involving the acquisition,
merger, conversion or consolidation, directly or indirectly, of the Wells REIT
and the issuance of securities of a Roll-up Entity. This term does not include:
. a transaction involving our securities that have been for at
least 12 months listed on a national securities exchange or
included for quotation on Nasdaq; or
. a transaction involving the conversion to corporate, trust, or
association form of only the Wells REIT if, as a consequence
of the transaction, there will be no significant adverse
change in any of the following: shareholder voting rights; the
term of our existence; compensation to Wells Capital; or our
investment objectives.
On connection with a proposed Roll-up Transaction, the person
sponsoring the Roll-up Transaction must offer to shareholders who vote "no" on
the proposal the choice of:
(1) accepting the securities of a Roll-up Entity offered in the
proposed Roll-up Transaction; or
(2) one of the following:
(A) remaining as shareholders of the Wells REIT and
preserving their interests therein on the same terms
and conditions as existed previously, or
(B) receiving cash in an amount equal to the
shareholder's pro rata share of the appraised value
of our net assets.
We are prohibited from participating in any proposed Roll-up
Transaction:
. which would result in the shareholders having democracy rights
in a Roll-up Entity that are less than those provided in our
bylaws and described elsewhere in this prospectus, including
rights with respect to the election and removal of directors,
annual reports, annual and special meetings, amendment of our
articles of incorporation, and dissolution of the Wells REIT;
. which includes provisions that would operate to materially
impede or frustrate the accumulation of shares by any
purchaser of the securities of the Roll-up Entity, except to
the minimum extent necessary to preserve the tax status of the
Roll-up Entity, or which
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would limit the ability of an investor to exercise the voting
rights of its securities of the Roll-up Entity on the basis of
the number of shares held by that investor;
. in which investor's rights to access of records of the Roll-up
Entity will be less than those provided in the section of this
prospectus entitled "Description of Shares -- Meetings and
Special Voting Requirements;" or
. in which any of the costs of the Roll-up Transaction would be
borne by us if the Roll-up Transaction is not approved by the
shareholders.
Business Combinations
Under Maryland Corporation Law, business combinations between a
Maryland corporation and an interested shareholder or the interested
shareholder's affiliate are prohibited for five years after the most recent date
on which the shareholder becomes an interested shareholder. For this purpose,
the term "business combinations" includes mergers, consolidations, share
exchanges, asset transfers and issuances or reclassifications of equity
securities. An "interested shareholder" is defined for this purpose as:
(1) any person who beneficially owns ten percent or more of the
voting power of the corporation's shares; or
(2) an affiliate or associate of the corporation who, at any time
within the two-year period prior to the date in question, was the beneficial
owner of ten percent or more of the voting power of the then outstanding voting
shares of the corporation.
After the five-year prohibition, any business combination between the
corporation and an interested shareholder generally must be recommended by the
board of directors of the corporation and approved by the affirmative vote of at
least:
(1) 80% of the votes entitled to be cast by holders of outstanding
voting shares of the corporation; and
(2) two-thirds of the votes entitled to be cast by holders of
voting shares of the corporation other than shares held by the interested
shareholder or its affiliate with whom the business combination is to be
effected, or held by an affiliate or associate of the interested shareholder
voting together as a single voting group.
These super-majority vote requirements do not apply if the
corporation's common shareholders receive a minimum price, as defined under
Maryland Corporation Law, for their shares in the form of cash or other
consideration in the same form as previously paid by the interested shareholder
for its shares. None of these provisions of the Maryland Corporation Law will
apply, however, to business combinations that are approved or exempted by the
board of directors of the corporation prior to the time that the interested
shareholder becomes an interested shareholder.
The business combination statute may discourage others from trying to
acquire control of the Wells REIT and increase the difficulty of consummating
any offer.
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Control Share Acquisitions
Maryland Corporation Law provides that control shares of a Maryland
corporation acquired in a control share acquisition have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter. Shares owned by the Acquisitions, or by officers or directors who
are employees of the corporation are not entitled to vote on the matter. As
permitted by Maryland Corporation Law, we have provided in our bylaws that the
control share provisions of Maryland Corporation Law will not apply to
transactions involving the Wells REIT, but the board of directors retains the
discretion to change this provision in the future.
"Control shares" are voting shares which, if aggregated with all other
shares owned by the acquiror or with respect to which the acquiror has the right
to vote or to direct the voting of, other than solely by virtue of revocable
proxy, would entitle the acquiror to exercise voting power in electing directors
within one of the following ranges of voting powers:
. one-fifth or more but less than one-third;
. one-third or more but less than a majority; or
. a majority or more of all voting power.
Control shares do not include shares the acquiring person is then
entitled to vote as a result of having previously obtained shareholder approval.
Except as otherwise specified in the statute, a "control share
acquisition" means the acquisition of control shares.
Once a person who has made or proposes to make a control share
acquisition has undertaken to pay expenses and has satisfied other required
conditions, the person may compel the board of directors to call a special
meeting of shareholders to be held within 50 days of demand to consider the
voting rights of the shares. If no request for a meeting is made, the
corporation may itself present the question at any shareholders meeting.
If voting rights are not approved for the control shares at the
meeting or if the acquiring person does not deliver an "acquiring person
statement" for the control shares as required by the statute, the corporation
may redeem any or all of the control shares for their fair value, except for
control shares for which voting rights have previously been approved. Fair value
is to be determined for this purpose without regard to the absence of voting
rights for the control shares, and is to be determined as of the date of the
last control share acquisition or of any meeting of shareholders at which the
voting rights for control shares are considered and not approved.
If voting rights for control shares are approved at a shareholders
meeting and the acquiror becomes entitled to vote a majority of the shares
entitled to vote, all other shareholders may exercise appraisal rights. The fair
value of the shares as determined for purposes of these appraisal rights may not
be less than the highest price per share paid in the control share acquisition.
Some of the limitations and restrictions otherwise applicable to the exercise of
dissenters' rights do not apply in the context of a control share acquisition.
The control share acquisition statute does not apply to shares
acquired in a merger, consolidation or share exchange if the corporation is a
party to the transaction or to acquisitions approved or exempted by the articles
of incorporation or bylaws of the corporation.
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The Operating Partnership Agreement
General
Wells Operating Partnership, L.P. (Wells OP) was formed in January 1998 to
acquire, own and operate properties on our behalf. It is considered to be an
Umbrella Partnership Real Estate Investment Trust (UPREIT), which structure is
utilized generally to provide for the acquisition of real property from owners
who desire to defer taxable gain otherwise to be recognized by them upon the
disposition of their property. Such owners may also desire to achieve diversity
in their investment and other benefits afforded to owners of stock in a REIT.
For purposes of satisfying the Asset and Income Tests for qualification as a
REIT for tax purposes, the REIT's proportionate share of the assets and income
of an UPREIT, such as Wells OP, will be deemed to be assets and income of the
REIT.
The property owner's goals are accomplished because a property owner may
contribute property to an UPREIT in exchange for limited partnership units on a
tax-free basis. Further, Wells OP is structured to make distributions with
respect to limited partnership units which are equivalent to the dividend
distributions made to shareholders of the Wells REIT. Finally, a limited partner
in Wells OP may later exchange his limited partnership units in Wells OP for
shares of the Wells REIT (in a taxable transaction) and, if our shares are then
listed, achieve liquidity for his investment.
Substantially all of our assets are held by Wells OP, and we intend to make
future acquisitions of real properties using the UPREIT structure. The Wells
REIT is the sole general partner of Wells OP and, as of September 30, 2000,
owned an approximately 99% equity percentage interest in Wells OP. Wells
Capital, our advisor, has contributed $200,000 to Wells OP and is currently the
only limited partner owning the other approximately 1% equity percentage
interest in Wells OP. As the sole general partner of Wells OP, we have the
exclusive power to manage and conduct the business of Wells OP.
The following is a summary of certain provisions of the partnership
agreement of Wells OP. This summary is not complete and is qualified by the
specific language in the partnership agreement. You should refer to the
partnership agreement, itself, which we have filed as an exhibit to the
registration statement, for more detail.
Capital Contributions
As we accept subscriptions for shares, we will transfer substantially all
of the net proceeds of the offering to Wells OP as a capital contribution;
however, we will be deemed to have made capital contributions in the amount of
the gross offering proceeds received from investors. Wells OP will be deemed to
have simultaneously paid the selling commissions and other costs associated with
the offering. If Wells OP requires additional funds at any time in excess of
capital contributions made by us and Wells Capital or from borrowing, we may
borrow funds from a financial institution or other lender and lend such funds to
Wells OP on the same terms and conditions as are applicable to our borrowing of
such funds. In addition, we are authorized to cause Wells OP to issue
partnership interests for less than fair market value if we conclude in good
faith that such issuance is in the best interest of Wells OP and the Wells REIT.
Operations
The partnership agreement requires that Wells OP be operated in a manner
that will enable the Wells REIT to (1) satisfy the requirements for being
classified as a REIT for tax purposes, (2) avoid any federal income or excise
tax liability, and (3) ensure that Wells OP will not be classified as a
"publicly traded partnership" for purposes of Section 7704 of the Internal
Revenue Code, which classification could
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result in Wells OP being taxed as a corporation, rather than as a partnership.
(See "Federal Income Tax Considerations - Tax Aspects of the Operating
Partnership - Classification as a Partnership.")
The partnership agreement provides that Wells OP will distribute cash flow
from operations to the limited partners of Wells OP in accordance with their
relative percentage interests on at least a quarterly basis in amounts
determined by the Wells REIT as general partner such that a holder of one unit
of limited partnership interest in Wells OP will receive the same amount of
annual cash flow distributions from Wells OP as the amount of annual dividends
paid to the holder of one of our shares. Remaining cash from operations will be
distributed to the Wells REIT as the general partner to enable us to make
dividend distributions to our shareholders.
Similarly, the partnership agreement of Wells OP provides that taxable
income is allocated to the limited partners of Wells OP in accordance with their
relative percentage interests such that a holder of one unit of limited
partnership interest in Wells OP will be allocated taxable income for each
taxable year in an amount equal to the amount of taxable income to be recognized
by a holder of one of our shares, subject to compliance with the provisions of
Sections 704(b) and 704(c) of the Internal Revenue Code and corresponding
Treasury Regulations. Losses, if any, will generally be allocated among the
partners in accordance with their respective percentage interests in Wells OP.
Upon the liquidation of Wells OP, after payment of debts and obligations,
any remaining assets of Wells OP will be distributed to partners with positive
capital accounts in accordance with their respective positive capital account
balances. If the Wells REIT were to have a negative balance in its capital
account following a liquidation, it would be obligated to contribute cash to
Wells OP equal to such negative balance for distribution to other partners, if
any, having positive balances in their capital accounts.
In addition to the administrative and operating costs and expenses incurred
by Wells OP in acquiring and operating real properties, Wells OP will pay all
administrative costs and expenses of the Wells REIT and such expenses will be
treated as expenses of Wells OP. Such expenses will include:
.. all expenses relating to the formation and continuity of existence of the
Wells REIT;
.. all expenses relating to the public offering and registration of securities
by the Wells REIT;
.. all expenses associated with the preparation and filing of any periodic
reports by the Wells REIT under federal, state or local laws or
regulations;
.. all expenses associated with compliance by the Wells REIT with applicable
laws, rules and regulations; and
.. all other operating or administrative costs of the Wells REIT incurred in
the ordinary course of its business on behalf of Wells OP.
Exchange Rights
The limited partners of Wells OP, including Wells Capital, have the
right to cause Wells OP to redeem their limited partnership units for cash equal
to the value of an equivalent number of our shares, or, at our option, we may
purchase their limited partnership units by issuing one share of the Wells REIT
for each limited partnership unit redeemed. These exchange rights may not be
exercised, however, if and to the extent that the delivery of shares upon such
exercise would (1) result in any person owning shares in excess of our ownership
limits, (2) result in shares being owned by fewer than 100 persons, (3) result
in
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the Wells REIT being "closely held" within the meaning of Section 856(h) of
the Internal Revenue Code, (4) cause the Wells REIT to own 10% or more of the
ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of
the Internal Revenue Code, or (5) cause the acquisition of shares by a redeemed
limited partner to be "integrated" with any other distribution of our shares for
purposes of complying with the Securities Act.
Subject to the foregoing, limited partners may exercise their exchange
rights at any time after one year following the date of issuance of their
limited partnership units; provided, however, that a limited partner may not
deliver more than two exchange notices each calendar year and may not exercise
an exchange right for less than 1,000 limited partnership units, unless such
limited partner holds less than 1,000 units, in which case, he must exercise his
exchange right for all of his units.
Transferability of Interests
The Wells REIT may not (1) voluntarily withdraw as the general partner of
Wells OP, (2) engage in any merger, consolidation or other business combination,
or (3) transfer its general partnership interest in Wells OP (except to a wholly
-owned subsidiary), unless the transaction in which such withdrawal, business
combination or transfer occurs results in the limited partners receiving or
having the right to receive an amount of cash, securities or other property
equal in value to the amount they would have received if they had exercised
their exchange rights immediately prior to such transaction or unless, in the
case of a merger or other business combination, the successor entity contributes
substantially all of its assets to Wells OP in return for an interest in Wells
OP and agrees to assume all obligations of the general partner of Wells OP. The
Wells REIT may also enter into a business combination or we may transfer our
general partnership interest upon the receipt of the consent of a majority-in-
interest of the limited partners of Wells OP, other than Wells Capital. With
certain exceptions, the limited partners may not transfer their interests in
Wells OP, in whole or in part, without the written consent of the Wells REIT as
general partner. In addition, Wells Capital may not transfer its interest in
Wells OP as long as it is acting as the advisor to the Wells REIT, except
pursuant to the exercise of its right to exchange limited partnership units for
Wells REIT shares, in which case similar restrictions on transfer will apply to
the REIT shares received by Wells Capital.
Plan of Distribution
We are offering a maximum of 125,000,000 shares to the public through Wells
Investment Securities, Inc., the Dealer Manager, a registered broker-dealer
affiliated with the advisor. (See "Conflicts of Interest.") The shares are being
offered at a price of $10.00 per share on a "best efforts" basis, which means
generally that the Dealer Manager will be required to use only its best efforts
to sell the shares and it has no firm commitment or obligation to purchase any
of the shares. We are also offering 10,000,000 shares for sale pursuant to our
dividend reinvestment plan at a price of $10.00 per share. An additional
5,000,000 shares are reserved for issuance upon exercise of soliciting dealer
warrants, which are granted to participating broker-dealers based upon the
number of shares they sell. Therefore, a total of 140,000,000 shares are being
registered in this offering.
Except as provided below, the Dealer Manager will receive selling
commissions of 7.0% of the gross offering proceeds. The Dealer Manager will also
receive 2.5% of the gross offering proceeds in the form of a dealer manager fee
as compensation for acting as the Dealer Manager and for expenses incurred in
connection with coordinating sales efforts, training of personnel and generally
performing "wholesaling" functions. We will not pay referral or similar fees to
any accountants, attorneys or other persons in connection with the distribution
of the shares. Shareholders who elect to participate in the dividend
reinvestment plan will be charged selling commissions and dealer manager fees on
shares
153
purchased pursuant to the dividend reinvestment plan on the same basis as
shareholders purchasing shares other than pursuant to the dividend reinvestment
plan.
We will also award to the Dealer Manager one soliciting dealer warrant
for every 25 shares they sell during the offering period. The Dealer Manager may
retain or reallow these warrants to broker-dealers participating in the
offering, unless such issuance of soliciting dealer warrants is prohibited by
either federal or state securities laws. The holder of a soliciting dealer
warrant will be entitled to purchase one share from the Wells REIT at a price of
$12 per share during the period beginning on the first anniversary of the
effective date of this offering and ending five years after the effective date
of this offering. Subject to certain exceptions, a soliciting dealer warrant may
not be transferred, assigned, pledged or hypothecated for a period of one year
following the effective date of this offering. The shares issuable upon exercise
of the soliciting dealer warrants are being registered as part of this offering.
For the life of the soliciting dealer warrants, participating broker-dealers are
given the opportunity to profit from a rise in the market price for the common
stock without assuming the risk of ownership, with a resulting dilution in the
interest of other shareholders upon exercise of such warrants. In addition,
holders of the soliciting dealer warrants would be expected to exercise such
warrants at a time when we could obtain needed capital by offering new
securities on terms more favorable than those provided by the soliciting dealer
warrants. Exercise of the soliciting dealer warrants is governed by the terms
and conditions detailed in this prospectus and in the Warrant Purchase
Agreement, which is an exhibit to the Registration Statement.
The Dealer Manager may authorize certain other broker-dealers who are
members of the NASD to sell shares. In the event of the sale of shares by such
other broker-dealers, the Dealer Manager may reallow its commissions in the
amount of up to 7.0% of the gross offering proceeds to such participating
broker-dealers. In addition, the Dealer Manager, in its sole discretion, may
reallow to broker-dealers participating in the offering a portion of its dealer
manager fee in the aggregate amount of up to 1.5% of gross offering proceeds to
be paid to such participating broker-dealers as marketing fees and as
reimbursement of due diligence expenses, based on such factors as the number of
shares sold by such participating broker-dealers, the assistance of such
participating broker-dealers in marketing the offering and bona fide conference
fees incurred.
We anticipate that the total underwriting compensation, including sales
commissions, the dealer manager fee and underwriting expense reimbursements,
will not exceed 9.5% of gross offering proceeds, except for the soliciting
dealer warrants described above.
We have agreed to indemnify the participating broker-dealers, including
the Dealer Manager, against certain liabilities arising under the Securities Act
of 1933, as amended.
The broker-dealers participating in the offering of our shares are not
obligated to obtain any subscriptions on our behalf, and we cannot assure you
that any shares will be sold.
Our executive officers and directors, as well as officers and employees
of Wells Capital or other affiliates, may purchase shares offered in this
offering at a discount. The purchase price for such shares shall be $8.90 per
share reflecting the fact that the acquisition and advisory fees relating to
such shares will be reduced by $0.15 per share and selling commissions in the
amount of $0.70 per share and dealer manager fees in the amount of $0.25 per
share will not be payable in connection with such sales. The net offering
proceeds we receive will not be affected by such sales of shares at a discount.
Wells Capital and its affiliates shall be expected to hold their shares
purchased as shareholders for investment and not with a view towards
distribution. In addition, shares purchased by Wells Capital or its affiliates
shall not be entitled to vote on any matter presented to the shareholders for a
vote.
154
You should pay for your shares by check payable to "Wells Real Estate
Investment Trust, Inc." Subscriptions will be effective only upon our
acceptance, and we reserve the right to reject any subscription in whole or in
part. We may not accept a subscription for shares until at least five business
days after the date you receive this prospectus. You will receive a confirmation
of your purchase. Except for purchases pursuant to our dividend reinvestment
plan or reinvestment plans of other public real estate programs, all accepted
subscriptions will be for whole shares and for not less than 100 shares
($1,000). (See "Suitability Standards.") Except in Maine, Minnesota, Nebraska
and Washington, investors who have satisfied the minimum purchase requirement
and have purchased units or shares in Wells programs or units or shares in other
public real estate programs may purchase less than the minimum number of shares
discussed above, provided that such investors purchase a minimum of 2.5 shares
($25). After investors have satisfied the minimum purchase requirement, minimum
additional purchases must be in increments of at least 2.5 shares ($25), except
for purchases made pursuant to our dividend reinvestment plan or reinvestment
plans of other public real estate programs.
We will place the subscription proceeds in an interest-bearing account
with Bank of America, N.A., Atlanta, Georgia. Subscription proceeds held in the
account may be invested in securities backed by the United States government or
bank money-market accounts or certificates of deposit of national or state banks
that have deposits insured by the Federal Deposit Insurance Corporation,
including certificates of deposit of any bank acting as depository or custodian
for any such funds, as directed by our advisor. Subscribers may not withdraw
funds from the account. We will withdraw funds from the account periodically for
the acquisition of real estate properties or the payment of fees and expenses.
We generally admit shareholders to the Wells REIT on a daily basis.
Investors who desire to establish an IRA for purposes of investing in
shares may do so by having Wells Advisors, Inc., a qualified non-bank IRA
custodian affiliated with the advisor, act as their IRA custodian. In the event
that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the
authority of Wells Advisors, Inc. will be limited to holding the shares on
behalf of the beneficiary of the IRA and making distributions or reinvestments
in shares solely at the discretion of the beneficiary of the IRA. Wells
Advisors, Inc. will not have the authority to vote any of the shares held in an
IRA except strictly in accordance with the written instructions of the
beneficiary of the IRA.
The offering of shares will terminate on or before December 19, 2002.
However, we reserve the right to terminate this offering at any time prior to
such termination date.
The proceeds of this offering will be received and held in trust for
the benefit of purchasers of shares to be used only for the purposes set forth
in the "Estimated Use of Proceeds" section. Subscriptions will be accepted or
rejected within 30 days of receipt by the Wells REIT, and if rejected, all funds
shall be returned to the rejected subscribers within ten business days.
We may sell shares to retirement plans of broker-dealers participating
in the offering, to broker-dealers in their individual capacities, to IRAs and
qualified plans of their registered representatives or to any one of their
registered representatives in their individual capacities for 93% of the public
offering price in consideration of the services rendered by such broker-dealers
and registered representatives in the offering. The net proceeds to the Wells
REIT from such sales will be identical to net proceeds we receive from other
sales of shares.
In connection with sales of 50,000 or more shares ($500,000) to a
"purchaser" as defined below, a participating broker-dealer may agree in his
sole discretion to reduce the amount of his selling commissions. Such reduction
will be credited to the purchaser by reducing the total purchase price payable
by such purchaser. The following table illustrates the various discount levels
available:
155
Dealer
Purchase Manager Net
Dollar Volume Sales Commissions Price Fee Per Proceeds
------------------------
Shares Purchased Percent Per Share Per Share Share Per Share
---------------- ------- --------- --------- ----- ---------
Under $500,000 7.0% $0.7000 $10.0000 $0.25 $9.05
$500,000-$999,999 5.0% $0.4895 $ 9.7895 $0.25 $9.05
$1,000,000 and Over 3.0% $0.2876 $ 9.5876 $0.25 $9.05
For example, if an investor purchases 100,000 shares, he could pay as
little as $958,760 rather than $1,000,000 for the shares, in which event the
commission on the sale of such shares would be $28,760 ($0.2876 per share), and,
after payment of the dealer manager fee, we would receive net proceeds of
$905,000 ($9.05 per share). The net proceeds to the Wells REIT will not be
affected by volume discounts.
Because all investors will be deemed to have contributed the same
amount per share to the Wells REIT for purposes of declaring and paying
dividends, an investor qualifying for a volume discount will receive a higher
return on his investment than investors who do not qualify for such discount.
Subscriptions may be combined for the purpose of determining the
volume discounts in the case of subscriptions made by any "purchaser," as that
term is defined below, provided all such shares are purchased through the same
broker-dealer. The volume discount shall be prorated among the separate
subscribers considered to be a single "purchaser." Any request to combine more
than one subscription must be made in writing, and must set forth the basis for
such request. Any such request will be subject to verification by the advisor
that all of such subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser"
includes:
. an individual, his or her spouse and their children under the age
of 21 who purchase the units for his, her or their own accounts;
. a corporation, partnership, association, joint-stock company,
trust fund or any organized group of persons, whether
incorporated or not;
. an employees' trust, pension, profit sharing or other employee
benefit plan qualified under Section 401(a) of the Internal
Revenue Code; and
. all commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to investors in
the Wells REIT, the advisor may, in its sole discretion, waive the "purchaser"
requirements and aggregate subscriptions, including subscriptions to public real
estate programs previously sponsored by the advisor, or its affiliates, as part
of a combined order for purposes of determining the number of shares purchased,
provided that any aggregate group of subscriptions must be received from the
same broker-dealer, including the Dealer Manager. Any such reduction in selling
commission will be prorated among the separate subscribers except that, in the
case of purchases through the Dealer Manager, the Dealer Manager may allocate
such reduction among separate subscribers considered to be a single "purchaser"
as it deems appropriate. An investor may reduce the amount of his purchase price
to the net amount shown in the foregoing table, if applicable. If such investor
does not reduce the purchase price, the excess amount submitted over the
discounted purchase price shall be returned to the actual separate subscribers
156
for shares. Except as provided in this paragraph, separate subscriptions will
not be cumulated, combined or aggregated.
In addition, in order to encourage purchases in amounts of 500,000 or
more shares, a potential purchaser who proposes to purchase at least 500,000
shares may agree with Wells Capital and the Dealer Manager to have the
acquisition and advisory fees payable to Wells Capital with respect to the sale
of such shares reduced to 0.5%, to have the dealer manager fee payable to the
Dealer Manager with respect to the sale of such shares reduced to 0.5%, and to
have the selling commissions payable with respect to the sale of such shares
reduced to 0.5%, in which event the aggregate fees payable with respect to the
sale of such shares would be reduced by $1.10 per share, and the purchaser of
such shares would be required to pay a total of $8.90 per share purchased,
rather than $10.00 per share. The net proceeds to the Wells REIT would not be
affected by such fee reductions. Of the $8.90 paid per share, we anticipate that
approximately $8.40 per share or approximately 94.4% will be used to acquire
properties and pay required acquisition expenses relating to the acquisition of
properties. All such sales must be made through registered broker-dealers.
California residents should be aware that volume discounts will not be
available in connection with the sale of shares made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant to
this Rule, volume discounts can be made available to California residents only
in accordance with the following conditions:
. there can be no variance in the net proceeds to the Wells REIT
from the sale of the shares to different purchasers of the same
offering;
. all purchasers of the shares must be informed of the availability
of quantity discounts;
. the same volume discounts must be allowed to all purchasers of
shares which are part of the offering;
. the minimum amount of shares as to which volume discounts are
allowed cannot be less than $10,000;
. the variance in the price of the shares must result solely
from a different range of commissions, and all discounts allowed
must be based on a uniform scale of commissions; and
. no discounts are allowed to any group of purchasers.
Accordingly, volume discounts for California residents will be available in
accordance with the foregoing table of uniform discount levels based on dollar
volume of shares purchased, but no discounts are allowed to any group of
purchasers, and no subscriptions may be aggregated as part of a combined order
for purposes of determining the number of shares purchased.
Investors who, in connection with their purchase of shares, have
engaged the services of a registered investment advisor with whom the investor
has agreed to pay a fee for investment advisory services in lieu of normal
commissions based on the volume of securities sold may agree with the
participating broker-dealer selling such shares and the Dealer Manager to reduce
the amount of selling commissions payable with respect to such sale to zero. The
net proceeds to the Wells REIT will not be affected by eliminating the
commissions payable in connection with sales to investors purchasing through
such investment advisors. All such sales must be made through registered
broker-dealers.
157
Neither the Dealer Manager nor its affiliates will directly or
indirectly compensate any person engaged as an investment advisor by a potential
investor as an inducement for such investment advisor to advise favorably for
investment in the Wells REIT.
In addition, subscribers for shares may agree with their participating
broker-dealers and the Dealer Manager to have selling commissions due with
respect to the purchase of their shares paid over a six year period pursuant to
a deferred commission arrangement. Shareholders electing the deferred commission
option will be required to pay a total of $9.40 per share purchased upon
subscription, rather than $10.00 per share, with respect to which $0.10 per
share will be payable as commissions due upon subscription. For the period of
six years following subscription, $0.10 per share will be deducted on an annual
basis from dividends or other cash distributions otherwise payable to the
shareholders and used by the Wells REIT to pay deferred commission obligations.
The net proceeds to the Wells REIT will not be affected by the election of the
deferred commission option. Under this arrangement, a shareholder electing the
deferred commission option will pay a 1% commission upon subscription, rather
than a 7% commission, and an amount equal to a 1% commission per year thereafter
for the next six years, or longer if required to satisfy outstanding deferred
commission obligations, will be deducted from dividends or other cash
distributions otherwise payable to such shareholder and used by the Wells REIT
to satisfy commission obligations. The foregoing commission amounts may be
adjusted with approval of the Dealer Manager by application of the volume
discount provisions described previously.
Shareholders electing the deferred commission option who are subject to
federal income taxation will incur tax liability for dividends or other cash
distributions otherwise payable to them with respect to their shares even though
such dividends or other cash distributions will be withheld from such
shareholders and will instead be paid to third parties to satisfy commission
obligations.
Investors who wish to elect the deferred commission option should make
the election on their Subscription Agreement Signature Page. Election of the
deferred commission option shall authorize the Wells REIT to withhold dividends
or other cash distributions otherwise payable to such shareholder for the
purpose of paying commissions due under the deferred commission option;
provided, however, that in no event may the Wells REIT withhold in excess of
$0.60 per share in the aggregate under the deferred commission option. Such
dividends or cash distributions otherwise payable to shareholders may be pledged
by the Wells REIT, the Dealer Manager, the advisor or their affiliates to secure
one or more loans, the proceeds of which would be used to satisfy sales
commission obligations.
In the event that, at any time prior to the satisfaction of our
remaining deferred commission obligations, listing of the shares occurs or is
reasonably anticipated to occur, or we begin a liquidation of our properties,
the remaining commissions due under the deferred commission option may be
accelerated by the Wells REIT. In either such event, we shall provide notice of
any such acceleration to shareholders who have elected the deferred commission
option. In the event of listing, the amount of the remaining commissions due
shall be deducted and paid by the Wells REIT out of dividends or other cash
distributions otherwise payable to such shareholders during the time period
prior to listing. To the extent that the distributions during such time period
are insufficient to satisfy the remaining commissions due, the obligation of
Wells REIT and our shareholders to make any further payments of deferred
commissions under the deferred commission option shall terminate, and
participating broker-dealers will not be entitled to receive any further portion
of their deferred commissions following listing of our shares. In the event of a
liquidation of our properties, the amount of remaining commissions due shall be
deducted and paid by the Wells REIT out of dividends or net sale proceeds
otherwise payable to shareholders who are subject to any such acceleration of
their deferred commission obligations. In no event may Wells REIT withhold in
excess of $0.60 per share in the aggregate for the payment of deferred
commissions.
158
Supplemental Sales Material
In addition to this prospectus, we may utilize certain sales material
in connection with the offering of the shares, although only when accompanied by
or preceded by the delivery of this prospectus. In certain jurisdictions, some
or all of such sales material may not be available. This material may include
information relating to this offering, the past performance of the advisor and
its affiliates, property brochures and articles and publications concerning real
estate. In addition, the sales material may contain certain quotes from various
publications without obtaining the consent of the author or the publication for
use of the quoted material in the sales material.
The offering of shares is made only by means of this prospectus.
Although the information contained in such sales material will not conflict with
any of the information contained in this prospectus, such material does not
purport to be complete, and should not be considered a part of this prospectus
or the registration statement of which this prospectus is a part, or as
incorporated by reference in this prospectus or said registration statement or
as forming the basis of the offering of the shares.
Legal Opinions
The legality of the shares being offered hereby has been passed upon
for the Wells REIT by Holland & Knight LLP (Counsel). The statements under the
caption "Federal Income Tax Consequences" as they relate to federal income tax
matters have been reviewed by such Counsel, and Counsel has opined as to certain
income tax matters relating to an investment in shares of the Wells REIT.
Counsel has represented Wells Capital, our advisor, as well as affiliates of
Wells Capital, in other matters and may continue to do so in the future. (See
"Conflicts of Interest.")
Experts
Audited Financial Statements
The audited financial statements of the Wells REIT as of December 31,
1999 and 1998, and for each of the years in the two-year period ended December
31, 1999, included in this prospectus and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their report with respect thereto, and are included
in this prospectus in reliance upon the authority of said firm as experts in
giving said report.
The Statements of Revenues over Certain Operating Expenses of the Dial
Building, the ASML Building, the Motorola Tempe Building and the Motorola
Plainfield Building for the year ended December 31, 1999, included in this
prospectus and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included in this prospectus in reliance
upon the authority of said firm as experts in giving said reports.
Unaudited Financial Statements
The unaudited interim financial statements of the Wells REIT as of
September 30, 2000, and for the three and nine-month periods ended September 30,
2000 and 1999, which are included in this prospectus, have not been audited.
The Statements of Revenues over Certain Operating Expenses of the
Motorola Plainfield Building for the nine months ended September 30, 2000, which
are included in this prospectus, have not been audited.
159
The unaudited pro forma financial statements of the Wells REIT for the
year ended December 31, 1999, and for the nine-month period ended September 30,
2000, which are included in this prospectus, have not been audited.
Additional Information
We have filed with the Securities and Exchange Commission (Commission),
Washington, D.C., a registration statement under the Securities Act of 1933, as
amended, with respect to the shares offered pursuant to this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits related thereto filed with the Commission, reference
to which is hereby made. Copies of the registration statement and exhibits
related thereto, as well as periodic reports and information filed by the Wells
REIT, may be obtained upon payment of the fees prescribed by the Commission, or
may be examined at the offices of the Commission without charge, at:
. the public reference facilities in Washington, D.C. at Judiciary
Plaza, Room 1024, 450 Fifth Street, N.W., Washington, D.C. 20549;
. the Northeast Regional Office in New York at 7 World Trade
Center, Suite 1300, New York, New York 10048; and
. the Midwest Regional Office in Chicago, Illinois at 500 West
Madison Street, Suite 1400, Chicago, Illinois 66661-2511.
The Commission maintains a Web site that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission. The address of the Commission's website is
http://www.sec.gov.
Glossary
The following are definitions of certain terms used in this prospectus
and not otherwise defined in this prospectus:
"Dealer Manager" means Wells Investment Securities, Inc.
"IRA" means an individual retirement account established pursuant to
Section 408 or Section 408A of the Internal Revenue Code.
"NASAA Guidelines" means the Statement of Policy Regarding Real Estate
Investment Trusts of the North American Securities Administrators Association,
Inc., as revised and adopted on September 29, 1993.
"Property Manager" means Wells Management Company, Inc.
"UBTI" means unrelated business taxable income, as that term is defined
in Sections 511 through 514 of the Internal Revenue Code.
160
Index to Financial Statements and Prior Performance Tables
Page
----
Wells Real Estate Investment Trust, Inc. and Subsidiary
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 163
Consolidated Balance Sheets as of December 31, 1999 and
December 31, 1998 164
Consolidated Statements of Income for the years ended
December 31, 1999 and December 31, 1998 165
Consolidated Statements of Shareholders' Equity for the
years ended December 31, 1999 and December 31,1998 166
Consolidated Statements of Cash Flows for the years ended
December 31, 1999 and December 31, 1998 167
Notes to Consolidated Financial Statements 168
Interim (Unaudited) Financial Statements
----------------------------------------
Balance Sheets as of September 30, 2000 and December 31, 1999 189
Statements of Income for the three and nine months ended
September 30, 2000 and 1999 190
Statements of Shareholders' Equity for the nine months ended
September 30, 2000 and the year ended December 31,1999 191
Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999 192
Condensed Notes to Financial Statements 193
Dial Building
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 197
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 198
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 199
ASML Building
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 200
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 201
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 202
161
Motorola Tempe Building
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 203
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 204
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 205
Motorola Plainfield Building
Financial Statements
--------------------
Report of Independent Public Accountants 206
Statement of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 (audited), and the nine-
month period ended September 30, 2000 (unaudited) 207
Notes to Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 (audited),
and the nine-month period ended September 30, 2000 (unaudited) 208
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 210
Pro Forma Balance Sheet as of September 30, 2000 211
Pro Forma Statement of Income for the year ended
December 31, 1999 213
Pro Forma Statement of Income for the nine-month period
ended September 30, 2000 214
Prior Performance Tables 215
162
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying consolidated balance sheets of WELLS REAL
ESTATE INVESTMENT TRUST, INC. (a Maryland corporation) AND SUBSIDIARY as of
December 31, 1999 and 1998 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the two years in the period
ended December 31, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wells Real Estate
Investment Trust, Inc. and subsidiary as of December 31, 1999 and 1998 and the
results of their operations and their cash flows for each of the two years in
the period ended December 31, 1999 in conformity with accounting principles
generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 20, 2000
163
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 1999 AND 1998
ASSETS
1999 1998
---- ----
REAL ESTATE ASSETS, at cost:
Land $ 14,500,822 $ 1,520,834
Building, less accumulated depreciation of $1,726,103 and $0 at December 31, 1999 and
1998, respectively 81,507,040 20,076,845
Construction in progress 12,561,459 0
------------ -----------
Total real estate assets 108,569,321 21,597,679
INVESTMENT IN JOINT VENTURES 29,431,176 11,568,677
CASH AND CASH EQUIVALENTS 2,929,804 7,979,403
DEFERRED OFFERING COSTS 964,941 548,729
DEFERRED PROJECT COSTS 28,093 335,421
DUE FROM AFFILIATES 648,354 262,345
PREPAID EXPENSES AND OTHER ASSETS 1,280,601 540,319
------------ -----------
Total assets $143,852,290 $42,832,573
============ ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 461,300 $ 187,827
Notes payable 23,929,228 14,059,930
Dividends payable 2,166,701 408,176
Due to affiliate 1,079,466 554,953
------------ -----------
Total liabilities 27,636,695 15,210,886
------------ -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP
SHAREHOLDERS' EQUITY: 200,000 200,000
------------ -----------
Common shares, $.01 par value; 40,000,000 shares authorized, 13,471,085 shares issued
and outstanding at December 31, 1999 and 3,154,136 shares issued and outstanding at
December 31, 1998 134,710 31,541
Additional paid-in capital 115,880,885 27,056,112
Retained earnings 0 334,034
------------ -----------
Total shareholders' equity 116,015,595 27,421,687
------------ -----------
Total liabilities and shareholders' equity $143,852,290 $42,832,573
============ ===========
The accompanying notes are an integral part of these consolidated balance
sheets.
164
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
-------------- -------------
REVENUES:
Rental income $4,735,184 $ 20,994
Equity in income of joint ventures 1,243,969 263,315
Interest income 502,993 110,869
Other income 13,249 0
-------------- ------------
6,495,395 395,178
-------------- ------------
EXPENSES:
Depreciation 1,726,103 0
Interest expense 442,029 11,033
Operating costs, net of reimbursements (74,666) 0
Management and leasing fees 257,744 0
General and administrative 123,776 29,943
Legal and accounting 115,471 19,552
Computer costs 11,368 616
Amortization of organizational costs 8,921 0
------------- ------------
2,610,746 61,144
------------- ------------
NET INCOME $3,884,649 $334,034
============= ============
EARNINGS PER SHARE:
Basic and diluted $ 0.50 $ 0.40
============= ============
The accompanying notes are an integral part of these consolidated statements.
165
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
Common Stock Additional Total
-------------------- Paid-In Retained Shareholders'
Shares Amount Capital Earnings Equity
---------- -------- ----------- ----------- ---------------
BALANCE, December 31, 1997 100 $ 1 $ 999 $ 0 $ 1,000
Issuance of common stock 3,154,036 31,540 31,508,820 0 31,540,360
Net income 0 0 0 334,034 334,034
Dividends ($.31 per share) 0 0 (511,163) 0 (511,163)
Sales commissions 0 0 (2,996,334) 0 (2,996,334)
Other offering expenses 0 0 (946,210) 0 (946,210)
---------- -------- ------------- ----------- -------------
BALANCE, December 31, 1998 3,154,136 31,541 27,056,112 334,034 27,421,687
Issuance of common stock 10,316,949 103,169 103,066,321 0 103,169,490
Net income 0 0 0 3,884,649 3,884,649
Dividends ($.70 per share) 0 0 (1,346,240) (4,218,683) (5,564,923)
Sales commissions 0 0 (9,801,197) 0 (9,801,197)
Other offering expenses 0 0 (3,094,111) 0 (3,094,111)
---------- -------- ------------ ----------- ------------
BALANCE, December 31, 1999 13,471,085 $134,710 $115,880,885 $ 0 $116,015,595
========== ======== ============ =========== ============
The accompanying notes are an integral part of these consolidated statements.
166
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 1999 AND 1998
1999 1998
------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 3,884,649 $ 334,034
------------- ------------
Adjustments to reconcile net income to net cash provided by (used in) operating
activities:
Equity in income of joint ventures (1,243,969) (263,315)
Depreciation 1,726,103 0
Amortization of organizational costs 8,921 0
Changes in assets and liabilities:
Prepaid expenses and other assets (749,203) (540,319)
Accounts payable and accrued expenses 273,473 187,827
Due to affiliates 108,301 6,224
------------- ------------
Total adjustments 123,626 (609,583)
------------- ------------
Net cash provided by (used in) operating activities 4,008,275 (275,549)
------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (85,514,506) (21,299,071)
Investment in joint ventures (17,641,211) (11,276,007)
Deferred project costs paid (3,610,967) (1,103,913)
Distributions received from joint ventures 1,371,728 178,184
------------- ------------
Net cash used in investing activities (105,394,956) (33,500,807)
------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 40,594,463 14,059,930
Repayments of notes payable (30,725,165) 0
Dividends paid to shareholders (3,806,398) (102,987)
Issuance of common stock 103,169,490 31,540,360
Sales commissions paid (9,801,197) (2,996,334)
Other offering costs paid (3,094,111) (946,210)
------------- ------------
Net cash provided by financing activities 96,337,082 41,554,759
------------- ------------
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (5,049,599) 7,778,403
CASH AND CASH EQUIVALENTS, beginning of year 7,979,403 201,000
------------- ------------
CASH AND CASH EQUIVALENTS, end of year $ 2,929,804 $ 7,979,403
============= ============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Deferred project costs applied to real estate assets $ 3,183,239 $ 298,608
============= ============
Deferred project costs contributed to joint ventures $ 735,056 $ 469,884
============= ============
Deferred offering costs due to affiliate $ 416,212 $ 0
============= ============
The accompanying notes are an integral part of these consolidated statements.
167
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 1999 AND 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation that qualifies as a real estate investment trust ("REIT"). The
Company is conducting an offering for the sale of a maximum of 40,000,000
(exclusive of 2,200,000 shares available pursuant to the Company's dividend
reinvestment plan) shares of common stock, $.01 par value per share, at a price
of $10 per share. The Company will seek to acquire and operate commercial
properties, including, but not limited to, office buildings, shopping centers,
business and industrial parks, and other commercial and industrial properties,
including properties which are under construction, are newly constructed, or
have been constructed and have operating histories. All such properties may be
acquired, developed, and operated by the Company alone or jointly with another
party. The Company is likely to enter into one or more joint ventures with
affiliated entities for the acquisition of properties. In connection with this,
the Company may enter into joint ventures for the acquisition of properties with
prior or future real estate limited partnership programs sponsored by Wells
Capital, Inc. (the "Advisor") or its affiliates.
Substantially all of the Company's business is conducted through Wells Operating
Partnership, L.P. (the "Operating Partnership"), a Delaware limited partnership.
During 1997, the Operating Partnership issued 20,000 limited partner units to
the Advisor in exchange for $200,000. The Company is the sole general partner in
the Operating Partnership and possesses full legal control and authority over
the operations of the Operating Partnership; consequently, the accompanying
consolidated financial statements of the Company include the amounts of the
Operating Partnership.
The Operating Partnership owns the following properties directly: (i) the
PriceWaterhouseCoopers property (the "PwC Building"), a four-story office
building located in Tampa, Florida; (ii) the AT&T Building, a four-story office
building located in Harrisburg, Pennsylvania; (iii) the Marconi Data Systems
property (the "Marconi Building"), a two-story office building located in Wood
Dale, Illinois; and (iv) the Cinemark Building, a five-story office building
located in Plano, Texas.
The Company also owns interests in several properties through a joint venture
among the Operating Partnership, Wells Real Estate Fund IX, L.P. ("Wells Fund
IX"), Wells Real Estate Fund X, L.P. ("Wells Fund X"), and Wells Real Estate
Fund XI, L.P. ("Wells Fund XI"). This joint venture is referred to as the Fund
IX, Fund X, Fund XI, and REIT Joint Venture ("Fund IX, X, XI, and REIT Joint
Venture"). In addition, the Company owns an interest in several properties
through a joint venture between Wells Fund XI, Wells Real Estate Fund XII, L.P.
("Wells Fund XII"), and the Operating Partnership, which is referred to as Wells
Fund XI, XII and REIT Joint Venture. The Company owns two properties through a
joint venture between the Operating Partnership and Fund X and XI Associates, a
joint venture between Wells Fund X and Wells Fund XI.
Through its investment in the Fund IX, X, XI, and REIT Joint Venture, the
Company owns interests in the following properties: (i) a three-story office
building in Knoxville, Tennessee (the "ABB Building"), (ii) a two-story office
building in Louisville, Colorado (the "Ohmeda Building"), (iii) a three-story
office building in Broomfield, Colorado (the "360 Interlocken Building"), (iv) a
one-story warehouse facility in Ogden, Utah (the "Iomega Building"), and (v) a
one-story office building in Oklahoma City, Oklahoma (the "Lucent Technologies
Building").
The following properties are owned by the Company through its investment in a
joint venture with Fund X and XI Associates: (i) a one-story office and
warehouse building in Fountain Valley, California (the "Cort Furniture
168
Building") owned by Wells/Orange County Associates and (ii) a warehouse and
office building in Fremont, California (the "Fairchild Building") owned by
Wells/Fremont Associates.
Through its investment in the Wells Fund XI, XII, and REIT Joint Venture, the
Company owns interests in the following properties: (i) a two-story
manufacturing and office building in Greenville County, South Carolina (the
"EYBL CarTex Building"), (ii) a three-story office building Leawood, Kansas (the
"Sprint Building"), (iii) an office and warehouse building in Chester County,
Pennsylvania (the "Johnson Matthey Building"), and (iv) a two-story office
building in Ft. Myers, Florida (the "Gartner Building").
Use of Estimates and Factors Affecting the Company
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The carrying values of real estate are based on management's current intent to
hold the real estate assets as long-term investments. The success of the
Company's future operations and the ability to realize the investment in its
assets will be dependent on the Company's ability to maintain rental rates,
occupancy, and an appropriate level of operating expenses in future years.
Management believes that the steps it is taking will enable the Company to
realize its investment in its assets.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), commencing with the taxable year ended December
31, 1998. As a result, the Company generally will not be subject to federal
income taxation at the corporate level to the extent it distributes annually at
least 95% of its REIT taxable income, as defined in the Code, to its
shareholders and satisfies certain other requirements. Additionally, the
Operating Partnership is not subject to federal or state income taxes.
Accordingly, no provision has been made for federal or state income taxes in the
accompanying consolidated financial statements for the years ended December 31,
1999 and 1998.
Real Estate Assets
Real estate assets held by the Company and joint ventures are stated at cost
less accumulated depreciation. Major improvements and betterments are
capitalized when they extend the useful life of the related asset. All repair
and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which could
indicate that carrying amounts of real estate assets may not be recoverable.
When events or changes in circumstances are present which indicate that the
carrying amounts of real estate assets may not be recoverable, management
assesses the recoverability of real estate assets by determining whether the
carrying value of such real estate assets will be recovered through the future
cash flows expected from the use of the asset and its eventual disposition.
Management has determined that there has been no impairment in the carrying
value of real estate assets held by the Company or the joint ventures as of
December 31, 1999.
Depreciation of building and improvements is calculated using the straight-line
method over 25 years. Tenant improvements are amortized over the life of the
related lease or the life of the asset, whichever is shorter.
Investment in Joint Ventures
Basis of Presentation. The Operating Partnership does not have control over the
operations of the joint ventures; however, it does exercise significant
influence. Accordingly, the Operating Partnership's investment in the joint
ventures is recorded using the equity method of accounting.
169
Partners' Distributions and Allocations of Profit and Loss. Cash available for
distribution and allocations of profit and loss to the Operating Partnership by
the joint ventures are made in accordance with the terms of the individual joint
venture agreements. Generally, these items are allocated in proportion to the
partners' respective ownership interests. Cash is paid from the joint ventures
to the Operating Partnership on a quarterly basis.
Deferred Lease Acquisition Costs. Costs incurred to procure operating leases are
capitalized and amortized on a straight-line basis over the terms of the related
leases.
Revenue Recognition
All leases on real estate assets held by the Company or the joint ventures are
classified as operating leases, and the related rental income is recognized on a
straight-line basis over the terms of the respective leases.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. Cash equivalents include cash and short-term
investments. Short-term investments are stated at cost, which approximates fair
value, and consist of investments in money market accounts.
Earnings Per Share
Earnings per share is calculated based on the weighted average number of common
shares outstanding during each period. The weighted average number of common
shares outstanding is identical for basic and fully diluted earnings per share,
as there is no dilutive impact created from the Company's stock option plan
(Note 10) using the treasury stock method.
2. DEFERRED PROJECT COSTS
The Company paid a percentage of shareholder contributions to the Advisor for
acquisition and advisory services. These payments, as stipulated in the
prospectus, can be up to 3.5% of shareholder contributions, subject to certain
overall limitations contained in the prospectus. Aggregate fees paid through
December 31, 1999 were $4,714,880 and amounted to 3.5% of shareholders'
contributions received. These fees are allocated to specific properties as they
are purchased or developed and are included in capitalized assets of the joint
ventures or real estate assets. Deferred project costs at December 31, 1999 and
1998 represent fees not yet applied to properties.
3. DEFERRED OFFERING COSTS
Organization and offering expenses, to the extent they exceed 3% of gross
offering proceeds, will be paid by the Advisor and not by the Company.
Organization and offering expenses do not include sales or underwriting
commissions but do include such costs as legal and accounting fees, printing
costs, and other offering expenses.
As of December 31, 1999, the Advisor paid organization and offering expenses on
behalf of the Company in the aggregate amount of $5,005,262, of which the
Advisor was reimbursed $4,040,321, which did not exceed the 5% limitation. The
unpaid portion of deferred offering costs is $964,941 and is included in due to
affiliate in the accompanying balance sheet.
170
4. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 1999 represents the Operating Partnership's
share of the cash to be distributed from its joint venture investments for the
fourth quarter of 1999 and 1998 as follows:
1999 1998
-------- --------
Fund IX, X, XI, and REIT Joint Venture $ 32,079 $ 38,360
Wells/Orange County Associates 75,953 77,123
Wells/Fremont Associates 152,681 146,862
Fund XI, XII, and REIT 387,641 0
-------- --------
$648,354 $262,345
======== ========
The Company entered into a property management agreement with Wells Management
Company, Inc. ("Wells Management"), an affiliate of the Advisor. In
consideration for supervising the management and leasing of the Operating
Partnership's properties, the Operating Partnership will pay Wells Management
management and leasing fees equal to the lesser of (a) fees that would be paid
to a comparable outside firm, or (b) 4.5% of the gross revenues generally paid
over the life of the lease plus a separate competitive fee for the one-time
initial lease-up of newly constructed properties generally paid in conjunction
with the receipt of the first month's rent. In the case of commercial properties
which are leased on a long-term (ten or more years) net lease basis, the maximum
property management fee from such leases shall be 1% of the gross revenues
generally paid over the life of the leases except for a one-time initial leasing
fee of 3% of the gross revenues on each lease payable over the first five full
years of the original lease term.
The Operating Partnership's portion of the management and leasing fees and lease
acquisition costs paid to Wells Management by the joint ventures was $336,517
for the year ended December 31, 1999.
The Advisor performs certain administrative services for the Operating
Partnership, such as accounting and other partnership administration, and incurs
the related expenses. Such expenses are allocated among the Operating
Partnership and the various Wells Real Estate Funds based on time spent on each
fund by individual administrative personnel. In the opinion of management, such
allocation is a reasonable basis for allocating such expenses.
The Advisor is a general partner in various Wells Real Estate Funds. As such,
there may exist conflicts of interest where the Advisor, while serving in the
capacity as general partner for Wells Real Estate Funds, may be in competition
with the Operating Partnership for tenants in similar geographic markets.
5. INVESTMENT IN JOINT VENTURES
The Operating Partnership's investment and percentage ownership in joint
ventures at December 31, 1999 and 1998 are summarized as follows:
1999 1998
----------------------- -----------------------
Amount Percent Amount Percent
----------- --------- ----------- ---------
Fund IX, X, XI, and REIT Joint Venture $ 1,388,884 4% $ 1,443,378 4%
Wells/Orange County Associates 2,893,112 44 2,958,617 44
Wells/Fremont Associates 6,988,210 78 7,166,682 78
Fund XI, XII, and REIT Joint Venture 18,160,970 57 0 0
----------- -----------
$29,431,176 $11,568,677
=========== ===========
171
The following is a rollforward of the Operating Partnership's investment in
joint ventures for the years ended December 31, 1999 and 1998:
1999 1998
----------- -----------
Investment in joint ventures, beginning of year $11,568,677 $ 0
Equity in income of joint ventures 1,243,969 263,315
Contributions to joint ventures 18,376,267 11,745,890
Distributions from joint ventures (1,757,737) (440,528)
----------- -----------
Investment in joint ventures, end of year $29,431,176 $11,568,677
=========== ===========
Fund IX, X, XI, and REIT Joint Venture
On March 20, 1997, Wells Fund IX and Wells Fund X entered into a joint venture
agreement. The joint venture, Fund IX and X Associates, was formed to acquire,
develop, operate, and sell real properties. On March 20, 1997, Wells Fund IX
contributed a 5.62-acre tract of real property in Knoxville, Tennessee, and
improvements thereon, known as the ABB Building, to the Fund IX and X Associates
joint venture. A 83,885-square-foot, three-story building was constructed and
commenced operations at the end of 1997.
On February 13, 1998, the joint venture purchased a two-story office building,
known as the Ohmeda Building, in Louisville, Colorado. On March 20, 1998, the
joint venture purchased a three-story office building, known as the 360
Interlocken Building, in Broomfield, Colorado. On June 11, 1998, Fund IX and X
Associates was amended and restated to admit Wells Fund XI and the Operating
Partnership. The joint venture was renamed the Fund IX, X, XI, and REIT Joint
Venture. On June 24, 1998, the new joint venture purchased a one-story office
building, known as the Lucent Technologies Building, in Oklahoma City, Oklahoma.
On April 1, 1998, Wells Fund X purchased a one-story warehouse facility, known
as the Iomega Building, in Ogden, Utah. On July 1, 1998, Wells Fund X
contributed the Iomega Building to the Fund IX, X, XI, and REIT Joint Venture.
172
Following are the financial statements for the Fund IX, X, XI, and REIT Joint
Venture:
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
ASSETS
1999 1998
----------- -----------
Real estate assets, at cost:
Land $ 6,698,020 $ 6,454,213
Building and improvements, less accumulated depreciation of
$2,792,068 in 1999 and $1,253,156 in 1998 29,878,541 30,686,845
Construction in progress 0 990
----------- -----------
Total real estate assets 36,576,561 37,142,048
Cash and cash equivalents 1,146,874 1,329,457
Accounts receivable 554,965 133,257
Prepaid expenses and other assets 526,409 441,128
----------- -----------
Total assets $38,804,809 $39,045,890
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 704,914 $ 409,737
Due to affiliates 6,379 4,406
Partnership distributions payable 804,734 1,000,127
----------- -----------
Total liabilities 1,516,027 1,414,270
----------- -----------
Partners' capital:
Wells Real Estate Fund IX 14,590,626 14,960,100
Wells Real Estate Fund X 18,000,869 18,707,139
Wells Real Estate Fund XI 3,308,403 2,521,003
Wells Operating Partnership, L.P. 1,388,884 1,443,378
----------- -----------
Total partners' capital 37,288,782 37,631,620
----------- -----------
Total liabilities and partners' capital $38,804,809 $39,045,890
=========== ===========
173
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income (Loss)
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
---------- ---------- --------
Revenues:
Rental income $3,932,962 $2,945,980 $ 28,512
Interest income 120,080 20,438 0
---------- ---------- --------
4,053,042 2,966,418 28,512
---------- ---------- --------
Expenses:
Depreciation 1,538,912 1,216,293 36,863
Management and leasing fees 286,139 226,643 1,711
Operating costs, net of reimbursements (43,501) (140,506) 10,118
Property administration expense 63,311 34,821 0
Legal and accounting 35,937 15,351 0
---------- ---------- --------
1,880,798 1,352,602 48,692
---------- ---------- --------
Net income (loss) $2,172,244 $1,613,816 $(20,180)
========== ========== ========
Net income (loss) allocated to Wells Real Estate Fund IX $ 850,072 $ 692,116 $(10,145)
========== ========== ========
Net income (loss) allocated to Wells Real Estate Fund X $1,056,316 $ 787,481 $(10,035)
========== ========== ========
Net income (loss) allocated to Wells Real Estate Fund XI $ 184,335 $ 85,352 $ 0
========== ========== ========
Net income allocated to Wells Operating Partnership, L.P. $ 81,501 $ 48,867 $ 0
========== ========== ========
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999, 1998, and 1997
Wells Real Wells Real Wells Real Wells Total
Estate Estate Estate Operating Partners'
Fund IX Fund X Fund XI Partnership, L.P. Capital
----------- ---------- ---------- ----------------- ---------
Balance, December 31, 1996 $ 0 $ 0 $ 0 $ 0 $ 0
Net loss (10,145) (10,035) 0 0 (20,180)
Partnership contributions 3,712,938 3,672,838 0 0 7,385,776
----------- ----------- ---------- ---------- -----------
Balance, December 31, 1997 3,702,793 3,662,803 0 0 7,365,596
Net income 692,116 787,481 85,352 48,867 1,613,816
Partnership contributions 11,771,312 15,613,477 2,586,262 1,480,741 31,451,792
Partnership distributions (1,206,121) (1,356,622) (150,611) (86,230) (2,799,584)
----------- ----------- ---------- ---------- -----------
Balance, December 31, 1998 14,960,100 18,707,139 2,521,003 1,443,378 37,631,620
Net income 850,072 1,056,316 184,355 81,501 2,172,244
Partnership contributions 198,989 0 911,027 0 1,110,016
Partnership distributions (1,418,535) (1,762,586) (307,982) (135,995) (3,625,098)
----------- ----------- ---------- ---------- -----------
Balance, December 31, 1999 $14,590,626 $18,000,869 $3,308,403 $1,388,884 $37,288,782
=========== =========== ========== ========== ===========
174
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999, 1998, and 1997
1999 1998 1997
------------ ------------ ------------
Cash flows from operating activities:
Net income (loss) $ 2,172,244 $ 1,613,816 $ (20,180)
Adjustments to reconcile net income to net cash ------------ ------------ ------------
provided by operating activities:
Depreciation 1,538,912 1,216,293 36,863
Changes in assets and liabilities:
Accounts receivable (421,708) (92,745) (40,512)
Prepaid expenses and other assets (85,281) (111,818) (329,310)
Accounts payable 295,177 29,967 379,770
Due to affiliates 1,973 1,927 2,479
------------ ------------ ------------
Total adjustments 1,329,073 1,043,624 49,290
------------ ------------ ------------
Net cash provided by operating
activities 3,501,317 2,657,440 29,110
------------ ------------ ------------
Cash flows from investing activities:
Investment in real estate (930,401) (24,788,070) (5,715,847)
------------ ------------ ------------
Cash flows from financing activities:
Distributions to joint venture partners (3,820,491) (1,799,457) 0
Contributions received from partners 1,066,992 24,970,373 5,975,908
------------ ------------ ------------
Net cash (used in) provided by
financing activities (2,753,499) 23,170,916 5,975,908
------------ ------------ ------------
Net (decrease) increase in cash and cash equivalents (182,583) 1,040,286 289,171
Cash and cash equivalents, beginning of year 1,329,457 289,171 0
------------ ------------ ------------
Cash and cash equivalents, end of year $ 1,146,874 $ 1,329,457 $ 289,171
============ ============ ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 43,024 $ 1,470,780 $ 318,981
============ ============ ============
Contribution of real estate assets to joint venture $ 0 $ 5,010,639 $ 1,090,887
============ ============ ============
Wells/Orange County Associates
On July 27, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Orange County
Associates. On July 31, 1998, Wells/Orange County Associates acquired a
52,000-square-foot warehouse and office building located in Fountain Valley,
California, known as the Cort Furniture Building.
On September 1, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Orange County Associates which resulted in Fund
X and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Cort Furniture Building.
Following are the financial statements for Wells/Orange County Associates:
175
Wells/Orange County Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
ASSETS
1999 1998
---------- ----------
Real estate assets, at cost:
Land $2,187,501 $2,187,501
Building, less accumulated depreciation of $278,652 in 1999 and
$92,087 in 1998 4,385,463 4,572,028
---------- ----------
Total real estate assets 6,572,964 6,759,529
Cash and cash equivalents 176,666 180,895
Accounts receivable 49,679 13,123
---------- ----------
Total assets $6,799,309 $6,953,547
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 0 $ 1,550
Partnership distributions payable 173,935 176,614
---------- ----------
Total liabilities 173,935 178,164
---------- ----------
Partners' capital:
Wells Operating Partnership, L.P. 2,893,112 2,958,617
Fund X and XI Associates 3,732,262 3,816,766
---------- ----------
Total partners' capital 6,625,374 6,775,383
---------- ----------
Total liabilities and partners' capital $6,799,309 $6,953,547
========== ==========
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999 and 1998
1999 1998
---------- ----------
Revenues:
Rental income $795,545 $331,477
Interest income 0 448
---------- ----------
795,545 331,925
---------- ----------
Expenses:
Depreciation 186,565 92,087
Management and leasing fees 30,360 12,734
Operating costs, net of reimbursements 22,229 2,288
Interest 0 29,472
Legal and accounting 5,439 3,930
244,593 140,511
---------- ----------
Net income $550,952 $191,414
========== ==========
Net income allocated to Wells Operating Partnership, L.P. $240,585 $ 91,978
========== ==========
176
Net income allocated to Fund X and XI Associates $310,367 $ 99,436
========== ==========
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999 and 1998
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------ ------------ -----------
Balance, December 31, 1997 $ 0 $ 0 $ 0
Net income 91,978 99,436 191,414
Partnership contributions 2,991,074 3,863,272 6,854,346
Partnership distributions (124,435) (145,942) (270,377)
------------ ------------ ------------
Balance, December 31, 1998 2,958,617 3,816,766 6,775,383
Net income 240,585 310,367 550,952
Partnership distributions (306,090) (394,871) (700,961)
------------ ------------ ------------
Balance, December 31, 1999 $2,893,112 $3,732,262 $6,625,374
============ ============ ============
177
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999 and 1998
1999 1998
--------- -----------
Cash flows from operating activities:
Net income $ 550,952 $ 191,414
Adjustments to reconcile net income to net cash provided by operating --------- -----------
activities:
Depreciation 186,565 92,087
Changes in assets and liabilities:
Accounts receivable (36,556) (13,123)
Accounts payable (1,550) 1,550
--------- -----------
Total adjustments 148,459 80,514
--------- -----------
Net cash provided by operating activities 699,411 271,928
--------- -----------
Cash flows from investing activities:
Investment in real estate 0 (6,563,700)
--------- -----------
Cash flows from financing activities:
Issuance of note payable 0 4,875,000
Payment of note payable 0 (4,875,000)
Distributions to partners (703,640) (93,763)
Contributions received from partners 0 6,566,430
--------- -----------
Net cash (used in) provided by financing activities (703,640) 6,472,667
--------- -----------
Net (decrease) increase in cash and cash equivalents (4,229) 180,895
Cash and cash equivalents, beginning of year 180,895 0
--------- -----------
Cash and cash equivalents, end of year $ 176,666 $ 180,895
========= ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 287,916
========= ===========
Wells/Fremont Associates
On July 15, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Fremont
Associates. On July 21, 1998, Wells/Fremont Associates acquired a
58,424-square-foot warehouse and office building located in Fremont, California,
known as the Fairchild Building.
On October 8, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Fremont Associates which resulted in Fund X and
XI Associates becoming a joint venture partner with the Operating Partnership in
the ownership of the Fairchild Building.
178
Following are the financial statements for Wells/Fremont Associates:
Wells/Fremont Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 1999 and 1998
ASSETS
1999 1998
---------- ----------
Real estate assets, at cost:
Land $2,219,251 $2,219,251
Building, less accumulated depreciation of $428,246 in 1999 and
$142,720 in 1998 6,709,912 6,995,439
---------- ----------
Total real estate assets 8,929,163 9,214,690
Cash and cash equivalents 189,012 192,512
Accounts receivable 92,979 34,742
---------- ----------
Total assets $9,211,154 $9,441,944
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 2,015 $ 3,565
Due to affiliate 5,579 2,052
Partnership distributions payable 186,997 189,490
---------- ----------
Total liabilities 194,591 195,107
---------- ----------
Partners' capital:
Wells Operating Partnership, L.P. 6,988,210 7,166,682
Fund X and XI Associates 2,028,353 2,080,155
---------- ----------
Total partners' capital 9,016,563 9,246,837
---------- ----------
Total liabilities and partners' capital $9,211,154 $9,441,944
========== ==========
179
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 1999 and 1998
1999 1998
-------- --------
Revenues:
Rental income $902,946 $401,058
Interest income 0 3,896
-------- --------
902,946 404,954
-------- --------
Expenses:
Depreciation 285,526 142,720
Management and leasing fees 37,355 16,726
Operating costs, net of reimbursements 16,006 3,364
Interest 0 73,919
Legal and accounting 4,885 6,306
-------- --------
343,772 243,035
-------- --------
Net income $559,174 $161,919
======== ========
Net income allocated to Wells Operating Partnership, L.P. $433,383 $122,470
======== ========
Net income allocated to Fund X and XI Associates $125,791 $ 39,449
======== ========
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 1999 and 1998
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------ ------------ ------------
Balance, December 31, 1997 $ 0 $ 0 $ 0
Net income 122,470 39,449 161,919
Partner contributions 7,274,075 2,083,334 9,357,409
Partnership distributions (229,863) (42,628) (272,491)
------------ ------------ ------------
Balance, December 31, 1998 7,166,682 2,080,155 9,246,837
Net income 433,383 125,791 559,174
Partnership distributions (611,855) (177,593) (789,448)
------------ ------------ ------------
Balance, December 31, 1999 $6,988,210 $2,028,353 $9,016,563
============ ============ ============
180
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 1999 and 1998
1999 1998
--------- -----------
Cash flows from operating activities:
Net income $ 559,174 $ 161,919
--------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 285,526 142,720
Changes in assets and liabilities:
Accounts receivable (58,237) (34,742)
Accounts payable (1,550) 3,565
Due to affiliate 3,527 2,052
--------- -----------
Total adjustments 229,266 113,595
--------- -----------
Net cash provided by operating activities 788,440 275,514
--------- -----------
Cash flows from investing activities:
Investment in real estate 0 (8,983,111)
--------- -----------
Cash flows from financing activities:
Issuance of note payable 0 5,960,000
Payment of note payable 0 (5,960,000)
Distributions to partners (791,940) (83,001)
Contributions received from partners 0 8,983,110
--------- -----------
Net cash (used in) provided by financing activities (791,940) 8,900,109
--------- -----------
Net (decrease) increase in cash and cash equivalents (3,500) 192,512
Cash and cash equivalents, beginning of year 192,512 0
--------- -----------
Cash and cash equivalents, end of year $ 189,012 $ 192,512
========= ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 374,299
========= ===========
181
Fund XI, XII, and REIT Joint Venture
On May 1, 1999, the Operating Partnership entered into a joint venture with
Wells Fund XII and Wells Fund XI. On May 18, 1999, the joint venture purchased a
169,510-square-foot, two-story manufacturing and office building, known as EYBL
CarTex, in Fountain Inn, South Carolina. On July 21, 1999, the joint venture
purchased a 68,900 square-foot, three-story-office building, known as the Sprint
Building, in Leawood, Kansas. On August 17, 1999, the joint venture purchased a
130,000 square-foot office and warehouse building, known as the Johnson Matthey
Building, in Chester County, Pennsylvania. On September 20, 1999, the joint
venture purchased a 62,400 square-foot, two-story office building, known as the
Gartner Building, in Fort Myers, Florida.
Following are the financial statements for the Fund XI, XII, and REIT Joint
Venture:
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheet
December 31, 1999
ASSETS
Real estate assets, at cost:
Land $ 5,048,797
Building and improvements, less accumulated depreciation of $506,582 26,811,869
-----------
Total real estate assets 31,860,666
Cash and cash equivalents 766,278
Accounts receivable 133,777
Prepaid assets and other expenses 26,486
-----------
Total assets $32,787,207
===========
LIABILITIES AND PARTNERS' CAPITAL
Liabilities:
Accounts payable $ 112,457
Partnership distributions payable 680,294
-----------
Total liabilities 792,751
-----------
Partners' capital:
Wells Real Estate Fund XI 8,365,852
Wells Real Estate Fund XII 5,467,634
Wells Operating Partnership, L.P. 18,160,970
-----------
Total partners' capital 31,994,456
-----------
Total liabilities and partners' capital $32,787,207
===========
182
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Income
for the Year Ended December 31, 1999
Revenues:
Rental income $1,443,446
Other income 57
----------
1,443,503
----------
Expenses:
Depreciation 506,582
Management and leasing fees 59,230
Operating costs, net of reimbursements 6,433
Property administration 14,185
Legal and accounting 4,000
----------
590,430
----------
Net income $ 853,073
==========
Net income allocated to Wells Real Estate Fund XI $ 240,031
==========
Net income allocated to Wells Real Estate Fund XII $ 124,542
==========
Net income allocated to Wells Operating Partnership, L.P. $ 488,500
==========
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Year Ended December 31, 1999
Wells
Wells Real Wells Real Operating Total
Estate Estate Partnership, Partners'
Fund XI Fund XII L.P. Capital
----------- ------------ ------------- ------------
Balance, December 31, 1998 $ 0 $ 0 $ 0 $ 0
Net income 240,031 124,542 488,500 853,073
Partnership contributions 8,470,160 5,520,835 18,376,267 32,367,262
Partnership distributions (344,339) (177,743) (703,797) (1,225,879)
----------- ------------ ------------- ------------
Balance, December 31, 1999 $8,365,852 $5,467,634 $18,160,970 $31,994,456
=========== ============ ============= ============
183
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Cash Flows
for the Year Ended December 31, 1999
Cash flows from operating activities:
Net income $ 853,073
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 506,582
Changes in assets and liabilities:
Accounts receivable (133,777)
Prepaid expenses and other assets (26,486)
Accounts payable 112,457
-----------
Total adjustments 458,776
-----------
Net cash provided by operating activities 1,311,849
-----------
Cash flows from financing activities:
Distributions to joint venture partners (545,571)
-----------
Net increase in cash and cash equivalents 766,278
Cash and cash equivalents, beginning of year 0
-----------
Cash and cash equivalents, end of year $ 766,278
===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 1,294,686
===========
Contribution of real estate assets to joint venture $31,072,562
===========
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Operating Partnership's income tax basis net income for the years ended
December 31, 1999 and 1998 are calculated as follows:
1999 1998
---------- ---------
Financial statement net income $3,884,649 $ 334,034
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 949,631 82,618
Rental income accrued for financial reporting purposes in excess of
amounts for income tax purposes (789,599) (35,427)
Expenses deductible when paid for income tax purposes, accrued for
financial reporting purposes 49,906 1,634
---------- ---------
Income tax basis net income $4,094,587 $ 382,859
========== =========
184
The Operating Partnership's income tax basis partners' capital at December 31,
1999 and 1998 is computed as follows:
1999 1998
------------ -----------
Financial statement partners' capital $116,015,595 $27,421,687
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 1,032,249 82,618
Capitalization of syndication costs for income tax purposes, which
are accounted for as cost of capital for financial reporting
purposes 12,896,312 3,942,545
Accumulated rental income accrued for financial reporting purposes
in excess of amounts for income tax purposes (825,026) (35,427)
Accumulated expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 51,540 1,634
Dividends payable 2,166,701 408,176
------------ -----------
Income tax basis partners' capital $131,337,371 $31,821,233
============ ===========
7. RENTAL INCOME
The future minimum rental income due from the Operating Partnership's direct
investment in real estate or its respective ownership interest in the joint
ventures under noncancelable operating leases at December 31, 1999 is as
follows:
Year ended December 31:
2000 $ 11,737,408
2001 11,976,253
2002 12,714,291
2003 12,856,557
2004 12,581,882
Thereafter 54,304,092
------------
$116,170,483
============
Three tenants contributed 32%, 16%, and 15% of rental income for the year ended
December 31, 1999. In addition, four tenants will contribute 34%, 20%, 17%, and
11% of future minimum rental income.
The future minimum rental income due the Fund IX, X, XI, and REIT Joint Venture
under noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 3,666,570
2001 3,595,686
2002 3,179,827
2003 3,239,080
2004 3,048,152
Thereafter 5,181,003
-----------
$21,910,318
===========
Four tenants contributed 25%, 18%, 13%, and 12% of rental income for the year
ended December 31, 1999. In addition, four tenants will contribute 28%, 22%,
15%, and 10% of future minimum rental income.
185
The future minimum rental income due Wells/Orange County Associates under
noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 758,964
2001 809,580
2002 834,888
2003 695,740
----------
$3,099,172
==========
One tenant contributed 100% of rental income for the year ended December 31,
1999 and will contribute 100% of future minimum rental income.
The future minimum rental income due Wells/Fremont Associates under
noncancelable operating leases at December 31, 1999 is as follows:
Year ended December 31:
2000 $ 869,492
2001 895,577
2002 922,444
2003 950,118
2004 894,833
----------
$4,532,464
==========
One tenant contributed 100% of rental income for the year ended December 31,
1999 and will contribute 100% of future minimum rental income.
The future minimum rental income due from XI, XII and REIT under noncancelable
operating leases at December 31, 1999 is a follows:
Year ended December 31:
2000 $ 3,085,362
2001 3,135,490
2002 3,273,814
2003 3,367,231
2004 3,440,259
Thereafter 9,708,895
-----------
$26,011,051
===========
Four tenants contributed approximately 34%, 22%, 22%, and 12% of rental income
for the year ended December 31, 1999. In addition, four tenants will contribute
approximately 30%, 27%, 22%, and 18% of future minimum rental income.
8. NOTES PAYABLE
At December 31, 1999, the Operating Partnership had outstanding debt of
$23,929,228. Of this amount, $11,430,696 was borrowed under a construction loan
with Bank of America in order to finance the construction of a new building for
Matsushita Avionics (the "Matsushita Project") and improvements for the AT&T
Building. This loan is secured by the Matsushita Project and matures on May 10,
2001. The remaining $12,498,532 was borrowed against the revolving line of
credit from SouthTrust Bank, which is collateralized by the PwC Building and
matures on December 31, 2000. Interest is paid monthly and accrued at a variable
rate based on LIBOR plus 200 basis points for both of these debt instruments.
During 1999, the Company paid and capitalized interest costs of $847,451 and
$463,873, respectively. The estimated fair value of these notes approximates
their carrying value.
186
The Operating Partnership also has a $9,825,000 line of credit from Bank of
America, which bears interest at a variable rate based on LIBOR plus 200 basis
points. No balance was outstanding at December 31, 1999 under this line of
credit.
9. COMMITMENTS AND CONTINGENCIES
On February 18, 1999, the Operating Partnership entered into a rental income
guaranty agreement with Fund VIII and IX Associates (the "joint venture"),
whereby the Operating Partnership guaranteed that the joint venture would
receive rental income on the existing Matsushita Building, equal to at least the
rent and building expenses that the joint venture would have received from
Matsushita Avionics over the remaining term of the existing lease. Matsushita
Avionics vacated the building on January 3, 2000, while the existing lease term
extends through September 2003. The Company paid approximately $61,000 to the
joint venture related to the rental income and building expenses due from
Matsushita Avionics for the remainder of January 2000. Such payments are made
from the Company's operating cash flow and reduce cash available for dividends.
On July 22, 1999, the Operating Partnership purchased a 7.49 acre tract of land
located in Midlothian, Chesterfield County, Virginia for the purpose of
constructing a four-story, 100,000 rentable square foot office building (the
"ABB Project"). The Operating Partnership entered into an office lease with ABB
Power Generation, Inc. ("ABB"), pursuant to which ABB has agreed to lease the
ABB Project upon its completion.
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company, the Operating Partnership,
or the Advisor. In the normal course of business, the Company, the Operating
Partnership, or the Advisor may become subject to such litigation or claims.
10. COMMON STOCK OPTION PLAN
The Wells Real Estate Investment Trust, Inc. Independent Director Stock Option
Plan ("the Plan") provides for grants of stock to be made to independent
nonemployee directors of the Company. Options to purchase 2,500 shares of common
stock at $12 per share are granted upon initially becoming an independent
director of the Company. Of these shares, 20% are exercisable immediately on the
date of grant. An additional 20% of these shares become exercisable on each
anniversary following the date of grant for a period of four years. Effective on
the date of each annual meeting of shareholders of the Company, beginning in
2000, each independent director will be granted an option to purchase 1,000
additional shares of common stock. These options vest at the rate of 500 shares
per full year of service thereafter. All options granted under the Plan expire
no later than the date immediately following the tenth anniversary of the date
of grant and may expire sooner in the event of the disability or death of the
optionee or if the optionee ceases to serve as a director.
The Company has adopted the disclosure provisions in SFAS No. 123, "Accounting
for Stock-Based Compensation." As permitted by the provisions of SFAS No. 123,
the Company applies Accounting Principles Board ("APB") Opinion No. 25 and the
related interpretations in accounting for its stock option plans and,
accordingly, does not recognize compensation cost.
187
A summary of the Company's stock option activity during 1999 is as follows:
Exercise
Number Price
-------- --------
Outstanding at December 31, 1998 0 $ 0
Granted 27,500 12
-------- --------
Outstanding at December 31, 1999 27,500 $12
======== ========
Outstanding options exercisable as of December 31, 1999 5,500 $12
======== ========
The weighted average remaining contractual life of options outstanding at
December 31, 1999 is approximately 9.5 years. Based on the terms of the options,
the fair value of the options granted during 1999 is $0.
11. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 1999 and 1998:
1999 Quarters Ended
--------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ------------ ------------- -------------
Revenues $988,000 $1,204,938 $1,803,352 $2,499,105
Net income 393,438 601,975 1,277,019 1,612,217
Basic and diluted earnings per share $ 0.10 $ 0.09 $ 0.18 $ 0.13
Dividends per share 0.17 0.17 0.18 0.18
1998 Quarters Ended
--------------------------------------------------------------
March 31 June 30 September 30 December 31
---------- ------------ ------------- -------------
Revenues $ 0 $10,917 $73,292 $310,969
Net income 0 10,899 62,128 261,007
Basic and diluted earnings per share $0.00 $ 0.16 $ 0.06 $ 0.18
Dividends per share 0.00 0.00 0.15 0.16
188
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
September 30, December 31,
2000 1999
-------------- -------------
REAL ESTATE, at cost:
Land $ 21,695,304 $ 14,500,822
Building and improvements, less accumulated depreciation of
$6,810,792 in 2000 and $1,726,103 in 1999 188,671,038 81,507,040
Construction in progress 295,517 12,561,459
-------------- -------------
Total real estate 210,661,859 108,569,321
-------------- -------------
INVESTMENT IN JOINT VENTURES (NOTE 2) 36,708,242 29,431,176
DUE FROM AFFILIATES 859,515 648,354
CASH AND CASH EQUIVALENTS 12,257,161 2,929,804
DEFERRED PROJECT COSTS (Note 1) 471,005 28,093
DEFERRED OFFERING COSTS (Note 1) 1,108,206 964,941
PREPAID EXPENSES AND OTHER ASSETS 6,344,905 1,280,601
-------------- -------------
Total assets $268,410,893 $143,852,290
============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Accounts payable and accrued expenses $ 975,821 $ 461,300
Notes payable (Note 3) 38,909,030 23,929,228
Due to affiliates (Note 4) 1,372,508 1,079,466
Dividends payable 4,475,982 2,166,701
-------------- -------------
Total liabilities 45,733,341 27,636,695
-------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 200,000
-------------- -------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares authorized, 26,174,825
shares issued and outstanding at September 30, 2000 and
13,471,085 shares issued and outstanding at December 31, 1999 261,748 134,710
Additional paid-in capital 222,215,804 115,880,885
Retained earnings 0 0
-------------- -------------
Total shareholders' equity 222,477,552 116,015,595
-------------- -------------
Total liabilities and shareholders' equity $268,410,893 $143,852,290
============== =============
See accompanying condensed notes to financial statements.
189
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
------------------------------- ------------------------------
September 30, September 30, September 30, September 30,
2000 1999 2000 1999
------------- ------------- ------------- -------------
REVENUES:
Rental income $5,819,968 $1,227,144 $13,712,371 $2,806,158
Equity in income of joint ventures 635,065 384,887 1,684,247 783,065
Interest income 131,578 191,321 338,020 407,067
------------- ------------- ------------- -------------
6,586,611 1,803,352 15,734,638 3,996,290
------------- ------------- ------------- -------------
EXPENSES:
Operating costs, net of
reimbursements 289,140 (75,997) 631,407 (46,381)
Management and leasing fees 381,766 68,823 919,630 150,908
Depreciation 2,155,366 423,760 5,084,689 1,036,003
Administrative costs 41,626 21,076 273,484 91,016
Legal and accounting 32,883 22,187 130,603 78,637
Computer costs 2,353 2,119 8,846 8,182
Amortization of loan costs 64,016 2,433 150,143 6,488
Interest expense 1,094,233 61,932 2,798,299 399,005
------------- ------------- ------------- -------------
4,061,383 526,333 9,997,101 1,723,858
------------- ------------- ------------- -------------
NET INCOME $2,525,228 $1,277,019 $5,737,537 $2,272,432
============= ============= ============= =============
BASIC AND DILUTED EARNINGS PER SHARE $ 0.11 $ 0.18 $ 0.30 $ 0.37
============= ============= ============= =============
See accompanying condensed notes to financial statements.
190
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 1999
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
Additional Total
Common Stock Paid-In Retained Shareholders'
------------------------
Shares Amount Capital Earnings Equity
----------- --------- ------------- ----------- -------------
BALANCE, December 31, 1998 3,154,136 $ 31,541 $ 27,056,112 $ 334,034 $ 27,421,687
Issuance of common stock 10,316,949 103,169 103,066,321 0 103,169,490
Net income 0 0 0 3,884,649 3,884,649
Dividends ($.70 per share) 0 0 (1,346,240) (4,218,683) (5,564,923)
Sales commission 0 0 (9,801,197) 0 (9,801,197)
Other offering expenses 0 0 (3,094,111) 0 (3,094,111)
----------- --------- ------------- ----------- -------------
BALANCE, December 31, 1999 13,471,085 134,710 115,880,885 0 116,015,595
Issuance of common stock 12,769,524 127,695 127,567,548 0 127,695,243
Net income 0 0 0 5,737,537 5,737,537
Dividends ($.544 per share) 0 0 (4,695,767) (5,737,537) (10,433,304)
Sales commission 0 0 (12,068,553) 0 (12,068,553)
Other offering expenses 0 0 (3,811,122) 0 (3,811,122)
Common stock retired (65,784) (657) (657,187) 0 (657,844)
----------- --------- ------------- ----------- -------------
BALANCE, September 30, 2000 26,174,825 $ 261,748 $ 222,215,804 $ 0 $ 222,477,552
=========== ========= ============= =========== =============
See accompanying condensed notes to financial statements.
191
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
------------------------------------
September 30, September 30,
---------------- -----------------
2000 1999
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 5,737,537 $ 2,272,432
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 5,084,689 1,036,003
Amortization of loan costs 150,143 6,488
Equity in income of joint ventures (1,684,247) (783,065)
Changes in assets and liabilities:
Accounts payable 514,521 326,166
Increase in prepaid expenses and other assets (5,214,447) (667,823)
Increase due to affiliates 149,777 82,901
-------------- ------------
Net cash provided by operating activities 4,737,973 2,273,102
-------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (103,469,511) (55,913,594)
Investment in joint ventures (7,612,005) (17,641,421)
Deferred project costs (4,446,307) (2,692,478)
Distributions received from joint ventures 2,103,704 826,822
-------------- ------------
Net cash used in investing activities (113,424,119) (75,420,671)
-------------- ------------
Cash flows from financing activities:
Proceeds from note payable 67,883,130 25,598,666
Repayment of note payable (52,903,328) (22,732,539)
Dividends paid (8,124,023) (2,159,649)
Issuance of common stock 127,695,243 76,927,944
Sales commissions paid (12,068,553) (7,308,155)
Offering costs paid (3,811,122) (2,307,838)
Common stock retired (657,844) 0
-------------- ------------
Net cash provided by financing activities 118,013,503 68,018,429
-------------- ------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 9,327,357 (5,129,140)
CASH AND CASH EQUIVALENTS, beginning of year 2,929,804 7,979,403
-------------- ------------
CASH AND CASH EQUIVALENTS, end of period $ 12,257,161 $ 2,850,263
============== ============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to joint ventures $ 295,680 $ 735,056
============== ============
Deferred project costs applied to real estate $ 3,707,715 $ 2,273,411
============== ============
Decrease in deferred offering cost accrual $ (143,265) $ (200,640)
============== ============
See accompanying condensed notes to financial statements.
192
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Wells Real Estate Investment Trust, Inc. (the "Company" or "Registrant") is a
Maryland corporation formed on July 3, 1997. The Company is the sole general
partner of Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized for the purpose of acquiring, developing, owning,
operating, improving, leasing, and otherwise managing for investment purposes
income-producing commercial properties.
On January 30, 1998, the Company commenced a public offering of up to 16,500,000
shares of common stock at $10 per share pursuant to a Registration Statement on
Form S-11 under the Securities Act of 1933. The Company commenced active
operations on June 5, 1998, when it received and accepted subscriptions for
125,000 shares. The Company terminated its initial public offering on December
19, 1999, and on December 20, 1999, the Company commenced a second follow-on
public offering of up to 22,200,000 shares of common stock at $10 per share. As
of September 30, 2000, the Company had sold 26,240,610 shares for total capital
contributions of $262,406,096. After payment of $9,161,189 in acquisition and
advisory fees and acquisition expenses, payment of $32,718,532 in selling
commissions and organization and offering expenses, capital contributions and
acquisition expenditures by Wells OP of $211,641,497 in property acquisitions
and common stock redemptions of $657,844 pursuant to the Company's share
redemption program, the Company was holding net offering proceeds of $8,227,034
available for investment in properties. An additional $38,909,030 was spent for
acquisition expenditures and was funded by loans from various lending
institutes.
Wells OP owns interest in properties both directly and through equity ownership
in the following joint ventures: (i) the Fund IX-X-XI-REIT Joint Venture, a
joint venture among Wells OP and Wells Real Estate Fund IX, L.P., Wells Real
Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P. (the "Fund IX-X-XI-REIT
Joint Venture"), (ii) Wells/Fremont Associates (the "Fremont Joint Venture"), a
joint venture between Wells OP and Fund X and Fund XI Associates, which is a
joint venture between Wells Real Estate Fund X, L.P. and Wells Real Estate Fund
XI, L.P. (the "Fund X-XI Joint Venture"), (iii) Wells/Orange County Associates
(the "Cort Joint Venture") a joint venture between Wells OP and the Fund X-XI
Joint Venture, (iv) the Fund XI-XII-REIT Joint Venture, a joint venture among
Wells OP, Wells Real Estate Fund XI, L.P., and Wells Real Estate Fund XII, L.P.
(the "Fund XI-XIII-REIT Joint Venture"), (v) the Fund XII-REIT Joint Venture, a
joint venture between Wells OP and Wells Real Estate Fund XII, L.P. (the "Fund
XII-REIT Joint Venture"), and (vi) the Fund VIII-IX-REIT Joint Venture, a joint
venture between Wells OP and the Fund VIII-IX Joint Venture.
As of September 30, 2000, Wells OP owned interest in the following properties
either directly or through its interests in joint ventures: (i) a three-story
office building in Knoxville, Tennessee (the "ABB-Knoxville Building"); (ii) a
two-story office building in Louisville, Colorado (the "Ohmeda Building"); (iii)
a three-story office building in Broomfield, Colorado (the "360 Interlocken
Building"); (iv) a one-story office building in Oklahoma City, Oklahoma (the
"AVAYA Building"); (v) a one-story warehouse and office building in Ogden, Utah
(the "Iomega Building"), all five of which are owned by the Fund IX-X-XI-REIT
Joint Venture; (vi) a two-story warehouse office building in Fremont, California
(the "Fremont Building"), which is owned by the Fremont Joint Venture; (vii) a
one-story warehouse and office building in Fountain Valley, California (the
"Cort Building"), which is owned by the Cort Joint Venture; (viii) a four-story
office building in Tampa, Florida (the "PWC Building"); (ix) a four-story office
building in Harrisburg, Pennsylvania (the "AT&T Building"), which are owned
directly by Wells OP; (x) a two-story manufacturing and office building located
in Fountain Inn, South Carolina (the "EYBL
193
CarTex Building"); (xi) a three-story office building located in Leawood, Kansas
(the "Sprint Building"); (xii) a one story office building and warehouse in
Tredyffrin Township, Pennsylvania (the "Johnson Matthey Building"); (xiii) a
two-story office building in Ft. Meyers, Florida (the "Gartner Building"), all
four of which are owned by Fund XI-XII-REIT Joint Venture; (xiv) a two-story
office building located in Lake Forest, California (the "Matsushita Project");
(xv) a four-story office building in Richmond, Virginia (the "Alstom Power-
Richmond Building"); (xvi) a two-story office building and warehouse in Wood
Dale, Illinois (the "Marconi Building"); (xvii) a five-story office building in
Plano, Texas (the "Cinemark Building"); (xviii) a three-story office building in
Tulsa, Oklahoma (the "Metris Building"); (xix) a two-story office building in
Scottsdale, Arizona (the "Dial Building"); (xx) a two-story office building in
Tempe, Arizona (the "ASML Building"); (xxi) a two-story office building in
Tempe, Arizona (the "Motorola Building"); (xxii) a two-story office building in
Tempe, Arizona (the "Avnet Building"); (xxiii) a three-story office building in
Troy, Michigan (the "Delphi Building"); all ten of which are owned directly by
Wells OP; (xxiv) a three-story office building in Troy, Michigan (the "Siemens
Building"), which is owned by the Fund XII-REIT Joint Venture; and (xxv) a two-
story office building in Orange County, California (the "Quest Building"),
formerly the Bake Parkway Building, previously owned by Fund VIII-IX Joint
Venture, which is now owned by the Fund VIII-IX-REIT Joint Venture.
(b) Deferred Project Costs
The Company pays Acquisition and Advisory Fees and Acquisition Expenses to Wells
Capital, Inc., the Advisor, for acquisition and advisory services and as
reimbursement for acquisition expenses. These payments may not exceed 3 1/2% of
shareholders' capital contributions. Acquisition and Advisory Fees and
Acquisition Expenses paid as of September 30, 2000, amounted to $9,161,189 and
represented approximately 3 1/2% of shareholders' capital contributions
received. These fees are allocated to specific properties as they are purchased.
(c) Deferred Offering Costs
The Advisor pays all the offering expenses for the Company. The Advisor may be
reimbursed by the Company to the extent that such offering expenses do not
exceed 3% of shareholders' capital contributions.
(d) Employees
The Company has no direct employees. The employees of Wells Capital, Inc., the
Company's Advisor, perform a full range of real estate services including
leasing and property management, accounting, asset management and investor
relations for the Company.
(e) Insurance
Wells Management Company, Inc., an affiliate of the Company and the Advisor,
carries comprehensive liability and extended coverage with respect to all the
properties owned directly and indirectly by the Company. In the opinion of
management of the registrant, the properties are adequately insured.
(f) Competition
The Company will experience competition for tenants from owners and managers of
competing projects which may include its affiliates. As a result, the Company
may be required to provide free rent; reduced charges for tenant improvements
and other inducements, all of which may have an adverse impact on results of
operations. At the time the Company elects to dispose of its properties, the
Company will also be in competition with sellers of similar properties to locate
suitable purchasers for its properties.
(g) Basis of Presentation
Substantially all of the Company's business is conducted through Wells OP. At
December 31, 1997, the Wells OP had issued 20,000 limited partner units to Wells
Capital, Inc., the Advisor, in exchange for a capital contribution of $200,000.
The Company is the sole general partner in Wells OP; consequently, the
accompanying consolidated financial statements of the Company include the
amounts of both the Company and Wells OP.
194
The consolidated financial statements of the Company 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 Board of
Directors, 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
Company's Form 10-K for the year ended December 31, 1999.
(h) Distribution Policy
The Company will make distributions (not including a return of capital for
federal income tax purposes) equal to at least 95% of its real estate investment
trusts taxable income through the taxable year 2000. It is the Company's policy
to make regular quarterly distributions to holders of the shares. Distributions
will be made to those shareholders who are shareholders as of the record date
selected by the Directors. Distributions will be declared on a daily basis and
paid on a quarterly basis during the Offering period and declared and paid
quarterly thereafter.
(i) Income Taxes
The Company has made an election under Section 856 (C) of the Internal Revenue
Code 1986, as amended (the "Code"), to be taxed as a Real Estate Investment
Trust ("REIT") under the Code beginning with its taxable year ended December 31,
1998. As a REIT for federal income tax purposes, the Company generally will not
be subject to federal income tax on income that it distributes to its
shareholders. If the Company fails to qualify as a REIT in any taxable year, it
will then be subject to federal income tax on its taxable income at regular
corporate rates and will not be permitted to qualify for treatment as a REIT for
federal income tax purposes for four years following the year during which
qualification is lost. Such an event could materially adversely affect the
Company's net income and net cash available to distribute to shareholders.
However, the Company believes that it is organized and operates in such a manner
as to qualify for treatment as a REIT and intends to continue to operate in the
foreseeable future in such a manner so that the Company will remain qualified as
a REIT for federal income tax purposes.
(j) Statement of Cash Flows
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Cash equivalents include cash and short-term
investments.
2. INVESTMENTS IN JOINT VENTURES
The Company owned interests in 25 office buildings through its ownership in
Wells OP, which owns interest in six joint ventures. The Company does not have
control over the operations of these joint ventures; however, it does exercise
significant influence. Accordingly, investment in joint venture is recorded
using the equity method.
The following describes additional information about certain of the properties
in which the Company owns an interest as of September 30, 2000.
Fund VIII-IX-REIT Joint Venture
On June 15, 2000, the Fund VIII-IX-REIT Joint Venture was formed between Wells
OP and Fund VIII and Fund IX Associates, a Georgia joint venture partnership
between Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P.
(the "Fund VIII-IX Joint Venture"). On July 1, 2000, the Fund VIII-IX Joint
Venture contributed its interest in the Bake Parkway Building to the Fund
VIII-IX-REIT Joint Venture. The Bake Parkway Building is a two-story office
building containing approximately 65,006 rentable square feet on a 4.4-acre
tract of land in Irvine, California.
195
A 42-month lease for the entire Bake Parkway Building has been signed by Quest
Software, Inc. Occupancy occurred on August 1, 2000. Quest is a publicly traded
corporation that provides software database management and disaster recovery
services for its clients.
Construction of tenant improvements required under the Quest lease is
anticipated to cost approximately $1,250,000 and will be funded by Wells OP.
The Alstom Power-Richmond Building
On July 24, 2000, the Company completed a build-to-suit project of a 99,057
square-foot, four-story, office building. The Class "A" property is located at
5309 Commonwealth Centre Drive in Richmond, Virginia.
The $11.4 million acquisition is 100% owned by the Company and is leased to
Alstom Power, Inc. The tenant has signed a seven-year lease, which commenced on
July 24, 2000. Alstom Power is the world's largest power generation group.
Formerly ABB Power Generation and Alstom, the two companies merged in December
1999 to form ABB Alstom Power, Inc. and in June 2000 changed its name to Alstom
Power, Inc. The group employs 58,000 people in more than 100 countries.
The building is located on 7.49 acres within the Waterford Business Park. The
Waterford Park is a 20-acre office park in Chesterfield County.
3. NOTES PAYABLE
Notes payable, as of September 30, 2000, consists of loans of (i) $9,181,877 due
to Bank of America secured by a first priority mortgage against the Matsushita
Property; (ii) $21,627,153 due to Bank of America secured by first mortgages on
the AT&T and Marconi buildings; (iii) $8,000,000 due to Richter-Schroeder
Company, Inc. secured by a first mortgage against the Metris Building; and (iv)
$100,000 due to Ryan Companies US, Inc. secured by a first mortgage on the Avnet
Building.
4. DUE TO AFFILIATES
Due to affiliates consists of Acquisitions and Advisory Fees and Acquisition
Expenses, deferred offering costs, and other operating expenses paid by the
Advisor on behalf of the Company. Also included in Due to Affiliates is the
Matsushita lease guarantee which is explained in detail in the Company's Form
10-K for the year ended December 31, 1999. Payments of $542,645 have been made
as of September 30, 2000 toward fulfilling the Matsushita agreement.
196
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the DIAL BUILDING for the year ended December 31, 1999. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Dial
Building after acquisition by the Wells Operating Partnership, L.P. (on behalf
of Wells Real Estate Investment Trust, Inc.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Dial
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Dial Building for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 10, 2000
197
DIAL BUILDING
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
RENTAL REVENUES $ 1,388,868
OPERATING EXPENSES, net of reimbursements 0
-----------
REVENUES OVER CERTAIN OPERATING EXPENSES $ 1,388,868
-----------
The accompanying notes are an integral part of this statement.
198
DIAL BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 29, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a Delaware
Limited Partnership formed to acquire, own, lease, operate and manage real
properties on behalf of the Wells Real Estate Investment Trust, Inc., acquired
the Dial Building from Ryan Companies US, Inc. ("Ryan"). Ryan is not an
affiliate of Wells OP. The purchase price of the Dial Building was $14,250,000.
Wells OP incurred additional acquisition expenses in connection with the
purchase of the Dial Building, including attorney's fees, recording fees, loan
fees, and other closing costs, of approximately $35,712. The funds used to
purchase the Dial Building consisted of cash and proceeds from Wells OP's lines
of credit with SouthTrust Bank, N.A. and Bank of America, N.A.
The entire 129,689 rentable square feet of the Dial Building is currently under
a net lease agreement (the "Lease") with Dial Corporation ("Dial"). The Lease
was assigned to Wells OP at closing. The Lease commenced on August 14, 1997 and
expires on August 31, 2008. Dial has the right to extend the Lease for two
additional five-year periods at 95% of the then-current fair market rental rate.
Under the Lease, Dial is required to pay as additional rent all real estate
taxes, special assessments, utilities, insurance, and other operating costs
associated with the Dial Building during the term of the Lease. In addition,
Dial is responsible for repair and maintenance of the roof, walls, structure,
and foundation, landscaping, and heating, ventilating, air conditioning,
mechanical, electrical, plumbing, and other systems.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the Dial Building after
acquisition by Wells OP.
199
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the ASML BUILDING for the year ended December 31, 1999. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the ASML
Building after acquisition by the Wells Operating Partnership, L.P. (on behalf
of Wells Real Estate Investment Trust, Inc.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the ASML
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the ASML Building for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 10, 2000
200
ASML BUILDING
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
REVENUES:
Rental income $1,849,908
Tenant reimbursements 242,143
------------
Total revenues 2,092,051
------------
OPERATING EXPENSES:
Ground lease 206,625
Insurance 9,628
------------
Total operating expenses 216,253
------------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,875,798
============
The accompanying notes are an integral part of this statement.
201
ASML BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 29, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a Delaware
Limited Partnership formed to acquire, own, lease, operate, and manage real
properties on behalf of the Wells Real Estate Investment Trust, Inc., acquired
the ASML Building from Ryan Companies U.S., Inc. ("Ryan"). Ryan is not an
affiliate of Wells OP. The purchase price of the ASML Building was $17,355,000.
Wells OP incurred additional acquisition expenses in connection with the
purchase of the ASML Building, including attorney's fees, recording fees, loan
fees, and other closing costs, of approximately $48,875. The funds used to
purchase the ASML Building consisted of cash and proceeds obtained from Wells
OP's lines of credit with SouthTrust Bank, N.A. and Bank of America, N.A. Wells
OP also assumed a ground lease with Research Park on 9.51 acres. The ground
lease commenced August 22, 1997 and expires on December 31, 2082.
The entire 95,133 rentable square feet of the ASML Building is currently under a
net lease agreement (the "Lease") with ASML Lithography, Inc. ("ASML"). The
Lease was assigned to Wells OP at closing. The Lease commenced on June 4, 1998
and expires on June 30, 2013. ASML has the right to extend the Lease for two
additional five-year periods at the prevailing market rental rate, but in no
event less than the rate in force at the end of the preceding lease term. Under
the Lease, ASML is required to pay as additional rent the rent associated with
the ground lease described above and all real estate taxes, special assessments,
utilities, insurance, and other operating costs associated with the ASML
Building during the term of the Lease. In addition, ASML is responsible for
repair and maintenance of the roof, walls, structure, and foundation,
landscaping, and the heating, ventilating, air conditioning, mechanical,
electrical, plumbing, and other systems.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the ASML Building after
acquisition by Wells OP.
202
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the MOTOROLA BUILDING for the year ended December 31, 1999. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Motorola
Building after acquisition by the Wells Operating Partnership, L.P. (on behalf
of Wells Real Estate Investment Trust, Inc.). The accompanying statement of
revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Motorola
Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Motorola Building for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 10, 2000
203
MOTOROLA BUILDING
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
REVENUES:
Rental income $1,817,366
Tenant reimbursements 290,287
----------
Total revenues 2,107,653
----------
OPERATING EXPENSES:
Ground lease 243,826
Insurance 11,951
----------
Total operating expenses 255,777
----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,851,876
==========
The accompanying notes are an integral part of this statement.
204
MOTOROLA BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 29, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a Delaware
Limited Partnership formed to acquire, own, lease, operate and manage real
properties on behalf of the Wells Real Estate Investment Trust, Inc., acquired
the Motorola Building from Ryan Companies US, Inc. ("Ryan"). Ryan is not an
affiliate of Wells OP. The purchase price of the Motorola Building was
$16,000,000. Wells OP incurred additional acquisition expenses in connection
with the purchase of the Motorola Building, including attorney's fees, recording
fees, loan fees, and other closing costs, of approximately $36,622. The funds
used to purchase the Motorola Building consisted of cash and proceeds obtained
from Wells OP's lines of credit with SouthTrust Bank, N.A. and Bank of America,
N.A. In addition, $5,000,000 in loan proceeds were provided by Ryan as seller
financing. Wells OP also assumed a ground lease with Research Park on 12.44
gross acres. The ground lease commenced November 19, 1997 and expires on
December 31, 2082.
The entire 133,225 rentable square feet of the Motorola Building is currently
under a net lease agreement (the "Lease") with Motorola, Inc. ("Motorola"). The
Lease was assigned to Wells OP at closing. The initial term of the Lease is
seven years, which commenced on August 17, 1998 and expires on August 31, 2005.
Motorola has the right to extend the Lease for four additional five-year periods
at the prevailing market rental rate. Under the lease, Motorola is required to
pay as additional rent the rent associated with the ground lease described above
and all real estate taxes, special assessments, utilities, insurance, and other
operating costs associated with the Motorola Building during the term of the
Lease. In addition, Motorola's responsible for repair and maintenance of the
roof, walls, structure, and foundation, landscaping, and the heating,
ventilating, air conditioning, mechanical, electrical, plumbing, and other
systems.
Rental Revenues
Rental income from the lease is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the Motorola Building after
acquisition by Wells OP.
205
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the MOTOROLA PLAINFIELD BUILDING for the year ended December 31,
1999. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Motorola
Plainfield Building after acquisition by the Wells Operating Partnership, L.P.
(on behalf of Wells Real Estate Investment Trust, Inc.). The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Motorola Plainfield Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Motorola Plainfield Building for the year ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
November 30, 2000
206
MOTOROLA PLAINFIELD BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31,1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
September 30, December 31,
2000 1999
------------ ------------
(unaudited)
RENTAL REVENUES $770,000 $2,310,000
OPERATING EXPENSES, net of reimbursements 73,739 10,916
-------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $696,261 $2,299,084
======== ==========
The accompanying notes are an integral part of these statements.
207
MOTOROLA PLAINFIELD BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On November 1, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a
Delaware Limited Partnership formed to acquire, own, lease, operate and manage
real properties on behalf of the Wells Real Estate Investment Trust, Inc.,
acquired the Motorola Plainfield Building from WHMAB Real Estate Limited
Partnership ("WHMAB"). WHMAB is not an affiliate of Wells OP. The total purchase
price of the Motorola Plainfield Building was $34,072,916, which includes an
obligation of WHMAB assumed by Wells OP at closing to reimburse the tenant,
Motorola, Inc. ("Motorola"), a maximum of $424,760 for certain rent payments
required of it under its prior lease. Wells OP incurred additional acquisition
expenses in connection with the purchase of the Motorola Plainfield Building,
including attorney's fees, recording fees, loan fees, and other closing costs,
of approximately $105,225. The funds used to purchase the Motorola Plainfield
Building consisted of cash and proceeds from Wells OP's line of credit with
SouthTrust Bank, N.A.
The entire 236,710 rentable square feet of the Motorola Plainfield Building is
currently under a net lease agreement (the "Lease") with Motorola. The Lease was
assigned to Wells OP at closing. The Lease commenced on November 1, 2000 and
expires on October 31, 2010. Motorola has the right to extend the Lease for two
additional five-year periods of time for a base rent equal to the greater of (i)
the last year's rent, or (ii) 95% of the then-current fair market rental rate.
Under the Lease, Motorola is required to pay as additional rent all real estate
taxes, special assessments, utilities, insurance, and other operating costs
associated with the Motorola Plainfield Building during the term of the Lease.
In addition, Motorola is responsible for repair and maintenance of the roof,
walls, structure, and foundation, landscaping, and heating, ventilating, air
conditioning, mechanical, electrical, plumbing, and other systems.
Prior to commencement of the Lease with Motorola, 220,000 rentable square feet
of the Motorola Plainfield Building was under a net lease agreement (the
"Previous Lease") with a tenant. The Previous Lease commenced on May 14, 1997
and expired on April 30, 2000. Under the Previous Lease, the tenant was required
to pay as additional rent all real estate taxes, special assessments, utilities,
insurance, and other operating costs associated with the Motorola Plainfield
Building during the term of the Previous Lease. In addition, the tenant was
responsible for repair and maintenance of the roof, walls, structure, and
foundation, landscaping, and heating, ventilating, air conditioning, mechanical,
electrical, plumbing, and other systems.
The Motorola Plainfield Building did not have any tenants for the period from
May 1, 2000 to October 31, 2000.
Rental Revenues
Rental income from leases is recognized on a straight-line basis over the life
of the lease.
208
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in accordance
with the applicable rules and regulations of the Securities and Exchange
Commission for real estate properties acquired. Accordingly, the statement
excludes certain historical expenses, such as depreciation, interest, and
management fees, not comparable to the operations of the Motorola Plainfield
Building after acquisition by Wells OP.
209
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of September 30, 2000 has
been prepared to give effect to the acquisition of the Motorola Plainfield
Building by the Wells Operating Partnership, L.P. ("Wells OP"), as if the
acquisition occurred as of September 30, 2000. The following unaudited pro forma
statements of income for the year ended December 31, 1999 and the nine months
ended September 30, 2000 have been prepared to give effect to the acquisition of
the Dial Building, the ASML Building, and the Motorola Tempe Building (together,
the "Prior Acquisitions") and the Motorola Plainfield Building by the Wells OP
as if each acquisition occurred on January 1, 1999.
Wells OP is a Delaware limited partnership that was organized to own and operate
properties on behalf of the Wells Real Estate Investment Trust, Inc. Wells Real
Estate Investment Trust, Inc. is the general partner of the Wells OP.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisitions been consummated at
the beginning of the period presented.
210
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
ASSETS
Wells Real
Estate
Investment Pro Forma Pro Forma
Trust, Inc. Adjustments Total
------------- -------------- -------------
REAL ESTATE ASSETS, AT COST:
Land $ 21,695,304 $ 9,652,500(a) $ 31,750,313
402,509(b)
Buildings less accumulated depreciation of $6,810,792 188,671,038 24,525,641(a) 214,219,398
1,022,719(b)
Construction in progress 295,517 0 295,517
------------- ----------- -------------
Total real estate assets 210,661,859 35,603,369 246,265,228
INVESTMENT IN JOINT VENTURES 36,708,242 0 36,708,242
CASH AND CASH EQUIVALENTS 12,257,161 (10,753,381)(a) 466,584
(954,223)(b)
(82,973)(c)
DEFERRED OFFERING COSTS 1,108,206 0 1,108,206
DEFERRED PROJECT COSTS 471,005 (471,005)(b) 0
DUE FROM AFFILIATES 859,515 0 859,515
PREPAID EXPENSES AND OTHER ASSETS 6,344,905 82,973(c) 6,427,878
------------- ----------- -------------
Total assets $ 268,410,893 $23,424,760 $ 291,835,653
============= =========== =============
211
LIABILITIES AND SHAREHOLDERS' EQUITY
Wells Real
Estate
Investment Pro Forma Pro Forma
Trust, Inc. Adjustments Total
-------------- -------------- --------------
LIABILITIES:
Accounts payable and accrued expenses $ 975,821 $ 424,760(a), (d) $ 1,400,581
Notes payable 38,909,030 23,000,000(a) 61,909,030
Dividends payable 4,475,982 0 4,475,982
Due to affiliate 1,372,508 0 1,372,508
-------------- ------------ --------------
Total liabilities 45,733,341 23,424,760 69,158,101
-------------- ------------ --------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 0 200,000
-------------- ------------ --------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 40,000,000 shares
authorized, 13,471,085 shares issued and outstanding 261,748 0 261,748
Additional paid-in capital 222,215,804 0 222,215,804
Retained earnings 0 0 0
-------------- ------------ --------------
Total shareholders' equity 222,477,552 0 222,477,552
-------------- ------------ --------------
Total liabilities and shareholders' equity $ 268,410,893 $ 23,424,760 $ 291,835,653
============== ============ ==============
(a) Reflects Wells Real Estate Investment Trust Inc.'s purchase
price for the building.
(b) Reflects deferred project costs allocated to the land and
building at approximately 4.17% of the purchase price.
(c) Reflects loan fees incurred in connection with the receipt
of loan proceeds from the SouthTrust Bank, N.A., line of
credit.
(d) Reflects assumption of obligation of Wells OP to reimburse
the tenant of certain rent payments required of it under its
prior lease.
212
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
Wells Real
Estate Pro Forma Adjustments
---------------------
Investment Prior Motorola Pro Forma
Trust, Inc. Acquisitions Plainfield Total
----------- ------------ ---------- -----
REVENUES:
Rental income $4,735,184 $5,056,142(a) $2,310,000(a) $12,101,326
Equity in income of joint ventures 1,243,969 0 0 1,243,969
Interest income 502,993 0 0 502,993
Other income 13,249 0 0 13,249
---------- ---------- ---------- -----------
6,495,395 5,056,142 2,310,000 13,861,537
---------- ---------- ---------- -----------
EXPENSES:
Depreciation and amortization 1,726,103 1,842,818(b) 1,021,934(b) 4,614,561
23,706(c)
Interest 442,029 2,758,350(d) 1,787,100(f) 5,437,479
450,000(e)
Operating costs, net of reimbursements (74,666) (60,400)(g) 10,916(h) (124,150)
Management and leasing fees 257,744 282,116(i) 138,600(i) 678,460
General and administrative 123,776 0 0 123,776
Legal and accounting 115,471 0 0 115,471
Computer costs 11,368 0 0 11,368
Amortization of organizational costs 8,921 0 0 8,921
---------- ---------- ---------- -----------
2,610,746 5,272,884 2,982,256 10,865,886
---------- ---------- ---------- -----------
NET INCOME $3,884,649 $ (216,742) $ (672,256) $ 2,995,651
========== ========== ========== ===========
HISTORICAL EARNINGS PER SHARE (BASIC AND DILUTED) $ 0.50
==========
PRO FORMA EARNINGS PER SHARE (BASIC AND DILUTED) $ 0.11(j)
===========
(a) Rental income recognized on a straight-line basis.
(b) Depreciation expense on the building using the straight-line
method and a 25-year life.
(c) Amortization of loan costs over term of SouthTrust Bank, N.A.
line of credit.
(d) Interest expense on the $9,000,000 line of credit with SouthTrust
Bank, N.A. and the $26,500,000 line of credit with Bank of
America, N.A., which bear interest at 7.77% for the year ended
December 31, 1999.
(e) Interest expense on the $5,000,000 note payable with Ryan
Companies U.S., Inc., the seller, which bears interest at 9%.
(f) Interest expense on the $23,000,000 line-of-credit with
SouthTrust Bank, N.A., which bears interest at 7.77% for the year
ended December 31, 1999.
(g) Consists of ground lease and insurance expense for the ASML
Building and the Motorola Tempe Building, net of tenant
reimbursements.
(h) Consists of non-reimbursable operating expenses.
(i) Management and leasing fees equal approximately 6% of rental
income.
(j) As of the property acquisition date of November 1, 2000, Wells
Real Estate Investment Trust, Inc. had 27,970,106 shares of
common stock outstanding; pro forma earnings per share is
calculated as if these shares were outstanding for the entire
year ended December 31, 1999.
213
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
Wells Real
Estate Pro Forma Adjustments
---------------------
Investment Prior Motorola Pro Forma
Trust, Inc. Acquisitions Plainfield Total
----------- ------------ ---------- -----
REVENUES:
Rental income $13,712,371 $1,440,432(a) $ 770,000(a) $15,922,803
Equity in income of joint ventures 1,684,247 0 0 1,684,247
Interest income 338,020 0 0 338,020
------------ ---------- ----------- -----------
15,734,638 1,440,432 770,000 17,945,070
------------ ---------- ----------- -----------
EXPENSES:
Depreciation and amortization 5,084,689 460,704(b) 766,451(b) 6,329,624
17,780(c)
Interest 2,798,299 777,450(d) 1,546,620(f) 5,234,869
112,500(e)
Operating costs, net of reimbursements 631,407 (15,099)(g) 73,739(h) 690,047
Management and leasing fees 919,630 86,426(i) 46,200(i) 1,052,256
General and administrative 273,484 0 0 273,484
Legal and accounting 130,603 0 0 130,603
Computer costs 8,846 0 0 8,846
Amortization of organizational costs 150,143 0 0 150,143
------------ ---------- ----------- -----------
9,997,101 1,421,981 2,450,790 13,869,872
------------ ---------- ----------- -----------
NET INCOME $ 5,737,537 $ 18,451 $(1,680,790) $ 4,075,198
============ ========== =========== ===========
HISTORICAL EARNINGS PER SHARE (BASIC AND DILUTED) $ 0.30
============
PRO FORMA EARNINGS PER SHARE (BASIC AND DILUTED) $ 0.15(j)
===========
REVENUES:
(a) Rental income recognized on a straight-line basis.
(b) Depreciation expense on the building using the straight-line
method and a 25-year life.
(c) Amortization of loan costs over term of SouthTrust Bank, N.A.
line of credit.
(d) Interest expense on the $9,000,000 line of credit with SouthTrust
Bank, N.A. and the $26,500,000 line of credit with Bank of
America, N.A., which bear interest at 8.76% for the nine months
ended September 30, 2000.
(e) Interest expense on the $5,000,000 note payable with Ryan
Companies U.S., Inc., the seller, which bears interest at 9%.
(f) Interest expense on the $23,000,000 line-of-credit with
SouthTrust Bank, N.A., which bears interest at 8.97% for the nine
months ended September 30, 2000.
(g) Consists of ground lease and insurance expense for the ASML
Building and the Motorola Tempe Building, net of tenant
reimbursements.
(h) Consists of non-reimbursable operating expenses.
(i) Management and leasing fees equal approximately 6% of rental
income.
(j) As of the property acquisition date of November 1, 2000, Wells
Real Estate Investment Trust, Inc. had 27,970,106 shares of
common stock outstanding; pro forma earnings per share is
calculated as if these shares were outstanding for the entire
nine months ended September 30, 2000.
214
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (Tables) provide information
relating to real estate investment programs sponsored by the advisor and its
affiliates (Wells Public Programs) which have investment objectives similar to
Wells Real Estate Investment Trust, Inc. (Wells REIT). (See "Investment
Objectives and Criteria.") All of the Wells Public Programs, except for the
Wells REIT, have used substantial amounts of capital, and no acquisition
indebtedness, to acquire their properties.
Prospective investors should read these Tables carefully together with
the summary information concerning the Wells Public Programs as set forth in
"Prior Performance Summary" section of this prospectus.
Investors in the Wells REIT will not own any interest in other Wells
Public Programs and should not assume that they will experience returns, if any,
comparable to those experienced by investors in the Wells Public Programs.
The advisor is responsible for the acquisition, operation, maintenance
and resale of the real estate properties. The financial results of the Wells
Public Programs thus provide an indication of the advisor's performance of its
obligations during the periods covered. However, general economic conditions
affecting the real estate industry and other factors contribute significantly to
financial results.
The following tables are included herein:
Table I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
Table II - Compensation to Sponsor (in Dollars)
Table III - Annual Operating Results of Wells Public Programs
Table IV (Results of completed programs) and Table V (sales or
disposals of property) have been omitted since none of the Wells Public Programs
have sold any of their properties to date.
Additional information relating to the acquisition of properties by the
Wells Public Programs is contained in Table VI, which is included in Part II of
the registration statement which the Wells REIT has filed with the Securities
and Exchange Commission. As described above, no Wells Public Program has sold or
disposed of any property held by it. Copies of any or all information will be
provided to prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"Acquisition Fees" shall mean fees and commissions paid by a Wells
Public Program in connection with its purchase or development of a property,
except development fees paid to a person not affiliated with the Wells Public
Program or with a general partner or advisor of the Wells Public Program in
connection with the actual development of a project after acquisition of the
land by the Wells Public Program.
215
"Organization Expenses" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
sponsor in connection with the planning and formation of the Wells Public
Program.
"Underwriting Fees" shall include selling commissions and wholesaling
fees paid to broker-dealers for services provided by the broker-dealers during
the offering.
216
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the sponsors of
Wells Public Programs for which offerings have been completed since December 31,
1996. Information is provided with regard to the manner in which the proceeds of
the offerings have been applied. Also set forth is information pertaining to the
timing and length of these offerings and the time period over which the proceeds
have been invested in the properties. All figures are as of December 31, 1999.
Wells Real Wells Real Wells Real Wells Real Estate
Estate Fund Estate Fund Estate Fund Investment
IX, L.P. X, L.P. XI, L.P. Trust, Inc.
-------- ------- -------- -----------
Dollar Amount Raised $35,000,000/(3)/ $ 27,128,912/(4)/ $ 16,532,802/(5)/ $ 132,181,919/(6)/
=========== ========== ========== ===========
Percentage Amount Raised 100.0%/(3)/ 100%/(4)/ 100%/(5)/ 100%/(6)/
Less Offering Expenses
Underwriting Fees 10.0% 10.0% 9.5% 9.5%
Organizational Expenses 5.0% 5.0% 3.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Percent Available for Investment 85.0% 85.0% 87.5% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property 2.0% 5.4% 0.0% 1.1%
Cash Down Payment 67.1% 60.5% 84.0% 82.0%
Acquisition Fees/(2)/ 4.0% 4.0% 3.5% 3.5%
Development and Construction Costs 11.9% 14.1% 0.0% 0.3%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0% 0.0%
---- ---- ---- ----
Total Acquisition and Development Cost 85.0% 84.0% 87.5% 86.9%
Percent Leveraged 0.0% 0.0% 0.0% 17.6%
==== ==== ==== ====
Date Offering Began 01/05/96 12/31/96 2/31/97 01/30/98
Length of Offering 12 mo. 12 mo. 12 mo. 23 mo.
Months to Invest 90% of Amount Available
for Investment (Measured from Beginning of 14 mo. 19 mo. 20 mo. 21 mo.
Offering)
Number of Investors as of 12/31/99 2,120 1,812 1,345 3,839
(1) Does not include general partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor fees
and/or architectural fees paid to affiliates of the general partners.
(3) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund IX, L.P. closed its offering on December 30, 1996,
and the total dollar amount raised was $35,000,000.
217
(4) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund X, L.P. closed its offering on December 30, 1997,
and the total dollar amount raised was $27,128,912.
(5) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998,
and the total dollar amount raised was $16,532,802.
(6) Total dollar amount registered and available to be offered was
$165,000,000. Wells Real Estate Investment Trust, Inc. closed its initial
offering on December 20, 1999, and the total dollar amount raised in its
initial offering was $132,181,919.
218
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by Wells Capital and
its affiliates, including compensation paid out of offering proceeds and
compensation paid in connection with the ongoing operations of Wells Public
Programs having similar or identical investment objectives the offerings of
which have been completed since December 31, 1996. These partnerships have not
sold or refinanced any of their properties to date. All figures are as of
December 31, 1999.
Wells Real
Wells Real Wells Real Wells Real Estate Other
Estate Fund Estate Fund Estate Fund Investment Public
IX, L.P. X, L.P. XI, L.P. Trust, Inc. Programs/(1)/
-------- ------- -------- ---------- -------------
Date Offering Commenced 01/05/96 12/31/96 12/31/97 01/30/98 --
Dollar Amount Raised $35,000,000 $ 27,128,912 $ 16,532,802 $132,181,919 $206,241,095
to Sponsor from Proceeds of Offering:
Underwriting Fees/(2)/ $ 309,556 $ 260,748 $ 151,911 $ 1,530,882 $ 924,156
Acquisition Fees
Real Estate Commissions -- -- -- -- --
Acquisition and Advisory Fees/(3)/ $ 1,400,000 $ 1,085,157 $ 578,648 $ 4,626,367 $ 10,159,399
Dollar Amount of Cash Generated from Operations
Before Deducting Payments to Sponsor/(4)/ $ 7,064,631 $ 4,262,319 $ 2,133,705 $ 8,002,132 $ 38,076,886
Amount Paid to Sponsor from Operations: $ 169,661 $ 105,410 $ 22,200 $ 129,208 $ 1,434,957
Property Management Fee/(1)/ -- -- -- -- --
Partnership Management Fee $ 133,784 $ 105,132 $ 61,058 $ 101,605 $ 1,613,725
Reimbursements $ 260,082 $ 176,108 $ 33,492 $ 129,208 $ 1,580,482
Leasing Commissions -- -- -- -- --
General Partner Distributions -- -- -- -- --
Other
Dollar Amount of Property Sales and Refinancing
Payments to Sponsors: -- -- -- -- --
Cash -- -- -- -- --
Notes
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- -- --
Incentive Fees -- -- -- -- --
Other -- -- -- -- --
(1) Includes compensation paid to the general partners from Wells Real
Estate Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW,
Wells Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P.,
Wells Real Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells
Real Estate Fund VII, L.P., and Wells Real Estate Fund VIII, L.P.
during the past three years. In addition to the amounts shown,
affiliates of the general partners of Wells Real Estate Fund I are
entitled to certain property management and leasing fees but have
elected to defer the payment of such fees until a later year on
properties owned by Wells Real Estate Fund I. At December 31, 1999, the
amount of such deferred fees due the general partners totaled
$2,397,266.
(2) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offering which was
not reallowed to participating broker-dealers.
(3) Fees paid to the general partners or their affiliates for acquisition
and advisory services in connection with the review and evaluation of
potential real property acquisitions.
219
(4) Includes $487,134 in net cash provided by operating activities,
$6,013,970 in distributions to limited partners and $563,527 in
payments to sponsor for Wells Real Estate Fund IX, L.P.; $400,825 in
net cash provided by operating activities, $3,474,844 in distributions
to limited partners and $386,650 in payments to sponsor for Wells Real
Estate Fund X, L.P.; $(150,720) in net cash used by operating
activities, $2,167,675 in distributions to limited partners and
$116,750 in payments to sponsor for Wells Real Estate Fund XI, L.P.;
$3,732,726 in net cash provided by operating activities, $3,909,385 in
dividends and $360,021 in payments to sponsor for Wells Real Estate
Investment Trust, Inc.; and $2,167,163 in net cash provided by
operating activities, $31,280,559 in distributions to limited partners
and $4,629,164 in payments to sponsor for other public programs.
220
TABLE III
(UNAUDITED)
The following six tables set forth operating results of Wells Public
Programs the offerings of which have been completed since December 31, 1994. The
information relates only to public programs with investment objectives similar
to those of the Wells REIT. All figures are as of December 31 of the year
indicated.
221
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 982,630 $ 846,306 $ 816,237 $ 543,291 $ 925,246
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 85,273 85,722 76,838 84,265 114,953
Depreciation and Amortization/(3)/ 1,562 6,250 6,250 6,250 6,250
------------ ------------ ----------- ---------- ------------
Net Income GAAP Basis/(4)/ $ 895,795 $ 754,334 $ 733,149 $ 452,776 $ 804,043
============ =========== =========== ========== ============
Taxable Income: Operations $ 1,255,666 $ 1,109,096 $ 1,008,368 $ 657,443 $ 812,402
============ =========== =========== ========== ============
Cash Generated (Used By):
Operations (82,763) (72,194) (43,250) 20,883 431,728
Joint Ventures 1,777,010 1,770,742 1,420,126 760,628 424,304
------------ ------------ ----------- ---------- ------------
$ 1,694,247 $ 1,698,548 $ 1,376,876 $ 781,511 $ 856,032
Less Cash Distributions to Investors:
Operating Cash Flow 1,688,290 1,636,158 1,376,876 781,511 856,032
Return of Capital -- -- 2,709 10,805 22,064
Undistributed Cash Flow from Prior Year
Operations -- -- -- -- 9,643
------------ ------------ ----------- ---------- ------------
Cash Generated (Deficiency) after Cash
Distributions $ 5,957 $ 62,390 $ (2,709) $ (10,805) $ (31,707)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions $ -- $ -- $ -- $ -- $ 805,212
------------ ------------ ----------- ---------- ------------
$ 5,957 $ 62,390 $ (2,709) $ (10,805) $ 773,505
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- $ 244,207
Return of Original Limited Partner's Investment -- -- -- -- 100
Property Acquisitions and Deferred Project Costs 0 181,070 169,172 736,960 14,971,002
------------ ------------ ----------- ---------- ------------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ 5,957 $ (118,680) $ (171,881) $ (747,765) $(14,441,804)
============ ============ =========== ========== ============
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss) 93 85 86 62 57
- Operations Class A Units (248) (224) (168) (98) (20)
- Operations Class B Units -- -- -- -- --
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 89 82 78 55 55
- Operations Class B Units (144) (134) (111) (58) (16)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 83 81 70 43 52
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 83 81 70 42 51
- Return of Capital Class A Units -- -- -- 1 1
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment income Class A Units 67 65 54 29 30
- Return of Capital Class A Units 16 16 16 14 22
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
222
(1) Includes $403,325 in equity in earnings of joint ventures and $521,921 from
investment of reserve funds in 1995, $457,144 in equity in earnings of
joint ventures and $86,147 from investment of reserve funds in 1996,
$785,398 in equity in earnings of joint ventures and $30,839 from
investment of reserve funds in 1997, $839,037 in equity in earnings of
joint ventures and $7,269 from investment of reserve funds in 1998, and
$981,104 in equity in earnings of joint ventures and $1,526 from investment
of reserve funds in 1999. At December 31, 1999, the leasing status was 97%
including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,468 for 1994, $140,533 for 1995, $605,247 for 1996,
$877,869 for 1997, $955,245 for 1998, and $982,052 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $950,826 to Class A Limited
Partners, $(146,503) to Class B Limited Partners and $(280) to the General
Partners for 1995; $1,062,605 to Class A Limited Partners, $(609,829) to
Class B Limited Partners and $0 to the General Partners for 1996;
$1,615,965 to class A Limited Partners, $(882,816) to Class B Limited
Partners and $0 to the General Partners for 1997; $1,704,213 to Class A
Limited Partners, $(949,879) to Class B Limited Partners and $0 to the
General Partners for 1998; and $1,879,410 to Class A Limited Partners,
$(983,615) to Class B Limited Partners and $0 to the General Partners for
1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,680,730.
223
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,360,497 $ 1,362,513 $ 1,204,018 $ 1,057,694 $ 402,428
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 87,301 87,092 95,201 114,854 122,264
Depreciation and Amortization/(3)/ 6,250 6,250 6,250 6,250 6,250
------------- ------------- ------------- ------------- ------------
Net Income GAAP Basis/(4)/ $ 1,266,946 $ 1,269,171 $ 1,102,567 $ 936,590 273,914
============= ============= ============= ============= ============
Taxable Income: Operations $ 1,672,844 $ 1,683,192 $ 1,213,524 $ 1,001,974 404,348
============= ============= ============= ============= ============
Cash Generated (Used By):
Operations (87,298) (63,946) 7,909 623,268 204,790
Joint Ventures 2,558,623 2,293,504 1,229,282 279,984 20,287
------------- ------------- ------------- ------------- ------------
$ 2,471,325 $ 2,229,558 $ 1,237,191 $ 903,252 $ 225,077
Less Cash Distributions to Investors:
Operating Cash Flow 2,379,215 2,218,400 1,237,191 903,252 --
Return of Capital -- -- 183,315 2,443 --
Undistributed Cash Flow from Prior Year Operations -- -- -- 225,077 --
------------- ------------- ------------- ------------- ------------
Cash Generated (Deficiency) after Cash Distributions $ 92,110 $ 11,158 $ (183,315)$ (227,520)$ 225,077
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions/(5)/ -- -- -- 1,898,147 30,144,542
------------- ------------- ------------- ------------- ------------
$ 92,110 $ 11,158 $ (183,315)$ 1,670,627 $ 30,369,619
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 464,760 4,310,028
Return of Limited Partner's Investment -- -- 8,600 -- --
Property Acquisitions and Deferred Project Costs 0 1,850,859 10,675,811 7,931,566 6,618,273
------------- ------------- ------------- ------------- ------------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ 92,110 $ (1,839,701)$ (10,867,726)$ (6,725,699)$ 19,441,318
============= ============= ============= ============= ============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 91 91 73 46 28
- Operations Class B Units (247) (212) (150) (47) (3)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 88 89 65 46 17
- Operations Class B Units 154 (131) (95) (33) (3)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 87 83 54 43 --
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 87 83 47 43 --
- Return of Capital Class A Units -- -- 7 0 --
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 70 69 42 33 --
- Return of Capital Class A Units 17 16 12 10 --
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested
in Program Properties at the end of the Last Year Reported in
the Table 100%
224
(1) Includes $28,377 in equity in earnings of joint ventures and $374,051 from
investment of reserve funds in 1995, $241,819 in equity in earnings of
joint ventures and $815,875 from investment of reserve funds in 1996,
$1,034,907 in equity in earnings of joint ventures and $169,111 from
investment of reserve funds in 1997, $1,346,367 in equity in earnings of
joint ventures and $16,146 from investment of reserve funds in 1998, and
$1,360,494 in equity in earnings of joint ventures and $3 from investment
of reserve funds in 1999. At December 31, 1999, the leasing status was 98%
including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $14,058 for 1995, $265,259 for 1996, $841,666 for 1997,
$1,157,355 for 1998, and $1,209,171 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $294,221 to Class A Limited
Partners, $(20,104) to Class B Limited Partners and $(203) to the General
Partners for 1995; $1,207,540 to Class A Limited Partners, $(270,653) to
Class B Limited Partners and $(297) to the General Partners for 1996;
$1,947,536 to Class A Limited Partners, $(844,969) to Class B Limited
Partners and $0 to the General Partners for 1997; $2,431,246 to Class A
Limited Partners, $(1,162,075) to Class B Limited Partners and $0 to the
General Partners for 1998; and $2,481,559 to Class A Limited Partners,
$(1,214,613) to Class B Limited Partners and $0 to the General Partners for
1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,464,810.
225
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,593,734 $ 1,561,456 $ 1,199,300 $ 406,891 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 90,903 105,251 101,284 101,885
Depreciation and Amortization/(3)/ 12,500 6,250 6,250 6,250
----------- ------------ ------------ -----------
Net Income GAAP Basis/(4)/ $ 1,490,331 $ 1,449,955 $ 1,091,766 $ 298,756
=========== ============ ============ ===========
Taxable Income: Operations $ 1,924,542 $ 1,906,011 $ 1,083,824 $ 304,552
=========== ============ ============ ===========
Cash Generated (Used By):
Operations $ (94,403) $ 80,147 $ 501,390 $ 151,150
Joint Ventures 2,814,870 2,125,489 527,390 --
----------- ------------ ------------ -----------
$ 2,720,467 $ 2,205,636 $ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 2,720,467 2,188,189 1,028,780 149,425
Return of Capital 15,528 -- 41,834 --
Undistributed Cash Flow From Prior Year Operations 17,447 -- 1,725 --
----------- ------------ ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ (32,975) $ 17,447 $ (43,559) $ 1,725
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- -- 35,000,000
----------- ------------ ------------ -----------
$ (32,975) $ 17,447 $ (43,559) $35,001,725
Use of Funds:
Sales Commissions and Offering Expenses -- 323,039 4,900,321
Return of Original Limited Partner's Investment -- -- 100 --
Property Acquisitions and Deferred Project Costs 190,853 9,455,554 13,427,158 6,544,019
----------- ------------ ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (223,828) $ (9,438,107) $(13,793,856) $23,557,385
=========== ============ ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss) 89 88 53 28
- Operations Class A Units (272) (218) (77) (11)
- Operations Class B Units -- -- -- --
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 86 85 46 26
- Operations Class B Units (164) (123) (47) (48)
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 88 73 36 13
- Return of Capital Class A Units 2 -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 89 73 35 13
- Return of Capital Class A Units 1 -- 1 --
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 77 61 29 10
- Return of Capital Class A Units 13 12 7 3
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in the Table 100%
226
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884 from
investment of reserve funds in 1996, and $593,914 in equity in earnings of
joint ventures and $605,386 from investment of reserve funds in 1997,
$1,481,869 in equity in earnings of joint ventures and $79,587 from
investment of reserve funds in 1998, and $1,593,734 in equity in earnings
of joint ventures and $0 from investment of reserve funds in 1999. At
December 31, 1999, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996, $469,126 for 1997, $1,143,407 for 1998,
and $1,210,939 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $330,270 to Class A Limited
Partners, $(31,220) to Class B Limited Partners and $(294) to the General
Partners for 1996; $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997;
$2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited
Partners and $0 to the General Partners for 1998; and $2,713,636 to Class A
Limited Partners, $(1,223,305) to Class B Limited Partners and $0 to the
General Partners for 1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$993,010.
227
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,309,281 $ 1,204,597 $ 372,507 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 98,213 99,034 88,232
Depreciation and Amortization/(3)/ 18,750 55,234 6,250
----------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 1,192,318 $ 1,050,329 $ 278,025
=========== ============ ===========
Taxable Income: Operations $ 1,449,771 $ 1,277,016 $ 382,543
=========== ============ ===========
Cash Generated (Used By):
Operations (99,862) 300,019 200,668
Joint Ventures 2,175,915 886,846 --
----------- ------------ -----------
$ 2,076,053 $ 1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow 2,067,801 1,186,865 --
Return of Capital -- 19,510 --
Undistributed Cash Flow From Prior Year Operations -- 200,668 --
----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ 8,252 $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions -- -- 27,128,912
----------- ------------ -----------
$ 8,252 $ (220,178) $27,329,580
Use of Funds:
Sales Commissions and Offering Expenses -- 300,725 3,737,363
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 0 17,613,067 5,188,485
----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 8,252 $(18,133,970) $18,403,632
=========== ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss) 97 85 28
- Operations Class A Units (160) (123) (9)
- Operations Class B Units -- -- --
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 92 78 35
- Operations Class B Units (100) (64) 0
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 95 66 --
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 95 56 --
- Return of Capital Class A Units -- 10 --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 71 48 --
- Return of Capital Class A Units 24 18 --
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
228
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542
from investment of reserve funds in 1997, and $869,555 in equity in
earnings of joint ventures and $215,042 from investment of reserve funds in
1998, and $1,309,281 in equity in earnings of joint ventures and $0 from
investment of reserve funds in 1999. At December 31, 1999, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997, $674,986 for 1998, and $891,911 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997; $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998; and
$2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited
Partners and $0 to the General Partners for 1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$909,527.
229
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
1999 1998 1997 1996 1995
---- ---- ---- ---- ----
Gross Revenues/(1)/ 766,586 262,729 N/A N/A N/A
Profit on Sale of Properties -- --
Less: Operating Expenses/(2)/ 111,058 113,184
Depreciation and Amortization/(3)/ 25,000 6,250
----------- -----------
Net Income GAAP Basis/(4)/ $ 630,528 $ 143,295
=========== ===========
Taxable Income: Operations $ 704,108 $ 177,692
=========== ===========
Cash Generated (Used By):
Operations 40,906 (50,858)
Joint Ventures 705,394 102,662
----------- -----------
$ 746,300 $ 51,804
Less Cash Distributions to Investors:
Operating Cash Flow 746,300 51,804
Return of Capital 49,761 48,070
Undistributed Cash Flow From Prior Year Operations -- --
----------- -----------
Cash Generated (Deficiency) after Cash Distributions $ (49,761) $ (48,070)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- --
Increase in Limited Partner Contributions -- 16,532,801
----------- -----------
$ (49,761) $16,484,731
Use of Funds:
Sales Commissions and Offering Expenses 214,609 1,779,661
Return of Original Limited Partner's Investment 100 --
Property Acquisitions and Deferred Project Costs 9,005,979 5,412,870
----------- -----------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $(9,270,449) $ 9,292,200
=========== ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 77 20
- Operations Class B Units (112) (32)
Capital Gain (Loss) -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 71 18
- Operations Class B Units (73) (17)
Capital Gain (Loss) -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 60 8
- Return of Capital Class A Units -- --
- Return of Capital Class B Units -- --
Source (on Cash Basis)
- Operations Class A Units 56 4
- Return of Capital Class A Units 4 4
- Operations Class B Units -- --
Source (on a Priority Distribution Basis)(5)
- Investment Income Class A Units 46 6
- Return of Capital Class A Units 14 2
- Return of Capital Class B Units -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in the Table 100%
230
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566 from
investment of reserve funds in 1998, and $607,579 in equity in earnings of
joint ventures and $159,007 from investment of reserve funds in 1999. At
December 31, 1999, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $105,458 for 1998, and $353,840 for 1999.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998; and $1,009,368 to Class A Limited Partners, $(378,840)
to Class B Limited Partners and $0 to the General Partners for 1999.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 1999, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$213,006.
231
EXHIBIT A
SUBSCRIPTION AGREEMENT
To: Wells Real Estate Investment Trust, Inc.
Suite 250
6200 The Corners Parkway
Norcross, Georgia 30092
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of shares of common stock ("Shares") of
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), set forth on such Subscription Agreement Signature Page. Payment for
the Shares is hereby made by check payable to "Wells Real Estate Investment
Trust, Inc."
I hereby acknowledge receipt of the Prospectus of the Company dated
December 20, 2000 (the "Prospectus").
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, on the terms described in the Prospectus.
Subscriptions may be rejected in whole or in part by the Company in its sole and
absolute discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the Shares is restricted and
will be governed by the Company's Articles of Incorporation and Bylaws and all
applicable laws as described in the Prospectus.
(b) Prospective investors should not invest in Shares unless they have an
adequate means of providing for their current needs and personal contingencies
and have no need for liquidity in this investment.
(c) There is no public market for the Shares and, accordingly, it may not
be possible to readily liquidate an investment in the Company.
A-1
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF SHARES
260.141.11 Restrictions on Transfer.
------------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules
(the "Rules") adopted under the California Corporate Securities Law (the "Code")
shall cause a copy of this section to be delivered to each issuee or transferee
of such security at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such securities
is not in violation of any securities laws of the foreign state, territory or
country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112,
25113 or 25121 of the Code, of the securities to be transferred, provided that
no order under Section 25140 or subdivision (a) of Section 25143 is in effect
with respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
A-2
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled or actually present in this state;
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY, OR ANY
INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR, WITHOUT THE
PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS OF THE STATE OF
CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES."
[Last amended effective January 21, 1988.]
SPECIAL NOTICE FOR MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI
AND NEBRASKA RESIDENTS ONLY
In no event may a subscription for Shares be accepted until at least five
business days after the date the subscriber receives the Prospectus. Residents
of the States of Maine, Massachusetts, Minnesota, Missouri and Nebraska who
first received the Prospectus only at the time of subscription may receive a
refund of the subscription amount upon request to the Company within five days
of the date of subscription.
A-3
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
6. TRUST: The trustee signs the Signature Page. Provide the name of the trust,
the name of the trustee and the name of the beneficiary.
7. Company: Identify whether the entity is a general or limited partnership.
The general partners must be identified and their signatures obtained on
the Signature Page. In the case of an investment by a general partnership,
all partners must sign (unless a "managing partner" has been designated for
the partnership, in which case he may sign on behalf of the partnership if
a certified copy of the document granting him authority to invest on behalf
of the partnership is submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating the
officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution authorizing
the investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of the
trustee must be provided in order for the trustee to receive checks and
other pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the parent
(unless the parent has been designated as the custodian). Only one child is
permitted in each investment under UGMA or UTMA. In addition, designate the
state under which the gift is being made.
A-4
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
--------------------------------------------------------------------------------
INVESTOR Please follow these instructions carefully. Failure to do so
INSTRUCTIONS may result in the rejection of your subscription. All
information on the Subscription Agreement Signature Page
should be completed as follows:
------- ------------------------------------------------------------------------
1. INVESTMENT a. GENERAL: A minimum investment of $1,000 (100 Shares) is
required, except for certain states which require a
higher minimum investment. A CHECK FOR THE FULL
PURCHASE PRICE OF THE SHARES SUBSCRIBED FOR SHOULD BE
MADE PAYABLE TO THE ORDER OF "WELLS REAL ESTATE
INVESTMENT TRUST, INC." Investors who have satisfied
the minimum purchase requirements in Wells Real Estate
Fund I, Wells Real Estate Fund II, Wells Real Estate
Fund II-OW, Wells Real Estate Fund III, L.P., Wells
Real Estate Fund IV, L.P., Wells Real Estate Fund V,
L.P., Wells Real Estate Fund VI, L.P., Wells Real
Estate Fund VII, L.P., Wells Real Estate Fund VIII,
L.P., Wells Real Estate Fund IX, L.P., Wells Real
Estate Fund X, L.P., Wells Real Estate Fund XI, L.P. or
Wells Real Estate Fund XII, L.P. or in any other public
real estate program may invest as little as $25 (2.5
Shares) except for residents of Maine, Minnesota,
Nebraska or Washington. Shares may be purchased only by
persons meeting the standards set forth under the
Section of the Prospectus entitled "Investor
Suitability Standards." Please indicate the state in
which the sale was made.
b. DEFERRED COMMISSION OPTION: Please check the box if you
have agreed with your Broker-Dealer to elect the
Deferred Commission Option, as described in the
Prospectus, as supplemented to date. By electing the
Deferred Commission Option, you are required to pay
only $9.40 per Share purchased upon subscription. For
the next six years following the year of subscription,
or lower if required to satisfy outstanding deferred
commission obligations, you will have a 1% sales
commission ($.10 per Share) per year deducted from and
paid out of dividends or other cash distributions
otherwise distributable to you. Election of the
Deferred Commission Option shall authorize the Company
to withhold such amounts from dividends or other cash
distributions otherwise payable to you as is set forth
in the "Plan of Distribution" section of the
Prospectus.
--------------------------------------------------------------------------------
A-5
--------------------------------------------------------------------------------
2. ADDITIONAL Please check if you plan to make one or more additional
INVESTMENTS investments in the Company. All additional investments must
be in increments of at least $25. Additional investments by
residents of Maine must be for the minimum amounts stated
under "Suitability Standards" in the Prospectus, and
residents of Maine must execute a new Subscription Agreement
Signature Page to make additional investments in the Company.
If additional investments in the Company are made, the
investor agrees to notify the Company and the Broker-Dealer
named on the Subscription Agreement Signature Page in writing
if at any time he fails to meet the applicable suitability
standards or he is unable to make any other representations
or warranties set forth in the Prospectus or the Subscription
Agreement. The investor acknowledges that the Broker-Dealer
named in the Subscription Agreement Signature Page may
receive commissions on such additional investments as
described in the Prospectus.
--------------------------------------------------------------------------------
3. TYPE OF Please check the appropriate box to indicate the type of
OWNERSHIP entity or type of individuals subscribing.
--------------------------------------------------------------------------------
4. REGISTRATION Please enter the exact name in which the Shares are to be
NAME AND held. For joint tenants with right of survivorship or tenants
ADDRESS in common, include the names of both investors. In the case
of partnerships or corporations, include the name of an
individual to whom correspondence will be addressed. Trusts
should include the name of the trustee. All investors must
complete the space provided for taxpayer identification
number or social security number. By signing in Section 6,
the investor is certifying that this number is correct. Enter
the mailing address and telephone numbers of the registered
owner of this investment. In the case of a Qualified Plan or
trust, this will be the address of the trustee. Indicate the
birthdate and occupation of the registered owner unless the
registered owner is a partnership, corporation or trust.
--------------------------------------------------------------------------------
5. INVESTOR NAME Complete this Section only if the investor's name and address
AND ADDRESS is different from the registration name and address provided
in Section 4. If the Shares are registered in the name of a
trust, enter the name, address, telephone number, social
security number, birthdate and occupation of the beneficial
owner of the trust.
--------------------------------------------------------------------------------
6. SUBSCRIBER Please separately initial each representation made by the
SIGNATURES investor where indicated. Except in the case of fiduciary
accounts, the investor may not grant any person a power of
attorney to make such representations on his or her behalf.
Each investor must sign and date this Section. If title is to
be held jointly, all parties must sign. If the registered
owner is a partnership, corporation or trust, a general
partner, officer or trustee of the entity must sign. PLEASE
NOTE THAT THESE SIGNATURES DO NOT HAVE TO BE NOTARIZED.
--------------------------------------------------------------------------------
A-6
--------------------------------------------------------------------------------
7. DIVIDENDS a. DIVIDEND REINVESTMENT PLAN: By electing the Dividend
Reinvestment Plan, the investor elects to reinvest the
stated percentage of dividends otherwise payable to such
investor in Shares of the Company. The investor agrees to
notify the Company and the Broker-Dealer named on the
Subscription Agreement Signature Page in writing if at any
time he fails to meet the applicable suitability standards
or he is unable to make any other representations and
warranties as set forth in the Prospectus or Subscription
Agreement or in the prospectus and subscription agreement
of any future limited partnerships sponsored by the
Advisor or its affiliates. The investor acknowledges that
the Broker-Dealer named in the Subscription Agreement
Signature Page may receive commissions not to exceed 7% of
reinvested dividends, less any discounts authorized by the
Prospectus.
b. DIVIDEND ADDRESS: If cash dividends are to be sent to an
address Oher than that provided in Section 4 (i.e., a
bank, brokerage firm or savings and loan, etc.), please
provide the name, account number and address.
--------------------------------------------------------------------------------
8. BROKER-DEALER This Section is to be completed by the Registered
Representative. Please complete all BROKER-DEALER information
contained in Section 8 including suitability certification.
SIGNATURE PAGE MUST BE SIGNED BY AN AUTHORIZED
REPRESENTATIVE.
--------------------------------------------------------------------------------
The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by the Company.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
A-7
-------------------------
SEE PRECEDING PAGE Special Instructions:
FOR INSTRUCTIONS
-------------------------
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUBSCRIPTION AGREEMENT SIGNATURE PAGE
1. ===== INVESTMENT ============================================================
-------------------------------------
Make Investment Check Payable to:
Wells Real Estate Investment Trust, Inc.
_____________ ________________
# of Shares Total $ Invested
-------------------------------------------------------
(# Shares x $10 = $ Invested) [_] Initial Investment (Minimum $1,000)
[_] Additional Investments (Minimum $25)
Minimum purchase $1,000 or 100 Shares State in which sale was made _____________________
--------------------------------------- -------------------------------------------------------
Check the following box to elect the Deferred Commission Option: [_]
(This election must be agreed to by the Broker-Dealer listed below)
2. ===== ADDITIONAL INVESTMENTS ===============================================
Please check if you plan to make additional investments in the Company: [_]
[If additional investments are made, please include social security number
or other taxpayer identification number on your check.]
[All additional investments must be made in increments of at least $25.]
3. ===== TYPE OF OWNERSHIP =====================================================
[_] IRA (06) [_] Individual (01)
[_] Keogh (10) [_] Joint Tenants With Right of Survivorship (02)
[_] Qualified Pension Plan (11) [_] Community Property (03)
[_] Qualified Profit Sharing Plan (12) [_] Tenants in Common (04)
[_] Other Trust _____________________________ [_] Custodian: A Custodian for ________________ under the Uniform
For the Benefit of ______________________ Gift to Minors Act or the Uniform Transfers to Minors Act of the
[_] Company (15) State of ______________ (08)
[_] Other __________________________________________________________
4. ===== REGISTRATION NAME AND ADDRESS =========================================
Please print name(s) in which Shares are to be registered. Include trust
name if applicable.
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other ______________
______________________________________
Taxpayer Identification Number
[_][_]-[_][_][_][_][_][_][_]
______________________________________
Social Security Number
[_][_][_]-[_][_]-[_][_][_][_]
______________________________________
__________________________________________________________
Street Address
or P.O. Box
__________________________________________________________
City ------------ State ------------- Zip Code -------------
------------ -------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
------------ ------------------------------
------------ ------------------------------
Birthdate Occupation
------------ ------------------------------
5. ===== INVESTOR NAME AND ADDRESS =============================================
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other
______________
Name Social Security Number
---------------------------------------
[_][_][_]-[_][_]-[_][_][_][_]
---------------------------------------
---------------------------------------------------------
Street Address
or P.O. Box
---------------------------------------------------------
City State Zip Code
------------ --------- -----------
------------ ------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
------------ ------------------------------
------------ ------------------------------
Birthdate Occupation
------------ ------------------------------
===============================================================================
(REVERSE SIDE MUST BE COMPLETED)
6. ===== SUBSCRIBER SIGNATURES ================================================
Please separately initial each of the representations below. Except in the
case of fiduciary accounts, you may not grant any person a power of
attorney to make such representations on your behalf. In order to induce
the Company to accept this subscription, I hereby represent and warrant to
you as follows:
(a) I have received the Prospectus. ------------ ------------
Initials Initials
(b) I accept and agree to be bound by the terms and conditions
of the Articles of Incorporation. ------------ ------------
Initials Initials
(c) I have (i) a net worth (exclusive of home, home furnishings and
automobiles) of $150,000 or more; or (ii) a net worth (as described
above) of at least $45,000 and had during the last tax year or
estimate that I will have during the current tax year a minimum of
$45,000 annual gross income, or that I meet the higher suitability
requirements imposed by my state of primary residence as set forth
in the Prospectus under "Suitability Standards." ------------ ------------
Initials Initials
(d) If I am a California resident or if the Person to whom I
subsequently propose to assign or transfer any Shares is a
California resident, I may not consummate a sale or transfer of my
Shares, or any interest therein, or receive any consideration
therefor, without the prior written consent of the Commissioner of
the Department of Corporations of the State of California, except as
permitted in the Commissioner's Rules, and I understand that my
Shares, or any document evidencing my Shares, will bear a legend
reflecting the substance of the foregoing understanding. ------------ ------------
Initials Initials
(e) ARKANSAS, NEW MEXICO AND TEXAS RESIDENTS ONLY: I am purchasing the
Shares for my own account and acknowledge that the investment is not
liquid. ------------ ------------
Initials Initials
I declare that the information supplied above is true and correct and may
be relied upon by the Company in connection with my investment in the
Company. Under penalties of perjury, by signing this Signature Page, I
hereby certify that (a) I have provided herein my correct Taxpayer
Identification Number, and (b) I am not subject to back-up withholding as a
result of a failure to report all interest or dividends, or the Internal
Revenue Service has notified me that I am no longer subject to back-up
withholding.
---------------------------------- ----------------------------------------- -----------------
---------------------------------- ----------------------------------------- -----------------
Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
7. ===== DISTRIBUTIONS ========================================================
7a. Check the applicable box to participate in the Dividend Reinvestment
Plan: Percentage of participation: 100% [_] Other [_] ___%
7b. Complete the following section only to direct dividends to a party
other than registered owner:
--------------------------------------------
Name
--------------------------------------------
Account Number
--------------------------------------------
Street Address or P.O. Box
---------------------------------- ---------
City State Zip Code
----------- --------- -------
8. ===== BROKER-DEALER ========================================================
(TO BE COMPLETED BY REGISTERED REPRESENTATIVE)
The Broker-Dealer or authorized representative must sign below to complete
order. Broker-Dealer warrants that it is a duly licensed Broker-Dealer and
may lawfully offer Shares in the state designated as the investor's address
or the state in which the sale was made, if different. The Broker-Dealer or
authorized representative warrants that he has reasonable grounds to
believe this investment is suitable for the subscriber as defined in
Section 3(b) of the Rules of Fair Practice of the NASD Manual and that he
has informed subscriber of all aspects of liquidity and marketability of
this investment as required by Section 4 of such Rules of Fair Practice.
------------------------- -----------
Broker-Dealer Name Telephone No. ( )
---------------------------------------------------
Broker-Dealer Street
Address or P.O. Box
---------------------------------------------------
City State Zip Code
----------- ------ -----------
------------------------- -----------
Registered
Representative Name Telephone No. ( )
---------------------------------------------------
Reg. Rep. Street
Address or P.O. Box
---------------------------------------------------
City State Zip Code
---------------------------------- --------------------------------
------------------------------------ -------------------------------
Broker-Dealer Signature, if Registered Representative
required Signature
Please mail completed Subscription Agreement (with all signatures) and
check(s) made payable to:
Wells Real Estate Investment Trust, Inc.
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
800-448-1010 or 770-449-7800
Overnight address: Mailing address:
6200 The Corners Parkway, Suite 250 P.O. Box 926040
Norcross, Georgia 30092 Norcross, Georgia 30092-9209
FOR COMPANY USE ONLY:
---------------------------------------------------------------------------------------------------------
ACCEPTANCE BY COMPANY Amount ___________________________ Date ______________________________________
Received and Subscription Accepted: Check No. _________________ Certificate No. ____________________
By: _______________________________ Wells Real Estate Investment Trust, Inc.
_______________________________ ___________________________________________ ______________________
Broker-Dealer # Registered Representative # Account #
--------------------------------------------------------------------------------------------------------
EXHIBIT B
AMENDED AND RESTATED
DIVIDEND REINVESTMENT PLAN
As of December 20, 1999
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), pursuant to its Amended and Restated Articles of Incorporation,
adopted a Dividend Reinvestment Plan (the "DRP"), which is hereby amended and
restated in its entirety as set forth below. Capitalized terms shall have the
same meaning as set forth in the Articles unless otherwise defined herein.
1. Dividend Reinvestment. As agent for the shareholders ("Shareholders")
---------------------
of the Company who (a) purchased shares of the Company's common stock (the
"Shares") pursuant to the Company's initial public offering (the "Initial
Offering"), which commenced on January 30, 1998 and will terminate on or before
January 30, 2000, (b) purchase Shares pursuant to the Company's second public
offering (the "Second Offering"), which will commence immediately upon the
termination of the Initial Offering, or (c) purchase Shares pursuant to any
future offering of the Company ("Future Offering"), and who elect to participate
in the DRP (the "Participants"), the Company will apply all dividends and other
distributions declared and paid in respect of the Shares held by each
Participant (the "Dividends"), including Dividends paid with respect to any full
or fractional Shares acquired under the DRP, to the purchase of the Shares for
such Participants directly, if permitted under state securities laws and, if
not, through the Dealer Manager or Soliciting Dealers registered in the
Participant's state of residence.
2. Effective Date. The effective date of this Amended and Restated
--------------
Dividend Reinvestment Plan (the "DRP") shall be the date that the Second
Offering becomes effective with the Securities and Exchange Commission (the
"Commission").
3. Procedure for Participation. Any Shareholder who purchased Shares
---------------------------
pursuant to the Initial Offering, the Second Offering or any Future Offering and
who has received a prospectus, as contained in the Company's registration
statement filed with the Commission, may elect to become a Participant by
completing and executing the Subscription Agreement, an enrollment form or any
other appropriate authorization form as may be available from the Company, the
Dealer Manager or Soliciting Dealer. Participation in the DRP will begin with
the next Dividend payable after receipt of a Participant's subscription,
enrollment or authorization. Shares will be purchased under the DRP on the date
that Dividends are paid by the Company. Dividends of the Company are currently
paid quarterly. Each Participant agrees that if, at any time prior to the
listing of the Shares on a national stock exchange or inclusion of the Shares
for quotation on the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq"), he or she fails to meet the suitability
requirements for making an investment in the Company or cannot make the other
representations or warranties set forth in the Subscription Agreement, he or she
will promptly so notify the Company in writing.
4. Purchase of Shares. Participants will acquire DRP Shares from the
------------------
Company at a fixed price of $10 per Share until (i) all 2,200,000 of the DRP
Shares registered in the Second Offering are issued or (ii) the Second Offering
terminates and the Company elects to deregister with the Commission the unsold
DRP Shares. Participants in the DRP may also purchase fractional Shares so that
100% of the Dividends will be used to acquire Shares. However, a Participant
will not be able to acquire DRP Shares to the extent that any such purchase
would cause such Participant to exceed the Ownership Limit as set forth in the
Articles.
B-1
Shares to be distributed by the Company in connection with the DRP may (but
are not required to) be supplied from: (a) the DRP Shares which will be
registered with the Commission in connection with the Company's Second Offering,
(b) Shares to be registered with the Commission in a Future Offering for use in
the DRP (a "Future Registration"), or (c) Shares of the Company's common stock
purchased by the Company for the DRP in a secondary market (if available) or on
a stock exchange or Nasdaq (if listed) (collectively, the "Secondary Market").
Shares purchased on the Secondary Market as set forth in (c) above will be
purchased at the then-prevailing market price, which price will be utilized for
purposes of purchases of Shares in the DRP. Shares acquired by the Company on
the Secondary Market or registered in a Future Registration for use in the DRP
may be at prices lower or higher than the $10 per Share price which will be paid
for the DRP Shares pursuant to the Initial Offering and the Second Offering.
If the Company acquires Shares in the Secondary Market for use in the DRP,
the Company shall use reasonable efforts to acquire Shares for use in the DRP at
the lowest price then reasonably available. However, the Company does not in
any respect guarantee or warrant that the Shares so acquired and purchased by
the Participant in the DRP will be at the lowest possible price. Further,
irrespective of the Company's ability to acquire Shares in the Secondary Market
or to complete a Future Registration for shares to be used in the DRP, the
Company is in no way obligated to do either, in its sole discretion.
It is understood that reinvestment of Dividends does not relieve a
Participant of any income tax liability which may be payable on the Dividends.
5. Share Certificates. The ownership of the Shares purchased through the
------------------
DRP will be in book-entry form only until the Company begins to issue
certificates for its outstanding common stock.
6. Reports. Within 90 days after the end of the Company's fiscal year,
-------
the Company shall provide each Shareholder with an individualized report on his
or her investment, including the purchase date(s), purchase price and number of
Shares owned, as well as the dates of Dividend distributions and amounts of
Dividends paid during the prior fiscal year. In addition, the Company shall
provide to each Participant an individualized quarterly report at the time of
each Dividend payment showing the number of Shares owned prior to the current
Dividend, the amount of the current Dividend and the number of Shares owned
after the current Dividend.
7. Commissions and Other Charges. In connection with Shares sold pursuant
-----------------------------
to the DRP, the Company will pay selling commissions of 7%; a dealer manager fee
of 2.5%; and, in the event that proceeds from the sale of DRP Shares are used to
acquire properties, acquisition and advisory fees and expenses of 3.5%, of the
purchase price of the DRP Shares.
8. Termination by Participant. A Participant may terminate participation
--------------------------
in the DRP at any time, without penalty by delivering to the Company a written
notice. Prior to listing of the Shares on a national stock exchange or Nasdaq,
any transfer of Shares by a Participant to a non-Participant will terminate
participation in the DRP with respect to the transferred Shares. If a
Participant terminates DRP participation, the Company will ensure that the
terminating Participant's account will reflect the whole number of shares in his
or her account and provide a check for the cash value of any fractional share in
such account. Upon termination of DRP participation, Dividends will be
distributed to the Shareholder in cash.
B-2
9. Amendment or Termination of DRP by the Company. The Board of Directors
----------------------------------------------
of the Company may by majority vote (including a majority of the Independent
Directors) amend or terminate the DRP for any reason upon 10 days' written
notice to the Participants.
10. Liability of the Company. The Company shall not be liable for any act
------------------------
done in good faith, or for any good faith omission to act, including, without
limitation, any claims or liability; (a) arising out of failure to terminate a
Participant's account upon such Participant's death prior to receipt of notice
in writing of such death; and (b) with respect to the time and the prices at
which Shares are purchased or sold for a Participant's account. To the extent
that indemnification may apply to liabilities arising under the Securities Act
of 1933, as amended, or the securities act of a sate, the Company has been
advised that, in the opinion of the Commission and certain state securities
commissioners, such indemnification is contrary to public policy and, therefore,
unenforceable.
B-3
ALPHABETICAL INDEX Page
----
Additional Information.............................................. 160
Conflicts of Interest............................................... 51
Description of Properties........................................... 65
Description of Shares............................................... 142
ERISA Considerations................................................ 139
Estimated Use of Proceeds........................................... 26
Experts............................................................. 159
Federal Income Tax Considerations................................... 123
Financial Statements................................................ 161
Glossary............................................................ 160
Investment Objectives and Criteria.................................. 56
Legal Opinions...................................................... 159
Management.......................................................... 28
Management Compensation............................................. 46
Management's Discussion and Analysis of Financial Condition
And Results of Operations......................................... 97
Plan of Distribution................................................ 153
Prior Performance Summary........................................... 114
Prior Performance Tables............................................ 215
Summary............................................................. 9
Questions and Answers About This Offering........................... 1
Risk Factors........................................................ 16
Suitability Standards............................................... 25
Supplemental Sales Material......................................... 158
The Operating Partnership Agreement................................. 150
Until March 20, 2001 (90 days after the date of this prospectus), all
dealers that affect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This is
in addition to the obligation of dealers to deliver a prospectus when acting as
soliciting dealers.
We have not authorized any dealer, salesperson or other individual to give
any information or to make any representations that are not contained in this
prospectus. If any such information or statements are given or made, you should
not rely upon such information or representation. This prospectus does not
constitute an offer to sell any securities other than those to which this
prospectus relates, or an offer to sell, or a solicitation of an offer to buy,
to any person in any jurisdiction where such an offer or solicitation would be
unlawful. This prospectus speaks as of the date set forth below. You should not
assume that the delivery of this prospectus or that any sale made pursuant to
this prospectus implies that the information contained in this prospectus will
remain fully accurate and correct as of any time subsequent to the date of this
prospectus.
________________
WELLS REAL ESTATE
INVESTMENT TRUST, INC.
Up to 125,000,000 Shares
of Common Stock
Offered to the Public
________________
PROSPECTUS
________________
WELLS INVESTMENT
SECURITIES, INC.
December 20, 2000
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 1 DATED FEBRUARY 5, 2001 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000.
When we refer to the "prospectus" in this supplement, we are also referring to
any and all supplements to the prospectus. Unless otherwise defined in this
supplement, capitalized terms used in this supplement shall have the same
meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) The status of the offering of shares in Wells Real Estate Investment
Trust, Inc. (Wells REIT);
(2) The acquisition by Wells Operating Partnership, L.P. (Wells OP) of a
six-story office building in Houston, Texas leased to Stone & Webster,
Inc. and SYSCO Corporation (Stone & Webster Building);
(3) The acquisition by Wells OP of an eight-story office building in
Minnetonka, Minnesota leased to Metris Direct, Inc. (Metris Minnetonka
Building);
(4) The acquisition by the Fund XII-REIT Joint Venture Partnership of a
one-story office building and a connecting two-story office building
in Oklahoma City, Oklahoma leased to AT&T Corp. and Jordan Associates,
Inc. (AT&T Call Center Buildings);
(5) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus;
(6) Statements of revenue over operating expenses for the Stone & Webster
Building and the AT&T Call Center Buildings; and
(7) Unaudited Pro Forma Financial Statements for the Wells REIT.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced a second offering
of common stock on December 20, 1999. Our second public offering was terminated
on December 19, 2000. We received approximately $175,229,193 in gross offering
proceeds from the sale of 17,522,919 shares in our second public offering.
Pursuant to the prospectus, we commenced our third offering of common stock
on December 20, 2000. As of January 31, 2001, we had received an additional
$25,133,848 in gross offering proceeds from the sale of 2,513,385 shares in the
third offering. Accordingly, as of January 31, 2001, we had received in the
aggregate approximately $332,544,960 in gross offering proceeds from the sale of
33,254,496 shares of our common stock.
1
Stone & Webster Building
Purchase of the Stone & Webster Building. On December 21, 2000, Wells OP, the
----------------------------------------
operating partnership for the Wells REIT, purchased a six-story office building
with approximately 312,564 rentable square feet located at 1430 Enclave Parkway,
Houston, Harris County, Texas. Wells OP purchased this building from Cardinal
Paragon, Inc. (Cardinal) pursuant to that certain Agreement of Purchase and Sale
of Property between Cardinal and Wells OP. Cardinal purchased the Stone &
Webster Building in a sale-leaseback transaction from Enclave Parkway Realty,
Inc., an affiliate of Stone & Webster, Inc. (Stone & Webster), on December 21,
2000. Cardinal is not in any way affiliated with the Wells REIT or our Advisor,
Wells Capital, Inc.
The purchase price for the Stone & Webster Building was $44,970,000. Wells
OP also incurred additional acquisition expenses in connection with the purchase
of the Stone & Webster Building, including attorneys' fees, recording fees,
structural report and environmental report fees, and other closing costs, of
approximately $45,000. In order to finance part of the acquisition of the Stone
& Webster Building, Wells OP obtained an acquisition loan of $35,900,000 from
Guaranty Federal Bank, F.S.B. (Guaranty Federal Loan) and $3,000,000 in seller
financing from Cardinal (Seller Financing).
An independent appraisal of the Stone & Webster Building was prepared by
Abbot & Associates, Inc., real estate appraisers, as of November 20, 2000,
pursuant to which the market value of the 9.96 acre parcel of land containing
the leased fee interest subject to the leases described below was estimated to
be $46,500,000 and the additional 4.34 acre parcel of land (described below) was
estimated to be $1,890,000, in cash or terms equivalent to cash. This value
estimate was based upon a number of assumptions, including that the Stone &
Webster Building will continue operating at a stabilized level with the tenants
described below occupying 100% of the rentable area, and is not necessarily an
accurate reflection of the fair market value of the property or the net proceeds
which would result from an immediate sale of this property. Wells OP also
obtained an environmental report and an engineering inspection report prior to
the closing evidencing that the condition of the land and the Stone & Webster
Building were satisfactory.
Description of the Loans. The Guaranty Federal Loan in the amount of
------------------------
$35,900,000 requires monthly payments of interest only and matures on December
20, 2001. In the event that the principal balance of the loan is not repaid in
full by March 31, 2001, Wells OP is required to make a principal payment of
$6,000,000 on such date. The interest rate on the Guaranty Federal Loan is a
variable rate equal to the London InterBank Offered Rate (LIBOR) for a 30-day
period plus 250 basis points if the principal balance of the loan is in excess
of $25,900,000; 200 basis points if the principal balance of the loan is between
$24,195,001 and $25,900,000; and 180 basis points if the principal balance of
the loan is less or equal to $24,195,000. As of January 31, 2001, the principal
balance of the Guaranty Federal Loan was $24,100,000. Wells OP has secured
separate interest rates for two portions of the Guaranty Federal Loan, each
having an interest rate of LIBOR plus 180 basis points on the date the rate for
such portion was secured. As of January 31, 2001, the interest rate on the
Guaranty Federal Loan was 7.61% per annum on the first $21,900,000 of the
principal loan balance and 7.66% per annum on the remaining $2,200,000 of the
principal balance. The Guaranty Federal Loan is secured by a first priority
mortgage against the Stone & Webster Building.
The Seller Financing consists of a $3,000,000 loan to Wells OP from
Cardinal. The Seller Financing requires the payment of the full principal
balance plus accrued interest on the earlier of: (i) December 20, 2001, or (ii)
the date that the Guaranty Federal Loan is repaid in full. The interest rate on
the Seller Financing is 6% per annum. The Seller Financing is secured by a
second priority mortgage against the Stone & Webster Building.
2
Description of the Stone & Webster Building and Site. The Stone & Webster
----------------------------------------------------
Building, which was completed in 1994, is a six-story office building containing
approximately 312,564 rentable square feet located on a 9.96 acre tract of land.
In addition, this site includes 4.34 acres of unencumbered land available for
expansion. The first four floors of the Stone & Webster Building are occupied
by Stone & Webster, and the fifth and sixth floors are occupied by SYSCO
Corporation (SYSCO).
Location of the Stone & Webster Building. The Stone & Webster Building is
----------------------------------------
located in a growing area with nearby access to the Houston freeway system,
employment centers and shopping centers. The site is within two miles of
Interstate 10 near the intersection of Briar Forest Drive and Dairy Ashford
Road. There is a planned development to the southeast of the site known as
Westchase which comprises 1,347 acres of land developed for a variety of uses
such as high-rise office buildings, office/warehouse buildings, apartment
complexes, condominium projects, retail shopping centers and hotels.
The Stone & Webster Lease. Stone & Webster occupies 206,048 rentable square
-------------------------
feet (floors 1 through 4) of the Stone & Webster Building under an Office
Building Lease between Wells OP and Stone & Webster entered into at closing.
The current term of the Stone & Webster lease is ten years, which commenced on
December 21, 2000, and expires on December 20, 2010. Stone & Webster has the
right to extend the Stone & Webster lease for two additional five-year periods
of time for a base rent equal to the greater of (i) the last year's rent, or
(ii) the then-current fair market rental value. In the event that the parties
cannot agree upon the fair market rental value, such value shall be determined
in accordance with the appraisal procedure contained in the Stone & Webster
lease.
Stone & Webster is a full-service engineering and construction company
offering managerial and technical resources for solving complex energy,
environmental, infrastructure and industrial challenges. Stone & Webster, which
was founded in 1889 as an electrical testing laboratory and consulting firm, has
evolved into a global organization employing more than 5,000 people worldwide.
The Stone & Webster lease is guaranteed by The Shaw Group, Inc., the parent
company of Stone & Webster. Shaw Group is the largest supplier of fabricated
piping systems and services in the world. Shaw Group distinguishes itself by
offering comprehensive solutions consisting of integrated engineering and
design, pipe fabrication, construction and maintenance services and the
manufacture of specialty pipe fittings and supports to the power generation,
crude oil refining, chemical and petrochemical processing and oil and gas
exploration and production industries. Shaw Group has approximately 13,000
employees with offices in the United States, Australia, Canada, the United
Kingdom, Venezuela and Bahrain. Shaw Group reported net income of approximately
$18.1 million on revenues of approximately $494 million for the fiscal year
1999, and reported a net worth, as of December 31, 1999, of over $174 million.
The annual base rent payable under the Stone & Webster lease is $4,533,056
($22 per square foot) payable in monthly installments of $377,754.67 for the
first five years of the lease term and $5,213,014 ($25.30 per square foot)
payable in monthly installments of $434,417.83 for the remainder of the lease
term.
Pursuant to the Stone & Webster lease, Stone & Webster is required to pay
its proportionate share of taxes relating to the Stone & Webster Building and
all operating costs incurred by the landlord in maintaining and operating the
Stone & Webster Building, including garbage and waste disposal, janitorial
service and window cleaning, security, insurance, water and sewer charges,
wages, salaries and employee benefits of all employees engaged in the operation,
maintenance and management of the building, indoor and outdoor landscaping,
utilities and repairs, replacements and general maintenance. Wells OP, as the
landlord, will be responsible for maintaining the common areas of the building,
the roof, foundation, exterior walls and windows, load bearing items and the
central heating, ventilation and air conditioning, electrical, mechanical and
plumbing systems of the building.
3
The SYSCO Lease. SYSCO currently occupies 106,516 rentable square feet (floors
---------------
5 and 6) of the Stone & Webster Building under a Lease Agreement. The
landlord's interest in the SYSCO lease was assigned to Wells OP at the closing.
The initial term of the SYSCO lease is ten years, which commenced on October 1,
1998, and expires on September 30, 2008.
SYSCO is the largest marketer and distributor of foodservice products in
North America. SYSCO operates from 101 distribution facilities and provides its
products and services to about 356,000 restaurants and other users across the
United States and portions of Canada. SYSCO distributes a wide variety of fresh
and frozen meats, seafood, poultry, fruits and vegetables, plus bakery products,
canned and dry foods, paper and disposable products, sanitation items, dairy
foods, beverages, kitchen and tabletop equipment, as well as medical and
surgical supplies. SYSCO reported net income of approximately $362 million on
revenues of approximately $17 billion for the fiscal year ending July 2000, and
reported a net worth, as of June 30, 2000, of over $1.4 billion.
The annual base rent payable under the SYSCO lease is $2,130,320 ($20 per
square foot) payable in monthly installments of $177,526.67 for the first five
years of the lease term and $2,236,836 ($21 per square foot) payable in monthly
installments of $186,403 for the remainder of the lease term.
Pursuant to the SYSCO lease, SYSCO is required to pay its proportionate
share of taxes and operating costs incurred by the landlord in maintaining and
operating the Stone & Webster Building, including supplies and materials,
utilities, insurance and repairs, replacements, general maintenance and wages
and salaries (including management fees not to exceed 3% of gross revenues
attributable to the building) of all employees engaged in maintaining and
operating the Stone & Webster Building. Wells OP, as the landlord, will be
responsible for maintaining the common areas of the building, the roof,
foundation, exterior walls and windows, load bearing items and the central
heating, ventilation and air conditioning, electrical, mechanical and plumbing
systems of the building.
Metris Minnetonka Building
Purchase of the Metris Minnetonka Building. On December 21, 2000, Wells OP
------------------------------------------
purchased a nine-story office building with approximately 300,633 rentable
square feet located at 10900 Wayzata Boulevard, Minnetonka, Minnesota. Wells OP
purchased the Metris Minnetonka Building from Opus Northwest, L.L.C. (Opus),
pursuant to that certain Purchase Agreement dated October 31, 2000 (Metris
Agreement) between Opus and the Advisor. Opus is not in any way affiliated with
the Wells REIT or the Advisor.
The rights under the Metris Agreement were assigned by the Advisor, the
original purchaser under the Metris Agreement, to Wells OP at closing. The
purchase price for the Metris Minnetonka Building was $52,800,000. Wells OP
also incurred additional acquisition expenses in connection with the purchase of
the Metris Minnetonka Building, including attorneys' fees, recording fees, loan
fees, and other closing costs, of approximately $100,000. In order to finance
the acquisition of the Metris Minnetonka Building, Wells OP obtained $52,800,000
in loan proceeds by drawing down on an existing line of credit with SouthTrust
Bank, N.A.
An independent appraisal of the Metris Minnetonka Building was prepared by
CB Richard Ellis, Inc., real estate appraisers, as of October 26, 2000, pursuant
to which the market value of the land and the leased fee interest subject to the
lease described below was estimated to be $52,800,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Metris Minnetonka Building will continue operating at a
stabilized level with Metris Direct, Inc. (Metris) occupying 100% of the
rentable area, and is not necessarily an accurate reflection of the fair market
value of the property or the net proceeds which would result from an immediate
sale of this property. Wells OP also obtained an environmental report and an
engineering inspection report prior to the closing evidencing
4
that the condition of the land and the Metris Minnetonka Building were
satisfactory.
Description of the Metris Minnetonka Building and Site. As set forth above, the
------------------------------------------------------
Metris Minnetonka Building is a nine-story office building containing
approximately 300,633 rentable square feet. The Metris Minnetonka Building was
completed in August 2000. The Metris Minnetonka Building is leased to Metris as
its corporate headquarters. The Metris Minnetonka Building is Phase II of a two
phase office complex known as Crescent Ridge Corporate Center. Phase I of
Crescent Ridge Corporate Center is an eight-story multi-tenant building which is
connected to the Metris Minnetonka Building by a single-story restaurant link
building. Neither Phase I of Crescent Ridge Corporate Center nor the connecting
restaurant are owned by Wells OP.
The Metris Minnetonka Building is constructed of steel frames with
reinforced concrete masonry floors and roofs. The exterior is earth tone cast
stone and reflective glass with marble medallion accents. The building features
state of the art technology capabilities, including fiber optic cabling,
individual heating and cooling controls for every 1,200 square feet of tenant
space, a combination of fluorescent and parabolic lighting, a wet sprinkler
system, and four computer-controlled traction passenger elevators with 2,500
pound maximum capacity. Each floor contains approximately 34,000 square feet.
The office areas and hallways are carpeted, the flooring in the restrooms is
ceramic tile and the flooring in the lobby is natural stone. Drop acoustical
ceilings are installed in the office areas at the nine foot level. Other
amenities at the Metris Minnetonka Building include a conference center, a full
service cafeteria, two-story vaulted lobbies, a fitness area and locker
facilities and a card access system. The Metris Minnetonka Building is located
on an irregularly shaped 13.58 acre site which overlooks a large adjoining
wetland area.
Location of the Metris Minnetonka Building. The Metris Minnetonka Building is
-------------------------------------------
located in Minnetonka, Minnesota, which is a western suburb of Minneapolis. The
site is located within the Interstate 394 corridor at the northeast corner of
Interstate 394 and County Road 73 (Hopkins Crossroads). The Interstate 394
corridor contains approximately 6,500,000 square feet in office space and is an
attractive location for, among other reasons, its proximity to Minneapolis/St.
Paul, its proximity to executive housing around Lake Minnetonka and the
Minneapolis lakes area and its proximity and accessibility to labor markets.
Among other corporate headquarter locations located within the Interstate 394
corridor are Cargill, Carlson Companies, General Mills, Life USA and Travelers
Express. There are significant limitations on new developments within the
Interstate 394 corridor which is anticipated to result in a supply constrained
situation and projected low vacancy rates.
Description of Metris Lease. Metris occupies all 300,633 rentable square feet
---------------------------
of the Metris Minnetonka Building pursuant to that certain Multitenant Office
Lease Agreement dated March 29, 1999. The Metris lease commenced on September
1, 2000 and has an expiration date of December 31, 2011. Metris has the right
to renew the Metris lease for an additional five-year term with not less than 18
months notice prior to the expiration of the initial term at fair market rent,
but in no event less than the basic rent payable in the immediate preceding
period. In the event that the parties cannot agree upon the fair market rent
for the renewal term, the fair market rent will be determined in accordance with
the appraisal provisions of the Metris lease.
Metris is a principal subsidiary of Metris Companies, Inc. (Metris
Companies), a publicly traded company listed on the New York Stock Exchange
(symbol MXT) which has guaranteed the Metris lease. Metris Companies is an
information-based direct marketer of consumer credit products and fee based
services primarily to moderate income consumers. Metris Companies consumer
credit products are primarily unsecured credit cards issued by its subsidiary,
Direct Merchants Credit Card Bank. Metris Companies customers and prospects
include individuals for whom credit bureau information is available and existing
customers of a former affiliate, Fingerhut Corporation. Metris Companies
markets its fee
5
based services, including debt waiver programs (credit insurance for death or
disability), membership clubs, extended service plans and third party insurance,
to its credit card customers. For calendar year 1999, Metris Companies had net
income of approximately $115 million on revenues of approximately $1.369
billion, and reported a net worth, as of December 31, 1999, of approximately
$623 million. Metris Companies employs approximately 3,400 people. Metris
Companies carries a B+ rating by S & P for its senior debt, with a stable
outlook.
Rental income for the initial 136-month term is summarized as follows:
Dates Annual Net Rent PSF
----------------------------------------------------------
Sept. '00 - Dec. '06 $4,960,445 $16.50
----------------------------------------------------------
Jan. '07 - Dec. '09 $5,576,742 $18.55
----------------------------------------------------------
Jan. '10 - Dec. '10 $6,178,008 $20.55
----------------------------------------------------------
Jan. '11 - Dec. '11 $6,478.641 $21.55
----------------------------------------------------------
While Metris was granted certain rental concessions under the Metris lease,
Opus, the seller, has agreed to cover the free rent, so as to yield the above
net effective rates to Wells OP. In addition, Metris is required to pay annual
parking and storage fees of $132,384 through December 2006 and $164,052 payable
on a monthly basis for the remainder of the lease term.
Pursuant to the Metris lease, Metris is required to pay 100% of operating
costs incurred by the landlord in maintaining and operating the Metris
Minnetonka Building, including all property taxes, insurance premiums,
maintenance and repair costs, steam, electricity, water, sewer, gas and other
utility charges, fuel, lighting, window washing, janitorial services and
reasonable management fees (not to exceed 1.75% of gross revenues from the
Metris Minnetonka Building). Wells OP, as the landlord, will be responsible for
repair and maintenance of the foundations, exterior walls and roof of the Metris
Minnetonka Building and the electrical, mechanical, plumbing, heating and air
conditioning systems.
The Metris lease also contains a construction warranty pursuant to which
the landlord has warranted to Metris that the tenant improvements and related
materials, equipment and installation shall be free from defects in workmanship
and shall conform to the plans and specifications. The landlord is obligated to
repair, correct or replace, as necessary, any defective item occasioned by a
breach of such warranty if notified by Metris within one year from the
commencement date of the Metris lease. Pursuant to the Metris Agreement,
however, Opus has assumed the obligation for any such repairs so long as Wells
OP notifies Opus of any claims by Metris under the construction warranty no
later than January 20, 2002.
AT&T Call Center Buildings
Purchase of the AT&T Call Center Buildings. On December 28, 2000, the Wells
------------------------------------------
Fund XII - REIT Joint Venture Partnership (Fund XII-REIT Joint Venture), a joint
venture between Wells OP and Wells Real Estate Fund XII, L.P. (Wells Fund XII),
acquired a one-story office building and a two-story office building containing
an aggregate of approximately 128,500 rentable square feet located at 3201 Quail
Springs Parkway, Oklahoma City, Oklahoma. The Fund XII-REIT Joint Venture
purchased the AT&T Call Center Buildings from OKC Real Estate Investments, Inc.
(OKC) pursuant to that certain Agreement for the Purchase and Sale of Property
between OKC, as seller, and the Advisor, as purchaser. OKC is not in any way
affiliated with the Registrant or the Advisor.
The Advisor, the original purchaser under the agreement, assigned its
rights under the agreement to the Fund XII-REIT Joint Venture at closing. The
Fund XII-REIT Joint Venture paid a purchase price of $15,300,000 for the AT&T
Call Center Buildings and incurred additional acquisition expenses in
6
connection with the purchase of the AT&T Call Center Buildings, including
attorneys' fees, recording fees and other closing costs, of approximately
$27,554.
Wells OP made a capital contribution of $6,736,554 and Wells Fund XII made
a capital contribution of $8,591,000 to the Fund XII-REIT Joint Venture to fund
their respective shares of the acquisition costs for the AT&T Call Center
Buildings.
Description of the AT&T Call Center Buildings and the Site. As set forth above,
----------------------------------------------------------
the AT&T Call Center Buildings consist of a one-story office building and a two-
story office building containing approximately 50,000 and 78,500 rentable square
feet, respectively, on a 11.34 acre tract of land. Construction on the
buildings was completed in April 1998 and December 2000, respectively. The two
adjacent buildings are connected by a mutual hallway. Both buildings are
constructed using a steel frame with steel beams on a concrete slab with
concrete footings. The exterior walls are made of tilt-up concrete panels with
punched openings around the perimeter. The windows consist of tempered glass in
aluminum frames. The interior walls consist of gypsum board covered with semi-
gloss enamel paint. In addition, the two-story office building contains a fully
equipped cafeteria and an elevator. There are approximately 775 paved surface
parking spaces at the site.
The AT&T Call Center Buildings are located in the Quail Springs Office Park
North in Oklahoma City, Oklahoma. Quail Springs Office Park North is located in
the northwest sector of Oklahoma City, approximately eight to 11 miles northwest
of the central business district. Oklahoma City is known for its competitive
real estate prices, available space for business, supportive governmental
services, good labor quality and diversified economic base. The city's largest
employers include the State of Oklahoma, Avaya, Inc., Southwestern Bell
Telephone and General Motors Corporation.
An independent appraisal of the AT&T Call Center Buildings was prepared by
Isaacs & Associates, real estate appraisers and consultants, as of July 14,
2000, pursuant to which the market value of the land and the leased fee interest
subject to the AT&T lease and the Jordan lease (described below) was estimated
to be $15,400,000, in cash or terms equivalent to cash. This value estimate was
based upon a number of assumptions, including that the AT&T Call Center
Buildings will continue operating at a stabilized level with tenants occupying
100% of the rentable area, and is not necessarily an accurate reflection of the
fair market value of the property or the net proceeds which would result from an
immediate sale of this property. The Fund XII-REIT Joint Venture also obtained
an environmental report and an engineering inspection report prior to the
closing evidencing that the condition of the land and the AT&T Call Center
Buildings were satisfactory.
The AT&T Lease. The entire 78,500 rentable square feet of the two-story office
--------------
building and 25,000 rentable square feet of the one-story office building are
currently under a net lease agreement with AT&T Corp. (AT&T). The landlord's
interest in the AT&T lease was assigned to the Fund XII-REIT Joint Venture at
the closing. The AT&T lease commenced on April 1, 2000, and the initial term
expires on November 30, 2010. AT&T has the right to extend the AT&T lease for
two additional five-year periods of time at the then-current fair market rental
rate upon delivering written notice within 240 days prior to lease expiration.
AT&T is among the world's leading voice and data communications companies,
serving consumers, businesses and governments worldwide. AT&T has one of the
largest digital wireless networks in North America and is one of the leading
suppliers of data and internet services for businesses. In addition, AT&T offers
outsourcing, consulting and networking-integration to large businesses and is
one of the largest direct internet access service providers for consumers in the
United States. During fiscal year 1999, AT&T had net income of approximately
$3.43 billion on revenues of over $62.39 billion.
7
The base rent payable for the initial lease term of the AT&T lease is as
follows:
-----------------------------------------------------------------------
Lease Months Annual Rent Rentable Square Feet/Year
-----------------------------------------------------------------------
Months 1 to 8* $ 300,000 $12.00
-----------------------------------------------------------------------
Months 9 to 35 $1,242,000 $12.00
-----------------------------------------------------------------------
Months 36 to 65 $1,293,750 $12.50
-----------------------------------------------------------------------
Months 66 to 95 $1,345,500 $13.00
-----------------------------------------------------------------------
Months 96 to 125 $1,397,250 $13.50
-----------------------------------------------------------------------
___________________
*For occupancy of 25,000 square feet of the one-story office building only.
Under the AT&T lease, AT&T is required to pay, as additional monthly rent,
its gas, water and electricity costs and all operating expenses, including but
not limited to, garbage and waste disposal, telephone, sprinkler service,
janitorial service, security, insurance premiums, all taxes, assessments and
other governmental levies and such other operating expenses with respect to its
portion of the AT&T Call Center Buildings. In addition, AT&T is responsible for
all routine maintenance and repairs to its portion of the AT&T Call Center
Buildings. The Fund XII-REIT Joint Venture, as landlord, will be responsible
for the repair and replacement of the roof, foundation, load bearing items,
exterior surface walls, plumbing, pipes, conduits and electrical, mechanical and
plumbing systems of the AT&T Call Center Buildings. AT&T must obtain written
consent from the Fund XII-REIT Joint Venture before making any alterations to
the premises in excess of $10,000.
AT&T has a right of first offer to lease the remainder of the space in the
one-story office building currently occupied by Jordan Associates, Inc.
(Jordan), as described below, if Jordan vacates the premises.
The Jordan Lease. Jordan currently occupies the remaining 25,000 rentable
----------------
square feet contained in the one-story office building under a net lease
agreement. The landlord's interest in the Jordan lease was also assigned to the
Fund XII-REIT Joint Venture at the closing. The Jordan lease commenced on April
1, 1998, and the initial term expires on March 31, 2008. Jordan has the right
to extend the Jordan lease for one additional five-year period of time at the
then-current fair market rental rate upon delivering written notice within 240
days prior to expiration of the initial lease term.
Jordan provides businesses with advertising and related services including
public relations, research, direct marketing and sales promotion. Through this
corporate office and other offices in Tulsa, St. Louis, Indianapolis and Wausau,
Wisconsin, Jordan provides services to major clients such as Bank One, Oklahoma,
N.A., BlueCross & BlueShield of Oklahoma, Kraft Food Services, Inc., Logix
Communications and the American Dental Association. Jordan employs
approximately 100 employees and has been in business for over 35 years.
The base rent payable for the initial lease term of the Jordan lease is as
follows:
-------------------------------------------------------------------------
Lease Months Annual Rent Rentable Square Feet/Year
-------------------------------------------------------------------------
Months 1 to 60 $294,500 $11.78
-------------------------------------------------------------------------
Months 61 to 120 $332,000 $13.28
-------------------------------------------------------------------------
Under the Jordan lease, Jordan is required to pay as additional monthly
rent its gas, water and electricity costs and all operating expenses, including,
but not limited to, garbage and waste disposal, telephone, sprinkler service,
janitorial service, security, insurance premiums, all taxes, assessments and
8
other governmental levies and such other operating expenses with respect to its
portion of the one-story building. In addition, Jordan is responsible for all
routine maintenance and repairs to its portion of the one-story building. The
Fund XII-REIT Joint Venture, as landlord, will be responsible for the repair and
replacement of the roof, foundation, load bearing items, exterior surface walls,
plumbing, pipes, conduits and electrical, mechanical and plumbing systems of the
AT&T Call Center Buildings.
Property Fees
Wells Management Company, Inc. (Wells Management), an affiliate of the
Advisor to Wells REIT, has been retained to manage and lease both the Stone &
Webster Building and the Metris Minnetonka Building. The Wells REIT shall pay
management and leasing fees to Wells Management in the amount of 4.5% of gross
revenues from the Stone & Webster Building and the Metris Minnetonka Building,
subject to certain limitations.
Wells Management has also been retained to manage and lease the AT&T Call
Center Buildings. The Fund XII-REIT Joint Venture will pay management and
leasing fees to Wells Management in the amount of 4.5% of gross revenues from
the AT&T Call Center Buildings, subject to certain limitations.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 98 in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" section of the prospectus is revised as of the date of this
supplement by the deletion of the first two paragraphs of that section and the
insertion of the following paragraphs in lieu thereof:
We began active operations on June 5, 1998, when we received and
accepted subscriptions for 125,000 shares pursuant to our initial public
offering, which commenced on January 30, 1998. We terminated our initial
public offering on December 19, 1999. Of the $132,181,919 raised in the
initial offering, we invested a total of $111,032,812 in properties. On
December 20, 1999, we commenced a follow-on public offering of up to
22,200,000 shares of common stock at $10 per share. We terminated our
follow-on public offering on December 19, 2000. Of the $175,229,193 raised
in the follow-on offering, we invested a total of $147,192,522 in
properties.
Pursuant to the prospectus, we commenced this third offering of shares
of our common stock on December 20, 2000. As of January 31, 2001, we had
received an additional $25,133,848 in gross offering proceeds from the sale
of 2,513,385 shares in the third offering. As of January 31, 2001, we had
raised in the aggregate a total of $332,544,960 in offering proceeds
through the sale of 33,254,496 shares of common stock. As of January 31,
2001, we had paid a total of $11,586,654 in acquisition and advisory fees
and acquisition expenses, had paid a total of $41,380,909 in selling
commissions and organizational and offering expenses, had made capital
contributions of $272,237,045 to Wells OP for investments in joint ventures
and acquisitions of real property, had utilized $1,497,691 for the
redemption of stock pursuant to our share redemption program, and were
holding net offering proceeds of $5,842,661 available for investment in
additional properties.
9
Financial Statements
The statements of revenues over certain operating expenses of the Stone &
Webster Building and the AT&T Call Center Buildings for the year ended December
31, 1999, included in this supplement and elsewhere in the registration
statement, have been audited by Arthur Andersen LLP, independent public
accountants, as indicated in their reports with respect thereto, and are
included in this supplement in reliance upon the authority of said firm as
experts in giving said reports.
The statements of revenues over certain operating expenses of the Stone &
Webster Building and the AT&T Call Center Buildings for the nine months ended
September 30, 2000, included in this supplement and elsewhere in the
registration statement have not been audited.
The Pro Forma Statements of Income and Pro Forma Balance Sheet of the Wells
REIT as of December 31, 1999 and September 30, 2000, which are included in this
supplement, have not been audited.
10
INDEX TO FINANCIAL STATEMENTS
Page
----
Stone & Webster Building
Financial Statements
--------------------
Report of Independent Public Accountants 12
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 (audited) and for the
nine months ended September 30, 2000 (unaudited) 13
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 (audited) and
for the nine months ended September 30, 2000 (unaudited) 14
AT&T Call Center Buildings
Financial Statements
--------------------
Report of Independent Public Accountants 16
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 1999 (audited) and for the
nine months ended September 30, 2000 (unaudited) 17
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999 (audited) and
for the nine months ended September 30, 2000 (unaudited) 18
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 20
Pro Forma Balance Sheet as of September 30, 2000 21
Pro Forma Statements of Income for the year ended
December 31, 1999 and for the nine months ended
September 30, 2000 23
11
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the STONE & WEBSTER BUILDING for the year ended December 31, 1999.
This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the
audit to obtain reasonable assurance about whether the financial statement is
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statement. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Stone &
Webster Building after acquisition by the Wells Operating Partnership, L.P. (on
behalf of Wells Real Estate Investment Trust, Inc.). The accompanying statement
of revenues over certain operating expenses was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Stone &
Webster Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Stone & Webster Building for the year ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 19, 2001
12
STONE & WEBSTER BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000
2000 1999
---------- ----------
Unaudited)
RENTAL REVENUES $1,637,685 $2,183,580
OPERATING EXPENSES, net of reimbursements 1,250,097 1,666,796
---------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $ 387,588 $ 516,784
========== ==========
The accompanying notes are an integral part of these statements.
13
STONE & WEBSTER BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On December 21, 2000, the Wells Operating Partnership L.P. ("Wells OP"), a
Delaware Limited Partnership formed to acquire, own, lease, operate, and
manage real properties on behalf of the Wells Real Estate Investment Trust,
Inc., acquired the Stone & Webster Building from Cardinal Paragon, Inc.
("Cardinal"). Cardinal is not an affiliate of Wells OP. The total purchase
price of the Stone & Webster Building was $44,970,000. Wells OP incurred
additional acquisition expenses in connection with the purchase of the
Stone & Webster Building, including attorney's fees, recording fees, loan
fees, and other closing costs, of approximately $45,000. The funds used to
purchase the Stone & Webster Building consisted of cash and proceeds from
notes payable to Guarantee Federal Bank, F.S.B. and Cardinal.
Stone & Webster, Inc. ("Stone & Webster") occupies 206,048 of the entire
312,564 rentable square feet of the Stone & Webster Building under an
office building lease between Wells OP and Stone & Webster (the "Stone &
Webster Lease") entered into at closing. The current term of the Stone &
Webster Lease is ten years, which commenced on December 28, 2000 and
expires on December 31, 2010. Stone & Webster has the right to extend the
Stone & Webster Lease for two additional five-year periods for a base rent
equal to the greater of (i) the last year's rent, or (ii) the then-current
"fair market rental value." In the event that the parties cannot agree upon
the fair market rental value, such value shall be determined in accordance
with the appraisal procedure contained in the Stone & Webster Lease. The
Stone & Webster Lease is guaranteed by The Shaw Group, Inc., the parent
company of Stone & Webster. Pursuant to the Stone & Webster Lease, Stone &
Webster is required to pay its proportionate share of property taxes
relating to the Stone & Webster Building and all operating costs incurred
by the landlord in maintaining and operating the Stone & Webster Building,
including garbage and waste disposal, janitorial service and window
cleaning, security, insurance, water and sewer charges, wages, salaries,
and employee benefits of all employees engaged in the operation,
maintenance and management of the building, indoor and outdoor landscaping,
utilities and repairs, replacements and general maintenance.
SYSCO occupies the remaining 106,516 rentable square feet of the Stone &
Webster Building under a Lease Agreement (the "SYSCO Lease"). The
landlord's interest in the SYSCO Lease was assigned to Wells OP at the
closing. The initial term of the SYSCO Lease is ten years, which commenced
on October 1, 1998, and expires on September 20, 2008. Pursuant to the
SYSCO Lease, SYSCO is required to pay its proportionate share of property
taxes and operating costs incurred by the landlord in maintaining and
operating the Stone & Webster Building, including supplies and materials,
utilities, insurance and repairs, replacements, general maintenance and
wages and salaries (including management fees not to exceed 3% of gross
revenues attributable to the building) of all employees engaged in such
operation.
Rental Revenues
14
Rental income from leases is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statement excludes certain historical expenses, such as depreciation,
interest, and management fees, not comparable to the operations of the
Stone & Webster Building after acquisition by Wells OP.
15
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XII, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the AT&T CALL CENTER BUILDINGS for the year ended December 31,
1999. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the AT&T
Call Center Buildings after acquisition by the Wells Fund XII--REIT Joint
Venture. The accompanying statement of revenues over certain operating expenses
was prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission and is not intended to be a complete
presentation of the AT&T Call Center Buildings' revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the AT&T Call Center Buildings for the year ended December 31, 1999,
in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 19, 2001
16
AT&T CALL CENTER BUILDINGS
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31,1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000
2000 1999
-------- ---------
(Unaudited)
RENTAL REVENUES $867,914 $313,250
OPERATING EXPENSES, net of reimbursements 6,273 20,155
-------- --------
REVENUES OVER CERTAIN OPERATING EXPENSES $861,641 $293,095
======== ========
The accompanying notes are an integral part of these statements.
17
AT&T CALL CENTER BUILDINGs
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 1999
AND THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On December 28, 2000, the Wells Fund XII-REIT Joint Venture (the "Joint
Venture") acquired the AT&T Call Center Buildings from OKC Real Estate
Investments, Inc. ("OKC"). The Joint Venture is a joint venture partnership
between Wells Real Estate Fund XII, L.P. ("Wells Fund XII") and Wells
Operating Partnership, L.P. ("Wells OP"), a Delaware Limited Partnership
formed to acquire, own, lease, operate, and manage real properties on
behalf of Wells Real Estate Investment Trust, Inc. OKC is not an affiliate
of Wells Fund XII or Wells OP. The total purchase price of the AT&T Call
Center Buildings was $15,300,000. Additional acquisition expenses incurred
in connection with the purchase of the AT&T Call Center Buildings, included
attorney's fees, recording fees, loan fees, and other closing costs, of
approximately $28,000. Wells Fund XII contributed $8,591,000, and Wells OP
contributed $6,737,000 to the Joint Venture for their respective shares of
the purchase of the AT&T Call Center Buildings.
AT&T Corp. ("AT&T") occupies the entire 78,500 rentable square feet of the
two-story office building and 25,000 rentable square feet of the one-story
office building under a net lease agreement (the "AT&T Lease"). The
landlord's interest in the AT&T Lease was assigned to the Joint Venture at
the closing. The initial term of the AT&T Lease commenced on April 1, 2000
and expires on November 30, 2010. AT&T has the right to extend the AT&T
Lease for two additional five-year periods at the then-current fair market
rental rate upon delivering written notice within 240 days prior to
expiration of the lease. Under the AT&T lease, AT&T is required to pay, as
additional monthly rent, its gas, water, and electricity costs and all
operating expenses, including, but not limited to, garbage and waste
disposal, telephone, sprinkler service, janitorial service, security,
insurance premiums, all taxes, assessments and other governmental levies,
and such other operating expenses with respect to its portion of the AT&T
Call Center Buildings. In addition, AT&T is responsible for all routine
maintenance and repairs to its portion of the AT&T Call Center Buildings.
Jordan Associates, Inc. ("Jordan") currently occupies the remaining 25,000
rentable square feet contained in the one-story building under a net lease
agreement (the "Jordan Lease"). The landlord's interest in the Jordan lease
was also assigned to the Fund XII-REIT Joint Venture at the closing. The
initial term of the Jordan Lease commenced on April 1, 1998 and expires on
March 31, 2008. Jordan has the right to extend the Jordan lease for one
additional five-year period at the then-current fair market rental rate
upon delivering written notice within 240 days prior to expiration of the
initial lease term. Under the Jordan Lease, Jordan is required to pay as
additional monthly rent, its gas, water, and electricity costs, and all
operating expenses, including, but not limited to, garbage and waste
disposal, telephone, sprinkler service, janitorial service, security,
insurance premiums, all taxes, assessments and other governmental levies,
and such other operating expenses with respect to its portion of the AT&T
Call Center Buildings. In addition, Jordan is responsible for all routine
maintenance and repairs to its portion of the AT&T Call Center Buildings.
18
Rental Revenues
Rental income from leases is recognized on a straight-line basis over the
life of the lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, the
statement excludes certain historical expenses, such as depreciation,
interest, and management fees, not comparable to the operations of the AT&T
Call Center Buildings after acquisition by the Joint Venture.
19
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of September 30, 2000
has been prepared to give effect to the acquisition of the Motorola
Plainfield Building ("Prior Acquisition"), the Stone & Webster Building,
and the Metris Minnetonka Building by the Wells Operating Partnership, L.P.
("Wells OP"), and the AT&T Call Center Buildings by the Wells XII-REIT
Joint Venture (a joint venture between the Wells OP and Wells Real Estate
Fund XII, L.P.), as if the acquisitions occurred on September 30, 2000. The
following unaudited pro forma statements of income (loss) for the year
ended December 31, 1999 for and the nine months ended September 30, 2000
have been prepared to give effect to the acquisition of the Dial Building,
the ASML Building, the Motorola Tempe Building, the Motorola Plainfield
Building (together, the "Prior Acquisitions"), the Stone & Webster
Building, the Metris Minnetonka Building and the AT&T Call Center Buildings
as if each acquisition occurred on January 1, 1999.
Wells OP is a Delaware limited partnership that was organized to own and
operate properties on behalf of the Wells Real Estate Investment Trust,
Inc. Wells Real Estate Investment Trust, Inc. is the general partner of the
Wells OP.
These unaudited pro forma financial statements are prepared for
informational purposes only and are not necessarily indicative of future
results or of actual results that would have been achieved had the
acquisitions been consummated at the beginning of the period presented.
As of September 30, 2000, the date of the accompanying pro forma balance
sheet, Wells OP held cash of $12,257,161. The additional cash used to
purchase the Stone & Webster Building, the Metris Minnetonka Building, and
the AT&T Call Center Buildings including deferred project costs paid to
Wells Capital, Inc. (an affiliate of Wells OP), was raised through the
issuance of additional shares subsequent to September 30, 2000, but prior
to the acquisition dates of December 21, 2000, December 21, 2000, and
December 28, 2000, respectively. This balance is reflected in due to
affiliates in the accompanying pro forma balance sheet.
20
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2000
(Unaudited)
ASSETS
Pro Forma Adjustments
Wells Real ------------------------------------------------------------
Estate AT&T
Investment Prior Stone & Metris Call Center Pro Forma
Trust, Inc. Acquisition Webster Minnetonka Buildings Total
------------ ----------- ----------- ----------- ----------- ------------
REAL ESTATE ASSETS,
at cost:
Land $ 21,695,304 $9,652,500(a) $7,100,000(a) $ 7,700,000(a) 0 $ 47,167,473
402,509(b) 296,070(b) 321,090(b)
Buildings less
accumulated
depreciation of
$6,810,792 188,671,038 24,525,641(a) 37,914,954(a) 45,151,969(a) 0 300,750,212
1,022,719(b) 1,581,054(b) 1,882,837(b)
Construction in
progress 295,517 0 0 0 0 295,517
------------ ----------- ----------- ----------- ---------- ------------
Total real estate
assets 210,661,859 35,603,369 46,892,078 55,055,896 0 348,213,202
INVESTMENT IN JOINT
VENTURES 36,708,242 0 0 0 7,017,244(e) 43,725,486
CASH AND CASH EQUIVALENTS 12,257,161 (10,753,381)(a) (466,584)(a) 0 0 0
(954,223)(b)
(82,973)(c)
DEFERRED OFFERING COSTS 1,108,206 0 0 0 0 1,108,206
DEFERRED PROJECT COSTS 471,005 (471,005)(b) 0 0 0 0
DUE FROM AFFILIATES 859,515 0 0 0 0 859,515
PREPAID EXPENSES AND
OTHER ASSETS 6,344,905 82,973(c) 0 0 0 6,427,878
------------ ----------- ----------- ----------- ---------- ------------
Total assets $268,410,893 $23,424,760 $46,425,494 $55,055,896 $7,017,244 $400,334,287
============ =========== =========== =========== ========== ============
21
LIABILITIES AND SHAREHOLDERS' EQUITY
Pro Forma Adjustments
Wells Real -------------------------------------------------------
Estate AT&T
Investment Prior Stone & Metris Call Center Pro Forma
Trust, Inc. Acquisitions Webster Minnetonka Buildings Total
------------ ------------ ----------- ----------- ---------- ------------
LIABILITIES:
Accounts payable and accrued expenses $ 975,821 $ 424,760(a)(d) $ 0 $ 0 $ 0 $ 1,400,581
Notes payable 38,909,030 23,000,000(a) 38,900,000(a) 52,850,000(a) 0 153,659,030
Dividends payable 4,475,982 0 0 0 0 4,475,982
Due to affiliate 1,372,508 0 5,648,370(a) 1,969(a) 6,736,554(a) 18,121,142
1,877,124(b) 2,203,927(b) 280,690(b)
------------ ----------- ----------- ----------- ---------- ------------
Total liabilities 45,733,341 23,424,760 46,425,494 55,055,896 7,017,244 177,656,735
------------ ----------- ----------- ----------- ---------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT
HOLDER IN OPERATING
PARTNERSHIP 200,000 0 0 0 0 200,000
------------ ----------- ----------- ----------- ---------- ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value;
40,000,000 shares authorized,
13,471,085 shares issued and
outstanding 261,748 0 0 0 0 261,748
Additional paid-in capital 222,215,804 0 0 0 0 222,215,804
Retained earnings 0 0 0 0 0 0
------------ ----------- ----------- ----------- ---------- ------------
Total shareholders' equity 222,477,552 0 0 0 0 222,477,552
------------ ----------- ----------- ----------- ---------- ------------
Total liabilities and
shareholders' equity $268,410,893 $23,424,760 $46,425,494 $55,055,896 $7,017,244 $400,334,287
============ =========== =========== =========== ========== ============
(a) Reflects Wells Real Estate Investment Trust, Inc.'s purchase price for
the building.
(b) Reflects deferred project costs allocated to the land and building at
approximately 4.17% of the purchase price.
(c) Reflects loan fees incurred in connection with the receipt of loan
proceeds from the SouthTrust Bank, N.A., line of credit.
(d) Reflects assumption of obligation of Wells OP to reimburse the tenant
of certain rent payments required of it under its prior lease.
(e) Reflects Wells Real Estate Investment Trust, Inc.'s contribution to
the Wells Fund XII-REIT Joint Venture
22
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 1999
(Unaudited)
Pro Forma Adjustments
Wells Real -----------------------------------------------------------------
Estate AT&T
Investment Prior Stone & Metris Call Center Pro Forma
Trust, Inc. Acquisitions Webster Minnetonka Buildings Total
----------- ------------ ----------- ----------- ---------- ------------
REVENUES:
Rental income $4,735,184 $7,366,142(a) $ 2,183,580(a) $ 0 $ 0 $14,284,906
Equity in income (loss) of
joint ventures 1,243,969 0 0 0 (121,813)(l) 1,122,156
Interest income 502,993 0 0 0 0 502,993
Other income 13,249 0 0 0 0 13,249
---------- ---------- ----------- ----------- ---------- -----------
6,495,395 7,366,142 2,183,580 0 (121,813) 15,923,304
---------- ---------- ----------- ----------- ---------- -----------
EXPENSES:
Depreciation and
amortization 1,726,103 2,864,752(b) 1,579,840(b) 1,881,392(b) 0 8,075,793
23,706(c)
Interest 442,029 2,758,350(d) 3,279,080(j) 3,762,920(k) 0 12,479,479
450,000(e)
1,787,100(f)
Operating costs, net of
reimbursements (74,666) (60,400)(g) 1,666,796(h) 34,092(h) 0 1,576,738
10,916 (h)
Management and leasing fees 257,744 315,537 (i) 98,261(i) 0 0 671,542
General and administrative 123,776 0 0 0 0 123,776
Legal and accounting 115,471 0 0 0 0 115,471
Computer costs 11,368 0 0 0 0 11,368
Amortization of
organizational costs 8,921 0 0 0 0 8,921
---------- ---------- ----------- ----------- ---------- -----------
2,610,746 8,149,961 6,623,977 5,678,404 0 23,063,088
---------- ---------- ----------- ----------- ---------- -----------
NET INCOME (LOSS) $3,884,649 $ (783,819) $(4,440,397) $(5,678,404) $ (121,813) $(7,139,784)
========== ========== =========== =========== ========== ===========
HISTORICAL EARNINGS
PER SHARE (BASIC
AND DILUTED) $ 0.50
==========
PRO FORMA LOSS PER SHARE
(BASIC AND DILUTED)(m) $ (0.24)(m)
===========
PRO FORMA LOSS PER SHARE
(BASIC AND DILUTED)(n) $ (0.23)(n)
===========
(a) Rental income is recognized on a straight-line basis.
(b) Depreciation expense on the building is recognized using the
straight-line method and a 25 year life.
(c) Amortization of loan costs over term of SouthTrust Bank, N.A. line of
credit.
(d) Interest expense on the $9,000,000 line of credit with SouthTrust Bank,
N.A. and the $26,500,000 line of credit with Bank of America, N.A., which
bear interest at 7.77% for the year ended December 31, 1999.
(e) Interest expense on the $5,000,000 note payable with Ryan Companies
U.S., Inc., the seller, which bears interest at 9% for the year ended
December 31, 1999.
(f) Interest expense on the $23,000,000 line-of-credit with SouthTrust
Bank, N.A., which bears interest at 7.77% for the year ended December 31,
1999.
(g) Consists of ground lease and insurance expense for the ASML Building
and the Motorola Tempe Building, net of tenant reimbursements.
(h) Consists of non-reimbursable operating expenses.
23
(i) Management and leasing fees equal approximately 4.5% of rental income.
(j) Interest expense on the $3,000,000 note payable to Cardinal Paragon,
Inc. and $35,900,000 note payable to Guaranteed Federal Bank, F.S.B., which
bear interest at 6% and 8.63%, respectively, for the year ended December
31, 1999.
(k) Interest expense on the $52,850,000 line of credit with SouthTrust
Bank, N.A., which bears interest at 7.12% for the year ended December 31,
1999.
(l) Reflects Wells Real Estate Investment Trust, Inc.'s equity in loss of
the Wells XII-REIT Joint Venture.
(m) As of the acquisition date of December 21, 2000, for the Stone &
Webster Building and the Metris Minnetonka Building, Wells Real Estate
Investment Trust, Inc. had 30,665,147 shares of common stock outstanding;
pro forma earnings per share is calculated as if these shares were
outstanding for the entire year ended December 31, 1999.
(n) As of the acquisition date of December 28, 2000 for the AT&T Call
Center Buildings, Wells Real Estate Investment Trust, Inc. had 31,244,246
shares of common stock outstanding; pro forma earnings per share is
calculated as if these shares were outstanding for the entire year ended
December 31, 1999.
24
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000
(Unaudited)
Pro Forma Adjustments
Wells Real ---------------------------------------------------------------
Estate AT&T
Investment Prior Stone & Metris Call Center Pro Forma
Trust, Inc. Acquisitions Webster Minnetonka Buildings Total
------------ ------------ ----------- ----------- ----------- ------------
REVENUES:
Rental income $13,712,371 $ 2,210,432(a) $ 1,637,685(a) $ 586,435(a) $ 0 $18,146,923
Equity in income of
joint ventures 1,684,247 0 0 0 193,604(n) 1,877,851
Interest income 338,020 0 0 0 0 338,020
----------- ----------- ----------- ------------ -------- ------------
15,734,638 2,210,432 1,637,685 586,435 193,604 20,362,794
----------- ----------- ----------- ------------ -------- ------------
EXPENSES:
Depreciation and
amortization 5,084,689 1,227,155(b) 1,184,880(b) 1,411,044(b) 0 8,925,548
17,780(c)
Interest 2,798,299 777,450(d) 2,555,910(j) 3,186,855(k) 0 10,977,634
112,500(e)
1,546,620(f)
Operating costs, net
of reimbursements 631,407 (15,099)(g) 1,250,097(h) 22,728(h) 0 1,962,872
73,739(h)
Management and
leasing fees 919,630 99,470(i) 73,696(i) 26,390(i) 0 1,119,186
General and
administrative 273,484 0 0 0 0 273,484
Legal and accounting 130,603 0 0 0 0 130,603
Computer costs 8,846 0 0 0 0 8,846
Amortization of
organizational
costs 150,143 0 0 0 0 150,143
----------- ----------- ----------- ------------ -------- ------------
9,997,101 3,839,615 5,064,583 4,647,017 0 23,548,316
----------- ----------- ----------- ------------ -------- ------------
NET INCOME (LOSS) $ 5,737,537 $(1,629,183) $(3,426,898) $ (4,060,582) $193,604 $ (3,185,522)
=========== =========== =========== ============ ======== ============
HISTORICAL EARNINGS
PER SHARE (BASIC)
AND DILUTED) $ 0.30
===========
PRO FORMA LOSS PER SHARE
(BASIC AND
DILUTED)(l) $ (0.11)(l)
============
PRO FORMA LOSS PER SHARE
(BASIC AND
DILUTED)(m) $ (0.10)(m)
============
(a) Rental income is recognized on a straight-line basis.
(b) Depreciation expense on the building is recognized using the
straight-line method and a 25 year life.
(c) Amortization of loan costs over term of SouthTrust Bank, N.A. line of
credit.
(d) Interest expense on the $9,000,000 line of credit with SouthTrust Bank,
N.A. and the $26,500,000 line of credit with Bank of America, N.A., which
bear interest at 8.76% for the nine months ended September 30, 2000.
(e) Interest expense on the $5,000,000 note payable with Ryan Companies
U.S., Inc., the seller, which bears interest at 9% for the nine months
ended September 30, 2000.
(f) Interest expense on the $23,000,000 line-of-credit with SouthTrust
Bank, N.A., which bears interest at 8.97% for the nine months ended
September 30, 2000.
(g) Consists of ground lease and insurance expense for the ASML Building
and the Motorola Tempe Building, net of tenant reimbursements.
(h) Consists of non-reimbursable operating expenses.
(i) Management and leasing fees equal approximately 4.5% of rental income.
25
(j) Interest expense on the $3,000,000 note payable to Cardinal Paragon,
Inc. and the $35,900,000 note payable to Guaranteed Federal Bank, F.S.B,
which bear interest at 6% and 8.99%, respectively, for the nine months
ended September 30, 2000.
(k) Interest expense on the $52,850,000 line of credit with South Trust
Bank, N.A., which bears interest at 8.04% for the nine months ended
September 30, 2000.
(l) As of the acquisition date of December 21, 2000 for the Stone & Webster
Building and the Metris Minnetonka Building, Wells Real Estate Investment
Trust, Inc. had 30,665,147 shares of common stock outstanding; pro forma
earnings per share is calculated as if these shares were outstanding for
the entire nine months ended September 30, 2000.
(m) As of the acquisition date of December 28, 2000 for the AT&T Call
Center Buildings, Wells Real Estate Investment Trust, Inc. had 31,244,246
shares of common stock outstanding; pro forma earnings per share is
calculated as if these shares were outstanding for the entire nine months
ended September 30, 2000.
(n) Reflect Wells Real Estate Investment Trust, Inc.'s equity in income of
the Wells XII--REIT Joint Venture.
26
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 2 DATED APRIL 25, 2001 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001. When we
refer to the "prospectus" in this supplement, we are also referring to any and
all supplements to the prospectus. Unless otherwise defined in this supplement,
capitalized terms used in this supplement shall have the same meanings as set
forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) The status of the offering of shares in Wells Real Estate
Investment Trust, Inc. (Wells REIT);
(2) Revisions to the "Investment Objectives and Criteria," "Risk
Factors" and "Federal Income Tax Risks" sections of the
prospectus to include a description of the Wells REIT's
participation in the Section 1031 Exchange Program sponsored
by affiliates of Wells Capital, Inc., our Advisor, and risks
associated therewith;
(3) Revisions to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the
prospectus;
(4) Revisions to the "Description of Shares - Share Redemption
Program" section of the prospectus;
(5) Updated audited financial statements of the Wells REIT; and
(6) Updated prior performance tables.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced a second offering
of common stock on December 20, 1999. Our second public offering was terminated
on December 19, 2000. We received approximately $175,229,193 in gross offering
proceeds from the sale of 17,522,919 shares in our second public offering.
Pursuant to the prospectus, we commenced our third offering of common
stock on December 20, 2000. As of April 15, 2001, we had received an additional
$83,074,813 in gross offering proceeds from the sale of 8,307,482 shares in the
third offering. Accordingly, as of April 15, 2001, we had received in the
aggregate approximately $390,485,925 in gross offering proceeds from the sale of
39,048,593 shares of our common stock.
1
Investment Objectives and Criteria - Section 1031 Exchange Program
The following paragraphs are hereby inserted into the "Investment
Objectives and Criteria" section of the prospectus at the top of page 64:
Section 1031 Exchange Program
Wells Development Corporation (Wells Development), an
affiliate of Wells Capital, our Advisor, is forming a series of single
member limited liability companies (each of which is referred to in
this prospectus as Wells Exchange) for the purpose of facilitating the
acquisition of real estate properties to be owned in co-tenancy
arrangements with persons (1031 Participants) who are looking to invest
the proceeds from a sale of real estate held for investment in another
real estate investment for purposes of qualifying for like-kind
exchange treatment under Section 1031 of the Internal Revenue Code. It
is anticipated that Wells Development will sponsor a series of private
placement offerings of co-tenancy interests in various properties to
1031 Participants.
Wells Development anticipates that properties acquired in
connection with the Section 1031 Exchange Program will be financed by
obtaining a new first mortgage secured by the property acquired. In
order to finance the remainder of the purchase price for properties to
be acquired by Wells Exchange, it is anticipated that Wells Exchange
will obtain a short-term loan from an institutional lender for each
property. Following its acquisition of a property, Wells Exchange will
attempt to sell co-tenancy interests to 1031 Participants, the proceeds
of which will be used to pay off the short-term loan. At the closing of
each property to be acquired by Wells Exchange, Wells OP will enter
into a Take Out Purchase and Escrow Agreement or similar contract,
providing that, in the event that Wells Exchange is unable to sell all
of the co-tenancy interests in that particular property to 1031
Participants, Wells OP will purchase, at Wells Exchange's cost, any
co-tenancy interests remaining unsold. (See "Risk Factors - Section
1031 Exchange Program.") In consideration for such obligation, Wells
Exchange will pay Wells OP a fee (Take Out Fee) in an amount currently
anticipated to range between 1.0% and 1.5% of the amount of the
short-term loan being obtained by Wells Exchange. (See "Risk Factors -
Federal Income Tax Risks.")
Our board of directors, including a majority of our
independent directors, will approve each Take Out Purchase and Escrow
Agreement we enter into with Wells Exchange. Accordingly, Wells
Exchange intends to purchase only real estate properties which
otherwise meet the investment objectives of the Wells REIT. Wells OP
may execute a Take Out Purchase and Escrow Agreement providing for the
potential purchase of the unsold co-tenancy interests from Wells
Exchange only after a majority of the directors of the Wells REIT,
including a majority of our independent directors, not otherwise
interested in the transaction approve of the transaction as being fair,
competitive and commercially reasonable to Wells OP and at a price to
Wells OP no greater than the cost of the co-tenancy interests to Wells
Exchange. If the price to Wells OP is in excess of such cost, the
directors of the Wells REIT must find substantial justification for
such excess and that such excess is reasonable. In addition, a fair
market value appraisal for each property must be obtained from an
independent expert selected by our independent directors, and in no
event may Wells OP purchase co-tenancy interests at a price that
exceeds the current appraised value for the property interests.
As set forth above, pursuant to the terms of Take Out Purchase
and Escrow Agreements, Wells OP will be obligated to purchase
co-tenancy interests in certain properties offered to 1031 Participants
to the extent co-tenancy interests remain unsold at the end of the
offering. All purchasers of co-tenancy interests, including Wells OP in
the event that it is required to purchase co-tenancy interests pursuant
to a Take Out Purchase and Escrow Agreement, will be required to
execute a Tenants in Common Agreement with the other purchasers of
co-tenancy interests in that
2
particular property and a Property Management Agreement providing for
the property management and leasing of the property by Wells Management
and the payment of property management and leasing fees to Wells
Management equal to 4.5% of gross revenues. Accordingly, in the event
that Wells OP is required to purchase co-tenancy interests pursuant to
one or more of the Take Out Purchase and Escrow Agreements, we will be
subject to various risks associated with co-tenancy arrangements which
are not otherwise present in real estate investments such as the risk
that the interests of the 1031 Participants will become adverse to our
interests. (See "Risk Factors - Section 1031 Exchange Program.")
Risk Factors - Section 1031 Exchange Program
The following paragraphs are hereby inserted into the "Risk Factors"
section of the prospectus as the first full paragraph at the top of page 20:
Section 1031 Exchange Program Risks
We may have increased exposure to liabilities from litigation
as a result of our participation in the Section 1031 Exchange Program.
There will be significant tax and securities disclosure risks
associated with the private placement offerings of co-tenancy interests
by Wells Exchange to 1031 Participants. For example, in the event that
the Internal Revenue Service conducts an audit of the purchasers of
co-tenancy interests and is able to successfully challenge the
qualification of the transaction as a like-kind exchange under Section
1031 of the Internal Revenue Code, even though it is anticipated that
this tax risk will be fully disclosed to investors, purchasers of
co-tenancy interests may file a lawsuit against Wells Exchange and its
sponsors. In such event, even though Wells OP is not acting as a
sponsor of the offering and is not recommending that 1031 Participants
buy co-tenancy interests from Wells Exchange, as a result of our
participation in the Section 1031 Exchange Program, and since Wells OP
will be receiving Take Out Fees in connection with the Section 1031
Exchange Program, we may be named in or otherwise required to defend
against lawsuits brought by 1031 Participants. Any amounts we are
required to expend for any such litigation claims may reduce the amount
of funds available for distribution to shareholders of the Wells REIT.
In addition, disclosure of any such litigation may adversely affect our
ability to raise additional capital in the future through the sale of
stock. (See "Investment Objectives and Criteria - Section 1031 Exchange
Program.")
We will be subject to risks associated with co-tenancy
arrangements that are not otherwise present in a real estate
investment.
At the closing of each property to be acquired by Wells
Exchange pursuant to the Section 1031 Exchange Program, Wells OP will
enter into a Take Out Purchase and Escrow Agreement providing that, in
the event that Wells Exchange is unable to sell all of the co-tenancy
interests in that particular property by the completion of its private
placement offering, Wells OP will purchase, at Wells Exchange's cost,
any co-tenancy interests remaining unsold. Accordingly, in the event
that Wells Exchange is unable to sell all co-tenancy interests in one
or more of its properties, Wells OP will be required to purchase the
unsold co-tenancy interests in such property or properties and, thus,
will be subject to the risks of ownership of properties in a co-tenancy
arrangement with unrelated third parties. (See "Investment Objectives
and Criteria - Section 1031 Exchange Program.")
3
Ownership of co-tenancy interests involves risks not otherwise
present with an investment in real estate such as the following:
. the risk that a co-tenant may at any time have economic or
business interests or goals which are or which become
inconsistent with our business interests or goals;
. the risk that a co-tenant may be in a position to take
action contrary to our instructions or requests or contrary
to our policies or objectives; or
. the possibility that a co-tenant might become insolvent or
bankrupt, which may be an event of default under mortgage
loan financing documents or allow the bankruptcy court to
reject the Tenants in Common Agreement or Management
Agreement entered into by the co-tenants owning interests in
the property.
Actions by a co-tenant might have the result of subjecting the property
to liabilities in excess of those contemplated and may have the effect
of reducing your returns.
In the event that our interests become adverse to those of the
other co-tenants, we will not have the contractual right to purchase
the co-tenancy interests from the other co-tenants. Even if we are
given the opportunity to purchase such co-tenancy interests in the
future, we cannot guarantee that we will have sufficient funds
available at the time to purchase co-tenancy interests from the 1031
Participants.
We might want to sell our co-tenancy interests in a given
property at a time when the other co-tenants in such property do not
desire to sell their interests. Therefore, we may not be able to sell
our interest in a property at the time we would like to sell. In
addition, it is anticipated that it will be much more difficult to find
a willing buyer for our co-tenancy interests in a property than it
would be to find a buyer for a property we owned outright.
Our participation in the Section 1031 Exchange Program may limit
our ability to borrow funds in the future.
Institutional lenders may view our obligations under Take Out
Purchase and Escrow Agreements to acquire unsold co-tenancy interests
in properties as a contingent liability against our cash or other
assets, which may limit our ability to borrow funds in the future.
Further, such obligations may be viewed by our lenders in such a matter
as to limit our ability to borrow funds based on regulatory
restrictions on lenders limiting the amount of loans they can make to
any one borrower. (See "Investment Objectives and Criteria - Section
1031 Exchange Program.")
Federal Income Tax Risks
The information contained on page 24 in the "Federal Income Tax Risks"
section of the prospectus is revised as of the date of this supplement by the
deletion of the first two paragraphs of that section and the insertion of the
following paragraphs in lieu thereof:
Failure to qualify as a REIT could adversely affect our
operations and our ability to make distributions.
If we fail to qualify as a REIT for any taxable year, we will be
subject to federal income tax on our taxable income at corporate rates
with no offsetting deductions for distributions for shareholders.
Further, in such event, we would generally be disqualified from
treatment as a REIT for the four taxable years following the year in
which we lose our REIT status. Accordingly, the loss of our REIT status
would reduce our net earnings available for investment or distribution
to shareholders because of the substantial tax liabilities which would
be imposed
4
on us. We might also be required to borrow funds or liquidate some
investments in order to pay the applicable tax.
Qualification as a REIT is subject to the satisfaction of
requirements set forth in the Code and Treasury Regulations and various
factual matters and circumstances which are not entirely within our
control. We have and will continue to structure our activities in a
manner designed to satisfy all of these requirements, however, if
certain of our operations were to be recharacterized by the Internal
Revenue Service, such recharacterization could jeopardize our ability
to satisfy all of the requirements for qualification as a REIT. In
addition, new legislation, regulations, administrative interpretations
or court decisions could change the tax laws relating to our
qualification as a REIT or the federal income tax consequences of our
being a REIT.
In this regard, Wells Development, an affiliate of our advisor,
is sponsoring a program involving the offering and sale of co-tenancy
interests by Wells Exchange in real properties to investors seeking to
complete Section 1031 like-kind exchanges. In connection with this
program, we have agreed to enter into a series of transactions whereby
Wells OP will enter into a number of Take Out Purchase and Escrow
Agreements with Wells Exchange which will, in effect, guarantee the
sale of the co-tenancy interests being offered by Wells Exchange. In
consideration for entering into these Take Out Purchase and Escrow
Agreements, Wells OP will be paid fees which could be characterized as
gross revenue not constituting income "qualifying" for purposes of
satisfying the "income tests" required for REIT qualification. (See
"Federal Income Tax Consequences - Operational Requirements - Gross
Income Tests.") If this fee income were, in fact, treated as non-
qualifying, and if the aggregate of all such income and any other non-
qualifying income in any taxable year ever exceeded 5.0% of our gross
revenues for such year, we could lose our REIT status for that taxable
year and the four ensuing taxable years. As set forth above, we will
use all reasonable efforts to structure our activities in a manner
intended to satisfy the requirements for our continued qualification as
a REIT. (See "Investment Objectives and Criteria -Section 1031 Exchange
Program.")
Recharacterization of the Section 1031 Exchange Program may
result in taxation of income from a prohibited transaction.
In the event that the Internal Revenue Service were to
recharacterize the Section 1031 Exchange Program such that Wells OP,
rather than Wells Exchange, is treated as the bona fide owner, for tax
purposes, of properties acquired and resold by Wells Exchange in
connection with the Section 1031 Exchange Program, such
characterization could result in the Take Out Fees paid to Wells OP as
being deemed income from a prohibited transaction, in which event all
such fee income paid to us in connection with the Section 1031 Exchange
Program would be subject to a 100% tax. (See "Investment Objectives and
Criteria - Section 1031 Exchange Program.")
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 98 in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" section of the prospectus is revised as of the date of this
supplement by the deletion of the first two paragraphs of that section and the
insertion of the following paragraphs in lieu thereof:
We began active operations on June 5, 1998, when we received and
accepted subscriptions for 125,000 shares pursuant to our initial
public offering, which commenced on January 30, 1998. We terminated our
initial public offering on December 19, 1999. Of the $132,181,919
raised in the initial offering, we invested a total of $111,032,812 in
properties. On December 20, 1999, we commenced a follow-on public
offering of up to 22,200,000 shares of common stock at $10 per share.
We terminated our follow-on public
5
offering on December 19, 2000. Of the $175,229,193 raised in the
follow-on offering, we invested a total of $147,192,522 in properties.
Pursuant to the prospectus, we commenced this third offering of
shares of our common stock on December 20, 2000. As of April 15, 2001,
we had received an additional $83,074,813 in gross offering proceeds
from the sale of 8,307,482 shares in the third offering. As of April
15, 2001, we had raised in the aggregate a total of $390,485,925 in
offering proceeds through the sale of 39,048,593 shares of common
stock. As of April 15, 2001, we had paid a total of $13,584,221 in
acquisition and advisory fees and acquisition expenses, had paid a
total of $48,515,076 in selling commissions and organizational and
offering expenses, had made capital contributions of $323,477,000 to
Wells OP for investments in joint ventures and acquisitions of real
property, had utilized $2,365,315 for the redemption of stock pursuant
to our share redemption program, and were holding net offering proceeds
of $2,544,313 available for investment in additional properties.
Description of Shares - Share Redemption Program
The information contained on page 147 in the "Description of Shares -
Share Redemption Program" section of the prospectus is revised as of the date of
this supplement by the deletion of the first full paragraph on page 147 and the
insertion of the following paragraph in lieu thereof:
If you have held your shares for the required one-year period,
you may redeem your shares for a purchase price equal to the lesser of
(1) $10 per share, or (2) the purchase price per share that you
actually paid for your shares of the Wells REIT. In the event that you
are redeeming all of your shares, shares purchased pursuant to our
dividend reinvestment plan may be excluded from the foregoing one-year
holding period requirement, in the discretion of the board of
directors. In addition, for purposes of the one-year holding period,
limited partners of Wells OP who exchange their limited partnership
units for shares in the Wells REIT shall be deemed to have owned their
shares as of the date they were issued their limited partnership units
in Wells OP. The board of directors reserves the right in its sole
discretion at any time and from time to time to (1) change the purchase
price for redemptions, or (2) otherwise amend the terms of our share
redemption program. In addition, our board of directors has delegated
to our officers the right to (1) waive the one-year holding period in
the event of the death or bankruptcy of a shareholder or other exigent
circumstances, or (2) reject any request for redemption at any time and
for any reason.
Financial Statements
The consolidated balance sheets of the Wells REIT as of December 31,
2000 and 1999, and the financial statements of the Wells REIT for each of the
years in the three year period ended December 31, 2000, included in this
supplement and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included in this supplement in reliance
upon the authority of said firm as experts in giving said report.
Prior Performance Tables
The prior performance tables dated as of December 31, 2000, which are
included in this supplement, have not been audited.
6
INDEX TO FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
Page
----
Wells Real Estate Investment Trust, Inc. and Subsidiary
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 8
Consolidated Balance Sheets as of December 31, 2000 and
December 31, 1999 9
Consolidated Statements of Income for the years ended
December 31, 2000, December 31, 1999, and December 31, 1998 10
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2000, December 31, 1999, and December 31, 1998 11
Consolidated Statements of Cash Flows for the years ended
December 31, 2000, December 31, 1999, and December 31, 1998 12
Notes to Consolidated Financial Statements
December 31, 2000, December 31, 1999, and December 31, 1998 13
Prior Performance Tables (Unaudited) 39
7
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying consolidated balance sheets of WELLS REAL
ESTATE INVESTMENT TRUST, INC. (a Maryland corporation) AND SUBSIDIARY as of
December 31, 2000 and 1999 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2000. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated financial statements and schedule
based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Wells Real Estate
Investment Trust, Inc. and subsidiary as of December 31, 2000 and 1999 and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 2000 in conformity with accounting principles
generally accepted in the United States.
ARTHUR ANDERSEN LLP
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 30, 2001
8
Wells Real Estate Investment Trust, Inc.
and subsidiary
consolidated Balance Sheets
December 31, 2000 and 1999
ASSETS
------
2000 1999
---- ----
REAL ESTATE ASSETs, at cost:
Land $ 46,237,812 $ 14,500,822
Building, less accumulated depreciation of $9,469,653 and $1,726,102 at
December 31, 2000 and 1999, respectively 287,862,655 81,507,040
Construction in progress 3,357,720 12,561,459
------------- -------------
Total real estate assets 337,458,187 108,569,321
INVESTMENT IN JOINT VENTURES 44,236,597 29,431,176
CASH AND CASH EQUIVALENTS 4,298,301 2,929,804
ACCOUNTS RECEIVABLE 3,356,428 898,704
DEFERRED LEASE ACQUISITION COSTS 1,890,332 0
DEFERRED OFFERING COSTS 1,291,376 964,941
DEFERRED PROJECT COSTS 550,256 28,093
DUE FROM AFFILIATES 734,286 648,354
PREPAID EXPENSES AND OTHER ASSETS, net 4,734,583 381,897
------------- -------------
Total assets $ 398,550,346 $ 143,852,290
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable $ 127,663,187 $ 23,929,228
Accounts payable and accrued expenses 2,166,387 224,721
Deferred rental income 381,194 236,579
Dividends payable 1,025,010 2,166,701
Due to affiliate 1,772,956 1,079,466
------------- -------------
Total liabilities 133,008,734 27,636,695
------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 200,000
------------- -------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 125,000,000 shares authorized, 31,509,807
shares issued and 31,368,510 shares outstanding at December 31, 2000,
and 13,471,085 shares issued and outstanding at December 31, 1999 315,097 134,710
Additional paid-in capital 266,439,484 115,880,885
Treasury stock, at cost, 141,297 shares at December 31, 2000 and 0 shares
at December 31, 1999 (1,412,969) 0
------------- -------------
Total shareholders' equity 265,341,612 116,015,595
------------- -------------
Total liabilities and shareholders' equity $ 398,550,346 $ 143,852,290
============= =============
The accompanying notes are an integral part of these consolidated balance
sheets.
9
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
---- ---- ----
REVENUES:
Rental income $ 20,505,000 $ 4,735,184 $ 20,994
Equity in income of joint ventures 2,293,873 1,243,969 263,315
Interest income 520,924 502,993 110,869
Other income 53,409 13,249 0
------------ ----------- ---------
23,373,206 6,495,395 395,178
------------ ----------- ---------
EXPENSES:
Depreciation 7,743,551 1,726,103 0
Interest expense 3,966,902 442,029 11,033
Amortization of deferred financing costs 232,559 8,921 0
Operating costs, net of reimbursements 888,091 (74,666) 0
Management and leasing fees 1,309,974 257,744 0
General and administrative 426,680 123,776 29,943
Legal and accounting 240,209 115,471 19,552
Computer costs 12,273 11,368 616
------------ ----------- ---------
14,820,239 2,610,746 61,144
------------ ----------- ---------
NET INCOME $ 8,552,967 $ 3,884,649 $ 334,034
============ =========== =========
EARNINGS PER SHARE:
Basic and diluted $ 0.40 $ 0.50 $ 0.40
============ =========== =========
The accompanying notes are an integral part of these consolidated statements.
10
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
Additional Total
Common Stock Paid-In Retained Treasury Stock Shareholders'
--------------------- ------------------------
Shares Amount Capital Earnings Shares Amount Equity
---------- --------- ------------- ------------ --------- ------------ -------------
BALANCE,
December 31, 1997 100 $ 1 $ 999 $ 0 0 $ 0 $ 1,000
Issuance of common
stock 3,154,036 31,540 31,508,820 0 0 0 31,540,360
Net income 0 0 0 334,034 0 0 334,034
Dividends ($.31 per
share) 0 0 (511,163) 0 0 0 (511,163)
Sales commissions 0 0 (2,996,334) 0 0 0 (2,996,334)
Other offering
expenses 0 0 (946,210) 0 0 0 (946,210)
---------- --------- ------------- ------------ --------- ------------ -------------
BALANCE,
December 31, 1998 3,154,136 31,541 27,056,112 334,034 0 0 27,421,687
Issuance of common
stock 10,316,949 103,169 103,066,321 0 0 0 103,169,490
Net income 0 0 0 3,884,649 0 0 3,884,649
Dividends ($.70 per
share) 0 0 (1,346,240) (4,218,683) 0 0 (5,564,923)
Sales commissions 0 0 (9,801,197) 0 0 0 (9,801,197)
Other offering
expenses 0 0 (3,094,111) 0 0 0 (3,094,111)
---------- --------- ------------- ------------ --------- ------------ -------------
BALANCE,
December 31, 1999 13,471,085 134,710 115,880,885 0 0 0 116,015,595
Issuance of common
stock 18,038,722 180,387 180,206,833 0 0 0 180,387,220
Treasury stock
purchased 0 0 0 0 (141,297) (1,412,969) (1,412,969)
Net income 0 0 0 8,552,967 0 0 8,552,967
Dividends ($.73 per
share) 0 0 (7,276,452) (8,552,967) 0 0 (15,829,419)
Sales commissions 0 0 (17,002,554) 0 0 0 (17,002,554)
Other offering
expenses 0 0 (5,369,228) 0 0 0 (5,369,228)
BALANCE,
---------- --------- ------------- ------------ --------- ------------ -------------
December 31, 2000 31,509,807 $ 315,097 $ 266,439,484 $ 0 (141,297) $ (1,412,969) $ 265,341,612
========== ========= ============= ============ ========= ============ =============
The accompanying notes are an integral part of these consolidated statements.
11
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2000, 1999, AND 1998
2000 1999 1998
-------------- -------------- ------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 8,552,967 $ 3,884,649 $ 334,034
-------------- -------------- ------------
Adjustments to reconcile net income to net cash
provided by (used in) operating activities:
Equity in income of joint ventures (2,293,873) (1,243,969) (263,315)
Depreciation 7,743,551 1,735,024 0
Amortization of deferred financing costs 232,559 0 0
Changes in assets and liabilities:
Accounts receivable (2,457,724) (898,704) 0
Due from affiliates (435,600) 0 0
Prepaid expenses and other assets, net (6,475,577) 149,501 (540,319)
Accounts payable and accrued expenses 1,941,666 36,894 187,827
Deferred rental income 144,615 236,579 0
Due to affiliates 367,055 108,301 6,224
-------------- -------------- ------------
Total adjustments (1,233,328) 123,626 (609,583)
-------------- -------------- ------------
Net cash provided by (used in) operating
activities 7,319,639 4,008,275 (275,549)
-------------- -------------- ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (231,518,138) (85,514,506) (21,299,071)
Investment in joint ventures (15,063,625) (17,641,211) (11,276,007)
Deferred project costs paid (6,264,098) (3,610,967) (1,103,913)
Distributions received from joint ventures 3,529,401 1,371,728 178,184
-------------- -------------- ------------
Net cash used in investing activities (249,316,460) (105,394,956) (33,500,807)
-------------- -------------- ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 187,633,130 40,594,463 14,059,930
Repayments of notes payable (83,899,171) (30,725,165) 0
Dividends paid to shareholders (16,971,110) (3,806,398) (102,987)
Issuance of common stock 180,387,220 103,169,490 31,540,360
Treasury stock purchased (1,412,969) 0 0
Sales commissions paid (17,002,554) (9,801,197) (2,996,334)
Other offering costs paid (5,369,228) (3,094,111) (946,210)
-------------- -------------- ------------
Net cash provided by financing activities 243,365,318 96,337,082 41,554,759
-------------- -------------- ------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 1,368,497 (5,049,599) 7,778,403
CASH AND CASH EQUIVALENTS, beginning of year 2,929,804 7,979,403 201,000
-------------- -------------- ------------
CASH AND CASH EQUIVALENTS, end of year $ 4,298,301 $ 2,929,804 $ 7,979,403
============== ============== ============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Deferred project costs applied to real estate assets $ 5,114,279 $ 3,183,239 $ 298,608
============== ============== ============
Deferred project costs contributed to joint ventures $ 627,656 $ 735,056 $ 469,884
============== ============== ============
Deferred offering costs due to affiliate $ 326,435 $ 416,212 $ 0
============== ============== ============
The accompanying notes are an integral part of these consolidated statements.
12
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2000, 1999, AND 1998
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation that qualifies as a real estate investment trust ("REIT"). The
Company is conducting an offering for the sale of a maximum of 125,000,000
(exclusive of 10,000,000 shares available pursuant to the Company's dividend
reinvestment plan) shares of common stock, $.01 par value per share, at a price
of $10 per share. The Company will seek to acquire and operate commercial
properties, including, but not limited to, office buildings, shopping centers,
business and industrial parks, and other commercial and industrial properties,
including properties which are under construction, are newly constructed, or
have been constructed and have operating histories. All such properties may be
acquired, developed, and operated by the Company alone or jointly with another
party. The Company is likely to enter into one or more joint ventures with
affiliated entities for the acquisition of properties. In connection with this,
the Company may enter into joint ventures for the acquisition of properties with
prior or future real estate limited partnership programs sponsored by Wells
Capital, Inc. (the "Advisor") or its affiliates.
Substantially all of the Company's business is conducted through Wells Operating
Partnership, L.P. (the "Operating Partnership"), a Delaware limited partnership.
During 1997, the Operating Partnership issued 20,000 limited partner units to
the Advisor in exchange for $200,000. The Company is the sole general partner in
the Operating Partnership and possesses full legal control and authority over
the operations of the Operating Partnership; consequently, the accompanying
consolidated financial statements of the Company include the amounts of the
Operating Partnership.
The Operating Partnership owns the following properties directly: (i) the
PricewaterhouseCoopers property (the "PwC Building"), a four-story office
building located in Tampa, Florida; (ii) the AT&T Building, a four-story office
building located in Harrisburg, Pennsylvania; (iii) the Marconi Data Systems
property (the "Marconi Building"), a two-story office building located in Wood
Dale, Illinois; (iv) the Cinemark Building, a five-story office building located
in Plano, Texas; (v) the Matsushita Building, a two-story office building
located in Lake Forest, California; (vi) the ASML Building, a two-story office
building located in Tempe, Arizona; (vii) the Motorola Tempe Building, a
two-story office building located in Tempe, Arizona; (viii) the Dial Building, a
two-story office building located in Scottsdale, Arizona; (ix) the Delphi
Building, a three-story office building located in Troy, Michigan; (x) the Avnet
Building, a two-story office building located in Tempe, Arizona; (xi) the Metris
Oklahoma Building, a three-story office building located in Tulsa, Oklahoma;
(xii) the Alstom Power-Richmond Building, a four-story office building located
in Richmond, Virginia; (xiii) the Motorola Plainfield Building, a three-story
office building located in South Plainfield, New Jersey; (xiv) the Stone &
Webster Building, a six-story office building located in Houston, Texas; and
(xv) the Metris Minnetonka Building, a nine-story office building located in
Minnetonka, Minnesota.
The Company owns an interest in one property through a joint venture between the
Operating Partnership, Wells Real Estate Fund VIII, L.P. ("Wells Fund VIII"),
and Wells Real Estate Fund IX, L.P. ("Wells Fund IX"), which is referred to as
the Fund VIII, IX, and REIT Joint Venture. The Company also owns interests in
several properties through a joint venture between the Operating Partnership,
Wells Fund IX, Wells Real Estate Fund X, L.P. ("Wells Fund X"), and Wells Real
Estate Fund XI, L.P. ("Wells Fund XI"). This joint venture is referred to as the
Fund IX, Fund X, Fund XI, and REIT Joint Venture ("Fund IX, X, XI, and REIT
Joint Venture"). The Company owns two properties through joint venture between
the Operating Partnership and Fund X and XI Associates, a joint venture between
Wells Fund X and Wells Fund XI. In addition, the Company owns an interest in
several properties through a joint venture between Wells Fund XI, Wells Real
Estate Fund XII, L.P. ("Wells Fund XII"), and the Operating Partnership, which
is referred to as the Fund XI, XII, and REIT Joint Venture. The Company also
owns two properties through a joint venture between Wells Fund XII and the
Operating Partnership, which is referred to as the Fund XII and REIT Joint
Venture.
13
Through its investment in the Fund VIII, IX, and REIT Joint Venture, the Company
owns an interest in a two-story office building in Orange County, California
(the "Quest Building").
The following properties are owned by the Company through its investment in the
Fund IX, X, XI, and REIT Joint Venture: (i) a three-story office building in
Knoxville, Tennessee (the "Alstom Power Building," formerly the ABB Building),
(ii) a two-story office building in Louisville, Colorado (the "Ohmeda
Building"), (iii) a three-story office building in Broomfield, Colorado (the
"360 Interlocken Building"), (iv) a one-story warehouse facility in Ogden, Utah
(the "Iomega Building"), and (v) a one-story office building in Oklahoma City,
Oklahoma (the "Avaya Building," formerly the Lucent Technologies Building).
Through its investment in joint ventures with Fund X and XI Associates, the
Company owns interests in the following properties: (i) a one-story office and
warehouse building in Fountain Valley, California (the "Cort Furniture
Building") owned by Wells/Orange County Associates and (ii) a warehouse and
office building in Fremont, California (the "Fairchild Building") owned by
Wells/Fremont Associates.
The following properties are owned by the Company through its investment in the
Fund XI, XII, and REIT Joint Venture: (i) a two-story manufacturing and office
building in Greenville County, South Carolina (the "EYBL CarTex Building"), (ii)
a three-story office building Leawood, Kansas (the "Sprint Building"), (iii) an
office and warehouse building in Chester County, Pennsylvania (the "Johnson
Matthey Building"), and (iv) a two-story office building in Ft. Myers, Florida
(the "Gartner Building").
Through its investment in the Fund XII and REIT Joint Venture, the Company owns
interests in the following properties: (i) a three-story office building in
Troy, Michigan (the "Siemens Building"), and (ii) a one-story office building
and a two-story office building in Oklahoma City, Oklahoma (collectively
referred to as the "AT&T Call Center Buildings").
Use of Estimates and Factors Affecting the Company
The preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
The carrying values of real estate are based on management's current intent to
hold the real estate assets as long-term investments. The success of the
Company's future operations and the ability to realize the investment in its
assets will be dependent on the Company's ability to maintain rental rates,
occupancy, and an appropriate level of operating expenses in future years.
Management believes that the steps it is taking will enable the Company to
realize its investment in its assets.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue Code of
1986, as amended (the "Code"), commencing with the taxable year ended December
31, 1998. As a result, the Company generally will not be subject to federal
income taxation at the corporate level to the extent it distributes annually at
least 95% (90% beginning in 2001) of its REIT taxable income, as defined in the
Code, to its shareholders and satisfies certain other requirements.
Additionally, the Operating Partnership is not subject to federal or state
income taxes. Accordingly, no provision has been made for federal or state
income taxes in the accompanying consolidated financial statements for the years
ended December 31, 2000 and 1999.
Real Estate Assets
Real estate assets held by the Company and joint ventures are stated at cost
less accumulated depreciation. Major improvements and betterments are
capitalized when they extend the useful life of the related asset. All repair
and maintenance are expensed as incurred.
Management continually monitors events and changes in circumstances which could
indicate that carrying amounts of real estate assets may not be recoverable.
When events or changes in circumstances are present which indicate that the
carrying amounts of real estate assets may not be recoverable, management
assesses the recoverability of real estate assets by determining whether the
carrying value of such real estate assets will be recovered through the
14
future cash flows expected from the use of the asset and its eventual
disposition. Management has determined that there has been no impairment in the
carrying value of real estate assets held by the Company or the joint ventures
as of December 31, 2000.
Depreciation of building and improvements is calculated using the straight-line
method over 25 years. Tenant improvements are amortized over the life of the
related lease or the life of the asset, whichever is shorter.
Revenue Recognition
All leases on real estate assets held by the Company or the joint ventures are
classified as operating leases, and the related rental income is recognized on a
straight-line basis over the terms of the respective leases.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three months or
less to be cash equivalents. Cash equivalents include cash and short-term
investments. Short-term investments are stated at cost, which approximates fair
value, and consist of investments in money market accounts.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on a
straight-line basis over the terms of the related leases.
Earnings Per Share
Earnings per share is calculated based on the weighted average number of common
shares outstanding during each period. The weighted average number of common
shares outstanding is identical for basic and fully diluted earnings per share,
as there is no dilutive impact created from the Company's stock option plan
(Note 10) using the treasury stock method.
Reclassifications
Certain prior year amounts have been reclassified to conform with the current
year financial statement presentation.
Investment in Joint Ventures
Basis of Presentation
The Operating Partnership does not have control over the operations of
the joint ventures; however, it does exercise significant influence.
Accordingly, the Operating Partnership's investment in the joint
ventures is recorded using the equity method of accounting.
Partners' Distributions and Allocations of Profit and Loss
Cash available for distribution and allocations of profit and loss to
the Operating Partnership by the joint ventures are made in accordance
with the terms of the individual joint venture agreements. Generally,
these items are allocated in proportion to the partners' respective
ownership interests. Cash is paid from the joint ventures to the
Operating Partnership on a quarterly basis.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and
amortized on a straight-line basis over the terms of the related
leases.
15
2. DEFERRED PROJECT COSTS
The Company paid a percentage of shareholder contributions to the Advisor for
acquisition and advisory services. These payments, as stipulated in the
prospectus, can be up to 3.5% of shareholder contributions, subject to certain
overall limitations contained in the prospectus. Aggregate fees paid through
December 31, 2000 were $10,978,981 and amounted to 3.5% of shareholders'
contributions received. These fees are allocated to specific properties as they
are purchased or developed and are included in capitalized assets of the joint
ventures or real estate assets. Deferred project costs at December 31, 2000 and
1999 represent fees not yet applied to properties.
3. DEFERRED OFFERING COSTS
Offering expenses, to the extent they exceed 3% of gross offering proceeds, will
be paid by the Advisor and not by the Company. Offering expenses do not include
sales or underwriting commissions but do include such costs as legal and
accounting fees, printing costs, and other offering expenses.
As of December 31, 2000, the Advisor paid offering expenses on behalf of the
Company in the aggregate amount of $10,700,925, of which the Advisor was
reimbursed $9,409,549, which did not exceed the 3% limitation. The unpaid
portion of deferred offering costs is $1,291,376 and is included in due to
affiliate in the accompanying balance sheet.
4. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 2000 represents the Operating Partnership's
share of the cash to be distributed from its joint venture investments for the
fourth quarter of 2000 and 1999 as follows:
2000 1999
--------- ---------
Fund VIII, IX, and REIT Joint Venture $ 21,605 $ 0
Fund IX, X, XI, and REIT Joint Venture 12,781 32,079
Wells/Orange County Associates 24,583 75,953
Wells/Fremont Associates 53,974 152,681
Fund XI, XII, and REIT Joint Venture 136,648 387,641
Fund XII and REIT Joint Venture 49,094 0
The Advisor 10,995 0
Cinemark Building 424,606 0
--------- ---------
$ 734,286 $ 648,354
========= =========
The Company entered into a property management agreement with Wells Management
Company, Inc. ("Wells Management"), an affiliate of the Advisor. In
consideration for supervising the management and leasing of the Operating
Partnership's properties, the Operating Partnership will pay Wells Management
management and leasing fees equal to the lesser of (a) 4.5% of the gross
revenues generally paid over the life of the lease, or (b) 0.6% of the net asset
value of the properties (excluding vacant properties) owned by the Company,
calculated on an annual basis plus a separate competitive fee for the one-time
initial lease-up of newly constructed properties generally paid in conjunction
with the receipt of the first month's rent.
The Operating Partnership's portion of the management and leasing fees and lease
acquisition costs paid to Wells Management, both directly and at the joint
venture level, were $1,111,748, $336,517, and $0 for the years ended December
31, 2000, 1999, and 1998, respectively.
The Advisor performs certain administrative services for the Operating
Partnership, such as accounting and other partnership administration, and incurs
the related expenses. Such expenses are allocated among the Operating
Partnership and the various Wells Real Estate Funds based on time spent on each
fund by individual administrative personnel. In the opinion of management, such
allocation is a reasonable basis for allocating such expenses.
The Advisor is a general partner in various Wells Real Estate Funds. As such,
there may exist conflicts of interest where the Advisor, while serving in the
capacity as general partner for Wells Real Estate Funds, may be in competition
with the Operating Partnership for tenants in similar geographic markets.
16
5. INVESTMENT IN JOINT VENTURES
The Operating Partnership's investment and percentage ownership in joint
ventures at December 31, 2000 and 1999 are summarized as follows:
2000 1999
------------------------- -------------------------
Amount Percent Amount Percent
------------ ---------- ------------ ----------
Fund VIII, IX, and REIT Joint Venture $ 1,276,551 16% $ 0 0%
Fund IX, X, XI, and REIT Joint Venture 1,339,636 4 1,388,884 4
Wells/Orange County Associates 2,827,607 44 2,893,112 44
Wells/Fremont Associates 6,791,287 78 6,988,210 78
Fund XI, XII, and REIT Joint Venture 17,688,615 57 18,160,970 57
Fund XII and REIT Joint Venture 14,312,901 47 0 0
------------ ------------
$ 44,236,597 $ 29,431,176
============ ============
The following is a rollforward of the Operating Partnership's investment in
joint ventures for the years ended December 31, 2000 and 1999:
2000 1999
------------ ------------
Investment in joint ventures, beginning of year $ 29,431,176 $ 11,568,677
Equity in income of joint ventures 2,293,873 1,243,969
Contributions to joint ventures 15,691,281 18,376,267
Distributions from joint ventures (3,179,733) (1,757,737)
------------ ------------
Investment in joint ventures, end of year $ 44,236,597 $ 29,431,176
============ ============
Fund VIII, IX, and REIT Joint Venture
On June 15, 2000, Fund VIII and IX Associated entered into a joint venture with
Wells Operating Partnership, L.P. (the "Operating Partnership"), a Delaware
limited partnership having Wells Real Estate Investment Trust, Inc. ("Wells
REIT"), a Maryland corporation, as its general partner. The joint venture, Fund
VIII, IX, and REIT Joint Venture, was formed to acquire, develop, operate, and
sell real properties.
On July 1, 2000, Fund VIII and IX contributed the Quest Building to the joint
venture. The Quest Building is a two-story office building containing
approximately 65,006 rentable square feet on a 4.4 acre trace of land in Irvine,
California.
17
Following are the financial statements for Fund VIII, IX, and REIT Joint
Venture:
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheet
December 31, 2000
Assets
Real estate assets, at cost:
Land $ 2,220,993
Building and improvements, less accumulated depreciation of $187,891 5,408,892
-----------
Total real estate assets 7,629,885
Cash and cash equivalents 170,664
Accounts receivable 197,802
Prepaid expenses and other assets 283,864
-----------
Total assets $ 8,282,215
===========
Liabilities and Partners' Capital
Liabilities:
Partnership distributions payable $ 170,664
-----------
Partners' capital:
Fund VIII and IX Associates 6,835,000
Wells Operating Partnership, L.P. 1,276,551
-----------
Total partners' capital 8,111,551
-----------
Total liabilities and partners' capital $ 8,282,215
===========
18
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Income
for the Six Months Ended December 31, 2000
Revenues:
Rental income $ 563,049
---------
Expenses:
Depreciation 187,891
Management and leasing fees 54,395
Property administration expenses 5,692
Operating costs, net of reimbursements 5,178
---------
253,156
---------
Net income $ 309,893
=========
Net income allocated to Fund VIII and IX Associates $ 285,006
=========
Net income allocated to Wells Operating Partnership, L.P. $ 24,887
=========
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Six Months Ended December 31, 2000
Fund VIII Wells Total
and IX Operating Partners'
Associates Partnership, L.P. Capital
------------ ----------------- -----------
Balance, July 1, 2000 $ 0 $ 0 $ 0
Net income 285,006 24,887 309,893
Partnership contributions 6,857,889 1,282,111 8,140,000
Partnership distributions (307,895) (30,447) (338,342)
----------- ----------- -----------
Balance, December 31, 2000 $ 6,835,000 $ 1,276,551 $ 8,111,551
=========== =========== ===========
19
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Cash Flows
for the Six Months Ended December 31, 2000
Cash flows from operating activities:
Net income $ 309,893
-----------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 187,891
Changes in assets and liabilities:
Accounts receivable (197,802)
Prepaid expenses and other assets (283,864)
-----------
Total adjustments (293,775)
-----------
Net cash provided by operating activities 16,118
-----------
Cash flows from investing activities:
Investment in real estate (959,887)
-----------
Cash flows from financing activities:
Contributions from joint venture partners 1,282,111
Distributions to joint venture partners (167,678)
-----------
Net cash provided by financing activities 1,114,433
-----------
Net increase in cash and cash equivalents 170,664
Cash and cash equivalents, beginning of period 0
-----------
Cash and cash equivalents, end of year $ 170,664
===========
Supplemental disclosure of noncash activities:
Real estate contribution received from joint venture partner $ 6,857,889
===========
Fund IX, X, XI, and REIT Joint Venture
On March 20, 1997, Wells Fund IX and Wells Fund X entered into a joint venture
agreement. The joint venture, Fund IX and X Associates, was formed to acquire,
develop, operate, and sell real properties. On March 20, 1997, Wells Fund IX
contributed a 5.62-acre tract of real property in Knoxville, Tennessee, and
improvements thereon, known as the Alstom Power Building, to the Fund IX and X
Associates joint venture. A 84,404-square-foot, three-story building was
constructed and commenced operations at the end of 1997.
On February 13, 1998, the joint venture purchased a two-story office building,
known as the Ohmeda Building, in Louisville, Colorado. On March 20, 1998, the
joint venture purchased a three-story office building, known as the 360
Interlocken Building, in Broomfield, Colorado. On June 11, 1998, Fund IX and X
Associates was amended and restated to admit Wells Fund XI and the Operating
Partnership. The joint venture was renamed the Fund IX, X, XI, and REIT Joint
Venture. On June 24, 1998, the new joint venture purchased a one-story office
building, known as the Avaya Building, in Oklahoma City, Oklahoma. On April 1,
1998, Wells Fund X purchased a one-story warehouse facility, known as the Iomega
Building, in Ogden, Utah. On July 1, 1998, Wells Fund X contributed the Iomega
Building to the Fund IX, X, XI, and REIT Joint Venture.
Following are the financial statements for the Fund IX, X, XI, and REIT Joint
Venture:
20
Following are the financial statements for the Fund IX, X, XI, and REIT Joint
Venture:
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
------------ ------------
Real estate assets, at cost:
Land $ 6,698,020 $ 6,698,020
Building and improvements, less accumulated depreciation of $4,203,502
in 2000 and $2,792,068 in 1999 28,594,768 29,878,541
----------- -----------
Total real estate assets 35,292,788 36,576,561
Cash and cash equivalents 1,500,044 1,146,874
Accounts receivable 422,243 554,965
Prepaid expenses and other assets 487,276 526,409
----------- -----------
Total assets $37,702,351 $38,804,809
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued liabilities $ 568,517 $ 613,574
Refundable security deposits 99,279 91,340
Due to affiliates 9,595 6,379
Partnership distributions payable 931,151 804,734
----------- -----------
Total liabilities 1,608,542 1,516,027
----------- -----------
Partners' capital:
Wells Real Estate Fund IX 14,117,803 14,590,626
Wells Real Estate Fund X 17,445,277 18,000,869
Wells Real Estate Fund XI 3,191,093 3,308,403
Wells Operating Partnership, L.P. 1,339,636 1,388,884
----------- -----------
Total partners' capital 36,093,809 37,288,782
----------- -----------
Total liabilities and partners' capital $37,702,351 $38,804,809
=========== ===========
21
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
---------- ---------- ----------
Revenues:
Rental income $4,198,388 $3,932,962 $2,945,980
Other income 116,129 61,312 0
Interest income 73,676 58,768 20,438
---------- ---------- ----------
4,388,193 4,053,042 2,966,418
---------- ---------- ----------
Expenses:
Depreciation 1,411,434 1,538,912 1,216,293
Management and leasing fees 362,774 286,139 226,643
Operating costs, net of reimbursements (154,001) (43,501) (140,506)
Property administration expense 78,420 63,311 34,821
Legal and accounting 20,423 35,937 15,351
---------- ---------- ----------
1,719,050 1,880,798 1,352,602
---------- ---------- ----------
Net income $2,669,143 $2,172,244 $1,613,816
========== ========== ==========
Net income allocated to Wells Real Estate Fund IX $1,045,094 $ 850,072 $ 692,116
========== ========== ==========
Net income allocated to Wells Real Estate Fund X $1,288,629 $1,056,316 $ 787,481
========== ========== ==========
Net income allocated to Wells Real Estate Fund XI $ 236,243 $ 184,355 $ 85,352
========== ========== ==========
Net income allocated to Wells Operating Partnership, L.P. $ 99,177 $ 81,501 $ 48,867
========== ========== ==========
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000, 1999, and 1998
Wells
Wells Real Wells Real Wells Real Operating Total
Estate Estate Estate Partnership, Partners'
Fund IX Fund X Fund XI L.P. Capital
------------ ------------ ----------- ----------- ------------
Balance, December 31, 1997 $ 3,702,793 $ 3,662,803 $ 0 $ 0 $ 7,365,596
Net income 692,116 787,481 85,352 48,867 1,613,816
Partnership contributions 11,771,312 15,613,477 2,586,262 1,480,741 31,451,792
Partnership distributions (1,206,121) (1,356,622) (150,611) (86,230) (2,799,584)
------------ ------------ ----------- ----------- ------------
Balance, December 31, 1998 14,960,100 18,707,139 2,521,003 1,443,378 37,631,620
Net income 850,072 1,056,316 184,355 81,501 2,172,244
Partnership contributions 198,989 0 911,027 0 1,110,016
Partnership distributions (1,418,535) (1,762,586) (307,982) (135,995) (3,625,098)
------------ ------------ ----------- ----------- ------------
Balance, December 31, 1999 14,590,626 18,000,869 3,308,403 1,388,884 37,288,782
Net income 1,045,094 1,288,629 236,243 99,177 2,669,143
Partnership contributions 46,122 84,317 0 0 130,439
Partnership distributions (1,564,039) (1,928,538) (353,553) (148,425) (3,994,555)
------------ ------------ ----------- ----------- ------------
Balance, December 31, 2000 $ 14,117,803 $ 17,445,277 $ 3,191,093 $ 1,339,636 $ 36,093,809
============ ============ =========== =========== ============
22
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000, and 1999, and 1998
2000 1999 1998
---------- ---------- ------------
Cash flows from operating activities:
Net income $2,669,143 $2,172,244 $ 1,613,816
---------- ---------- ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,411,434 1,538,912 1,216,293
Changes in assets and liabilities:
Accounts receivable 132,722 (421,708) (92,745)
Prepaid expenses and other assets 39,133 (85,281) (111,818)
Accounts payable, accrued liabilities and
refundable security deposits (37,118) 295,177 29,967
Due to affiliates 3,216 1,973 1,927
---------- ---------- ------------
Total adjustments 1,549,387 1,329,073 1,043,624
---------- ---------- ------------
Net cash provided by operating activities 4,218,530 3,501,317 2,657,440
---------- ---------- ------------
Cash flows from investing activities:
Investment in real estate (127,661) (930,401) (24,788,070)
---------- ---------- ------------
Cash flows from financing activities:
Distributions to joint venture partners (3,868,138) (3,820,491) (1,799,457)
Contributions received from partners 130,439 1,066,992 24,970,373
---------- ---------- ------------
Net cash (used in) provided by financing
activities (3,737,699) (2,753,499) 23,170,916
---------- ---------- ------------
Net increase (decrease) in cash and cash equivalents 353,170 (182,583) 1,040,286
Cash and cash equivalents, beginning of year 1,146,874 1,329,457 289,171
---------- ---------- ------------
Cash and cash equivalents, end of year $1,500,044 $1,146,874 $ 1,329,457
========== ========== ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 43,024 $ 1,470,780
========== ========== ============
Contribution of real estate assets to joint venture $ 0 $ 0 $ 5,010,639
========== ========== ============
Wells/Orange County Associates
On July 27, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Orange County
Associates. On July 31, 1998, Wells/Orange County Associates acquired a 52,000-
square-foot warehouse and office building located in Fountain Valley,
California, known as the Cort Furniture Building.
On September 1, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Orange County Associates which resulted in Fund
X and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Cort Furniture Building.
23
Following are the financial statements for Wells/Orange County Associates:
Wells/Orange County Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
---------- ----------
Real estate assets, at cost:
Land $2,187,501 $2,187,501
Building, less accumulated depreciation of $465,216 in 2000 and $278,652
in 1999 4,198,899 4,385,463
---------- ----------
Total real estate assets 6,386,400 6,572,964
Cash and cash equivalents 119,038 176,666
Accounts receivable 99,154 49,679
---------- ----------
Total assets $6,604,592 $6,799,309
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 1,000 $ 0
Partnership distributions payable 128,227 173,935
---------- ----------
Total liabilities 129,227 173,935
---------- ----------
Partners' capital:
Wells Operating Partnership, L.P. 2,827,607 2,893,112
Fund X and XI Associates 3,647,758 3,732,262
---------- ----------
Total partners' capital 6,475,365 6,625,374
---------- ----------
Total liabilities and partners' capital $6,604,592 $6,799,309
========== ==========
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
-------- -------- --------
Revenues:
Rental income $795,545 $795,545 $331,477
Interest income 0 0 448
-------- -------- --------
795,545 795,545 331,925
-------- -------- --------
Expenses:
Depreciation 186,564 186,565 92,087
Management and leasing fees 30,915 30,360 12,734
Operating costs, net of reimbursements 5,005 22,229 2,288
Interest 0 0 29,472
Legal and accounting 4,100 5,439 3,930
-------- -------- --------
226,584 244,593 140,511
-------- -------- --------
Net income $568,961 $550,952 $191,414
======== ======== ========
Net income allocated to Wells Operating Partnership, L.P. $248,449 $240,585 $ 91,978
======== ======== ========
Net income allocated to Fund X and XI Associates $320,512 $310,367 $ 99,436
======== ======== ========
24
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000, 1999, and 1998
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
-------------- ------------- ------------
Balance, December 31, 1997 $ 0 $ 0 $ 0
Net income 91,978 99,436 191,414
Partnership contributions 2,991,074 3,863,272 6,854,346
Partnership distributions (124,435) (145,942) (270,377)
-------------- ------------- ------------
Balance, December 31, 1998 2,958,617 3,816,766 6,775,383
Net income 240,585 310,367 550,952
Partnership distributions (306,090) (394,871) (700,961)
-------------- ------------- ------------
Balance, December 31, 1999 2,893,112 3,732,262 6,625,374
Net income 248,449 320,512 568,961
Partnership distributions (313,954) (405,016) (718,970)
-------------- ------------- ------------
Balance, December 31, 2000 $ 2,827,607 $ 3,647,758 $ 6,475,365
============== ============= ============
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
---------- ---------- -----------
Cash flows from operating activities:
Net income $ 568,961 $ 550,952 $ 191,414
---------- ---------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 186,564 186,565 92,087
Changes in assets and liabilities:
Accounts receivable (49,475) (36,556) (13,123)
Accounts payable 1,000 (1,550) 1,550
---------- ---------- -----------
Total adjustments 138,089 148,459 80,514
---------- ---------- -----------
Net cash provided by operating activities 707,050 699,411 271,928
---------- ---------- -----------
Cash flows from investing activities:
Investment in real estate 0 0 (6,563,700)
---------- ---------- -----------
Cash flows from financing activities:
Issuance of note payable 0 0 4,875,000
Payment of note payable 0 0 (4,875,000)
Distributions to partners (764,678) (703,640) (93,763)
Contributions received from partners 0 0 6,566,430
---------- ---------- -----------
Net cash (used in) provided by financing
activities (764,678) (703,640) 6,472,667
---------- ---------- -----------
Net (decrease) increase in cash and cash equivalents (57,628) (4,229) 180,895
Cash and cash equivalents, beginning of year 176,666 180,895 0
---------- ---------- -----------
Cash and cash equivalents, end of year $ 119,038 $ 176,666 $ 180,895
========== ========== ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 0 $ 287,916
========== ========== ===========
Wells/Fremont Associates
25
On July 15, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Fremont
Associates. On July 21, 1998, Wells/Fremont Associates acquired a 58,424-square-
foot warehouse and office building located in Fremont, California, known as the
Fairchild Building.
On October 8, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Fremont Associates which resulted in Fund X and
XI Associates becoming a joint venture partner with the Operating Partnership in
the ownership of the Fairchild Building.
Following are the financial statements for Wells/Fremont Associates:
Wells/Fremont Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
----------- ----------
Real estate assets, at cost:
Land $2,219,251 $2,219,251
Building, less accumulated depreciation of $713,773 in 2000 and $428,246
in 1999 6,424,385 6,709,912
----------- ----------
Total real estate assets 8,643,636 8,929,163
Cash and cash equivalents 92,564 189,012
Accounts receivable 126,433 92,979
----------- ----------
Total assets $8,862,633 $9,211,154
=========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 3,016 $ 2,015
Due to affiliate 7,586 5,579
Partnership distributions payable 89,549 186,997
----------- ----------
Total liabilities 100,151 194,591
----------- ----------
Partners' capital:
Wells Operating Partnership, L.P. 6,791,287 6,988,210
Fund X and XI Associates 1,971,195 2,028,353
----------- ----------
Total partners' capital 8,762,482 9,016,563
----------- ----------
Total liabilities and partners' capital $8,862,633 $9,211,154
=========== ==========
26
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
-------- -------- --------
Revenues:
Rental income $902,946 $902,946 $401,058
Interest income 0 0 3,896
-------- -------- --------
902,946 902,946 404,954
-------- -------- --------
Expenses:
Depreciation 285,527 285,526 142,720
Management and leasing fees 36,787 37,355 16,726
Operating costs, net of reimbursements 13,199 16,006 3,364
Interest 0 0 73,919
Legal and accounting 4,300 4,885 6,306
-------- -------- --------
339,813 343,772 243,035
-------- -------- --------
Net income $563,133 $559,174 $161,919
======== ======== ========
Net income allocated to Wells Operating Partnership, L.P. $436,452 $433,383 $122,470
======== ======== ========
Net income allocated to Fund X and XI Associates $126,681 $125,791 $ 39,449
======== ======== ========
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000, 1999, and 1998
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------- ------------- -------------
Balance, December 31, 1997 $ 0 $ 0 $ 0
Net income 122,470 39,449 161,919
Partner contributions 7,274,075 2,083,334 9,357,409
Partnership distributions (229,863) (42,628) (272,491)
-------------- ------------- -------------
Balance, December 31, 1998 7,166,682 2,080,155 9,246,837
Net income 433,383 125,791 559,174
Partnership distributions (611,855) (177,593) (789,448)
-------------- ------------- -------------
Balance, December 31, 1999 6,988,210 2,028,353 9,016,563
Net income 436,452 126,681 563,133
Partnership distributions (633,375) (183,839) (817,214)
-------------- ------------- -------------
Balance, December 31, 2000 $ 6,791,287 $ 1,971,195 $ 8,762,482
============== ============= =============
27
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000, 1999, and 1998
2000 1999 1998
--------- --------- -----------
Cash flows from operating activities:
Net income $ 563,133 $ 559,174 $ 161,919
--------- --------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 285,527 285,526 142,720
Changes in assets and liabilities:
Accounts receivable (33,454) (58,237) (34,742)
Accounts payable 1,001 (1,550) 3,565
Due to affiliate 2,007 3,527 2,052
Total adjustments 255,081 229,266 113,595
--------- --------- -----------
Net cash provided by operating activities 818,214 788,440 275,514
--------- --------- -----------
Cash flows from investing activities:
Investment in real estate 0 0 (8,983,111)
--------- --------- -----------
Cash flows from financing activities:
Issuance of note payable 0 0 5,960,000
Payment of note payable 0 0 (5,960,000)
Distributions to partners (914,662) (791,940) (83,001)
Contributions received from partners 0 0 8,983,110
--------- --------- -----------
Net cash (used in) provided by financing
activities (914,662) (791,940) 8,900,109
--------- --------- -----------
Net (decrease) increase in cash and cash equivalents (96,448) (3,500) 192,512
Cash and cash equivalents, beginning of year 189,012 192,512 0
--------- --------- -----------
Cash and cash equivalents, end of year $ 92,564 $ 189,012 $ 192,512
========= ========= ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 0 $ 374,299
========= ========= ===========
Fund XI, XII, and REIT Joint Venture
On May 1, 1999, the Operating Partnership entered into a joint venture with
Wells Fund XII and Wells Fund XI. On May 18, 1999, the joint venture purchased a
169,510-square-foot, two-story manufacturing and office building, known as EYBL
CarTex, in Fountain Inn, South Carolina. On July 21, 1999, the joint venture
purchased a 68,900 square-foot, three-story-office building, known as the Sprint
Building, in Leawood, Kansas. On August 17, 1999, the joint venture purchased a
130,000 square-foot office and warehouse building, known as the Johnson Matthey
Building, in Chester County, Pennsylvania. On September 20, 1999, the joint
venture purchased a 62,400 square-foot, two-story office building, known as the
Gartner Building, in Fort Myers, Florida.
28
Following are the financial statements for the Fund XI, XII, and REIT Joint
Venture:
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2000 and 1999
Assets
2000 1999
----------- -----------
Real estate assets, at cost:
Land $ 5,048,797 $ 5,048,797
Building and improvements, less accumulated depreciation of
$1,599,262 in 2000 and $506,582 in 1999 25,719,189 26,811,869
----------- -----------
Total real estate assets 30,767,986 31,860,666
Cash and cash equivalents 541,089 766,278
Accounts receivable 394,314 133,777
Prepaid assets and other expenses 26,486 26,486
----------- -----------
Total assets $31,729,875 $32,787,207
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 114,180 $ 112,457
Partnership distributions payable 453,395 680,294
----------- -----------
Total liabilities 567,575 792,751
----------- -----------
Partners' capital:
Wells Real Estate Fund XI 8,148,261 8,365,852
Wells Real Estate Fund XII 5,325,424 5,467,634
Wells Operating Partnership, L.P. 17,688,615 18,160,970
----------- -----------
Total partners' capital 31,162,300 31,994,456
----------- -----------
Total liabilities and partners' capital $31,729,875 $32,787,207
=========== ===========
29
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2000 and 1999
2000 1999
---------- ----------
Revenues:
Rental income $3,345,932 $1,443,446
Interest income 2,814 0
Other income 440 57
---------- ----------
3,349,186 1,443,503
---------- ----------
Expenses:
Depreciation 1,092,680 506,582
Management and leasing fees 157,236 59,230
Operating costs, net of reimbursements (24,798) 6,433
Property administration 30,787 14,185
Legal and accounting 14,725 4,000
---------- ----------
1,270,630 590,430
---------- ----------
Net income $2,078,556 $ 853,073
========== ==========
Net income allocated to Wells Real Estate Fund XI $ 543,497 $ 240,031
========== ==========
Net income allocated to Wells Real Estate Fund XII $ 355,211 $ 124,542
========== ==========
Net income allocated to Wells Operating Partnership, L.P. $1,179,848 $ 488,500
========== ==========
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2000 and 1999
Wells
Wells Real Wells Real Operating Total
Estate Estate Partnership, Partners'
Fund XI Fund XII L.P. Capital
---------- ---------- ------------ -----------
Balance, December 31, 1998 $ 0 $ 0 $ 0 $ 0
Net income 240,031 124,542 488,500 853,073
Partnership contributions 8,470,160 5,520,835 18,376,267 32,367,262
Partnership distributions (344,339) (177,743) (703,797) (1,225,879)
---------- ---------- ------------ -----------
Balance, December 31, 1999 8,365,852 5,467,634 18,160,970 31,994,456
Net income 543,497 355,211 1,179,848 2,078,556
Partnership distributions (761,088) (497,421) (1,652,203) (2,910,712)
---------- ---------- ------------ -----------
Balance, December 31, 2000 $8,148,261 $5,325,424 $17,688,615 $31,162,300
========== ========== ============ ===========
30
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2000 and 1999
2000 1999
----------- -----------
Cash flows from operating activities:
Net income $ 2,078,556 $ 853,073
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,092,680 506,582
Changes in assets and liabilities:
Accounts receivable (260,537) (133,777)
Prepaid expenses and other assets 0 (26,486)
Accounts payable 1,723 112,457
----------- -----------
Total adjustments 833,866 458,776
----------- -----------
Net cash provided by operating activities 2,912,422 1,311,849
----------- -----------
Cash flows from financing activities:
Distributions to joint venture partners (3,137,611) (545,571)
----------- -----------
Net (decrease) increase in cash and cash equivalents (225,189) 766,278
Cash and cash equivalents, beginning of year 766,278 0
----------- -----------
Cash and cash equivalents, end of year $ 541,089 $ 766,278
=========== ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 1,294,686
=========== ===========
Contribution of real estate assets to joint venture $ 0 $31,072,562
=========== ===========
Fund XII and REIT Joint Venture
On May 10, 2000, the Operating Partnership entered into a joint venture with
Wells Fund XII. The joint venture, Fund XII and REIT Joint Venture, was formed
to acquire, develop, operate, and sell real property. On May 20, 2000, the joint
venture purchased a 77,054 square-foot, three-story office building, known as
the Siemens Building in Troy, Oakland County, Michigan. On December 28, 2000,
the joint venture purchased a 50,000 square-foot one-story office building and a
78,500 square-foot two-story office building, collectively known as the AT&T
Call Center Buildings in Oklahoma City, Oklahoma County, Oklahoma.
31
Following are the financial statements for Fund XII and REIT Joint Venture:
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheet
December 31, 2000
Assets
Real estate assets, at cost:
Land $ 4,420,405
Building and improvements, less accumulated depreciation of $324,732 26,004,918
-----------
Total real estate assets 30,425,323
Cash and cash equivalents 207,475
Accounts receivable 130,490
-----------
Total assets $30,763,288
===========
Liabilities and Partners' Capital
Liabilities:
Partnership distributions payable $ 208,261
-----------
Partners' capital:
Wells Real Estate Fund XII 16,242,127
Wells Operating Partnership, L.P. 14,312,900
-----------
Total partners' capital 30,555,027
-----------
Total liabilities and partners' capital $30,763,288
===========
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Income
for the Period From Inception (May 10, 2000)
Through December 31, 2000
Revenues:
Rental income $974,796
Interest income 2,069
--------
976,865
--------
Expenses:
Depreciation 324,732
Management and leasing fees 32,756
Partnership administration 3,917
Operating costs, net of reimbursements 1,210
--------
362,615
--------
Net income $614,250
========
Net income allocated to Wells Real Estate Fund XII $309,190
========
Net income allocated to Wells Operating Partnership, L.P. $305,060
========
32
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Period From Inception (May 10, 2000)
Through December 31, 2000
Wells Real Wells Total
Estate Operating Partners'
Fund XII Partnership, L.P. Capital
------------ ----------------- ------------
Balance, May 10, 2000 $ 0 $ 0 $ 0
Net income 309,190 305,060 614,250
Partnership contributions 16,340,885 14,409,170 30,750,055
Partnership distributions (407,948) (401,330) (809,278)
------------ ---------------- ------------
Balance, December 31, 2000 $16,242,127 $14,312,900 $ 30,555,027
============ ================ ============
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Cash Flows
for the Period From Inception (May 10, 2000)
Through December 31, 2000
Cash flows from operating activities:
Net income $ 614,250
------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 324,732
Changes in assets and liabilities:
Accounts receivable (130,490)
------------
Total adjustments 194,242
------------
Net cash provided by operating activities 808,492
------------
Cash flows from investing activities:
Investment in real estate (29,520,043)
------------
Cash flows from financing activities:
Distributions to joint venture partners (601,017)
Contributions received from partners 29,520,043
------------
Net cash provided by financing activities 28,919,026
------------
Net increase in cash and cash equivalents 207,475
Cash and cash equivalents, beginning of year 0
------------
Cash and cash equivalents, end of year $ 207,475
============
Supplemental disclosure of non cash activities:
Deferred project costs contributed to joint venture $ 1,230,012
============
33
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Operating Partnership's income tax basis net income for the years ended
December 31, 2000 and 1999 are calculated as follows:
2000 1999
----------- ----------
Financial statement net income $ 8,552,967 $3,884,649
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 3,511,353 739,963
Rental income accrued for financial reporting purposes in excess of
amounts for income tax purposes (1,822,220) (802,309)
Expenses deductible when paid for income tax purposes, accrued for
financial reporting purposes 37,675 49,906
----------- ----------
Income tax basis net income $10,279,775 $3,872,209
=========== ==========
The Operating Partnership's income tax basis partners' capital at December 31,
2000 and 1999 is computed as follows:
2000 1999
------------ ------------
Financial statement partners' capital $265,341,612 $116,015,595
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 4,543,602 822,581
Capitalization of syndication costs for income tax purposes, which
are accounted for as cost of capital for financial reporting
purposes 12,896,312 12,896,312
Accumulated rental income accrued for financial reporting purposes
in excess of amounts for income tax purposes (2,647,246) (837,736)
Accumulated expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 89,215 51,540
Dividends payable 1,025,010 2,166,701
1999 True-up adjustment (222,378) 0
------------ ------------
Income tax basis partners' capital $281,026,127 $131,114,993
============ ============
7. RENTAL INCOME
The future minimum rental income due from the Operating Partnership's direct
investment in real estate or its respective ownership interest in the joint
ventures under noncancelable operating leases at December 31, 2000 is as
follows:
Year ended December 31:
2001 $ 42,753,778
2002 43,073,142
2003 43,776,297
2004 44,836,991
2005 42,926,909
Thereafter 176,795,438
------------
$394,162,555
============
One tenant contributed 13% of rental income for the year ended December 31,
2000. In addition, two tenants will contribute 13%, 16%, and 12% of future
minimum rental income.
Future minimum rental income due from Fund VIII, IX, and REIT Joint Venture
under noncancelable operating leases at December 31, 2000 is as follows:
34
Year ended December 31:
2001 $1,234,309
2002 1,287,119
2003 1,287,119
2004 107,260
----------
$3,915,807
==========
Two tenants contributed 52% and 48% of rental income for the year ended December
31, 2000. In addition, one tenant will contribute 100% of future minimum rental
income.
The future minimum rental income due from Fund IX, X, XI, and REIT Joint Venture
under noncancelable operating leases at December 31, 2000 is as follows:
Year ended December 31:
2001 $ 4,413,780
2002 3,724,218
2003 3,617,437
2004 3,498,478
2005 2,482,821
Thereafter 5,436,524
------------
$ 23,173,258
============
Four tenants contributed 25%, 24%, 13%, and 13% of rental income for the year
ended December 31, 2000. In addition, four tenants will contribute 38%, 21%,
20%, and 19% of future minimum rental income.
The future minimum rental income due Wells/Orange County Associates under
noncancelable operating leases at December 31, 2000 is as follows:
Year ended December 31:
2001 $ 809,580
2002 834,888
2003 695,740
-----------
$ 2,340,208
===========
One tenant contributed 100% of rental income for the year ended December 31,
2000 and will contribute 100% of future minimum rental income.
The future minimum rental income due Wells/Fremont Associates under
noncancelable operating leases at December 31, 2000 is as follows:
Year ended December 31:
2001 $ 869,492
2002 922,444
2003 950,118
2004 894,832
-----------
$ 3,636,886
===========
35
One tenant contributed 100% of rental income for the year ended December 31,
2000 and will contribute 100% of future minimum rental income.
The future minimum rental income due from Fund XI, XII, and REIT under
noncancelable operating leases at December 31, 2000 is as follows:
Year ended December 31:
2001 $ 3,135,340
2002 2,598,606
2003 2,946,701
2004 3,445,193
2005 3,495,155
Thereafter 6,169,579
------------
$ 21,790,574
============
Four tenants contributed approximately 30%, 24%, 23%, and 15% of rental income
for the year ended December 31, 2000. In addition, four tenants will contribute
approximately 28%, 27%, 26%, and 19% of future minimum rental income.
The future minimum rental income due Fund XII and REIT under noncancelable
operating leases at December 31, 2000 is as follows:
Year ended December 31:
2001 $ 2,888,084
2002 2,920,446
2003 2,952,809
2004 2,985,172
2005 3,017,534
Thereafter 13,650,288
------------
$ 28,414,333
============
One tenant contributed approximately 86% of rental income for the year ended
December 31, 2000. In addition, two tenants will contribute approximately 49%
and 45% of future minimum rental income.
8. NOTES PAYABLE
As of December 31, 2000, the Operating Partnership's notes payable included the
following:
Note payable to Bank of America; interest at LIBOR plus 200 basis points,
principal and interest payable monthly; due March 31, 2001;
collateralized by the Operating Partnership's interests in the AT&T
Building, the AT&T Call Center Buildings, the Matsushita Building, the
Motorola South Plainfield Building, and the Marconi Building $ 14,300,150
Note payable to Bank of America; interest at LIBOR plus 200 basis points;
principal and interest payable monthly; due January 4, 2002 112,937
Note payable to Guaranty Federal Bank; interest at LIBOR plus 180 basis
points; principal and interest payable monthly; due December 20, 2001;
collateralized by the Operating Partnership's interest in the Stone &
Webster Building 32,400,000
Note payable to Cardinal Capital, Inc.; interest at 6%; principal and
interest payable monthly; due March 31, 2001; collateralized by the
Operating Partnership's interest in the Stone & Webster Building $ 3,000,000
36
Note payable to Richter-Schroeder Company, Inc.; interest at LIBOR plus
175 basis points; principal and interest payable monthly; due January 31,
3003; collateralized by the Operating Partnership's interest in the
Metris Oklahoma Building 8,000,000
Note payable to SouthTrust Bank; interest at LIBOR plus 175 basis points;
principal and interest payable monthly; due June 10, 2002; collateralized
by the Operating Partnership's interests in the Cinemark Building, the
Dial Building, the ASML Building, the Alstom Power Richmond Building, the
Avaya Building, the Motorola Tempe Building, and the
PricewaterhouseCoopers Building 69,850,100
------------
Total $127,663,187
============
The contractual maturities of the Operating Partnerhip's notes payable are as
follows as of December 31, 2000:
2001 $101,472,657
2002 25,856,779
2003 333,751
------------
Total $127,663,187
============
9. COMMITMENTS AND CONTINGENCIES
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company, the Operating Partnership,
or the Advisor. In the normal course of business, the Company, the Operating
Partnership, or the Advisor may become subject to such litigation or claims.
10. SHAREHOLDERS' EQUITY
Common Stock Option Plan
The Wells Real Estate Investment Trust, Inc. Independent Director Stock Option
Plan ("the Plan") provides for grants of stock to be made to independent
nonemployee directors of the Company. Options to purchase 2,500 shares of common
stock at $12 per share are granted upon initially becoming an independent
director of the Company. Of these shares, 20% are exercisable immediately on the
date of grant. An additional 20% of these shares become exercisable on each
anniversary following the date of grant for a period of four years. Effective on
the date of each annual meeting of shareholders of the Company, beginning in
2000, each independent director will be granted an option to purchase 1,000
additional shares of common stock. These options vest at the rate of 500 shares
per full year of service thereafter. All options granted under the Plan expire
no later than the date immediately following the tenth anniversary of the date
of grant and may expire sooner in the event of the disability or death of the
optionee or if the optionee ceases to serve as a director.
The Company has adopted the disclosure provisions in SFAS No. 123, "Accounting
for Stock-Based Compensation." As permitted by the provisions of SFAS No. 123,
the Company applies Accounting Principles Board Opinion No. 25 and the related
interpretations in accounting for its stock option plans and, accordingly, does
not recognize compensation cost.
37
A summary of the Company's stock option activity during 2000 and 1999 is as
follows:
Exercise
Number Price
------ ---------
Outstanding at December 31, 1998 0 $ 0
Granted 17,500 12
------ ----
Outstanding at December 31, 1999 17,500 12
Granted 7,000 12
------ ----
Outstanding at December 31, 2000 24,000 $ 12
====== ====
Outstanding options exercisable as of December 31, 2000 7,000 $ 12
====== ====
For SFAS No. 123 purposes, the fair value of each stock option for 2000 and 1999
has been estimated as of the date of the grant using the minimum value method.
The weighted average risk-free interest rates assumed for 2000 and 1999 were
6.45% and 5.97%, respectively. Dividend yields of 7.3% were assumed for both
years. The expected life of an option was assumed to be 4 years and 5 years for
2000 and 1999, respectively. Based on these assumptions, the fair value of the
options granted during 2000 and 1999 is $0.
Treasury Stock
During 1999, the Company's Board of Directors authorized a dividend reinvestment
program (the "DRP"), through which common shareholders may elect to reinvest an
amount equal to the dividends declared on their common shares into additional
shares of the Company's common stock in lieu of receiving cash dividends. During
2000, the Company's Board of Directors authorized a common stock repurchase plan
subject to the amount reinvested in the Company's common shares through the DRP
and 3% of the average common shares outstanding during the preceding year (the
"limitations"). During 2000, the Company's Board of Directors authorized
$2,436,495 in common stock repurchases. Accordingly, the Company repurchased
142,297 of its own common shares at an aggregate cost of $1,412,969. These
transactions were funded with cash on hand and did not exceed either of the
limitations.
11. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial information
for the years ended December 31, 2000 and 1999:
2000 Quarters Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues $3,710,409 $5,537,618 $6,586,611 $7,638,568
Net income 1,691,288 1,521,021 2,525,228 2,815,430
Basic and diluted earnings per share $ 0.11 $ 0.08 $ 0.11 $ 0.10
Dividends per share 0.18 0.18 0.18 0.19
1999 Quarters Ended
----------------------------------------------------------------
March 31 June 30 September 30 December 31
-------- ------- ------------ -----------
Revenues $ 988,000 $1,204,938 $1,803,352 $2,499,105
Net income 393,438 601,975 1,277,019 1,612,217
Basic and diluted earnings per share $ 0.10 $ 0.09 $ 0.18 $ 0.13
Dividends per share 0.17 0.17 0.18 0.18
38
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (Tables) provide information
relating to real estate investment programs sponsored by Wells Capital, Inc.,
our Advisor, and its affiliates (Wells Public Programs) which have investment
objectives similar to Wells Real Estate Investment Trust, Inc. (Wells REIT).
(See "Investment Objectives and Criteria.") All of the Wells Public Programs,
except for the Wells REIT, have used substantial amounts of capital, and no
acquisition indebtedness, to acquire their properties.
Prospective investors should read these Tables carefully together with
the summary information concerning the Wells Public Programs as set forth in
"Prior Performance Summary" section of this prospectus.
Investors in the Wells REIT will not own any interest in other Wells
Public Programs and should not assume that they will experience returns, if any,
comparable to those experienced by investors in other Wells Public Programs.
The advisor is responsible for the acquisition, operation, maintenance
and resale of the real estate properties. The financial results of the Wells
Public Programs, thus, may provide some indication of the advisor's performance
of its obligations during the periods covered. However, general economic
conditions affecting the real estate industry and other factors contribute
significantly to financial results.
The following tables are included herein:
Table I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
Table II - Compensation to Sponsor (in Dollars)
Table III - Annual Operating Results of Wells Public Programs
Table IV (Results of completed programs) has been omitted since none of
the Wells Public Programs have been liquidated.
Table V - Sales or Disposals of Property
Additional information relating to the acquisition of properties by the
Wells Public Programs is contained in Table VI, which is included in Part II of
the registration statement which the Wells REIT has filed with the Securities
and Exchange Commission. As described above, no Wells Public Program has sold or
disposed of any property held by it. Copies of any or all information will be
provided to prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"Acquisition Fees" shall mean fees and commissions paid by a Wells
Public Program in connection with its purchase or development of a property,
except development fees paid to a person not affiliated with the Wells Public
Program or with a general partner or advisor of the Wells Public Program in
connection with the actual development of a project after acquisition of the
land by the Wells Public Program.
"Organization Expenses" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
sponsor in connection with the planning and formation of the Wells Public
Program.
"Underwriting Fees" shall include selling commissions and wholesaling
fees paid to broker-dealers for services provided by the broker-dealers during
the offering.
39
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the sponsors of
Wells Public Programs for which offerings have been completed since December 31,
1997. Information is provided with regard to the manner in which the proceeds of
the offerings have been applied. Also set forth is information pertaining to the
timing and length of these offerings and the time period over which the proceeds
have been invested in the properties. All figures are as of December 31, 2000.
Wells Real Wells Real Wells Real Estate
Estate Fund Estate Fund Investment
X, L.P. XI, L.P. Trust, Inc.
------- -------- -----------
Dollar Amount Raised $ 27,128,912/(4)/ $ 16,532,802/(5)/ $ 307,411,112/(5)/
============= ============ =============
Percentage Amount Raised 100%/(4)/ 100%/(5)/ 100%/(5)/
Less Offering Expenses
Underwriting Fees 10.0% 9.5% 9.5%
Organizational Expenses 5.0% 3.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0%
---- ---- ----
Percent Available for Investment 85.0% 87.5% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property 5.4% 0.0% 0.5%
Cash Down Payment 60.5% 84.0% 73.8%
Acquisition Fees/(2)/ 4.0% 3.5% 3.5%
Development and Construction Costs 14.1% 0.0% 9.7%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0%
---- ---- ----
Total Acquisition and Development Cost 84.0% 87.5% 87.5%
Percent Leveraged 0.0% 0.0% 30.9%
==== ==== ====
Date Offering Began 12/31/96 12/31/97 01/30/98
Length of Offering 12 mo. 12 mo. 35mo.
Months to Invest 90% of Amount Available
for Investment (Measured from Beginning of 19 mo. 20 mo. 21mo.
Offering)
Number of Investors as of 12/31/00 1,812 1,341 7,422
(1) Does not include general partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor
fees and/or architectural fees paid to affiliates of the general
partners.
(3) Total dollar amount registered and available to be offered was
$35,000,000. Wells Real Estate Fund X, L.P. closed its offering on
December 30, 1997, and the total dollar amount raised was $27,128,912.
(4) Total dollar amount registered and available to be offered was
$35,000,000. Wells Real Estate Fund XI, L.P. closed its offering on
December 30, 1998, and the total dollar amount raised was $16,532,802.
(5) The total dollar amount registered and available to be offered in the
first offering was $165,000,000. Wells Real Estate Investment Trust, Inc.
closed its initial offering on December 19, 1999, and the total dollar
amount raised in its initial offering was $132,181,919. The total dollar
amount registered and available to be offered in the second offering was
$222,000,000. Wells Real Estate Investment Trust, Inc. closed its second
offering on December 19, 2000, and the total dollar amount raised in its
second offering was $175,229,193.
40
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by Wells Capital and
its affiliates, including compensation paid out of offering proceeds and
compensation paid in connection with the ongoing operations of Wells Public
Programs having similar or identical investment objectives the offerings of
which have been completed since December 31, 1997. All figures are as of
December 31, 2000.
Wells Real
Wells Real Wells Real Estate Other
Estate Fund Estate Fund Investment Public
X, L.P. XI, L.P. Trust, Inc./(1)/ Programs/(2)/
------- -------- ---------------- -------------
Date Offering Commenced 12/31/96 12/31/97 01/30/98 --
Dollar Amount Raised $ 27,128,912 $ 16,532,802 $ 307,411,112 $ 241,241,095
To Sponsor from Proceeds of Offering:
Underwriting Fees/(3)/ $ 260,748 $ 151,911 $ 3,076,844 $ 1,233,722
Acquisition Fees
Real Estate Commissions -- -- -- --
Acquisition and Advisory Fees/(4)/ $ 1,085,157 $ 578,648 $ 10,759,389 $ 11,559,399
Dollar Amount of Cash Generated from
Operations
Before Deducting Payments to Sponsor/(5)/ $ 6,317,750 $ 2,258,811 $ 20,419,727 $ 50,226,112
Amount Paid to Sponsor from Operations:
Property Management Fee/(2)/ $ 186,223 $ 59,759 $ 664,993 $ 1,869,215
Partnership Management Fee -- -- -- --
Reimbursements $ 155,940 $ 109,640 $ 321,593 $ 1,871,038
Leasing Commissions $ 256,922 $ 71,051 $ 664,993 $ 2,099,939
General Partner Distributions -- -- -- --
Other -- -- -- --
Dollar Amount of Property Sales and
Refinancing
Payments to Sponsors:
Cash -- -- -- --
Notes -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- --
Incentive Fees -- -- -- --
Other -- -- -- --
(1) The total dollar amount registered and available to be offered in the
first offering was $165,000,000. Wells Real Estate Investment Trust, Inc.
closed its initial offering on December 19, 1999, and the total dollar
amount raised in its initial offering was $132,181,919. The total dollar
amount registered and available to be offered in the second offering was
$222,000,000. Wells Real Estate Investment Trust, Inc. closed its second
offering on December 19, 2000, and the total dollar amount raised in its
second offering was $175,229,193.
(2) Includes compensation paid to the general partners from Wells Real Estate
Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells
Real Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real
Estate Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate
Fund VII, L.P., Wells Real Estate Fund VIII, L.P. and Wells Real Estate
Fund IX, L.P. during the past three years. In addition to the amounts
shown, affiliates of the general partners of Wells Real Estate Fund I are
entitled to certain property management and leasing fees but have elected
to defer the payment of such fees until a later year on properties owned
by Wells Real Estate Fund I. As of December 31, 2000, the amount of such
deferred fees due the general partners totaled $2,520,040.
(3) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offering which was not
reallowed to participating broker-dealers.
(4) Fees paid to the general partners or their affiliates for acquisition and
advisory services in connection with the review and evaluation of
potential real property acquisitions.
(5) Includes $140,562 in net cash provided by operating activities, $5,578,104
in distributions to limited partners and $599,084 in payments to sponsor
for Wells Real Estate Fund X, L.P.; $(82,877) in net cash used by
operating activities, $2,11,238 in distributions to limited partners and
$240,450 in payments to
41
sponsor for Wells Real Estate Fund XI, L.P.; $11,052,365 in net cash
provided by operating activities, $20,880,495 in dividends and $1,651,579
in payments to sponsor for Wells Real Estate Investment Trust, Inc.; and
$1,903,465 in net cash provided by operating activities, $42,482,455 in
distributions to limited partners and $5,840,192 in payments to sponsor
for other public programs.
42
TABLE III
(UNAUDITED)
The following six tables set forth operating results of Wells Public
Programs the offerings of which have been completed since December 31, 1995. The
information relates only to public programs with investment objectives similar
to those of Wells Fund XIII. All figures are as of December 31 of the year
indicated.
43
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VII, L.P.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 961,858 $ 982,630 $ 846,306 $ 816,237 $ 543,291
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 78,876 85,273 85,722 76,838 84,265
Depreciation and Amortization/(3)/ -- 1,562 6,250 6,250 6,250
---------- --------- ---------- --------- ---------
Net Income GAAP Basis/(4)/ $ 882,982 $ 895,795 $ 754,334 $ 733,149 $ 452,776
========= ========= ========= =========
Taxable Income: Operations $1,173,394 $ 1,255,666 $ 1,109,096 $ 1,008,368 $ 657,443
========= ========= ========= =========
Cash Generated (Used By):
Operations (60,735) (82,763) (72,194) (43,250) 20,883
Joint Ventures 1,921,437 1,777,010 1,770,742 1,420,126 760,628
--------- --------- --------- --------- ---------
1,860,702 $ 1,694,247 $ 1,698,548 $ 1,376,876 $ 781,511
Less Cash Distributions to Investors:
Operating Cash Flow 1,860,702 1,688,290 1,636,158 1,376,876 781,511
Return of Capital -- -- -- 2,709 10,805
Undistributed Cash Flow from Prior Year Operations 26,481 -- -- -- --
---------- --------- --------- --------- ---------
Cash Generated (Deficiency) after Cash Distributions (26,481) $ 5,957 62,390 $ (2,709) $ (10,805)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- $ -- $ -- $ -- $ --
---------- --------- --------- --------- ---------
(26,481) $ 5,957 $ 62,390 $ (2,709) $ (10,805)
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- --
Return of Original Limited Partner's Investment -- -- -- -- --
Property Acquisitions and Deferred Project Costs 0 0 181,070 169,172 736,960
---------- --------- ----------- --------- ---------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ (26,481) $ 5,957 $ (118,680) $ (171,881) $ (747,765)
========== ========= =========== ========= =========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 63 93 85 86 62
- Operations Class B Units (107) (248) (224) (168) (98)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 90 89 82 78 55
- Operations Class B Units (178) (144) (134) (111) (58)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors: (144)
Source (on GAAP Basis) --
- Investment Income Class A Units 63 81 70 43
- Return of Capital Class A Units 29 -- -- --
- Return of Capital Class B Units -- 83 -- -- --
Source (on Cash Basis) --
- Operations Class A Units 91 -- 81 70 42
- Return of Capital Class A Units 1 -- -- 1
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/ 83
- Investment income Class A Units 74 -- 65 54 29
- Return of Capital Class A Units 18 -- 16 16 14
- Return of Capital Class B Units -- -- -- --
__________
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported
in the Table 100%
44
(1) Includes $457,144 in equity in earnings of joint ventures and $86,147
from investment of reserve funds in 1996, $785,398 in equity in earnings
of joint ventures and $30,839 from investment of reserve funds in 1997,
$839,037 in equity in earnings of joint ventures and $7,269 from
investment of reserve funds in 1998, $981,104 in equity in earnings of
joint ventures and $1,526 from investment of reserve funds in 1999 and
$944,165 in equity in earnings of joint ventures and $17,693 from
investment of reserve funds in 2000. As of December 31, 2000, the leasing
status was 98.7% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $140,533 for 1995, $605,247 for 1996, $877,869 for 1997,
$955,245 for 1998, $982,052 for 1999, and $957,862 for 2000.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $1,062,605 to Class A Limited
Partners, $(609,829) to Class B Limited Partners and $0 to the General
Partners for 1996; $1,615,965 to class A Limited Partners, $(882,816) to
Class B Limited Partners and $0 to the General Partners for 1997;
$1,704,213 to Class A Limited Partners, $(949,879) to Class B Limited
Partners and $0 to the General Partners for 1998; $1,879,410 to Class A
Limited Partners, $(983,615) to Class B Limited Partners and $0 to the
General Partners for 1999, and $1,286,161 to Class A Limited Partners,
$(403,179) to Class B Limited Partners and $0 to the General Partners for
2000.
(5) Pursuant to the terms of the partnership agreement, an amount equal to
the cash distributions paid to Class A Limited Partners is payable as
priority distributions out of the first available net proceeds from the
sale of partnership properties to Class B Limited Partners. The amount of
cash distributions paid per unit to Class A Limited Partners is shown as
a return of capital to the extent of such priority distributions payable
to Class B Limited Partners. As of December 31, 2000, the aggregate
amount of such priority distributions payable to Class B Limited Partners
totaled $2,053,320.
45
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,373,795 $ 1,360,497 $ 1,362,513 $ 1,204,018 $ 1,057,694
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 85,732 87,301 87,092 95,201 114,854
Depreciation and Amortization/(3)/ 0 6,250 6,250 6,250 6,250
----------- ------------ ------------ ------------ ------------
Net Income GAAP Basis/(4)/ 1,288,063 $ 1,266,946 $ 1,269,171 $ 1,102,567 $ 936,590
=========== ============ ============ ============ ============
Taxable Income: Operations 1,707,431 $ 1,672,844 $ 1,683,192 $ 1,213,524 $ 1,001,974
=========== ============ ============ ============ ============
Cash Generated (Used By):
Operations (68,968) (87,298) (63,946) 7,909 623,268
Joint Ventures 2,474,151 2,558,623 2,293,504 1,229,282 279,984
----------- ------------ ------------ ------------ ------------
$ 2,405,183 $ 2,471,325 $ 2,229,558 $ 1,237,191 $ 903,252
Less Cash Distributions to Investors:
Operating Cash Flow 2,405,183 2,379,215 2,218,400 1,237,191 903,252
Return of Capital -- -- -- 183,315 2,443
Undistributed Cash Flow from Prior Year
Operations 82,180 -- -- -- 225,077
----------- ------------ ------------ ------------ ------------
Cash Generated (Deficiency) after Cash
Distributions $ (82,180) $ 92,110 $ 11,158 $ (183,315) $ (227,520)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions/(5)/ -- -- -- -- 1,898,147
----------- ------------ ------------ ------------ ------------
$ (82,180) $ 92,110 $ 11,158 $ (183,315) $ 1,670,627
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- 464,760
Return of Limited Partner's Investment -- -- -- 8,600 --
Property Acquisitions and Deferred Project Costs 0 0 1,850,859 10,675,811 7,931,566
----------- ------------ ------------ ------------ ------------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ (82,180) $ 92,110 $ (1,839,701) $(10,867,726) $ (6,725,699)
=========== ============ ============ ============ ============
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 84 91 91 73 46
- Operations Class B Units (219) (247) (212) (150) (47)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 89 88 89 65 46
- Operations Class B Units (169) 154 (131) (95) (33)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 83 87 83 54 43
- Return of Capital Class A Units 7 -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 87 87 83 47 43
- Return of Capital Class A Units 3 -- -- 7 0
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 73 70 69 42 33
- Return of Capital Class A Units 17 17 16 12 10
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested
in Program Properties at the end of the Last Year
Reported in the Table 100%
46
(1) Includes $241,819 in equity in earnings of joint ventures and $815,875 from
investment of reserve funds in 1996, $1,034,907 in equity in earnings of
joint ventures and $169,111 from investment of reserve funds in 1997,
$1,346,367 in equity in earnings of joint ventures and $16,146 from
investment of reserve funds in 1998, $1,360,494 in equity in earnings of
joint ventures and $3 from investment of reserve funds in 1999 and
$1,363,174 in equity in earnings of joint ventures and $10,621 from
investment of reserve funds in 2000. As of December 31, 2000, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $265,259 for 1996, $841,666 for 1997, $1,157,355 for 1998,
$1,209,171 for 1999 and $1,173,630 for 2000.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $1,207,540 to Class A Limited
Partners, $(270,653) to Class B Limited Partners and $(297) to the General
Partners for 1996; $1,947,536 to Class A Limited Partners, $(844,969) to
Class B Limited Partners and $0 to the General Partners for 1997;
$2,431,246 to Class A Limited Partners, $(1,162,075) to Class B Limited
Partners and $0 to the General Partners for 1998; $2,481,559 to Class A
Limited Partners, $(1,214,613) to Class B Limited Partners and $0 to the
General Partners for 1999, and $2,294,288 to Class A Limited Partners,
$(1,006,225) to Class B Limited Partners and $0 to the General Partners for
2000.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2000, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,940,951.
47
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Gross Revenues/(1)/ $1,836.768 $1,593,734 $ 1,561,456 $ 1,199,300 $ 406,891
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 78,092 90,903 105,251 101,284 101,885
Depreciation and Amortization/(3)/ 0 12,500 6,250 6,250 6,250
---------- ---------- ----------- ------------ -----------
Net Income GAAP Basis/(4)/ $1,758,676 $1,490,331 $ 1,449,955 $ 1,091,766 $ 298,756
========== ========== =========== ============ ===========
Taxable Income: Operations $2,147,094 $1,924,542 $ 1,906,011 $ 1,083,824 $ 304,552
========== ========== =========== ============ ===========
Cash Generated (Used By):
Operations $ (66,145) $ (94,403) $ 80,147 $ 501,390 $ 151,150
Joint Ventures 2,831,329 2,814,870 2,125,489 527,390 --
---------- ---------- ----------- ------------ -----------
$2,765,184 $2,720,467 $ 2,205,636 $ 1,028,780 $ 151,150
Less Cash Distributions to Investors:
Operating Cash Flow 2,707,684 2,720,467 2,188,189 1,028,780 149,425
Return of Capital -- 15,528 -- 41,834 --
Undistributed Cash Flow From Prior Year Operations -- 17,447 -- 1,725 --
---------- ---------- ----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ 57,500 $ (32,975) $ 17,447 $ (43,559) $ 1,725
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 35,000,000
---------- ---------- ----------- ------------ -----------
$ 57,500 $ (32,975) $ 17,447 $ (43,559) $35,001,725
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 323,039 4,900,321
Return of Original Limited Partner's Investment -- -- -- 100 --
Property Acquisitions and Deferred Project Costs 44,357 190,853 9,455,554 13,427,158 6,544,019
---------- ---------- ---------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ 13,143 $ (223,828) $(9,438,107) $(13,793,856) $23,557,385
========== ========== =========== ============ ===========
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 93 89 88 53 28
- Operations Class B Units (267) (272) (218) (77) (11)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 91 86 85 46 26
- Operations Class B Units (175) (164) (123) (47) (48)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 87 88 73 36 13
- Return of Capital Class A Units -- 2 -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 87 89 73 35 13
- Return of Capital Class A Units -- 1 -- 1 --
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 76 77 61 29 10
- Return of Capital Class A Units 11 13 12 7 3
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
(1) Includes $23,077 in equity in earnings of joint ventures and $383,884 from
investment of reserve funds in 1996, and $593,914 in equity in earnings of
joint ventures and $605,386 from investment of reserve funds in 1997,
$1,481,869 in equity in earnings of joint ventures and $79,587 from
investment of
48
reserve funds in 1998, $1,593,734 in equity in earnings of joint ventures
and $0 from investment of reserve funds in 1999, and $1,829,216 in equity
in earnings of joint ventures and $7,552 from investment of reserve funds
in 2000. As of December 31, 2000, the leasing status was 100% including
developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $25,286 for 1996, $469,126 for 1997, $1,143,407 for 1998,
$1,210,939 for 1999, and $1,100,915 for 2000.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $330,270 to Class A Limited
Partners, $(31,220) to Class B Limited Partners and $(294) to the General
Partners for 1996; $1,564,778 to Class A Limited Partners, $(472,806) to
Class B Limited Partners and $(206) to the General Partners for 1997;
$2,597,938 to Class A Limited Partners, $(1,147,983) to Class B Limited
Partners and $0 to the General Partners for 1998, $2,713,636 to Class A
Limited Partners, $(1,223,305) to Class B Limited Partners and $0 to the
General Partners for 1999, and $2,858,806 to the Class A Limited Partners,
$(1,100,130) to Class B Limited Partners and $0 to the General Partners for
2000.
(5) Pursuant to the terms of the partnership agreement, an amount equal
to the cash distributions paid to Class A Limited Partners is payable as
priority distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a return of
capital to the extent of such priority distributions payable to Class B Limited
Partners. As of December 31, 2000, the aggregate amount of such priority
distributions payable to Class B Limited Partners totaled $1,332,403.
49
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Gross Revenues/(1)/ $1,557,518 $ 1,309,281 $ 1,204,597 $ 372,507 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 81,338 98,213 99,034 88,232
Depreciation and Amortization/(3)/ 0 18,750 55,234 6,250
---------- ----------- ------------ -----------
Net Income GAAP Basis/(4)/ $1,476,180 $ 1,192,318 $ 1,050,329 $ 278,025
========== =========== ============ ===========
Taxable Income: Operations $1,692,792 $ 1,449,771 $ 1,277,016 $ 382,543
========== =========== ============ ===========
Cash Generated (Used By):
Operations (59,595) (99,862 300,019 200,668
Joint Ventures 2,192,397 2,175,915 886,846 --
---------- ----------- ------------ -----------
$2,132,802 $ 2,076,053 $ 1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow 2,103,260 2,067,801 1,186,865 --
Return of Capital -- -- 19,510 --
Undistributed Cash Flow From Prior Year Operations -- -- 200,668 --
---------- ----------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions $ 29,542 $ 8,252 $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- 27,128,912
---------- ---------- ------------ -----------
$ 29,542 $ 8,252 $ (220,178) $27,329,580
Use of Funds:
Sales Commissions and Offering Expenses -- -- 300,725 3,737,363
Return of Original Limited Partner's Investment -- -- -- 100
Property Acquisitions and Deferred Project Costs 81,022 0 17,613,067 5,188,485
---------- ---------- ------------ -----------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ (51,480) $ 8,252 $(18,133,970) $18,403,632
========== ========== ============ ===========
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss) 104 97 85 28
- Operations Class A Units (159) (160) (123) (9)
- Operations Class B Units -- -- -- --
Capital Gain (Loss)
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 98 92 78 35
- Operations Class B Units (107) (100) (64) 0
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 94 95 66 --
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 94 95 56 --
- Return of Capital Class A Units -- -- 10 --
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 74 71 48 --
- Return of Capital Class A Units 20 24 18 --
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
50
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542
from investment of reserve funds in 1997, and $869,555 in equity in
earnings of joint ventures and $215,042 from investment of reserve funds in
1998, $1,309,281 in equity in earnings of joint ventures and $0 from
investment of reserve funds in 1999, and 1,547,664 in equity in earnings of
joint ventures and $9,854 from investment of reserve funds in 2000. As of
December 31, 2000, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997, $674,986 for 1998, $891,911 for 1999, and
$816,544 for 2000.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997; $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998;
$2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited
Partners and $0 to the General Partners for 1999, and $2,292,724 to Class A
Limited Partners, $(816,544) to Class B Limited Partners and $0 to the
General Partners for 2000.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2000, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,354,118.
51
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
2000 1999 1998 1997 1996
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 975,850 $ 766,586 $ 262,729 N/A N/A
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 79,861 111,058 113,184
Depreciation and Amortization/(3)/ -- 25,000 6,250
---------- ----------
Net Income GAAP Basis/(4)/ $ 895,989 $ 630,528 $ 143,295
----------- ============ ============
Taxable Income: Operations $ 944,775 $ 704,108 $ 177,692
=========== ============ ============
Cash Generated (Used By):
Operations (72,925) 40,906 (50,858)
Joint Ventures 1,333,337 705,394 102,662
------------ ------------
$ 1,260,412 $ 746,300 $ 51,804
Less Cash Distributions to Investors:
Operating Cash Flow 1,205,303 746,300 51,804
Return of Capital -- 49,761 48,070
Undistributed Cash Flow From Prior Year Operations -- -- --
----------- ------------ -------------
Cash Generated (Deficiency) after Cash Distributions $ 55,109 $ (49,761) $ (48,070)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions -- -- 16,532,801
----------- ------------ ------------
$ 55,109 $ (49,761) $ 16,484,731
Use of Funds:
Sales Commissions and Offering Expenses -- 214,609 1,779,661
Return of Original Limited Partner's Investment -- 100 --
Property Acquisitions and Deferred Project Costs 9,005,979 5,412,870
----------- ------------ ------------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ 55,109 $ (9,270,449) $ 9,292,200
=========== ============= ============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 103 77 50
- Operations Class B Units (155) (112) (77)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 97 71 18
- Operations Class B Units (112) (73) (17)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 90 60 8
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 90 56 4
- Return of Capital Class A Units -- 4 4
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 69 46 6
- Return of Capital Class A Units 21 14 2
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported 100%
in the Table
52
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566
from investment of reserve funds in 1998, $607,579 in equity in earnings
of joint ventures and $159,007 from investment of reserve funds in 1999
and $967,900 in equity in earnings of joint ventures and $7,950 from
investment of reserve funds in 2000. As of December 31, 2000, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $105,458 for 1998, $353,840 for 1999, and $485,558 for
2000.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998; $1,009,368 to Class A Limited Partners, $(378,840) to
Class B Limited Partners and $0 to the General Partners for 1999, and
$1,381,547 to Class A Limited Partners, $(485,558) to Class B Limited
Partners and $0 to General Partners for 2000.
(5) Pursuant to the terms of the partnership agreement, an amount equal to
the cash distributions paid to Class A Limited Partners is payable as
priority distributions out of the first available net proceeds from the
sale of partnership properties to Class B Limited Partners. The amount of
cash distributions paid per unit to Class A Limited Partners is shown as
a return of capital to the extent of such priority distributions payable
to Class B Limited Partners. As of December 31, 2000, the aggregate
amount of such priority distributions payable to Class B Limited Partners
totaled $493,292.
53
TABLE V (UNAUDITED)
SALES OR DISPOSAL OF PROPERTIES
The following Table sets forth sales or other disposals of properties by
Wells Public Programs within the most recent three years. The information
relates to only public programs with investment objectives similar to those of
Wells Real Estate Investment Trust, Inc. All figures are as of December 31,
2000.
Excess
(Deficiency)
Of Property
Operating
Cost Of Cash
Properties Receipts
Date Date Including Over
Acquired Of Selling Price, Net Of Closing And Cash
Property Sale Closing Costs And GAAP Adjustments Soft Costs Expenditures
====================================================================================================================================
Total
Cash Adjustments Acquisition
Received Mortgage Purchase Resulting Cost,
Net Of Balance Money From Original Capital
Closing At Time Mortgage Application Mortgage Improvement,
Costs Of Sale Taken Of GAAP Total/1/ Financing Closing And Total
Back By Soft Costs/2/
Program
====================================================================================================================================
3875 12/1/85 08/31/00 $704,496 -0- -0- -0- $704,496 -0- $647,648 $647,648
Peachtree
Place,
Atlanta,
Georgia
_____________________________________
/1/ Includes Wells Real Estate Fund I's share of taxable gain from this sale in
the amount of $184,161, of which $184,161 is allocated to capital gain and
$0 is allocated to ordinary gain.
/2/ Amount shown does not include pro rata share of original offering costs.
54
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 3 DATED JULY 20, 2001 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001 and
Supplement No. 2 dated April 25, 2001. When we refer to the "prospectus" in
this supplement, we are also referring to any and all supplements to the
prospectus. Unless otherwise defined in this supplement, capitalized terms used
in this supplement shall have the same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) The status of the offering of shares in Wells Real Estate Investment
Trust, Inc. (Wells REIT);
(2) The acquisition of an interest in an office building in Nashville,
Tennessee (Comdata Building);
(3) The acquisition of an interest in an office building in Jacksonville,
Florida (AmeriCredit Building);
(4) The Joint Venture Partnership Agreement entered into between Wells
Real Estate Fund XIII, L.P. (Wells Fund XIII) and Wells Operating
Partnership, L.P. (Wells OP);
(5) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus;
(6) Revisions to the "Plan of Distribution" section of the prospectus
relating to the issuance of soliciting dealer warrants; and
(7) Financial statements relating to the Comdata Building and the
AmeriCredit Building.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced a second offering
of common stock on December 20, 1999. Our second public offering was terminated
on December 19, 2000. We received approximately $175,229,193 in gross offering
proceeds from the sale of 17,522,919 shares in our second public offering.
Pursuant to the prospectus, we commenced our third offering of common stock
on December 20, 2000. As of June 30, 2001, we had received an additional
$170,293,567 in gross offering proceeds from the sale of 17,029,357 shares in
the third offering. Accordingly, as of June 30, 2001, we had received in the
aggregate approximately $477,704,679 in gross offering proceeds from the sale of
47,770,468 shares of our common stock.
The Comdata Building
Purchase of the Comdata Building. On May 15, 2001, the Wells Fund XII - REIT
--------------------------------
Joint Venture Partnership (Fund XII - REIT Joint Venture), a joint venture
between Wells Real Estate Fund XII, L.P. (Wells Fund XII) and Wells Operating
Partnership, L.P. (Wells OP), the operating partnership for Wells REIT, acquired
a three-story office building containing approximately 201,237 rentable square
feet located at 5301 Maryland Way, Williamson County, Brentwood, Tennessee
(Comdata Building). The Fund XII -
1
REIT Joint Venture purchased the Comdata Building from The Northwestern Mutual
Life Insurance Company (Northwestern) pursuant to that certain Agreement for the
Purchase and Sale of Property between Northwestern and Wells Capital, Inc.
(Wells Capital), the Advisor to Wells REIT. Northwestern is not in any way
affiliated with Wells REIT or its Advisor.
Wells Capital, the original purchaser under the agreement, assigned its
rights under the agreement to the Fund XII - REIT Joint Venture at closing. The
Fund XII - REIT Joint Venture paid a purchase price of $24,950,000 for the
Comdata Building and incurred additional acquisition expenses in connection with
the purchase of the Comdata Building, including attorneys' fees, recording fees
and other closing costs, of approximately $52,019.
Wells Fund XII made a capital contribution of $8,926,156 and Wells OP made
a capital contribution of $16,075,863 to the Fund XII - REIT Joint Venture to
fund their respective shares of the acquisition costs for the Comdata Building.
As of June 30, 2001, Wells OP had made total capital contributions to the Fund
XII- REIT Joint Venture of $29,928,078 and held an equity percentage interest in
the joint venture of approximately 55%, and Wells Fund XII had made total
capital contributions to the Fund XII - REIT Joint Venture of $24,613,401 and
held an equity percentage interest in the joint venture of approximately 45%.
Description of the Comdata Building and the Site. As set forth above, the
------------------------------------------------
Comdata Building is a three-story office building containing approximately
201,237 rentable square feet situated on a 12.3 acre tract of land. Construction
of the Comdata Building was originally completed in 1989, and the building was
subsequently expanded in 1997. The Comdata Building is constructed using a steel
frame with steel beams on a concrete slab with concrete footings. The exterior
walls are made of a brick shell with an insulated ribbon window system on
aluminum mullions. The interior walls consist of textured and painted gypsum
board. In addition, the building contains five passenger elevators and a freight
elevator. There are approximately 750 paved surface parking spaces at the site.
The Comdata Building is located in the Maryland Farms Office Park in
Brentwood, Tennessee. Maryland Farms Office Park is located eight miles south of
downtown Nashville, Tennessee. The Nashville area is known for its competitive
real estate prices, available space for business, and diversified economic base.
Nashville's business areas of strength include manufacturing, publishing,
finance and insurance, healthcare management, music, transportation and tourism.
The Brentwood submarket is one of Nashville's most desired locations.
An independent appraisal of the Comdata Building was prepared by CB Richard
Ellis, Inc., real estate appraisers and consultants, as of April 9, 2001,
pursuant to which the market value of the land and the leased fee interest
subject to the Comdata lease (described below) was estimated to be $25,000,000,
in cash or terms equivalent to cash. This value estimate was based upon a number
of assumptions, including that the Comdata Building will continue operating at a
stabilized level with Comdata Network, Inc. ("Comdata") occupying 100% of the
rentable area, and is not necessarily an accurate reflection of the fair market
value of the property or the net proceeds which would result from an immediate
sale of this property. The Fund XII - REIT Joint Venture also obtained an
environmental report and an engineering inspection report prior to the closing
evidencing that the condition of the land and the Comdata Building were
satisfactory.
The Comdata Lease. The entire 201,237 rentable square feet of the three-story
-----------------
office building is currently under a triple-net lease agreement with Comdata, a
wholly owned subsidiary of Ceridian Corporation, the guarantor of the lease. The
landlord's interest in the Comdata lease was assigned to the Fund XII - REIT
Joint Venture at the closing. The Comdata lease commenced on April 1, 1997, and
the current term expires on May 31, 2016. Comdata has the right to extend the
Comdata lease for one additional five-year period of time at a rate equal to the
greater of the base rent of the final year of the initial term or 90% of the
then-current fair market rental rate.
2
Comdata is a leading provider of transaction processing and information
services to the transportation and other industries. Comdata provides trucking
companies with fuel cards, electronic cash access, permit and licensing
services, routing software, driver relationship services and vehicle escorts,
among other services. Comdata provides these services to over 400,000 drivers,
7,000 truck stop service centers and 500 terminal fueling locations.
Ceridian Corporation, the lease guarantor, is one of North America's
leading information services companies that serves the human resources and
transportation markets. Ceridian and its subsidiaries generate, process and
distribute data for customers and help customers develop systems plans and
software to perform these functions internally. For the fiscal year ended
December 31, 2000, Ceridian reported net income of approximately $100.2 million
on revenues of over $1.175 billion.
The base rent payable for the current term of the Comdata lease is as
follows:
Lease Years Annual Rent Annual Rent Per Square Foot
-------------------------------------------------------------------
Year 1 $2,398,672 $11.92
-------------------------------------------------------------------
Years 2-6 $2,458,638 $12.22
-------------------------------------------------------------------
Years 7-11 $2,518,605 $12.52
-------------------------------------------------------------------
Years 12-15 $2,578,572 $12.81
-------------------------------------------------------------------
Under the Comdata lease, Comdata is required to pay all operating expenses,
including but not limited to, gas, water and electricity costs, garbage and
waste disposal, telephone, janitorial service, security, insurance premiums, all
taxes, assessments and other governmental levies and such other operating
expenses with respect to the Comdata Building. In addition, Comdata is
responsible for all routine maintenance and repairs to the Comdata Building. The
Fund XII - REIT Joint Venture, as landlord, will be responsible for the repair
and maintenance of the roof and structural systems of the Comdata Building.
Comdata must obtain written consent from the Fund XII - REIT Joint Venture
before making any alterations to the premises excluding alterations that (i) are
made to the interior tenant space of the Comdata Building, (ii) do not adversely
affect the structural integrity or the exterior of the Comdata Building, (iii)
do not affect common areas of the Comdata Building including but not limited to
the elevators and lobby, and (iv) do not adversely affect the electrical,
heating or plumbing systems of the Comdata Building.
Property Management Fees. Wells Management Company, Inc. (Wells Management), an
------------------------
affiliate of the Wells REIT, has been retained to manage and lease the Comdata
Building. The Fund XII - REIT Joint Venture will pay management and leasing fees
to Wells Management in the amount of 4.5% of gross revenues from the Comdata
Building, subject to certain limitations.
The Wells Fund XIII - REIT Joint Venture
On June 27, 2001, Wells OP and Wells Real Estate Fund XIII, L.P. (Wells
Fund XIII) entered into a Joint Venture Partnership Agreement for the purpose of
acquiring, owning, leasing, operating and managing real properties. The joint
venture partnership is known as the Wells Fund XIII - REIT Joint Venture (XIII-
REIT Joint Venture). All income, loss, profit, net cash flow, resale gain and
sale proceeds of the XIII-REIT Joint Venture are allocated and distributed
between Wells OP and Wells Fund XIII based upon their respective capital
contributions to the joint venture.
Wells OP is acting as the initial Administrative Venturer of the XIII-REIT
Joint Venture and, as such, is responsible for establishing policies and
operating procedures with respect to the business and affairs of the joint
venture. However, approval of Wells Fund XIII will be required for any major
decision or any action which materially affects such joint venture or its real
properties.
3
The AmeriCredit Building
Purchase of the AmeriCredit Building. On July 16, 2001, the XIII-REIT Joint
-------------------------------------
Venture acquired a two-story office building containing approximately 85,000
rentable square feet located in Fleming Island Plantation at 2310 Village Square
Parkway, Orange Park, Clay County, Florida (AmeriCredit Building) from Adevco
Contact Centers Jacksonville, L.L.C. (Adevco) pursuant to that certain Agreement
for the Purchase and Sale of Property between Adevco and Wells Capital, the
Advisor. Adveco is not affiliated with the Wells REIT or its Advisor.
The rights under the agreement were assigned by Wells Capital, the original
purchaser under the agreement, to the XIII-REIT Joint Venture at closing. The
purchase price paid for the AmeriCredit Building was $12,500,000. The joint
venture also incurred additional acquisition expenses in connection with the
purchase of the AmeriCredit Building, including attorneys' fees, recording fees
and other closing costs, of approximately $40,700.
Wells OP contributed $10,890,040 and Wells Fund XIII contributed $1,651,426
to the XIII-REIT Joint Venture for their respective shares of the acquisition
costs for the AmeriCredit Building. As of July 16, 2001, Wells OP held an equity
percentage interest in the XIII-REIT Joint Venture of approximately 87%, and
Wells Fund XIII held an equity percentage interest in the XIII-REIT Joint
Venture of approximately 13%.
Description of the Building and the Site. The AmeriCredit Building is a two-
----------------------------------------
story office building containing approximately 85,000 rentable square feet. The
AmeriCredit Building, which was completed in June 2001, is constructed using a
steel frame with steel beams on a concrete slab with concrete footings. The
exterior walls are made with steel beams with tilt-up concrete panels and a
glass panel exterior. The office entrances and windows are made of plate glass
set in aluminum frames. The interior walls consist of textured and painted
gypsum board. In addition, the building contains two elevators, one of which can
be used as a freight elevator. There are approximately 680 asphalt paved surface
parking spaces at the site.
An independent appraisal of the AmeriCredit Building was prepared by CB
Richard Ellis, Inc., real estate appraisers, as of June 28, 2001, pursuant to
which the market value of the land and the leased fee interest subject to the
AmeriCredit lease (described below) was estimated to be $12,500,000, in cash or
terms equivalent to cash. This value estimate was based upon a number of
assumptions, including that the AmeriCredit Building will continue operating at
a stabilized level with AmeriCredit Financial Services Corporation (AmeriCredit)
occupying 100% of the rentable area, and is not necessarily an accurate
reflection of the fair market value of the property. The XIII-REIT Joint Venture
also obtained an environmental report prior to closing evidencing that the
environmental condition of the land and the AmeriCredit Building were
satisfactory.
Location of the AmeriCredit Building. The AmeriCredit Building is located on a
------------------------------------
12.33 acre tract of land approximately 20 miles south of downtown Jacksonville
within Fleming Island Plantation on the west side of U.S. Highway 17 in northern
Clay County, Florida. Fleming Island Plantation is a 2,300-acre mixed use
development of Centex Homes. When fully developed, Fleming Island Plantation
will contain 12 villages of homes, a YMCA Wellness Center, an 18-hole golf
course, several schools and 140 acres of parks. BellSouth has a 300,000 square
foot technical service center in the area.
The Lease. The entire 85,000 rentable square feet of the AmeriCredit Building
---------
is currently under a triple-net lease agreement with AmeriCredit dated November
20, 2000. The landlord's interest in the AmeriCredit lease was assigned to the
XIII-REIT Joint Venture at the closing.
The initial term of the AmeriCredit lease is ten years which commenced June
2001 and expires in May 2011. AmeriCredit has the right to extend the
AmeriCredit lease for two additional five year periods of
4
time. Each extension option must be exercised by giving written notice to the
landlord at least 12 months prior to the expiration date of the then current
lease term.
AmeriCredit is wholly-owned by and serves as the primary operating
subsidiary for AmeriCredit Corp., a Texas corporation whose common stock is
publicly traded on the New York Stock Exchange. AmeriCredit Corp. is the
guarantor of the lease. AmeriCredit is the world's largest independent middle-
market automobile finance company. AmeriCredit purchases loans made by
franchised and select independent dealers to consumers buying late model used
and, to a lesser extent, new automobiles. AmeriCredit targets consumers who are
typically unable to obtain financing from traditional sources either because of
prior credit difficulties or limited credit histories. Funding for AmeriCredit's
auto lending activities is obtained primarily through the sale of loans in
securitization transactions. AmeriCredit services its automobile lending
portfolio at regional centers using automated loan servicing and collection
systems.
For the nine months ended March 31, 2001, AmeriCredit Corp. reported net
income of $151 million on revenues of $575 million and a net worth, as of March
31, 2001, of approximately $929 million.
The base rent payable under the AmeriCredit lease will be as follows:
Lease Year Rental Rate Annual Rent Monthly Rent
------------------------------------------------------------------------
Year 1 $14.33 $1,201,050 $100,087.50
------------------------------------------------------------------------
Year 2 $14.69 $1,231,501 $102,625.08
------------------------------------------------------------------------
Year 3 $15.06 $1,262,714 $105,226.17
------------------------------------------------------------------------
Year 4 $15.43 $1,294,707 $107,892.25
------------------------------------------------------------------------
Year 5 $15.82 $1,327,499 $110,624.92
------------------------------------------------------------------------
Year 6 $16.21 $1,361,112 $113,426.00
------------------------------------------------------------------------
Year 7 $16.62 $1,395,565 $116,297.08
------------------------------------------------------------------------
Year 8 $17.03 $1,430,879 $119,239.92
------------------------------------------------------------------------
Year 9 $17.46 $1,467,076 $122,256.33
------------------------------------------------------------------------
Year 10 $17.90 $1,504,178 $125,348.17
------------------------------------------------------------------------
The monthly base rent payable for each extended term of the AmeriCredit
lease will be equal to 95% of the then current market rate.
Under the AmeriCredit lease, AmeriCredit is required to pay as additional
rent all real estate taxes, special assessments, utilities, taxes, insurance and
other operating costs with respect to the AmeriCredit Building during the term
of the lease. In addition, AmeriCredit is responsible for all routine
maintenance and repairs including the interior mechanical and electrical
systems, the HVAC system and common area maintenance to the AmeriCredit
Building. The XIII-REIT Joint Venture, as landlord, is responsible for repair
and replacement of the roof, foundation, structural, exterior windows, parking
lot, driveways and light poles, as well as payment of a monthly 7% sales tax on
rental income. AmeriCredit will reimburse the XIII-REIT Joint Venture for the
sales tax through increased rental income. The rental figures above are net of
the sales tax and maintenance reserve.
The AmeriCredit lease contains a termination option which may be exercised
by AmeriCredit effective as of the end of the seventh lease year by providing 12
months prior notice to the XIII-REIT Joint Venture. If AmeriCredit exercises its
termination option, it will be required to pay the joint venture a termination
payment equal to the sum of (i) an amount equal to two months base rent
calculated at the annual rate of $17.18 per square foot, plus (ii) an amount
equal to the aggregate of the unamortized balances of the construction
allowance, design allowance, sign allowance, and brokerage commissions. It is
estimated that if AmeriCredit were to exercise its early termination option, the
termination payment would be approximately $1.9 million which would equate to
nearly 16 months of rent.
AmeriCredit also has an expansion option for an additional 15,000 square
feet of office space and 120 parking spaces. AmeriCredit may exercise this
expansion option at any time during the first seven
5
lease years. The rights and obligations of each party under the expansion option
are subject to the parties reaching agreement relating to the expansion space
and additional parking and the leasing of such space by AmeriCredit within 45
days of receipt by the XIII-REIT Joint Venture of written notice of the
expansion option.
Property Management Fees. Wells Management has been retained to manage and
------------------------
lease the AmeriCredit Building. The XIII-REIT Joint Venture shall pay management
and leasing fees to Wells Management in the amount of 4.5% of gross revenues
from the AmeriCredit Building, subject to certain limitations.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 98 in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" section of the prospectus is revised as of the date of this
supplement by the deletion of the first two paragraphs of that section and the
insertion of the following paragraphs in lieu thereof:
We began active operations on June 5, 1998, when we received and
accepted subscriptions for 125,000 shares pursuant to our initial public
offering, which commenced on January 30, 1998. We terminated our initial
public offering on December 19, 1999. Of the $132,181,919 raised in the
initial offering, we invested a total of $111,032,812 in properties. On
December 20, 1999, we commenced a second public offering of up to
22,200,000 shares of common stock at $10 per share. We terminated our
second offering on December 19, 2000. Of the $175,229,193 raised in the
second offering, we invested a total of $147,192,522 in properties.
Pursuant to the prospectus, we commenced this third offering of shares
of our common stock on December 20, 2000. As of June 30, 2001, we had
received an additional $170,293,567 in gross offering proceeds from the
sale of 17,029,357 shares in the third offering. As of June 30, 2001, we
had raised in the aggregate a total of $477,704,679 in offering proceeds
through the sale of 47,770,468 shares of common stock. As of June 30, 2001,
we had paid a total of $16,621,295 in acquisition and advisory fees and
acquisition expenses, had paid a total of $59,361,769 in selling
commissions and organizational and offering expenses, had made capital
contributions of $395,004,216 to Wells OP for investments in joint ventures
and acquisitions of real property, had utilized $2,810,530 for the
redemption of stock pursuant to our share redemption program, and were
holding net offering proceeds of $3,906,869 available for investment in
additional properties.
Plan of Distribution
The information contained on page 153 in the "Plan of Distribution" section
of the prospectus is revised as of the date of this supplement by the deletion
of the third full paragraph of this section and the insertion of the following
paragraph in lieu thereof:
We will also award to the Dealer Manager one soliciting dealer warrant
for every 25 shares sold to the public or issued to shareholders pursuant
to our dividend reinvestment plan during the offering period. The Dealer
Manager may retain or reallow these warrants to broker-dealers
participating in the offering, unless such issuance of soliciting dealer
warrants is prohibited by either federal or state securities laws. The
holder of a soliciting dealer warrant will be entitled to purchase one
share from the Wells REIT at a price of $12 per share during the period
beginning on the first anniversary of the effective date of this offering
and ending five years after the effective date of this offering. Subject to
certain exceptions, a soliciting dealer warrant may not be transferred,
assigned, pledged or hypothecated for a period of one year following the
effective date of this offering. The shares issuable upon exercise of the
soliciting
6
dealer warrants are being registered as part of this offering. For the
life of the soliciting dealer warrants, participating broker-dealers
are given the opportunity to profit from a rise in the market price
for the common stock without assuming the risk of ownership, with a
resulting dilution in the interest of other shareholders upon exercise
of such warrants. In addition, holders of the soliciting dealer
warrants would be expected to exercise such warrants at a time when we
could obtain needed capital by offering new securities on terms more
favorable than those provided by the soliciting dealer warrants.
Exercise of the soliciting dealer warrants is governed by the terms
and conditions detailed in this prospectus and in the Warrant Purchase
Agreement, which is an exhibit to the Registration Statement.
Financial Statements
The statements of revenues over certain operating expenses of the
Comdata Building for the year ended December 31, 2000, included in this
supplement and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included in this supplement in reliance
upon the authority of said firm as experts in giving said reports.
The statements of revenues over certain operating expenses of the
Comdata Building for the three months ended March 31, 2001, included in this
supplement and elsewhere in the registration statement, have not been audited.
The Pro Forma Balance Sheet of the Wells REIT as of March 31, 2001,
which is included in this supplement, has not been audited.
The Pro Forma Statement of Income of the Wells REIT for the three
months ended March 31, 2001 and for the year ended December 31, 2000, which are
included in this supplement, have not been audited.
7
INDEX TO FINANCIAL STATEMENTS
The Comdata Building Page
----
Report of Independent Accountants 9
Statements of Revenues Over Certain Operating Expenses 10
for the year ended December 31, 2000 (audited) and for the
three months ended March 31, 2001 (unaudited)
Notes to Statements of Revenues Over Certain Operating 11
Expenses for the year ended December 31, 2000 (audited) and
for the three months ended March 31, 2001 (unaudited)
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 12
Pro Forma Balance Sheet as of March 31, 2001 13
Pro Forma Statement of Income for the three months
ended March 31, 2001 15
Pro Forma Statement of Income for the year ended
December 31, 2000 16
8
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Fund XII, L.P. and
Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the COMDATA BUILDING for the year ended December 31, 2000. This
financial statement is the responsibility of management. Our responsibility is
to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statement is free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statement. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Comdata
Building after acquisition by the Wells Fund XII - REIT Joint Venture. The
accompanying statement of revenues over certain operating expenses was prepared
for the purpose of complying with the rules and regulations of the Securities
and Exchange Commission and is not intended to be a complete presentation of the
Comdata Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Comdata Building for the year ended December 31, 2000, in
conformity with accounting principles generally accepted in the United States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
May 18, 2001
9
COMDATA BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE THREE MONTHS ENDED MARCH 31, 2001
2001 2000
------------ ----------
(Unaudited)
RENTAL REVENUES $614,660 $2,458,638
OPERATING EXPENSES, net of reimbursements 20,404 5,468
-------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $594,256 $2,453,170
======== ==========
The accompanying notes are an integral part of these statements.
10
COMDATA BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE THREE MONTHS ENDED MARCH 31, 2001 (UNAUDITED)
1. Organization and Significant Accounting Policies
Description of Real Estate Property Acquired
--------------------------------------------
On May 15, 2001, the Wells Fund XII-REIT Joint Venture (the "Joint Venture")
acquired the Comdata Building from The Northwestern Mutual Life Insurance
Company ("Northwestern"). The Joint Venture is a joint venture partnership
between Wells Real Estate Fund XII, L.P. ("Wells Fund XII") and Wells Operating
Partnership, L.P. ("Wells OP"), a Delaware Limited Partnership formed to
acquire, own, lease, operate, and manage real properties on behalf of Wells Real
Estate Investment Trust, Inc., a Maryland corporation. Northwestern is not an
affiliate of Wells Fund XII or Wells OP. The total purchase price of the Comdata
Building was $24,950,000. Additional acquisition expenses were incurred in
connection with the purchase of the Comdata Building, included attorney's fees,
recording fees, loan fees, and other closing costs, of $52,019. Wells Fund XII
contributed $8,926,156, and Wells OP contributed $16,075,863 to the Joint
Venture for their respective shares of the purchase of the Comdata Building.
Comdata Network, Inc. ("Comdata") occupies the entire 201,237 rentable square
feet of the three-story office building under a net lease agreement (the
"Comdata Lease"). Comdata is a wholly owned subsidiary of Ceridian Corporation,
a public entity traded on the New York Stock Exchange and guarantor of Comdata's
obligations under the Comdata Lease. Northwestern's interest in the Comdata
Lease was assigned to the Joint Venture at the closing. The initial term of the
Comdata Lease commenced on April 1, 1997 and expires on May 31, 2016. Comdata
has the right to extend the Comdata Lease for two additional five-year periods
at a rate equal to the greater of the base rent for the final year of the
initial term or 90% of the then-current fair market rental rate. Under the
Comdata Lease, Comdata is required to pay, as additional monthly rent, all
operating costs, including but not limited to, gas, water, electricity, garbage
and waste disposal, telephone, janitorial service, security, insurance premiums,
all taxes, assessments and other governmental levies, and other such operating
expenses with respect to the Comdata Building. In addition, Comdata is
responsible for all routine maintenance and repairs to the Comdata Building. The
Joint Venture will be responsible for the repair and replacement of the exterior
surface walls, foundation, roof, and plumbing, electrical and mechanical systems
of the Comdata Building.
Rental Revenues
---------------
Rental income is recognized on a straight-line basis over the life of the
Comdata Lease.
2. Basis of Accounting
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, these
statements exclude certain historical expenses, such as depreciation, interest,
and management fees. Therefore, these statements are not comparable to the
operations of the Comdata Building after acquisition by the Joint Venture.
11
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA BALANCE SHEET
The following unaudited pro forma balance sheet as of March 31, 2001 has been
prepared to give effect to the acquisition of the AmeriCredit Building by the
Wells XIII-REIT Joint Venture, a joint venture partnership between Wells Real
Estate Fund XIII, L.P. and Wells Operating Partnership, L.P. ("Wells OP"), and
the acquisition of the Comdata Building ("Prior Acquisition") by the Wells XII-
REIT Joint Venture, a joint venture partnership between Wells Real Estate Fund
XII, L.P. and Wells OP, as if the acquisitions occurred on March 31, 2001. The
following unaudited pro forma statements of income for the year ended December
31, 2000 and for the three months ended March 31, 2001 have been prepared to
give effect to the acquisition of the Comdata Building as if the acquisition
occurred on January 1, 2000.
Wells OP is a Delaware limited partnership that was organized to own and operate
properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland
corporation. Wells Real Estate Investment Trust, Inc. is the general partner of
the Wells OP.
This unaudited pro forma balance sheet is prepared for informational purposes
only and is not necessarily indicative of future results or of actual results
that would have been achieved had the acquisition of the AmeriCredit Building
been consummated at the beginning of the period presented.
12
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 2001
(Unaudited)
ASSETS
Wells Real
Estate Pro Forma Adjustments
Investment ---------------------------------- Pro Forma
Trust, Inc. Comdata AmeriCredit Total
------------ ------------ -------------- ------------
REAL ESTATE ASSETS, at cost:
Land $ 46,640,032 $ 0 $ 0 $ 46,640,032
Buildings, less accumulated depreciation 285,461,251 0 285,461,251
of $12,656,832 0
Construction in progress 6,303,454 0 0 6,303,454
------------ ------------- -------------- ------------
Total real estate assets 338,404,737 0 0 338,404,737
------------ ------------- -------------- ------------
CASH AND CASH EQUIVALENTS 8,156,316 (500,000) (a) (150,000) (a) 7,506,316
INVESTMENT IN JOINT VENTURES 43,901,986 16,745,691 (b) 11,343,750 (d) 71,991,427
ACCOUNTS RECEIVABLE 3,620,844 0 0 3,620,844
DEFERRED LEASE ACQUISITION COSTS 1,599,976 0 0 1,599,976
DEFERRED PROJECT COSTS 1,409,081 (669,828) (c) (453,750) (e) 285,503
DEFERRED OFFERING COSTS 581,690 0 0 581,690
DUE FROM AFFILIATES 1,050,313 0 0 1,050,313
PREPAID EXPENSES AND OTHER ASSETS 2,252,702 0 0 2,252,702
------------ ------------- -------------- ------------
Total assets $400,977,645 $15,575,863 $10,740,000 $427,293,508
============ ============= ============== ============
13
LIABILITIES AND SHAREHOLDERS' EQUITY
Wells Real
Estate Pro Forma Adjustments
Investment ------------------------------ Pro Forma
Trust, Inc. Comdata AmeriCredit Total
------------ -------------- ------------- ------------
LIABILITIES:
Accounts payable and accrued expenses $ 2,263,215 $ 0 $ 0 $ 2,263,215
Notes payable 76,540,000 15,575,863 (a) 10,740,000 (a) 102,855,863
Dividends payable 1,069,579 0 0 1,069,579
Due to affiliate 1,084,012 0 0 1,084,012
Deferred rental income 238,306 0 0 238,306
------------ ----------- ---------- ------------
Total liabilities 81,195,112 15,575,863 10,740,000 107,510,975
------------ ----------- ---------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 0 0 200,000
------------ ----------- ---------- ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 125,000,000 shares authorized,
38,127,278 shares issued and 37,908,326 shares outstanding 381,273 0 0 381,273
Additional paid-in capital 321,390,784 0 0 321,390,784
Treasury stock, at cost, 218,952 shares (2,189,524) 0 0 (2,189,524)
------------ ----------- ---------- ------------
Total shareholders' equity 319,582,533 0 0 319,582,533
------------ ----------- ---------- ------------
Total liabilities and shareholders' equity $400,977,645 $15,575,863 $10,740,000 $427,293,508
============ =========== ========== ============
(a) Reflects Wells Real Estate Investment Trust, Inc.'s portion of the
purchase price.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s contribution to
the Wells Fund XII-REIT Joint Venture.
(c) Reflects deferred project costs contributed to the Wells Fund XII-REIT
Joint Venture at approximately 4.17% of the purchase price.
(d) Reflects Wells Real Estate Investment Trust, Inc.'s contribution to
the Wells Fund XIII-REIT Joint Venture.
(e) Reflects deferred project costs contributed to the Wells Fund XIII-
REIT Joint Venture at approximately 4.17% of the purchase price.
14
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2001
(Unaudited)
Wells Real
Estate
Investment Pro Forma Pro Forma
Trust, Inc. Adjustments Total
------------- --------------- -------------
REVENUES:
Rental income $ 9,860,085 $ 0 $ 9,860,085
Equity in income of joint ventures 709,713 395,215(a) 1,104,928
Interest income 99,915 0 99,915
------------ ---------- -----------
10,669,713 395,215 $11,064,928
------------ ---------- -----------
EXPENSES:
Depreciation and amortization 3,187,179 0 3,187,179
Interest 2,375,183 275,919(b) 2,651,102
Operating costs, net of reimbursements 1,091,185 0 1,091,185
Management and leasing fees 565,714 0 565,714
General and administrative 106,540 0 106,540
Legal and accounting 67,767 0 67,767
Computer costs 800 0 800
------------ ---------- -----------
7,394,368 275,919 7,670,287
------------ ---------- -----------
NET INCOME $ 3,275,345 $ 119,296 $ 3,394,641
============ ========== ===========
HISTORICAL EARNINGS PER SHARE
(BASIC AND DILUTED) $ 0.10
============
PRO FORMA EARNINGS PER SHARE
(BASIC AND DILUTED) (c) $ 0.08 (c)
===========
(a) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of
the Wells Fund XII-REIT Joint Venture related to the Comdata Building.
The pro forma adjustment results from rental revenues less operating
expenses, management fees, and depreciation.
(b) Reflects interest expense incurred on the $15,575,863 drawn on Wells Real
Estate Investment Trust, Inc.'s revolving credit agreement with Bank of
America, N.A., which bears interest at 7.1% for the three months ended
March 31, 2001.
(c) As of May 15, 2001, the acquisition date, Wells Real Estate Investment
Trust, Inc. had 41,588,143 shares of common stock outstanding; pro forma
earnings per share is calculated as if these shares were outstanding for
the entire three months ended March 31, 2001.
15
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
Wells Real
Estate
Investment Pro Forma Pro Forma
Trust, Inc. Adjustments Total
----------- ------------- ----------
REVENUES:
Rental income $20,505,000 $ 0 $20,505,000
Equity in income of joint ventures 2,293,873 930,181(a) 3,224,054
Interest income 520,924 0 520,924
Other income 53,409 0 53,409
----------- ---------- -----------
23,373,206 930,181 24,303,387
----------- ---------- -----------
EXPENSES:
Depreciation and amortization 7,743,551 0 7,743,551
Interest 4,199,461 1,284,495(b) 5,483,956
Operating costs, net of reimbursements 888,091 0 888,091
Management and leasing fees 1,309,974 0 1,309,974
General and administrative 426,680 0 426,680
Legal and accounting 240,209 0 240,209
Computer costs 12,273 0 12,273
----------- ---------- -----------
14,820,239 1,284,495 16,104,734
----------- ---------- -----------
NET INCOME (LOSS) $ 8,552,967 $ (354,314) $ 8,198,653
=========== ========== ===========
HISTORICAL EARNINGS PER SHARE
(BASIC AND DILUTED) $ 0.40
===========
PRO FORMA EARNINGS PER SHARE
(BASIC AND DILUTED) (c) $ 0.20 (c)
===========
(a) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of
the Wells Fund XII-REIT Joint Venture related to the Comdata Building.
The pro forma adjustment results from rental revenues less operating
expenses, management fees, and depreciation.
(b) Reflects interest expense incurred on the $15,575,863 drawn on Wells Real
Estate Investment Trust, Inc.'s revolving credit agreement with Bank of
America, N.A., which bears interest at 8.2% for the year ended December
31, 2000.
(c) As of May 15, 2001, the acquisition date, Wells Real Estate Investment
Trust, Inc. had 41,588,143 shares of common stock outstanding; pro forma
earnings per share is calculated as if these shares were outstanding for
the entire year ended December 31, 2000.
16
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 4 DATED AUGUST 10, 2001 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001,
Supplement No. 2 dated April 25, 2001, and Supplement No. 3 dated July 20, 2001.
When we refer to the "prospectus" in this supplement, we are also referring to
any and all supplements to the prospectus. Unless otherwise defined in this
supplement, capitalized terms used in this supplement shall have the same
meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) The status of the offering of shares in Wells Real Estate Investment
Trust, Inc. (Wells REIT);
(2) The acquisition of an office building in Quincy, Massachusetts (State
Street Building);
(3) The initial transaction under the Section 1031 Exchange Program;
(4) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus; and
(5) Financial statements relating to the State Street Building.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced a second offering
of common stock on December 20, 1999. Our second public offering was terminated
on December 19, 2000. We received approximately $175,229,193 in gross offering
proceeds from the sale of 17,522,919 shares in our second public offering.
Pursuant to the prospectus, we commenced our third offering of common stock
on December 20, 2000. As of July 31, 2001, we had received an additional
$212,110,390 in gross offering proceeds from the sale of 21,211,039 shares in
the third offering. Accordingly, as of July 31, 2001, we had received in the
aggregate approximately $519,521,502 in gross offering proceeds from the sale of
51,952,150 shares of our common stock.
The State Street Building
Purchase of the State Street Building. On July 30, 2001, Wells Operating
-------------------------------------
Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire,
own, lease and operate real properties on behalf of Wells REIT, purchased a
seven-story office building with approximately 234,668 rentable square feet
located at 1200 Crown Colony Drive, Norfolk County, Quincy, Massachusetts (State
Street Building). Wells OP purchased this building from Crownview, LLC
(Crownview) pursuant to that certain Agreement of Purchase and Sale of Property
between Crownview and Wells OP. Crownview is not in any way affiliated with
Wells REIT or Wells Capital, Inc., our Advisor.
The purchase price for the State Street Building was $49,563,000. Wells OP
incurred acquisition expenses in connection with the purchase of the State
Street Building, including attorneys' fees, recording fees, structural report
and environmental report fees, and other closing costs, of approximately
$69,500. Wells OP also paid approximately $126,600 to reimburse the seller for
its prorated share of real estate taxes and other operating expenses.
An independent appraisal of the State Street Building was prepared by
Insignia/ESG, Inc., real estate appraisers, as of July 10, 2001, pursuant to
which the market value of the real property containing the leased fee interest
subject to the leases described below was estimated to be $52,000,000, in cash
or terms equivalent to cash. This value estimate was based upon a number of
assumptions, including that the State Street Building will continue operating at
a stabilized level with SSB Realty LLC, a Delaware limited liability company
(SSB Realty), occupying 100% of the rentable area, and is not necessarily an
accurate reflection of the fair market value of the property or the net proceeds
which would result from an immediate sale of this property. Wells OP also
obtained an environmental report and an engineering inspection report prior to
the closing evidencing that the condition of the land and the State Street
Building were satisfactory.
Description of the State Street Building and Site. The State Street Building,
-------------------------------------------------
which was completed in 1990, is a seven-story office building containing
approximately 234,668 rentable square feet located on an 11.22 acre tract of
land. The building is constructed using a steel frame with a reinforced
concrete foundation. The exterior walls are made of primarily precast concrete
with insulated glass windows in aluminum frames. The interior walls consist of
painted gypsum board. In addition, there are four elevators and approximately
854 parking spaces.
The State Street Building is located at 1200 Crown Colony Drive in Crown
Colony Office Park in Quincy, Massachusetts, approximately 10 miles southwest of
downtown Boston. Crown Colony Office Park contains high quality office
buildings and is one of the most desirable parks in the south Boston market.
The strength of the office market in this area is evidenced by the extensive
office development near other interchanges along Route 128 in the
Quincy/Braintree area. The property is well located in terms of proximity to
Boston, and accessability to all of the other major highway systems that serve
the city and the surrounding area because of its immediate access to a highway
interchange and to public transportation. The State Street Building is leased
entirely to SSB Realty.
The SSB Realty Lease. The entire 234,668 rentable square feet of the State
--------------------
Street Building is currently under a lease agreement with SSB Realty. The
landlord's interest in the SSB Realty lease was assigned to Wells OP at the
closing. The current term of the lease is 10 years, which commenced on February
1, 2001, and expires on March 31, 2011. SSB has the right to extend the term of
this lease for one additional five year period at the then-current fair market
rental rate. In addition, the base operating costs and the base taxes will be
adjusted for the extended term to reflect the actual operating costs and taxes
for the preceding calendar year.
SSB Realty is a wholly owned subsidiary of State Street Corporation, a
Massachusetts corporation (State Street). State Street, a guarantor of the SSB
Realty lease, is a world leader in providing financial services to investment
managers, corporations, public pension funds, unions, not-for-profit
organizations and individuals. State Street's capabilities range from
investment research and professional investment management to trading and
brokerage services to fund accounting and administration. With over 17,000
employees, offices in 23 countries, and serving clients in 55 different
countries, State Street has over $6 trillion in assets under custody and $711
billion in assets under management. For the fiscal year ended December 31,
2000, State Street reported net income of approximately $595 million on revenues
of approximately $3.6 billion, and a net worth, as of December 31, 2000, of
approximately $3.26 billion.
The base rent payable for the remainder of the SSB Realty lease is as follows:
Lease Year Annual Rent Monthly Rent
---------------------------------------------------------------------------
April 1, 2001 - January 30, 2004 $6,922,706 $576,892
---------------------------------------------------------------------------
February 1, 2004 - January 30, 2007 $7,274,708 $606,226
---------------------------------------------------------------------------
February 1, 2007 - March 31, 2011 $7,861,378 $655,115
---------------------------------------------------------------------------
2
Pursuant to the SSB Realty lease, Wells OP is obligated to provide SSB
Realty an allowance of up to approximately $2,112,000 for tenant, building and
architectural improvements. Under the SSB Realty lease, SSB Realty is required
to pay its proportionate share of taxes relating to the State Street Building
and all operating costs incurred by the landlord in maintaining and operating
the State Street Building, including, but not limited to, garbage and waste
disposal, janitorial service and window cleaning, snow removal, security,
insurance, water and sewer charges, wages, salaries and employee benefits of all
employees engaged in the operation, maintenance and management of the building,
indoor and outdoor landscaping, utilities and repairs, replacements and general
maintenance. Wells OP, as the landlord, will be responsible, at tenant's
expense, for maintaining the common areas of the building, the roof, foundation,
exterior walls and windows, load bearing items and the central heating,
ventilation and air conditioning, electrical, mechanical and plumbing systems of
the building.
Property Management Fees. Wells Management Company, Inc. (Wells Management), an
------------------------
affiliate of Wells REIT and our Advisor, has been retained to manage and lease
the State Street Building. Wells REIT shall pay management and leasing fees to
Wells Management in the amount of 4.5% of gross revenues from the State Street
Building, subject to certain limitations.
Initial Transaction under the Section 1031 Exchange Program
As described in Supplement No. 2 dated April 25, 2001 to the prospectus
dated December 20, 2000, Wells Development Corporation, an affiliate of our
Advisor, has developed a program (Section 1031 Exchange Program) involving the
acquisition of income-producing commercial properties and the formation of a
series of single member limited liabilities companies (Wells Exchange) for the
purpose of facilitating the resale of co-tenancy interests in such real estate
properties to persons (1031 Participants) who are looking to invest the proceeds
from a sale of real estate held for investment into another real estate
investment for purposes of qualifying for like-kind exchange treatment under
Section 1031 of the Internal Revenue Code.
The initial transaction in the Section 1031 Exchange Program involves the
acquisition by Wells Exchange and resale of co-tenancy interests in the Ford
Motor Credit Complex. The Ford Motor Credit Complex consists of two connecting
office buildings containing 167,434 rentable square feet located in Colorado
Springs, Colorado currently under a triple-net lease with Ford Motor Credit
Company, a wholly-owned subsidiary of Ford Motor Company, which is the world's
largest automobile finance company with more than 10 million customers in 40
countries. Wells Exchange is currently engaged in the offer and sale of co-
tenancy interests in the Ford Motor Credit Complex to 1031 Participants.
As a part of the initial transaction in the Section 1031 Exchange Program,
in consideration for the payment of a Take Out Fee in the amount of $137,500,
and following approval of the potential property acquisition by our board of
directors, Wells OP entered into a Take Out Purchase and Escrow Agreement
relating to the Ford Motor Credit Complex. Pursuant to the terms of the Take Out
Purchase and Escrow Agreement, Wells OP is obligated to acquire, at Wells
Exchange's cost ($839,694 in cash plus $832,060 of assumed debt for each
7.63358% co-tenancy interest), any co-tenancy interests in the Ford Motor Credit
Complex which remain unsold on October 16, 2001.
The obligations of Wells OP under the Take Out Purchase and Escrow
Agreement are secured by reserving against Wells OP's existing line of credit
with Bank of America, N.A. (Interim Lender). If, for any reason, Wells OP fails
to acquire any of the co-tenancy interests in the Ford Motor Credit Complex
which remain unsold as of October 16, 2001, or if there is otherwise an uncured
default under the interim loan between Wells Exchange and the Interim Lender or
Well OP's line of credit documents, the Interim Lender is authorized to draw
down on Wells OP's line of credit in the amount necessary to pay the outstanding
balance of the Interim Loan in full, in which event the appropriate amount of
unsold co-tenancy interests in the Ford Motor Credit Complex would be deeded to
Wells OP. Wells OP's maximum economic exposure in the transaction is
$11,000,000, in which event Wells OP would acquire the Ford Motor Credit Complex
for $11,000,000 in cash plus assumption of the first mortgage financing in the
amount of $10,900,000. If Wells Exchange successfully sells 100% of the co-
tenancy interests to
3
1031 Particpants, Wells OP will not acquire any interest in the Ford Motor
Credit Complex. If some, but not all, of the co-tenancy interests are sold by
Wells Exchange, Wells OP's exposure would be less, and it would end up owning an
interest in the property in co-tenancy with 1031 Participants who had previously
acquired co-tenancy interests in the Ford Motor Credit Complex from Wells
Exchange. (See "Risk Factors - Section 1031 Exchange Program" contained in
Supplement No. 2 dated April 25, 2001 to the prospectus dated December 20,
2000.)
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 98 in the "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" section of the prospectus is revised as of the date of this
supplement by the deletion of the first two paragraphs of that section and the
insertion of the following paragraphs in lieu thereof:
We began active operations on June 5, 1998, when we received and
accepted subscriptions for 125,000 shares pursuant to our initial public
offering, which commenced on January 30, 1998. We terminated our initial
public offering on December 19, 1999. Of the $132,181,919 raised in the
initial offering, we invested a total of $111,032,812 in properties. On
December 20, 1999, we commenced a second public offering of up to
22,200,000 shares of common stock at $10 per share. We terminated our
second offering on December 19, 2000. Of the $175,229,193 raised in the
second offering, we invested a total of $147,192,522 in properties.
Pursuant to the prospectus, we commenced this third offering of shares
of our common stock on December 20, 2000. As of July 31, 2001, we had
received an additional $212,110,390 in gross offering proceeds from the
sale of 21,211,039 shares in the third offering. As of July 31, 2001, we
had raised in the aggregate a total of $519,521,502 in offering proceeds
through the sale of 51,952,150 shares of common stock. As of July 31, 2001,
we had paid a total of $18,078,430 in acquisition and advisory fees and
acquisition expenses, had paid a total of $64,565,823 in selling
commissions and organizational and offering expenses, had made capital
contributions of $427,043,387 to Wells OP for investments in joint ventures
and acquisitions of real property, had utilized $2,994,917 for the
redemption of stock pursuant to our share redemption program, and were
holding net offering proceeds of $6,838,945 available for investment in
additional properties.
Financial Statements
The statement of revenues over certain operating expenses of the State
Street Building for the year ended December 31, 2000, included in this
supplement and elsewhere in the registration statement, has been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and is included in this supplement in reliance
upon the authority of said firm as experts in giving said reports.
The statement of revenues over certain operating expenses of the State
Street Building for the six months ended June 30, 2001, included in this
supplement and elsewhere in the registration statement, has not been audited.
The Pro Forma Balance Sheet of Wells REIT as of June 30, 2001, which is
included in this supplement, has not been audited.
4
INDEX TO FINANCIAL STATEMENTS
The State Street Building Page
----
Report of Independent Accountants 6
Statements of Revenues Over Certain Operating Expenses
for the year ended December 31, 2000 (audited) and for the
six months ended June 30, 2001 (unaudited) 7
Notes to Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2000 (audited) and
for the six months ended June 30, 2001 (unaudited) 8
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 9
Pro Forma Balance Sheet as of June 30, 2001 10
Pro Forma Statement of Income for the six months
ended June 30, 2001 12
Pro Forma Statement of Income for the year ended
December 31, 2000 13
5
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the State street bank BUILDING for the year ended December 31,
2000. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the
audit to obtain reasonable assurance about whether the statement of revenues
over certain operating expenses is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of revenues over certain operating expenses. An
audit also includes assessing the accounting principles used and significant
estimates made by management as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the State
Street Bank Building after acquisition by the Wells Operating Partnership, L.P.,
a subsidiary of Wells Real Estate Investment Trust, Inc. The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
State Street Bank Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the State Street Bank Building for the year ended December 31, 2000
in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
August 1, 2001
6
STATE STREET BANK BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE SIX MONTHS ENDED JUNE 30, 2001
2001 2000
---------- ----------
(Unaudited)
RENTAL REVENUES $3,617,688 $2,941,354
OPERATING EXPENSES, net of reimbursements 666,818 438,071
---------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $2,950,870 $2,503,283
========== ==========
The accompanying notes are an integral part of these statements.
7
STATE STREET BANK BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2000
AND THE SIX MONTHS ENDED JUNE 30, 2001
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On July 30, 2001, the Wells Operating Partnership, L.P. ("Wells OP")
acquired the State Street Bank Building from Crownview LLC ("Crownview").
Wells OP is a Delaware limited partnership formed to acquire, own, lease,
operate, and manage real properties on behalf of Wells Real Estate
Investment Trust, Inc., a Maryland corporation. Crownview is not an
affiliate of Wells OP.
Harvard Pilgrim Health Care ("HPHC") occupied the entire 234,668 rentable
square feet of the seven-story office building under a net lease agreement
(the "HPHC Lease") with Crownview. The HPHC Lease commenced on October 8,
1999 and expired on July 31, 2000. SSB Realty, LLC ("SSB") currently
occupies the entire 234,668 rentable square feet of the seven-story office
building under a net lease agreement (the "SSB Lease"). SSB is a wholly
owned subsidiary of State Street Corporation, which is the guarantor of the
SSB Lease. State Street Corporation is a public entity traded on the New
York Stock Exchange. Crownview's interest in the SSB Lease was assigned to
Wells OP at the closing. The initial term of the SSB Lease commenced on
February 1, 2001 and expires on March 31, 2011. SSB has the right to
extend the SSB Lease for one additional period of five years at a rate
equal to the then current fair market rental rate. Under the SSB Lease,
SSB is required to pay, as additional monthly rent, insurance costs,
utility charges, personal property taxes, its pro rata share of increases
in real estate taxes, and all operating costs with respect to the State
Street Bank Building that exceed the base operating costs of $1,773,340 in
any calendar year. In addition, SSB is responsible for all routine
maintenance and repairs to the State Street Bank Building. Wells OP will
be responsible, at SSB's expense, for the repair and replacement of the
exterior surface walls, foundation, roof, plumbing, electrical, and
mechanical systems of the State Street Bank Building.
Rental Revenues
Rental income is recognized on a straight-line basis over the terms of the
respective leases.
2. Basis of Accounting
The accompanying statement of revenues over certain operating expenses is
presented on the accrual basis. This statement has been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, this
statement excludes certain historical expenses, such as depreciation,
interest, and management fees. Therefore, this statement is not comparable
to the operations of the State Street Bank Building after acquisition by
Wells OP.
8
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
JUNE 30, 2001
The following unaudited pro forma balance sheet as of June 30, 2001 has been
prepared to give effect to the acquisition of the AmeriCredit Building by the
Wells XIII-REIT Joint Venture (a joint venture partnership between Wells Real
Estate Fund XIII, L.P. and Wells Operating Partnership, LP ["Wells OP"]) and the
acquisition of the State Street Bank Building by the Wells OP as if each
acquisition occurred on June 30, 2001. The Comdata Building was acquired by
Wells XII-REIT Joint Venture (a joint venture partnership between Wells Real
Estate Fund XII, L.P. and Wells OP) on May 15, 2001.
The following unaudited pro forma statement of income for the six months ended
June 30, 2001 has been prepared to give effect to the acquisitions of the
Comdata Building, the AmeriCredit Building, and the State Street Bank Building
as if the acquisitions occurred on January 1, 2000. The following unaudited pro
forma statement of income for the year ended December 31, 2000 has been prepared
to give effect to the acquisitions of the Comdata Building and the State Street
Bank Building as if the acquisitions occurred on January 1, 2000. The
AmeriCredit Building had no operations during 2000.
Wells OP is a Delaware limited partnership that was organized to own and operate
properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland
corporation. Wells Real Estate Investment Trust, Inc. is the general partner of
Wells OP.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisitions of the Comdata
Building, the AmeriCredit Building, and the State Street Bank Building been
consummated at the beginning of the periods presented.
As of June 30, 2001, the date of the accompanying pro forma balance sheet, Wells
OP held cash of $6,074,926. The additional cash used to purchase the State
Street Bank Building, including deferred project costs paid to Wells Capital,
Inc. (an affiliate of Wells OP), was raised through the issuance of additional
shares subsequent to June 30, 2001. This balance is reflected as purchase
consideration payable in the accompanying pro forma balance sheet.
9
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 2001
(Unaudited)
ASSETS
Wells Pro Forma Adjustments
Real Estate -----------------------------
Investment AmeriCredit State Street Pro Forma
Trust, Inc. Building Bank Building Total
------------ ------------ -------------- ------------
REAL ESTATE ASSETS, at cost:
Land $ 47,256,748 $ 0 $10,600,000 (d) $ 58,298,415
441,667 (e)
Buildings, less accumulated depreciation of 39,159,098 (d)
$15,863,470 285,964,597 0 326,755,324
1,631,629 (e)
Construction in progress 7,143,876 0 0 7,143,876
------------ ----------- ----------- ------------
Total real estate assets 340,365,221 0 51,832,394 392,197,615
CASH AND CASH EQUIVALENTS 6,074,926 (150,000)(a) (5,924,926)(d) 0
INVESTMENT IN JOINT VENTURES 60,261,895 11,343,750 (b) 0 71,605,645
ACCOUNTS RECEIVABLE 4,661,279 0 0 4,661,279
DEFERRED LEASE ACQUISITION COSTS 1,738,658 0 0 1,738,658
DEFERRED PROJECT COSTS 3,849 (3,849)(c) 0 0
DEFERRED OFFERING COSTS 731,574 0 0 731,574
DUE FROM AFFILIATES 1,242,469 0 0 1,242,469
PREPAID EXPENSES AND OTHER ASSETS 1,558,395 0 0 1,558,395
------------ ----------- ----------- ------------
TOTAL ASSETS $416,638,266 $11,189,901 $45,907,468 $473,735,635
============ =========== =========== ============
10
LIABILITIES AND SHAREHOLDERS' EQUITY
Wells Pro Forma Adjustments
Real Estate -------------------------------
Investment AmeriCredit State Street Pro Forma
Trust, Inc. Building Bank Building Total
----------- ------------- ------------- ------------
LIABILITIES:
Accounts payable and accrued expenses $ 2,592,211 $ 0 $ 0 $ 2,592,211
Notes payable 10,298,850 10,740,000(a) 38,700,000(d) 59,738,850
Dividends payable 1,071,657 0 0 1,071,657
Due to affiliate 1,508,539 449,901(c) 2,073,296(e) 4,031,736
Purchase consideration payable 0 0 5,134,172(d) 5,134,172
Deferred rental income 95,418 0 0 95,418
------------ ----------- ----------- ------------
Total liabilities 15,566,675 11,189,901 45,907,468 72,664,044
------------ ----------- ----------- ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING
PARTNERSHIP 200,000 0 0 200,000
------------ ----------- ----------- ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 125,000,000
shares authorized, 47,770,468 shares issued
and 47,489,415 shares outstanding 477,705 0 0 477,705
Additional paid-in capital 403,204,416 0 0 403,204,416
Treasury stock, at cost, 281,053 shares (2,810,530) 0 0 (2,810,530)
------------ ----------- ----------- ------------
Total shareholders' equity 400,871,591 0 0 400,871,591
------------ ----------- ----------- ------------
Total liabilities and shareholders'
equity $416,638,266 $11,189,901 $45,907,468 $473,735,635
============ =========== =========== ============
(a) Reflects Wells Real Estate Investment Trust, Inc.'s portion of the purchase
price.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s contribution to the
Wells Fund XIII-REIT Joint Venture.
(c) Reflects deferred project costs contributed to the Wells Fund XIII-REIT
Joint Venture at approximately 4.17% of the purchase price.
(d) Reflects Wells Real Estate Investment Trust, Inc.'s purchase price for the
land and the building.
(e) Reflects deferred project costs applied to the land and building at
approximately 4.17% of the purchase price.
11
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)
Wells Pro Forma Adjustments
Real Estate ----------------------------------------------
Investment Comdata AmeriCredit State Street Pro Forma
Trust, Inc. Building Building Bank Building Total
----------- ---------- ----------- ------------- -----------
REVENUES:
Rental income $19,711,252 $ 0 $ 0 $3,617,688 (f) $23,328,940
Equity in income of joint ventures 1,519,194 513,944 (a) (98,624)(d) 0 1,934,514
Interest income 193,007 (6,781)(b) (8,135)(b) (178,091)(b) 0
----------- -------- --------- ---------- -----------
21,423,453 507,163 (106,759) 3,439,597 25,263,454
----------- -------- --------- ---------- -----------
EXPENSES:
Depreciation and amortization 6,685,716 0 0 815,815 (g) 7,501,531
Interest 2,809,373 379,761 (c) 349,157 (e) 1,258,137 (h) 4,796,428
Operating costs, net of reimbursements 1,736,928 0 0 666,818 (i) 2,403,746
Management and leasing fees 1,117,902 0 0 162,796 (j) 1,280,698
General and administrative 635,632 0 0 0 635,632
Legal and accounting 117,331 0 0 0 117,331
Computer costs 6,328 0 0 0 6,328
----------- -------- --------- ---------- -----------
13,109,210 379,761 349,157 2,903,566 16,741,694
----------- -------- --------- ---------- -----------
NET INCOME (LOSS) $ 8,314,243 $127,402 $(455,916) $ 536,031 $ 8,521,760
=========== ======== ========= ========== ===========
EARNINGS PER SHARE, basic and
diluted $ 0.22 $ 0.23
=========== ===========
WEIGHTED AVERAGE SHARES, basic and
diluted 37,792,014 37,792,014
=========== ===========
(a) Reflects Wells Real Estate Investment Trust, Inc.'s equity in the income of
the Wells Fund XII-REIT Joint Venture related to the Comdata Building from
January 1, 2001 through May 14, 2001. The pro forma adjustment results
from rental revenues less operating expenses, management fees, and
depreciation.
(b) Represents forgone interest income related to cash utilized to purchase the
Comdata Building, the AmeriCredit Building, and the State Street Bank
Building.
(c) Represents interest expense on the $15,575,863 drawn on Wells Real Estate
Investment Trust, Inc.'s revolving credit agreement with Bank of America,
N.A., which bears interest at approximately 6.5% from January 1, 2001
through May 14, 2001.
(d) Reflects Wells Real Estate Investment Trust, Inc.'s equity in the loss of
the Wells Fund XIII-REIT Joint Venture related to the AmeriCredit Building.
The pro forma adjustment results from rental revenues less operating
expenses, management fees and deprecation.
(e) Represents interest expense on the $10,740,000 note payable to Bank of
America, which bears interest at approximately 6.5% for the six months
ended June 30, 2001.
(f) Rental income is recognized on a straight-line basis.
(g) Depreciation expense on the building is recognized using the straight-line
method and a 25-year life.
(h) Represents interest expense on the $38,700,000 note payable to Bank of
America, which bears interest at approximately 6.5% for the six months
ended June 30, 2001.
(i) Consists of nonreimbursable operating expenses.
(j) Management and leasing fees are calculated at 4.5% of rental income.
12
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2000
(UNAUDITED)
Wells Pro Forma Adjustments
Real Estate ----------------------------
Investment Comdata State Street Pro Forma
Trust, Inc. Building Bank Building Total
----------- -------- ------------- -----------
REVENUES:
Rental income $20,505,000 $ 0 $ 2,941,354 (d) $23,446,354
Equity in income of joint ventures 2,293,873 930,181 (a) 0 3,224,054
Interest income 520,924 (19,106)(b) (501,818)(b) 0
Other income 53,409 0 0 53,409
----------- ---------- ----------- ------------
23,373,206 911,075 2,439,536 26,723,817
----------- ---------- ----------- ------------
EXPENSES:
Depreciation and amortization 7,743,551 0 1,631,629 (e) 9,375,180
Interest 4,199,461 1,284,495 (c) 3,191,473 (f) 8,675,429
Operating costs, net of reimbursements 888,091 0 438,071 (g) 1,326,162
Management and leasing fees 1,309,974 0 132,361 (h) 1,442,335
General and administrative 426,680 0 0 426,680
Legal and accounting 240,209 0 0 240,209
Computer costs 12,273 0 0 12,273
----------- ---------- ----------- ------------
14,820,239 1,284,495 5,393,534 21,498,268
----------- ---------- ----------- ------------
NET INCOME (LOSS) $ 8,552,967 $ (373,420) $(2,953,998) $ 5,225,549
=========== ========== =========== ===========
EARNINGS PER SHARE, basic and diluted $ 0.40 $ 0.24
=========== ===========
WEIGHTED AVERAGE SHARES, basic and diluted 21,382,418 21,382,418
=========== ===========
(a) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of the
Wells Fund XII-REIT Joint Venture related to the Comdata Building. The pro
forma adjustment results from rental revenues less operating expenses,
management fees, and depreciation.
(b) Represents forgone interest income related to cash utilized to purchase the
Comdata Building and the State Street Bank Building.
(c) Represents interest expense incurred on the $15,575,863 drawn on Wells Real
Estate Investment Trust, Inc.'s revolving credit agreement with Bank of
America, N.A., which bears interest at approximately 8.2% for the year
ended December 31, 2000.
(d) Rental income is recognized on a straight-line basis.
(e) Depreciation expense on the building is recognized using the straight-line
method and a 25-year life.
(f) Interest expense on the $38,700,000 note payable to Bank of America, N.A.,
which bears interest at approximately 8.2% for the year ended December 31,
2000.
(g) Consists of nonreimbursable operating expenses.
(h) Management and leasing fees are calculated at 4.5% of rental income.
13
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 5 DATED OCTOBER 15, 2001 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001,
Supplement No. 2 dated April 25, 2001, Supplement No. 3 dated July 20, 2001, and
Supplement No. 4 dated August 10, 2001. When we refer to the "prospectus" in
this supplement, we are also referring to any and all supplements to the
prospectus. Unless otherwise defined in this supplement, capitalized terms used
in this supplement shall have the same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) The status of the offering of shares in Wells Real Estate
Investment Trust, Inc. (Wells REIT);
(2) The declaration of dividends for the fourth quarter of 2001;
(3) The acquisition of two one-story office buildings in Houston,
Texas (IKON Buildings);
(4) The acquisition of a 14.87 acre tract of land in Irving, Texas
and the development and construction of an office building
thereon (Nissan Property);
(5) The acquisition of a ground leasehold interest in a one
one-story office and distribution facility in Millington,
Tennessee (Ingram Micro Distribution Facility);
(6) The acquisition of a four-story office building in Cary, North
Carolina (Lucent Building);
(7) Revisions to the "Description of Properties" section of the
prospectus relating to an amendment to the Matsushita lease;
(8) Revisions to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the
prospectus;
(9) Revisions to the "Plan of Distribution" section of the
prospectus; and
(10) Financial statements relating to the IKON Buildings, Ingram
Micro Distribution Facility and Lucent Building.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced a second offering
of common stock on December 20, 1999. Our second public offering was terminated
on December 19, 2000. We received approximately $175,229,193 in gross offering
proceeds from the sale of 17,522,919 shares in our second public offering.
Pursuant to the prospectus, we commenced our third offering of common
stock on December 20, 2000. As of October 10, 2001, we had received an
additional $330,794,345 in gross offering proceeds
1
from the sale of 33,079,435 shares in the third offering. Accordingly, as of
October 10, 2001, we had received in the aggregate approximately $638,205,457 in
gross offering proceeds from the sale of 63,820,546 shares of our common stock.
Declaration of Fourth Quarter Dividend
On September 12, 2001, our board of directors declared a dividend for
the fourth quarter of 2001 in an amount equal to a 7.75% annualized percentage
return on an investment of $10 per share to be paid in December 2001. The fourth
quarter dividend will be calculated on a daily record basis of $0.00213 (.213
cents) per day per share on the outstanding shares of common stock payable to
shareholders of record of such shares as shown on the books of the Wells REIT at
the close of business on each day during the period, commencing on September 16,
2001, and continuing each day thereafter during the fourth quarter of 2001
through and including December 15, 2001.
The IKON Buildings
Purchase of the IKON Buildings. On September 7, 2001, Wells Operating
------------------------------
Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire,
own, lease and operate real properties on behalf of the Wells REIT, purchased
two one-story office buildings aggregating approximately 157,790 rentable square
feet located at 810 and 820 Gears Road, Harris County, Houston, Texas (IKON
Buildings) from SV Reserve, L.P. SV Reserve, L.P. is not in any way affiliated
with the Wells REIT or Wells Capital, Inc., our Advisor.
The purchase price for the IKON Buildings was $20,650,000. Wells OP
incurred acquisition expenses in connection with the purchase of the IKON
Buildings, including commissions, attorneys' fees, recording fees, structural
report and environmental report fees, and other closing costs, of approximately
$132,500.
An independent appraisal of the IKON Buildings was prepared by Gary
Brown & Associates, Inc., real estate appraisers, as of August 30, 2001,
pursuant to which the market value of the real property containing the leased
fee interest subject to the leases described below was estimated to be
$20,750,000, in cash or terms equivalent to cash. This value estimate was based
upon a number of assumptions, including that the IKON Buildings will continue
operating at a stabilized level with IKON Office Solutions, Inc, an Ohio
corporation (IKON), occupying 100% of the rentable area, and is not necessarily
an accurate reflection of the fair market value of the property or the net
proceeds which would result from an immediate sale of this property. Wells OP
also obtained an environmental report and an engineering inspection report prior
to the closing evidencing that the condition of the land and the IKON Buildings
was satisfactory.
Description of the IKON Buildings and Site. The IKON Buildings, which were
------------------------------------------
completed in September 2000, consist of two one-story office buildings
containing approximately 157,790 rentable square feet (78,895 square feet for
each building) located on a 15.69 acre tract of land. The buildings are
constructed using a steel frame with steel trusses and a reinforced concrete
foundation. The exterior walls are made of primarily concrete masonry with
concrete tilt wall panels with slightly recessed reflective blue-tinted windows.
The interior walls consist of floated and painted gypsum board. In addition, the
lighted parking lot contains approximately 785 parking spaces.
2
The IKON Buildings are located at 810 and 820 Gears Road in Houston,
Texas, in the northern portion of Harris County approximately 12 to 16 miles
north of Houston's central business district in the Greens Crossing development.
The property is near North Freeway, which runs in a north-south direction to
Dallas, and North Sam Houston Parkway. In addition, the IKON Buildings are
located approximately five miles from the Houston Intercontinental Airport.
North Harris County contains headquarters for several U.S. and international
companies and offices for several other multinational companies, including
Federal Express, Continental Airlines and Paine Webber.
The IKON Lease. The entire 157,790 rentable square feet of the IKON Buildings is
--------------
currently under a lease agreement with IKON. The landlord's interest in the IKON
lease was assigned to Wells OP at the closing. The current term of the lease is
10 years, which commenced on May 1, 2000, and expires on April 30, 2010. IKON
has the right to extend the term of this lease for two additional five-year
periods at the then-current fair market rental rate, upon 12 months prior
written notice.
IKON's world headquarters is located in Malvern, Pennsylvania. IKON
provides business communication products such as copiers and printers, as well
as services such as distributed printing, facilities management, network design,
e-business development, and technology training. IKON's customers include
various sized businesses, professional firms and government agencies. IKON
distributes products manufactured by companies such as Microsoft, IBM, Canon,
Novell and Hewlett-Packard. IKON has approximately 39,000 employees and
approximately 900 locations worldwide. For the fiscal year ended September 30,
2000, IKON reported net income of approximately $29 million on revenues of
approximately $5.4 billion and a net worth, as of September 30, 2000, of
approximately $1.44 billion.
The base rent payable for the remainder of the IKON lease is as
follows:
---------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------------------------------------------------
2-5 $2,015,767 $167,981
---------------------------------------------------
6-10 $2,228,784 $185,732
---------------------------------------------------
Pursuant to the IKON lease, IKON is required to pay all taxes relating
to the IKON Buildings and all operating costs incurred by the landlord in
maintaining and operating the IKON Buildings, including, but not limited to,
garbage and waste disposal, janitorial service and window cleaning, security,
insurance, water and sewer charges, wages, salaries and employee benefits of all
employees engaged in the operation, maintenance and management of the building,
indoor and outdoor landscaping, utilities, repairs, replacements and general
maintenance. Wells OP, as the landlord, will be responsible, for repairs related
to insurable casualty and for maintaining the roof, foundation, exterior walls
and windows, load bearing items and the electrical, mechanical and plumbing
systems of the building, except for the HVAC system. IKON, as the tenant, is
responsible for maintaining, repairing, and replacing the HVAC system. All
tenant improvements or alterations costing in excess of $50,000 must receive
prior written approval from Wells OP.
The Nissan Property
Purchase of the Nissan Property. On September 19, 2001, Wells OP purchased a
-------------------------------
14.873 acre tract of land located in Irving, Dallas County, Texas (Nissan
Property). Wells OP purchased the Nissan Property from The Ruth Ray and H.L.
Hunt Foundation and The Ruth Foundation, each a Texas non-profit corporation and
50% owner in the Nissan Property (Foundations). Neither of the Foundations are
in any way affiliated with the Wells REIT or our Advisor.
3
The purchase price for the Nissan Property was approximately
$5,545,700. Wells OP incurred acquisition expenses in connection with the
purchase of the Nissan Property, including attorneys' fees, recording fees and
environmental report fees, and other closing costs, of approximately $25,000.
Description of the Nissan Property and Site. Wells OP has entered into a
-------------------------------------------
development agreement, an architect agreement and a design and build agreement
(all described below) to construct a three-story office building containing
268,290 rentable square feet (Nissan Project) on the Nissan Property. The Nissan
Project will be constructed of concrete tilt-up, high performance glass with
parking for approximately 1,050 vehicles. The site consists of a 14.873 acre
tract of land located in the Freeport Business Park, which is an office and
industrial park strategically positioned near the Dallas-Ft. Worth International
Airport. Wells OP obtained an environmental report prior to the closing
evidencing that the condition of the land was satisfactory. The Nissan Property
is located in the city of Irving, Texas, approximately 18 miles northwest of
downtown Dallas. More than 400 multinational companies have offices in Irving
including Exxon, GTE and TransAmerica, which have their headquarters in Irving.
The Freeport Business Park itself contains tenants such as Xerox, Federal
Express and Allstate Insurance. The city of Irving is accessible from six major
highways.
Development Agreement. On September 19, 2001, Wells OP entered into a
---------------------
Development Agreement (Development Agreement) with Champion Partners, Ltd. a
Texas limited partnership (Developer), as the exclusive development manager to
supervise, manage and coordinate the planning, design, construction and
completion of the Nissan Project.
The Developer is a Dallas-based commercial real estate development firm
with expertise in acquisition and disposition, debt and equity, financing, land
and building development and project leasing and management. The Developer is a
privately owned Texas limited partnership and the principals have an average
experience level of approximately 20 years. The Developer has been involved with
approximately 18 million square feet of office and industrial facilities valued
at more than $900 million throughout the United States, including several
million square feet of ongoing project developments in Dallas/Ft. Worth,
Memphis, Atlanta and Houston. The Developer is not affiliated with Wells OP or
our Advisor.
The primary responsibilities of the Developer under the Development
Agreement include:
. the supervision, coordination, administration and management of
the work, activities and performance of the architect under the
Architect's Agreement (as described below) and the contractor
under the Construction Agreement (as described below);
. the implementation of a development budget setting forth an
estimate of all expenses and costs to be incurred with respect
to the planning, design, development and construction of the
Nissan Project;
. the review of all applications for disbursement made by or on
behalf of Wells OP under the Architect's Agreement and the
Construction Agreement;
. the supervision and management of tenant build-out at the
Nissan Project; and
. the negotiation of contracts with, supervision of the
performance of, and review and verification of applications for
payment of the fees, charges and expenses of such design and
engineering professionals, consultants and suppliers as the
Developer deems necessary for the design and construction of
the Nissan Project in accordance with the development budget.
4
The Developer will also perform other services typical of development
managers including, but not limited to, arranging for preliminary site plans,
surveys and engineering plans and drawings, overseeing the selection by the
contractor of major subcontractors and reviewing all applicable building codes,
environmental, zoning and land use laws and other applicable local, state and
federal laws, regulations and ordinances concerning the development, use and
operation of the Nissan Project or any portion thereof. The Developer is
required to advise Wells OP on a weekly basis as to the status of the Nissan
Project and submit to Wells OP monthly reports with respect to the progress of
construction, including a breakdown of all costs and expenses under the
development budget. The Developer is required to obtain prior written approval
from Wells OP before incurring and paying any costs which will result in
aggregate expenditures under any one category or line item in the development
budget exceeding the amount budgeted therefor. If the Developer determines at
any time that the development budget is not compatible with the then-prevailing
status of the Nissan Project and will not adequately provide for the completion
of the Nissan Project, the Developer will prepare and submit to Wells OP for
approval an appropriate revision of the development budget.
In discharging its duties and responsibilities under the Development
Agreement, the Developer has full and complete authority and discretion to act
for and on behalf of Wells OP. The Developer has agreed to indemnify Wells OP
from any and all claims, demands, losses, liabilities, actions, lawsuits, and
other proceedings, judgments and awards, and any costs and expenses arising out
of the gross negligence, fraud or any willful act or omission by the Developer.
Wells OP has agreed to indemnify the Developer from and against any and all
claims, demands, losses, liabilities, actions, lawsuits and other proceedings,
judgments and awards, and any costs and expenses arising out of (1) any actions
taken by the Developer within the scope of its duties or authority, excluding
negligence, fraud or willful acts of the Developer, and (2) the gross
negligence, fraud or any willful act or omission on the part of Wells OP and its
partners and their respective officers, directors and employees.
Wells OP may elect to provide funds to the Developer so that the
Developer can pay Wells OP's obligations with respect to the construction and
development of the Nissan Project directly. All such funds of Wells OP which may
be received by the Developer with respect to the development or construction of
the Nissan Project will be deposited in a bank account approved by Wells OP. If
at any time the funds contained in the bank account of Wells OP temporarily
exceeds the immediate cash needs of the Nissan Project, the Developer may invest
such excess funds in savings accounts, certificates of deposit, United States
Treasury obligations and commercial paper as the Developer deems appropriate or
as Wells OP may direct, provided that the form of any such investment is
consistent with the Developer's need to be able to liquidate any such investment
to meet the cash needs of the Nissan Project. The Developer shall be reimbursed
for all advances, costs and expenses paid for and on behalf of Wells OP. The
Developer will not be reimbursed, however, for its own administrative costs or
for costs relating to travel and lodging incurred by its employees and agents.
The Developer may be required to advance its own funds for the payment of any
costs or expenses incurred by or on behalf of Wells OP in connection with the
development of the Nissan Project if there are cost overruns in excess of the
contingency contained in the development budget.
As compensation for the services to be rendered by the Developer under
the Development Agreement, Wells OP will pay a development fee of $1,250,000.
The fee will be due and payable ratably (on the basis of the percentage of
construction completed) as the construction and development of the Nissan
Project is completed.
It is anticipated that the aggregate of all costs and expenses to be
incurred by Wells OP with respect to the acquisition of the Nissan Property, the
planning, design, development, construction and completion of the Nissan Project
will total approximately $42,259,000. Under the terms of the Development
Agreement, the Developer has agreed that in the event that the total of all such
costs and
5
expenses exceeds $42,258,600, subject to certain adjustments, the amount of fees
payable to the Developer shall be reduced by the amount of any such excess.
In the event the Developer should for any reason cease to manage the
development of the Nissan Project, Wells OP would have to locate a suitable
successor development manager. No assurances can be given as to whether a
suitable successor development manager could be found, or what the contractual
terms or arrangement with any such successor would be.
Architect's Agreement. HKS, Inc., a Texas corporation (Architect), is the
---------------------
architect for the Nissan Project pursuant to an Architect's Agreement
(Architect's Agreement) dated September 19, 2001 entered into with Wells OP. The
Architect, which was founded in 1939, has a staff of over 500 employees, and
specializes in architecture, planning, structural engineering, interior
architecture and graphic design. The Architect has its principal office in
Dallas and additional offices in Atlanta, Los Angeles, Orlando, Richmond, Salt
Lake City and Tampa. The Architect has designed a wide variety of projects, with
total values in excess of $26 billion, including facilities for corporate office
space, sports facilities, healthcare facilities and hotels and resorts. The
Architect is not affiliated with Wells OP or our Advisor.
The Architect's basic services under the Architect's Agreement include
the schematic design phase, the design development phase, the construction
documents phase, the construction procurement phase and the construction phase.
During the schematic design phase, the Architect will prepare schematic design
documents consisting of drawings and other documents illustrating the scale and
relationship of the Nissan Project components. During the design development
phase, the Architect will prepare design development documents consisting of
drawings and other documents to fix and describe the size and character of the
entire Nissan Project as to architectural, structural, civil mechanical, and
electrical systems, materials and such other elements as may be appropriate.
During the construction documents phase, the Architect will prepare construction
documents consisting of drawings and specifications setting forth in detail the
requirements for the construction of the Nissan Project along with necessary
bidding information. During the construction procurement phase, the Architect
will assist Wells OP in obtaining bids or negotiated proposals and assist in
awarding and preparing contracts for construction. During the construction
phase, the Architect is to provide administration of the Construction Agreement
(as described below) and advise and consult with the contractor and Wells OP
concerning various matters relating to the construction of the Nissan Project.
The Architect is required to visit the Nissan Project site at intervals
appropriate to the stage of construction and to become generally familiar with
the progress and quality of the work and to determine if, in general, the work
is proceeding in accordance with the contract schedule. The Architect is
required to keep Wells OP informed of the progress and quality of the work. The
Architect is also required to determine the amounts owing to the contractor
based on observations of the site and evaluations of the contractor's
application for payment and shall issue certificates for payment in amounts
determined in accordance with the Construction Agreement. The Architect will
also conduct inspections to determine the date of completion of the Nissan
Project and shall issue a final certificate for payment.
Payments will be paid to the Architect under the Architect Agreement on
a monthly basis in proportion to the services performed within each phase of
service. Monthly invoices will be based on the work done by designers, writers,
and draftsmen at various hourly rates.
Design and Build Construction Agreement. Wells OP entered into a Design and
---------------------------------------
Build Construction Agreement (Construction Agreement) on September 19, 2001 with
Thos. S. Byrne, Inc. (Contractor) for the construction of the Nissan Project.
The Contractor is based in Ft. Worth, Texas and specializes in commercial,
industrial and high-end residential buildings. The Contractor commenced
operations in 1923 and has completed over 200 projects for a total of
approximately 60 clients. The Contractor is presently
6
engaged in the construction of over 20 projects with a total construction value
of in excess of $235 million. The Contractor is not affiliated with Wells OP or
our Advisor.
The Contractor will begin construction of the Nissan Project in January
2002. The Nissan Project will consist of the construction of a three-story
concrete tilt-up, high performance glass office building containing
approximately 268,290 rentable square feet (Nissan Building). The land is
currently zoned to permit the intended development and operation of the Nissan
Project as a commercial office building and has access to all utilities
necessary for the development and operation of the Nissan Project, including
water, electricity, sanitary sewer and telephone.
The Construction Agreement provides that Wells OP will pay the
Contractor a maximum of $25,326,017 for the construction of the Nissan Project
which includes all estimated fees and costs including the architect fees. The
Contractor will be responsible for all costs of labor, materials, construction
equipment and machinery necessary for completion of the Nissan Project. In
addition, the Contractor will be required to secure and pay for any additional
business licenses, tap fees and building permits which may be necessary for
construction of the Nissan Project.
Wells OP will make monthly progress payments to the Contractor in an
amount of 90% of the portion of the contract price properly allocable to labor,
materials and equipment, less the aggregate of any previous payments made by
Wells OP. When construction is substantially complete and the space is available
for occupancy, Wells OP will make a semi-final payment in the amount of all of
the unpaid balance, except that Wells OP may retain an amount in accordance with
the terms of the Construction Contract which is necessary to protect its
remaining interest until final completion of the Nissan Project. Wells OP will
pay the entire unpaid balance when the Nissan Project has been fully completed
in accordance with the terms and conditions of the Construction Contract. As a
condition of final payment, the Contractor will be required to execute and
deliver a release of all claims and liens against Wells OP.
The Contractor will be responsible to Wells OP for the acts or
omissions of its subcontractors and suppliers of materials and of persons either
directly or indirectly employed by them. The Contractor has agreed to indemnify
Wells OP from and against all liability, claims, damages, losses, expenses and
costs of any kind or description arising out of or in connection with the
performance of the Construction Contract, provided that such liability, claim,
damage, loss or expense is caused in whole or in part by any act or omission of
the Contractor, any subcontractor or materialmen, anyone directly or indirectly
employed by any of them or anyone for whose acts any of them may be liable. The
Construction Contract also requires the Contractor to obtain and maintain, until
completion of the Nissan Project, adequate insurance coverage relating to the
Nissan Project, including insurance for workers' compensation, personal injury
and property damage.
The Contractor is required to work expeditiously and diligently to
maintain progress in accordance with the construction schedule and to achieve
substantial completion of the Nissan Project within the contract time. The
Contractor is required to employ all such additional labor, services and
supervision, including such extra shifts and overtime, as may be necessary to
maintain progress in accordance with the construction schedule. It is
anticipated that the Nissan Project will be substantially completed by February
2003. Wells OP shall obtain a completion and performance bond in an amount
sufficient to complete construction and development of the Nissan Project to
reduce the risk of non-performance and to assure compliance with approved plans
and specifications.
The Nissan Lease. The entire 268,290 rentable square feet of the Nissan Building
----------------
is currently under a lease agreement with Nissan Motor Acceptance Corporation
(Nissan). The term of the lease began on September 19, 2001 and will extend 10
years beyond the rent commencement date. Construction on the building is
scheduled to begin on or before February 1, 2002 and to be completed within 20
months from
7
its commencement. The rent commencement date will occur shortly after
completion. Nissan has the right to extend the initial 10-year term of this
lease for an additional two years, upon written notice. Nissan also has the
right to extend the lease for two additional five-year periods at 95% of the
then-current market rental rate, upon written notice.
Nissan is a California corporation with its corporate headquarters in
Torrance, California. Nissan is a wholly owned subsidiary of Nissan North
America, Inc. (NNA), a guarantor of Nissan's lease. NNA is a California
corporation, with headquarters in Gardenia, California. NNA handles the North
American business sector of its Japanese parent, Nissan Motor Company, Ltd.
NNA's business activities include design, development, manufacturing and
marketing of Nissan vehicles in North America. NNA employs approximately 2,400
people. As a subsidiary of NNA, Nissan purchases retail and lease contracts
from, and provides wholesale inventory and mortgage loan financing to, Nissan
and Infiniti retailers. Nissan Motor Company, Ltd., the parent company of NNA,
reported fiscal year 2000 net income of $2.6 billion on revenues of $49.1
billion, and a net worth, as of March 31, 2001, of $7.7 billion.
The base rent payable for the Nissan lease beginning on the rent
commencement date is as follows:
------------------------------------------------------
Lease Year Annual Rent Monthly Rent
------------------------------------------------------
1 $4,225,860 $352,155
------------------------------------------------------
2 $4,325,168 $360,431
------------------------------------------------------
3 $4,426,809 $368,901
------------------------------------------------------
4 $4,530,839 $377,570
------------------------------------------------------
5 $4,637,314 $386,443
------------------------------------------------------
6 $4,746,291 $395,524
------------------------------------------------------
7 $4,857,829 $404,819
------------------------------------------------------
8 $4,971,988 $414,332
------------------------------------------------------
9 $5,088,829 $424,069
------------------------------------------------------
10 $5,208,417 $434,035
------------------------------------------------------
11* $5,330,815 $444,235
------------------------------------------------------
12* $5,456,089 $454,674
------------------------------------------------------
* If 2-year extension option is exercised.
Pursuant to the Nissan lease, Nissan is required to pay all taxes
relating to the Nissan Building and all operating costs including, but not
limited to, those associated with water, sewer, gas, electricity, light, heat,
telephone, television cable, rubbish removal, power and other utilities and
services used by Nissan. Nissan will also pay for repairs to the HVAC,
mechanical, electrical, elevator, and plumbing systems, as well as repairs to
the structural roof walls, foundations, paving, curbs, landscaping and fixtures.
Wells OP, as the landlord, will be responsible for repairs resulting from
defects in the initial construction of the building, as well as repairs to
structural portions of the foundation, exterior walls, structural frame and
roof. Nissan has an option to purchase the property if certain construction
related milestones are not met by Wells OP in the construction of the building.
In addition, if Wells OP ever decides to sell or transfer the property, Nissan
has a right of first refusal to purchase the property pursuant to the same
proposed sale terms. In order to exercise this right, Nissan must inform Wells
OP of its intent to purchase the property within 30 days of receiving notice
that Wells OP intends to sell or transfer the property.
8
The Ingram Micro Distribution Facility
Purchase of a Ground Leasehold Interest in the Ingram Micro Distribution
------------------------------------------------------------------------
Facility. On September 27, 2001, Wells OP acquired a ground leasehold interest
--------
in a 701,819 square foot distribution facility located on a 39.223 acre tract of
land at 3820 Micro Drive in the City of Millington, Shelby County, Tennessee
(Ingram Micro Distribution Facility), pursuant to a Bond Real Property Lease
dated as of December 20, 1995 (Bond Lease). The ground leasehold interest under
the Bond Lease, along with the Bond and the Bond Deed of Trust described below,
were purchased from Ingram Micro L.P. (Ingram) in a sale-lease back transaction
for a purchase price of $21,050,000. Wells OP incurred acquisition expenses in
connection with the purchase of the Ingram Micro Distribution Facility,
including attorneys' fees, recording fees, property condition report fees,
environmental report fees and other closing costs, of approximately $54,600. The
Bond Lease expires on December 31, 2026.
Fee simple title to the land upon which the Ingram Micro Distribution
Facility is located is held by the Industrial Development Board of the City of
Millington, Tennessee (Industrial Development Board) which originally entered
into the Bond Lease with Lease Plan North America, Inc. (Lease Plan). The
Industrial Development Board issued an Industrial Development Revenue Note
Ingram Micro L.P. Series 1995 (Bond) in a principal amount of $22,000,000 to
Lease Plan in order to finance the construction of the Ingram Micro Distribution
Facility. The Bond is secured by a Fee Construction Mortgage Deed of Trust and
Assignment of Rents and Leases dated as of December 20, 1995 (Bond Deed of
Trust) executed by the Industrial Development Board for the benefit of Lease
Plan.
On December 20, 2000, Lease Plan assigned to Ingram its ground
leasehold interest in the Ingram Micro Distribution Facility under the Bond
Lease. On the same date, Lease Plan also assigned all of its rights and interest
in the Bond and the Bond Deed of Trust of Ingram.
In addition to purchasing the Bond Lease, as set forth above, Wells OP
also acquired the Bond and the Bond Deed of Trust from Ingram at closing.
Beginning in 2006, Wells OP has the option under the Bond Lease to purchase the
land underlying the Ingram Micro Distribution Facility from the Industrial
Development Board for $100 plus satisfying the indebtedness evidenced by the
Bond, which is currently held by Wells OP.
An independent appraisal of the ground leasehold interest in the Ingram
Micro Distribution Facility was prepared by Douglas B. Hall & Associates, Inc.,
real estate appraisers, as of September 4, 2001, pursuant to which the market
value of the real property containing the leased fee interest subject to the
lease described below was estimated to be $21,400,000, in cash or terms
equivalent to cash. This value estimate was based upon a number of assumptions,
including that the Ingram Micro Distribution Facility will continue operating at
a stabilized level with Ingram occupying 100% of the rentable area, and is not
necessarily an accurate reflection of the fair market value of the property or
the net proceeds which would result from an immediate sale of this property.
Wells OP also obtained an environmental report and an engineering inspection
report prior to the closing evidencing that the condition of the land and the
Ingram Micro Distribution Facility were satisfactory.
Description of the Ingram Micro Distribution Facility and Site. The Ingram Micro
--------------------------------------------------------------
Distribution Facility, which was completed in 1997, is a one-story office and
warehouse building containing approximately 701,819 rentable square feet located
on a 39.22 acre tract of land.
The site is located in the northern part of Shelby County, Tennessee
approximately 16 miles north of the Memphis central business district. The site
is on the west side of U.S. Highway 51 and the east side of Old Millington Road,
less than one mile from the Millington Municipal Airport. The major development
in Millington is the former Memphis Naval Air Station, which was one of the
world's largest inland naval bases until the 1993 Base Realignment and Closure
Commission approved a new mission for the base. Approximately 1,900 acres of
land on the base is now known as the West
9
Tennessee Regional Business Center and is planned for development as a major
employment center in the area.
The Ingram Lease. On September 27, 2001, Wells OP entered into a new lease with
----------------
Ingram pursuant to which Ingram agreed to lease the entire Ingram Micro
Distribution Facility from Wells OP. The Ingram lease has a term of 10 years
with two successive options to extend for 10 years each at an annual rate equal
to the greater of (i) 95% of the then-current fair market rental rate, or (ii)
the annual rental payment effective for the final year of the term immediately
prior to such extension. Annual rent, as determined for each extended term, is
also increased by 15% beginning in the 61st month of each extended term.
Ingram Micro, Inc. (Micro) is the general partner of Ingram and a
guarantor on the Ingram lease. Micro is traded on the New York Stock Exchange
and has its corporate headquarters in Santa Ana, California. Micro provides
technology products and supply chain management services through wholesale
distribution. It targets three different market segments, including corporate
resellers, direct and consumer marketers, and value-added resellers. Micro's
worldwide business consists of approximately 14,000 associates and operations in
36 countries. In addition, Micro serves approximately 175,000 customers and
partners with approximately 1,700 manufacturers. For fiscal year-ended December
31, 2000, Micro reported a net income of over $226 million on revenues of
approximately $30.7 billion and a net worth, as of December 31, 2000, of
approximately $1.8 billion.
The annual base rent for the Ingram Micro Distribution Facility is
$2,035,275 for years one through five of the lease term and $2,340,566 for years
six through 10 of the lease term. Ingram has also agreed to pay as additional
rent all other amounts, liabilities and obligations relating to the Ingram Micro
Distribution Facility, including all taxes, assessments, water rents, sewer
rents and charges, duties, impositions, license and permit fees, charges for
public utilities of any kind, payments and all other charges incurred as a
result of the use and occupation of the premises by Ingram. Ingram is also
responsible for maintenance of the premises, including without limitation the
adjoining sidewalks and curbs, roof, generators and all operational building
systems.
The Lucent Building
Purchase of the Lucent Building. On September 28, 2001, Wells OP purchased a
-------------------------------
four-story office building with approximately 120,000 rentable square feet
located at 200 Lucent Lane, Cary, North Carolina (Lucent Building) from Lucent
Technologies, Inc. (Lucent) in a sale-lease back transaction. Lucent is not in
any way affiliated with the Wells REIT or our Advisor.
The purchase price for the Lucent Building was $17,650,000. Wells OP
incurred acquisition expenses in connection with the purchase of the Lucent
Building, including commissions, attorneys' fees, recording fees, structural
report and environmental report fees, and other closing costs, of approximately
$372,800.
An independent appraisal of the Lucent Building was prepared by CB
Richard Ellis, Inc., real estate appraisers, as of October 1, 2001, pursuant to
which the market value of the real property containing the leased fee interest
subject to the lease described below was estimated to be $18,400,000, in cash or
terms equivalent to cash. This value estimate was based upon a number of
assumptions, including that the Lucent Building will continue operating at a
stabilized level with Lucent occupying 100% of the rentable area, and is not
necessarily an accurate reflection of the fair market value of the property or
the net proceeds which would result from an immediate sale of this property.
Wells OP also obtained an environmental report and an engineering inspection
report prior to the closing evidencing that the condition of the land and the
Lucent Building were satisfactory.
10
Description of the Lucent Building and Site. The Lucent Building, which was
-------------------------------------------
completed in 1999, is a four-story office building containing approximately
120,000 rentable square feet located on a 29.19 acre tract of land, which
includes a 11.84 acre improved tract of land and a 17.34 acre undeveloped tract
of land. The building is constructed using a steel frame with steel beams and a
reinforced concrete foundation. The exterior walls are made of primarily glass
and steel. The common area interior walls consist of textured and painted
sheetrock with wood accent and trim. In addition, the building has multiple
elevators and approximately 500 paved parking spaces.
The Lucent Building is located at 200 Lucent Lane in Regency Park
office park in the "Research Triangle" in Cary, North Carolina. The site is
approximately 10 miles west of downtown Raleigh and 15 miles south of
Raleigh-Durham International Airport. Cary is a growing commercial and
residential suburb of Raleigh. Some of Cary's major industries include computer
software and technology, pharmaceuticals and communications. Regency Park
contains tenants such as Hewlett-Packard, Nextel and Alltel and is located
approximately three miles from Interstate 40, one of the major east-west
highways in the United States.
The Lucent Lease. The entire 120,000 rentable square feet of the Lucent Building
----------------
is currently under a lease agreement with Lucent, which does not include the
17.34 acre undeveloped tract of land described above. The current term of the
lease is 10 years, which commenced on September 28, 2001, and expires on
September 30, 2011. Lucent has the right to extend the term of this lease for
three additional five-year periods at the then-current fair market rental rate,
upon 12 months prior written notice.
Lucent is traded on the New York Stock Exchange and has its corporate
headquarters in Murray Hill, New Jersey. Lucent designs, develops and
manufactures communications systems, software and other products. As of June 30,
2001, Lucent employed approximately 87,000 people and had offices or
distributors in over 65 countries. For fiscal year-ended September 30, 2000,
Lucent reported a net income of over $1.2 billion on total revenues of
approximately $34 billion and a net worth, as of September 30, 2000, of over $26
billion.
The base rent payable under the Lucent lease is as follows:
-----------------------------------------------------------
Lease Year Anuual Rent Monthly Rent
-----------------------------------------------------------
1 $1,800,000 $150,000
-----------------------------------------------------------
2 $1,854,000 $154,500
-----------------------------------------------------------
3 $1,909,620 $159,135
-----------------------------------------------------------
4 $1,966,908 $163,909
-----------------------------------------------------------
5 $2,025,915 $168,826
-----------------------------------------------------------
6 $2,086,693 $173,891
-----------------------------------------------------------
7 $2,149,294 $179,108
-----------------------------------------------------------
8 $2,213,773 $184,481
-----------------------------------------------------------
9 $2,280,186 $190,016
-----------------------------------------------------------
10 $2,348,592 $195,716
-----------------------------------------------------------
Pursuant to the Lucent lease, Lucent is required to pay all taxes
relating to the Lucent Building and all operating costs, including, but not
limited to, those associated with water, sewerage, gas, steam, electricity, air
conditioning, telephone, garbage removal, power and other utilities and services
used by Lucent. Lucent is also required to pay for all repair and maintenance
costs, including but not limited to, window cleaning, security personnel,
elevator maintenance, HVAC maintenance, janitorial service, waste recycling
service, and landscaping maintenance. Wells OP, as the landlord, will be
responsible for building repairs caused by fire or other insurable casualties.
11
Property Management Fees
Wells Management Company, Inc. (Wells Management), an affiliate of the
Wells REIT and our Advisor, has been retained to manage and lease the IKON
Buildings, the Nissan Building, the Ingram Micro Distribution Facility and the
Lucent Building. The Wells REIT shall pay management and leasing fees to Wells
Management in the amount of 4.5% of gross revenues from the IKON Buildings, the
Nissan Building, the Ingram Micro Distribution Facility and the Lucent Building,
subject to certain limitations.
Description of Properties - The Matsushita Building
The information contained on page 85 in the "Description of Properties
- The Matsushita Building" section of the prospectus is revised as of the date
of this supplement by the deletion of the first and fourth full paragraphs on
that page and the insertion of the following paragraphs in lieu thereof:
Wells OP and Matsushita Avionics Systems Corporation
(Matsushita Avionics) entered into a Second Amendment to Office Lease
(Amendment) relating to the two-story office building (Matsushita
Building) located in the City of Lake Forest, Orange County,
California. The Amendment confirms that the lease commencement date for
the Matsushita lease is January 4, 2000, and that the amount of
rentable square feet of the building is 144,906 square feet.
The Matsushita lease terminates on January 31, 2007.
Matsushita Avionics has the option to extend the lease for two
additional five-year periods of time at an annual rate equal to 95% of
the then-current fair market rental rate,. Wells OP and Matsushita
Avionics agreed that the total project cost for the construction of the
Matsushita Building upon which the base rent was calculated was
$18,431,206. The base rent payable for the remainder of the Matsushita
lease is as follows:
-----------------------------------------------------------
Lease Year Annual Rent Monthly Rent
-----------------------------------------------------------
2/1/01-1/31/02 $1,888,834.60 $157,361.97
-----------------------------------------------------------
2/1/02-1/31/04 $2,005,463.60 $167,121.97
-----------------------------------------------------------
2/1/04-1/31/06 $2,122,583.60 $176,881.97
-----------------------------------------------------------
2/1/06-1/31/07 $2,239,703.60 $186,641.97
-----------------------------------------------------------
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The information contained on page 98 in the "Management's Discussion
and Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" section of the prospectus is revised as of the date of this
supplement by the deletion of the first two paragraphs of that section and the
insertion of the following paragraphs in lieu thereof:
We began active operations on June 5, 1998, when we received
and accepted subscriptions for 125,000 shares pursuant to our initial
public offering, which commenced on January 30, 1998. We terminated our
initial public offering on December 19, 1999. Of the $132,181,919
raised in the initial offering, we invested a total of $111,032,812 in
properties. On December 20, 1999, we commenced a second public offering
of up to 22,200,000 shares of common stock. We terminated our second
offering on December 19, 2000. Of the $175,229,193 raised in the second
offering, we invested a total of $147,192,522 in properties.
12
Pursuant to the prospectus, we commenced this third offering
of shares of our common stock on December 20, 2000. As of October 10,
2001, we had received an additional $330,794,345 in gross offering
proceeds from the sale of 33,079,435 shares in the third offering. As
of October 10, 2001, we had raised in the aggregate a total of
$638,205,457 in offering proceeds through the sale of 63,820,546 shares
of common stock. As of October 10, 2001, we had paid a total of
$22,194,260 in acquisition and advisory fees and acquisition expenses,
had paid a total of $77,857,869 in selling commissions and
organizational and offering expenses, had made capital contributions of
$523,731,851 to Wells OP for investments in joint ventures and
acquisitions of real property, had utilized $4,083,734 for the
redemption of stock pursuant to our share redemption program, and were
holding net offering proceeds of $10,337,743 available for investment
in additional properties.
Plan of Distribution
The information contained on page 155 in the "Plan of Distribution"
section of the prospectus is revised as of the date of this supplement by the
deletion of the sixth and seventh full paragraphs on that page and the insertion
of the following paragraphs in lieu thereof:
In connection with sales of certain minimum numbers of shares
to a "purchaser," as defined below, the registered representative and
the investor may agree to reduce the amount of selling commissions
payable with respect to such sales. Such reduction will be credited to
the investor by reducing the purchase price per share payable by the
investor. The following table illustrates the various discount levels
available:
Commissions on Sales
Purchase Price per per Incremental Share
Number of Incremental Share in in Volume Discount Range
Shares Purchased Volume Discount Range Percent Amount
---------------- --------------------- ------- ------
1 to 50,000 $10.00 7.0% $0.70
50,001 to 100,000 $ 9.80 5.0% $0.50
100,001 and Over $ 9.60 3.0% $0.30
For example, if an investor purchases 200,000 shares, he could
pay as little as $1,950,000 ($9.75 per share) rather than $2,000,000
for the shares, in which event the commission on the sale of such
shares would be $90,000 ($0.45 per share) and, after payment of the
dealer manager fee of $50,000 ($0.25 per share), we would receive net
proceeds of $1,810,000 ($9.05 per share). The net proceeds to the Wells
REIT will not be affected by volume discounts.
The information contained on page 157 in the "Plan of Distribution"
section of the prospectus is revised as of the date of this supplement by the
deletion of the second and third full paragraphs on that page and the insertion
of the following paragraphs in lieu thereof:
Investors may agree with the participating broker-dealer
selling them shares or with the Dealer Manager if no participating
broker-dealer is involved in the transaction to reduce the amount of
selling commissions payable to zero (i) in the event the investor has
engaged the services of a registered investment advisor with whom the
investor has agreed to pay a fee for investment advisory services, or
(ii) in the event the investor is investing in a bank trust account
with respect to which the investor has delegated the decision-making
authority for investments made in the account to a bank trust
department. The net proceeds to the Wells REIT will
13
not be affected by eliminating commissions payable in connection with
sales to investors purchasing through such registered investment
advisors or bank trust departments. All such sales must be made through
registered broker-dealers.
Neither the Dealer Manager nor its affiliates will directly or
indirectly compensate any person engaged as an investment advisor or a
bank trust department by a potential investor as an inducement for such
investment advisor or bank trust department to advise favorably for an
investment in the Wells REIT.
Financial Statements
The Statements of Revenues Over Certain Operating Expenses of the IKON
Buildings for the year ended December 31, 2000 and the Statements of Certain
Operating Expenses in Excess of Revenues of the Ingram Micro Distribution
Facility and Lucent Building for the year ended December 31, 2000, included in
this supplement and elsewhere in the registration statement, have been audited
by Arthur Andersen LLP, independent public accountants, as indicated in their
reports with respect thereto, and are included in this supplement in reliance
upon the authority of said firm as experts in giving said reports.
The Statements of Revenues Over Certain Operating Expenses of the IKON
Buildings for the six months ended June 30, 2001 and the Statements of Certain
Operating Expenses in Excess of Revenues of the Ingram Micro Distribution
Facility and Lucent Building for the six months ended June 30, 2001, included in
this supplement and elsewhere in the registration statement, have not been
audited.
The Pro Forma Balance Sheet of the Wells REIT, as of June 30, 2001, the
Pro Forma Statement of Income for the six months ended June 30, 2001, and the
Pro Forma Statement of Income (loss) for the year ended December 31, 2000, which
are included in this supplement, have not been audited.
14
INDEX TO FINANCIAL STATEMENTS
IKON Buildings Page
----
Report of Independent Accountants 16
Statements of Revenues Over Certain Operating Expenses 17
for the year ended December 31, 2000 (audited) and for the
six months ended June 30, 2001 (unaudited)
Notes to Statements of Revenues Over Certain Operating 18
Expenses for the year ended December 31, 2000 (audited) and
for the six months ended June 30, 2001 (unaudited)
Ingram Micro Distribution Facility
Report of Independent Accountants 19
Statements of Certain Operating Expenses in Excess of Revenues 20
for the year ended December 31, 2000 (audited) and for the
six months ended June 30, 2001 (unaudited)
Notes to Statements of Certain Operating Expenses in Excess of Revenues 21
for the year ended December 31, 2000 (audited) and
for the six months ended June 30, 2001 (unaudited)
Lucent Building
Report of Independent Accountants 22
Statements of Certain Operating Expenses in Excess of Revenues 23
for the year ended December 31, 2000 (audited) and for the
six months ended June 30, 2001 (unaudited)
Notes to Statements of Certain Operating Expenses in Excess of 24
Revenues for the year ended December 31, 2000 (audited) and
for the six months ended June 30, 2001 (unaudited)
Wells Real Estate Investment Trust, Inc.
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 25
Pro Forma Balance Sheet as of June 30, 2001 26
Pro Forma Statement of Income for the six months
ended June 30, 2001 28
Pro Forma Statement of Income (loss) for the year ended
December 31, 2000 29
15
[LOGO
ANDERSEN]
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the IKON BUILDINGS for the six months ended June 30, 2001 and the
year ended December 31, 2000. This financial statement is the responsibility of
management. Our responsibility is to express an opinion on this financial
statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues over
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues over certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the IKON
Buildings after acquisition by the Wells Operating Partnership, L.P., a
subsidiary of Wells Real Estate Investment Trust, Inc. The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
IKON Buildings' revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the IKON Buildings for the six months ended June 30, 2001 and the
year ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
September 12, 2001
16
IKON BUILDINGS
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 2001
AND THE YEAR ENDED DECEMBER 31, 2000
2001 2000
---------- ----------
(Unaudited)
RENTAL REVENUES $1,034,675 $1,379,567
OPERATING EXPENSES, net of reimbursements 0 115,276
---------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,034,675 $1,264,291
========== ==========
The accompanying notes are an integral part of these statements.
17
IKON BUILDINGS
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE SIX MONTHS ENDED JUNE 30, 2001
AND THE YEAR ENDED DECEMBER 31, 2000
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On September 7, 2001, the Wells Operating Partnership, L.P. ("Wells
OP") acquired the IKON Buildings from SV Reserve, L.P. ("SV Reserve").
Wells OP is a Delaware limited partnership that was organized to own
and operate properties on behalf of Wells Real Estate Investment Trust,
Inc., a Maryland corporation. As the sole general partner of Wells OP,
Wells Real Estate Investment Trust, Inc. possesses full legal control
and authority over the operations of Wells OP.
IKON Office Solutions, Inc. ("IKON") currently occupies the entire
157,790 rentable square feet of the two single-story office buildings
comprising the IKON Buildings under a net lease agreement (the "IKON
Lease"). IKON is a public entity traded on the New York Stock Exchange.
SV Reserve's interest in the IKON Lease was assigned to Wells OP at the
closing. The initial term of the IKON Lease commenced on May 1, 2000
and expires on April 30, 2010. IKON has the right to extend the IKON
Lease for two additional periods of five years at a rate equal to the
then-current fair market rental rate. Under the IKON Lease, IKON is
required to pay, as additional monthly rent, all operating costs,
including but not limited to, water, power, heating, lighting, air
conditioning and ventilation, security fees, landscaping, window
cleaning, pest control, property management fees, taxes, assessments
and governmental levies, insurance, amortization (together with
reasonable financing charges) of capital items installed for the
purpose of reducing operating expenses, as well as the cost of all
supplies, wages and salaries incurred by the landlord in connection
with the operations and maintenance of the premises. Wells OP will be
responsible for all building repairs caused by fire, windstorm, or
other insurable casualty.
Rental Revenues
Rental income is recognized on a straight-line basis over the term of
the IKON Lease.
2. Basis of Accounting
The accompanying statements of revenues over certain operating expenses
are presented on the accrual basis. These statements have been prepared
in accordance with the applicable rules and regulations of the
Securities and Exchange Commission for real estate properties acquired.
Accordingly, these statements exclude certain historical expenses, such
as depreciation, interest, and management fees. Therefore, these
statements are not comparable to the operations of the IKON Buildings
after acquisition by Wells OP.
18
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of certain operating expenses in
excess of revenues for the Ingram MICRO DISTRIBUTION FACILITY for the year ended
December 31, 2000. This financial statement is the responsibility of management.
Our responsibility is to express an opinion on this financial statement based on
our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of certain operating
expenses in excess of revenues is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of certain operating expenses in excess of
revenues. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would be comparable with those resulting from the operations of the Ingram Micro
Distribution Facility after acquisition by Wells Operating Partnership, L.P., a
subsidiary of Wells Real Estate Investment Trust, Inc. The accompanying
statement of certain operating expenses in excess of revenues was prepared for
the purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Ingram Micro Distribution Facility's revenues and expenses.
In our opinion, the statement of certain operating expenses in excess of
revenues presents fairly, in all material respects, certain operating expenses
in excess of revenues for the Ingram Micro Distribution Facility for the year
ended December 31, 2000 in conformity with accounting principles generally
accepted in the United States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
October 5, 2001
19
INGRAM MICRO DISTRIBUTION FACILITY
STATEMENTS OF
CERTAIN OPERATING EXPENSES IN EXCESS OF REVENUES
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
2001 2000
--------- -----------
RENTAL REVENUES $ 0 $ 0
OPERATING EXPENSES 945,910 2,083,598
--------- -----------
CERTAIN OPERATING EXPENSES IN EXCESS OF
REVENUES $(945,910) $(2,083,598)
========= ===========
The accompanying notes are an integral part of these statements.
20
INGRAM MICRO DISTRIBUTION FACILITY
NOTES TO STATEMENTS OF
CERTAIN OPERATING EXPENSES IN EXCESS OF REVENUES
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2000
1. Organization and significant accounting policies
Description of Real Estate Property Acquired
On September 27, 2001, Wells Operating Partnership, L.P. ("Wells OP")
acquired the Ingram Micro Distribution Facility from Ingram Micro, L.P.
("Ingram"). Wells OP is a Delaware limited partnership organized to own and
operate properties on behalf of Wells Real Estate Investment Trust, Inc., a
Maryland corporation. As the sole general partner of Wells OP, Wells Real
Estate Investment Trust, Inc. possesses full legal control and authority
over the operations of Wells OP.
Ingram currently occupies 100% of the Ingram Micro Distribution Facility
under a net lease agreement (the "Ingram Lease") with Wells OP. The Ingram
Micro Distribution Facility is a one-story industrial building comprised of
701,819 rentable square feet. Ingram Micro, Inc. is the guarantor of the
Ingram Lease and is a public entity traded on the New York Stock Exchange.
Prior to September 27, 2001, Ingram owned and occupied the entire Ingram
Micro Distribution Facility; therefore, no rental revenues were recognized
for the year ended December 31, 2000 or for the six months ended June 30,
2001. The initial term of the Ingram Lease commenced on September 27, 2001
and expires on September 30, 2011. Ingram has the right to extend the
Ingram Lease for two additional periods of ten years at an annual rate
equal to the greater of (i) 95% of the then-current fair market rental
rate, or (ii) the annual rental payment effective for the final year of the
term immediately prior to such extension. Annual rent, as determined for
each extended term, shall also be increased by 15% beginning in the 61st
month of each extended term. Under the Ingram Lease, Ingram is required to
pay, as additional monthly rent, all operating costs, including but not
limited to insurance costs, utilities, taxes, assessments, water and sewer
charges, license and permit fees. Ingram is also responsible for
maintenance of the premises, including without limitation the adjoining
sidewalks and curbs, roof, generators and all operational building systems.
2. Basis of Accounting
The accompanying statements of certain operating expenses in excess of
revenues are presented on the accrual basis. These statements have been
prepared in accordance with the applicable rules and regulations of the
Securities and Exchange Commission for real estate properties acquired.
Accordingly, these statements exclude certain historical expenses such as
depreciation, interest, and management fees. Therefore, these statements
are not comparable to the operations of the Ingram Micro Distribution
Facility after acquisition by Wells OP.
21
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of certain operating expenses in
excess of revenues of the Lucent BUILDING for the year ended December 31, 2000.
This financial statement is the responsibility of management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of certain operating
expenses in excess of revenues is free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the statement of certain operating expenses in excess of
revenues. An audit also includes assessing the accounting principles used and
significant estimates made by management as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.
As described in Note 2, this financial statement excludes certain expenses that
would be comparable with those resulting from the operations of the Lucent
Building after acquisition by Wells Operating Partnership, L.P., a subsidiary of
Wells Real Estate Investment Trust, Inc. The accompanying statement of certain
operating expenses in excess of revenues was prepared for the purpose of
complying with the rules and regulations of the Securities and Exchange
Commission and is not intended to be a complete presentation of the Lucent
Building's revenues and expenses.
In our opinion, the statement of certain operating expenses in excess of
revenues presents fairly, in all material respects, certain operating expenses
in excess of revenues for the Lucent Building for the year ended December 31,
2000 in conformity with accounting principles generally accepted in the United
States.
/s/ Arthur Andersen LLP
Atlanta, Georgia
October 5, 2001
22
LUCENT BUILDING
STATEMENTS OF
CERTAIN OPERATING EXPENSES IN EXCESS OF REVENUES
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
2001 2000
----------- ---------
RENTAL REVENUES $ 0 $ 0
OPERATING EXPENSES 246,503 465,726
---------- ---------
CERTAIN OPERATING EXPENSES IN EXCESS OF REVENUES $(246,503) $(465,726)
========== =========
The accompanying notes are an integral part of these statements.
23
LUCENT BUILDING
NOTES TO STATEMENTS OF
CERTAIN OPERATING EXPENSES IN EXCESS OF REVENUES
FOR THE SIX MONTHS ENDED JUNE 30, 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2000
1. Organization and Significant Accounting Policies
Description of Real Estate Property Acquired
On September 28, 2001, Wells Operating Partnership, L.P. ("Wells OP")
acquired the Lucent Building from Lucent Technologies, Inc. ("Lucent").
Wells OP is a Delaware limited partnership organized to own and operate
properties on behalf of Wells Real Estate Investment Trust, Inc., a
Maryland corporation. As the sole general partner of Wells OP, Wells Real
Estate Investment Trust, Inc. possesses full legal control and authority
over the operations of Wells OP.
Lucent currently occupies 100% of the Lucent Building under a net lease
agreement (the "Lucent Lease") with Wells OP. The Lucent Building is a
four-story office building comprised of 120,000 rentable square feet.
Lucent is a public entity traded on the New York Stock Exchange. Prior to
September 28, 2001, Lucent owned and occupied the entire rentable square
feet of the Lucent Building; therefore, no rental revenues were recognized
for the year ended December 31, 2000 or for the six months ended June 30,
2001. The initial term of the Lucent Lease commenced on September 28, 2001
and expires on September 30, 2011. Lucent has the right to extend the
Lucent Lease for three additional periods of five years at a rate equal to
the then-current fair market rental rate. Under the Lucent Lease, Lucent is
required to pay, as additional monthly rent, all operating costs including
but not limited to electricity, gas, steam, water, sanitation, air
conditioning, as well as other fuel and utilities for the property. Lucent
is also responsible for maintaining all service and maintenance agreements
for the building and equipment contained therein, including but not limited
to window cleaning, security, elevator and HVAC maintenance, and janitorial
and landscaping services. Wells OP will be responsible for all building
repairs caused by fire or other insurable casualties.
2. Basis of Accounting
The accompanying statements of certain operating expenses in excess of
revenues are presented on the accrual basis. These statements have been
prepared in accordance with the applicable rules and regulations of the
Securities and Exchange Commission for real estate properties acquired.
Accordingly, these statements exclude certain historical expenses such as
depreciation, interest, and management fees. Therefore, these statements
are not comparable to the operations of the Lucent Building after
acquisition by Wells OP.
24
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
JUNE 30, 2001
The following unaudited pro forma balance sheet as of June 30, 2001 has been
prepared to give effect to the acquisition of the AmeriCredit Building by Wells
XIII-REIT Joint Venture (a joint venture partnership between Wells Real Estate
Fund XIII, L.P. and Wells Operating Partnership, L.P. ["Wells OP"]), the
acquisitions of the State Street Bank Building, and the IKON Buildings by Wells
OP (collectively, the "Prior Acquisitions"), and the Ingram Micro Distribution
Facility, the Lucent Building and the Nissan Property acquired by Wells OP as if
each acquisition occurred on June 30, 2001. The Comdata Building was acquired by
Wells XII-REIT Joint Venture (a joint venture partnership between Wells Real
Estate Fund XII, L.P. and Wells OP) on May 15, 2001.
The following unaudited pro forma statement of income for the six months ended
June 30, 2001 has been prepared to give effect to the acquisitions of the
Comdata Building, the AmeriCredit Building, the State Street Bank Building, the
IKON Buildings, the Ingram Micro Distribution Facility, the Lucent Building, and
the Nissan Property as if the acquisitions occurred on January 1, 2001. The
following unaudited pro forma statement of income (loss) for the year ended
December 31, 2000 has been prepared to give effect to the acquisitions of the
Comdata Building, the State Street Bank Building, the IKON Buildings, the Ingram
Micro Distribution Facility, and the Lucent Building as if the acquisitions
occurred on January 1, 2000. The AmeriCredit Building had no operations during
2000. The Nissan Property had no operations during 2001 or 2000.
Wells OP is a Delaware limited partnership organized to own and operate
properties on behalf of Wells Real Estate Investment Trust, Inc., a Maryland
corporation. As the sole general partner of Wells OP, Wells Real Estate
Investment Trust, Inc. possesses full legal control and authority over the
operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated
with the accompanying pro forma financial statements of Wells Real Estate
Investment Trust, Inc.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisitions of the Comdata
Building, the AmeriCredit Building, the State Street Bank Building, the IKON
Buildings, the Ingram Micro Distribution Facility, the Lucent Building and the
Nissan Property been consummated at the beginning of the periods presented.
As of June 30, 2001, the date of the accompanying pro forma balance sheet, Wells
OP held cash of $6,074,926. The additional cash used to purchase the State
Street Bank Building, the IKON Buildings, the Ingram Micro Distribution
Facility, the Lucent Building and the Nissan Property, including deferred
project costs paid to Wells Capital, Inc. (an affiliate of Wells OP), was raised
through the issuance of additional shares by Wells Real Estate Investment Trust,
Inc. subsequent to June 30, 2001. This balance is reflected as purchase
consideration payable in the accompanying pro forma balance sheet.
25
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
JUNE 30, 2001
(Unaudited)
ASSETS
Pro Forma Adjustments
-----------------------------------------------------------------------------
Wells
Real Estate Ingram Micro
Investment Prior Distribution Lucent Nissan Pro Forma
Trust, Inc. Acquisitions Facility Building Property Total
------------- -------------- -------------- -------------- -------------- -------------
REAL ESTATE ASSETS, at cost:
Land $ 47,256,748 $13,335,000(a) 320,000(a) $ 2,850,000(a) $ 5,498,162(a) $ 70,176,708
555,625(b) 13,333(b) 118,750(b) 229,090(b)
Buildings, less accumulated
depreciation of $15,863,470 285,964,597 57,206,623(a) 20,785,184(a) 14,850,282(a) 0 382,675,107
2,383,609(b) 866,050(b) 618,762(b) 0
Construction in progress 7,143,876 0 0 0 0 7,143,876
------------- -------------- -------------- -------------- -------------- -------------
Total real estate
assets 340,365,221 73,480,857 21,984,567 18,437,794 5,727,252 459,995,691
CASH AND CASH EQUIVALENTS 6,074,926 (5,924,926)(a) 0 0 0 0
(150,000)(c)
INVESTMENT IN BONDS 0 0 22,000,000(f) 0 0 22,000,000
INVESTMENT IN JOINT VENTURES 60,261,895 11,343,750(d) 0 0 0 71,605,645
ACCOUNTS RECEIVABLE 4,661,279 0 0 0 0 4,661,279
DEFERRED LEASE ACQUISITION
COSTS 1,738,658 0 0 0 0 1,738,658
DEFERRED PROJECT COSTS 3,849 (3,849)(e) 0 0 0 0
DEFERRED OFFERING COSTS 731,574 0 0 0 0 731,574
DUE FROM AFFILIATES 1,242,469 0 0 0 0 1,242,469
PREPAID EXPENSES AND OTHER
ASSETS 1,558,395 0 0 0 0 1,558,395
------------- -------------- -------------- -------------- -------------- -------------
Total assets $ 416,638,266 $78,745,832 $43,984,567 $18,437,794 $ 5,727,252 $ 563,533,711
============= ============== ============== ============== ============== =============
26
LIABILITIES AND SHAREHOLDERS' EQUITY
Pro Forma Adjustments
-----------------------------------------------------------------------------
Wells
Real Estate Ingram Micro
Investment Prior Distribution Lucent Nissan Pro Forma
Trust, Inc. Acquisitions Facility Building Property Total
------------- -------------- -------------- -------------- -------------- -------------
LIABILITIES:
Accounts payable and accrued
expenses $ 2,592,211 $ 0 $ 0 $ 0 $ 0 $ 2,592,211
Notes payable 10,298,850 48,300,000(a) 8,850,000(a) 12,800,000(a) 5,498,162(a) 118,487,012
10,740,000(c) 22,000,000(g)
Dividends payable 1,071,657 0 0 0 0 1,071,657
Due to affiliate 1,508,539 2,939,234(b) 879,383(b) 737,512(b) 229,090(b) 6,743,659
449,901(e)
Purchase consideration payable 0 16,316,697(a) 12,255,184(a) 4,900,282(a) 0 33,472,163
Deferred rental income 95,418 0 0 0 0 95,418
------------- -------------- -------------- -------------- -------------- -------------
Total liabilities 15,566,675 78,745,832 43,984,567 18,437,794 5,727,252 162,462,120
------------- -------------- -------------- -------------- -------------- -------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER
IN OPERATING PARTNERSHIP 200,000 0 0 0 0 200,000
------------- -------------- -------------- -------------- -------------- -------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par
value; 125,000,000 shares
authorized, 47,770,468 shares
issued and 47,489,415 shares
outstanding 477,705 0 0 0 0 477,705
Additional paid-in capital 403,204,416 0 0 0 0 403,204,416
Treasury stock, at cost,
281,053 shares (2,810,530) 0 0 0 0 (2,810,530)
------------- -------------- -------------- -------------- -------------- -------------
Total shareholders'
equity 400,871,591 0 0 0 0 400,871,591
------------- -------------- -------------- -------------- -------------- -------------
Total liabilities and
shareholders'
equity $ 416,638,266 $78,745,832 $43,984,567 $18,437,794 $ 5,727,252 $ 563,533,711
============= ============== ============== ============== ============== =============
(a) Reflects Wells Real Estate Investment Trust, Inc.'s purchase price for
the land and the building.
(b) Reflects deferred project costs applied to the land and building at
approximately 4.17% of the purchase price.
(c) Reflects Wells Real Estate Investment Trust, Inc.'s portion of the
purchase price.
(d) Reflects Wells Real Estate Investment Trust, Inc.'s contribution to
the Wells XIII-REIT Joint Venture.
(e) Reflects deferred project costs contributed to the Wells XIII-REIT
Joint Venture at approximately 4.17% of the purchase price.
(f) Represents investments in bonds for which 100% of the principal
balance becomes payable on December 31, 2026.
(g) Represents mortgage note secured by the Deed of Trust to the Ingram
Micro Distribution Facility for which 100% of the principal balance
becomes payable on December 31, 2026.
27
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE SIX MONTHS ENDED JUNE 30, 2001
(Unaudited)
Wells
Real Estate Ingram Micro
Investment Prior Distribution Lucent Pro Forma
Trust, Inc. Acquisitions Facility Building Total
------------- -------------- -------------- -------------- ------------
REVENUES:
Rental income $ 19,711,252 $ 4,652,363(a) $ 1,094,230(a) $ 1,031,749(a) $26,489,594
Equity in income (loss) of joint
ventures 1,519,194 513,944(b) 0 0 1,934,514
(98,624)(c)
Interest income 193,007 (193,007)(d) 880,000(j) 0 880,000
------------- -------------- -------------- -------------- ------------
21,423,453 4,874,676 1,974,230 1,031,749 29,304,108
------------- -------------- -------------- -------------- ------------
EXPENSES:
Depreciation and amortization 6,685,716 1,191,805(e) 433,025(e) 309,381(e) 8,619,927
Interest 2,809,373 379,761(f) 287,714(k) 416,128(m) 6,692,366
1,919,390(g) 880,000(l)
Operating costs, net of
reimbursements 1,736,928 666,818(h) 0(h) 0(h) 2,403,746
Management and leasing fees 1,117,902 209,356(i) 49,240(i) 46,429(i) 1,422,927
General and administrative 635,632 0 0 0 635,632
Legal and accounting 117,331 0 0 0 117,331
Computer costs 6,328 0 0 0 6,328
------------- -------------- -------------- -------------- ------------
13,109,210 4,367,130 1,659,979 771,938 19,898,257
------------- -------------- -------------- -------------- ------------
NET INCOME $ 8,314,243 $ 507,546 $ 324,251 $ 259,811 $ 9,405,851
============= ============== ============== ============== ============
EARNINGS PER SHARE, basic and diluted $ 0.22 $ 0.25
============= ============
WEIGHTED AVERAGE SHARES, basic and
diluted 37,792,014 37,792,014
============= ============
(a) Rental income is recognized on a straight-line basis.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s equity in the income
of Wells XII-REIT Joint Venture related to the Comdata Building from
January 1, 2001 through May 14, 2001. The pro forma adjustment results
from rental revenues less operating expenses, management fees, and
depreciation.
(c) Reflects Wells Real Estate Investment Trust, Inc.'s equity in the loss of
Wells XIII-REIT Joint Venture related to the AmeriCredit Building. The
pro forma adjustment results from rental revenues less operating
expenses, management fees, and depreciation.
(d) Represents forgone interest income related to cash utilized to purchase
the Comdata Building, the AmeriCredit Building, and the State Street Bank
Building.
(e) Depreciation expense on the buildings is recognized using the straight-
line method and a 25-year life.
(f) Represents interest expense on the $15,575,863 drawn on Wells Real Estate
Investment Trust, Inc.'s revolving credit agreement with Bank of America,
N.A., which bears interest at approximately 6.5% per annum from
January 1, 2001 through May 14, 2001.
(g) Represents interest expense on the $59,040,000 of notes payable to Bank
of America, N.A., which bear interest at approximately 6.5% per annum for
the six months ended June 30, 2001.
(h) Consists of nonreimbursable operating expenses.
(i) Management and leasing fees are calculated at 4.5% of rental income.
(j) Represents interest income on the $22,000,000 investment in bonds due
from the Industrial Development Authority, which earns interest at 8% per
annum.
(k) Represents interest expense on the $8,850,000 drawn on Wells Real Estate
Investment Trust, Inc.'s revolving credit agreement with Bank of America,
N.A., which bears interest at approximately 6.5% per annum for the six
months ended June 30, 2001.
(l) Represents interest expense on the $22,000,000 mortgage note payable to
the Industrial Development Authority, which bears interest at 8% per
annum.
(m) Represents interest expense on the $12,800,000 drawn on Wells Real Estate
Investment Trust, Inc.'s revolving credit agreement Bank of America,
N.A., which bears interest at approximately 6.5% per annum for the six
months ended June 30, 2001.
28
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
Wells
Real Estate Ingram Micro
Investment Prior Distribution Lucent Pro Forma
Trust, Inc. Acquisitions Facility Building Total
------------- -------------- -------------- -------------- ------------
REVENUES:
Rental income $ 20,505,000 $ 4,320,921(a) $ 2,188,461(a) $ 2,063,498(a) $29,077,880
Equity in income of joint
ventures 2,293,873 930,181(b) 0 0 3,224,054
Interest income 520,924 (520,924)(c) 1,760,000(i) 0 1,760,000
Other income 53,409 0 0 0 53,409
------------- -------------- -------------- -------------- ------------
23,373,206 4,730,178 3,948,461 2,063,498 34,115,343
------------- -------------- -------------- -------------- ------------
EXPENSES:
Depreciation and amortization 7,743,551 2,383,609(d) 866,049(d) 618,762(d) 11,611,971
Interest 4,199,461 1,284,495(e) 729,833(j) 1,055,578(l) 13,012,523
3,983,156(f) 1,760,000(k)
Operating costs, net of
reimbursements 888,091 553,347(g) 0(g) 0(g) 1,441,438
Management and leasing fees 1,309,974 194,442(h) 98,481(h) 92,857(h) 1,695,754
General and administrative 426,680 0 0 0 426,680
Legal and accounting 240,209 0 0 0 240,209
Computer costs 12,273 0 0 0 12,273
------------- -------------- -------------- -------------- ------------
14,820,239 8,399,049 3,454,363 1,767,197 28,440,848
------------- -------------- -------------- -------------- ------------
NET INCOME (LOSS) $ 8,552,967 $(3,668,871) $ 494,098 $ 296,301 $ 5,674,495
============= ============== ============== ============== ============
EARNINGS PER SHARE, basic and diluted $ 0.40 $ 0.27
============= ============
WEIGHTED AVERAGE SHARES, basic
and diluted 21,382,418 21,382,418
============= ============
(a) Rental income is recognized on a straight-line basis.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of
Wells XII-REIT Joint Venture related to the Comdata Building. The pro forma
adjustment results from rental revenues less operating expenses, management
fees, and depreciation.
(c) Represents forgone interest income related to cash utilized to purchase the
Comdata Building and the State Street Bank Building.
(d) Depreciation expense on the buildings is recognized using the straight-line
method and a 25-year life.
(e) Represents interest expense incurred on the $15,575,863 drawn on Wells Real
Estate Investment Trust, Inc.'s revolving credit agreement with Bank of
America, N.A., which bears interest at approximately 8.3% for the year
ended December 31, 2000.
(f) Represents interest expense on the $48,300,000 of notes payable to Bank of
America, N.A., which bear interest at approximately 8.3% for the year ended
December 31, 2000.
(g) Consists of nonreimbursable operating expenses.
(h) Management and leasing fees are calculated at 4.5% of rental income.
(i) Represents interest income on the $22,000,000 investment in bonds due from
the Industrial Development Authority, which earns interest at 8%.
(j) Represents interest expense on the $8,850,000 drawn on Wells Real Estate
Investment Trust, Inc.'s revolving credit agreement with Bank of America,
N.A., which bears interest at approximately 8.3% for the six months ended
June 30, 2001.
(k) Represents interest expense on the $22,000,000 mortgage note payable to the
Industrial Development Authority, which bears interest at 8%.
(l) Represents interest expense on the $12,800,000 drawn on Wells Real Estate
Investment Trust, Inc.'s revolving credit agreement with Bank of America,
N.A., which bears interest at approximately 8.3% for the year ended
December 31, 2000.
29
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 6 DATED JANUARY 20, 2002 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001,
Supplement No. 2 dated April 25, 2001, Supplement No. 3 dated July 20, 2001,
Supplement No. 4 dated August 10, 2001 and Supplement No. 5 dated October 15,
2001. When we refer to the "prospectus" in this supplement, we are also
referring to any and all supplements to the prospectus. Unless otherwise defined
in this supplement, capitalized terms used in this supplement shall have the
same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) Status of the offering of shares in Wells Real Estate Investment
Trust, Inc. (Wells REIT);
(2) Declaration of dividends for the first quarter of 2002;
(3) Revisions to the "Suitability Standards" section of the
prospectus;
(4) Acquisition of a two-story office building in Tamarac, Florida
(Convergys Building);
(5) Acquisition of an interest in two connected one-story office and
assembly buildings in Parker, Colorado (ADIC Buildings);
(6) Acquisition of a seven-story office building and an eleven-story
office building in Schaumburg, Illinois (Windy Point Buildings);
(7) Acquisition of a three-story office building in Sarasota, Florida
(Arthur Andersen Building);
(8) Revisions to the "Plan of Distribution" section of the
prospectus;
(9) Revisions to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the
prospectus;
(10) Unaudited financial statements of Wells REIT as of September 30,
2001;
(11) Unaudited pro forma financial statements of Wells REIT reflecting
the acquisition of the Convergys Building, ADIC Buildings, Windy
Point Buildings and Arthur Andersen Building; and
(12) Audited financial statements relating to the Windy Point
Buildings and Arthur Andersen Building.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced a second offering
of common stock on December 20, 1999. Our second public offering was terminated
on December 19, 2000. We received approximately $175,229,193 in gross offering
proceeds from the sale of 17,522,919 shares in our second public offering.
1
Pursuant to the prospectus, we commenced our third offering of common
stock on December 20, 2000. As of January 15, 2002, we had received an
additional $564,207,445 in gross offering proceeds from the sale of 56,420,745
shares in the third offering. Accordingly, as of January 15, 2002, we had
received in the aggregate approximately $871,618,557 in gross offering proceeds
from the sale of 87,161,856 shares of our common stock.
Dividends
On December 6, 2001, our board of directors declared dividends for the
first quarter of 2002 in an amount equal to a 7.75% annualized percentage rate
return on an investment of $10 per share to be paid in April 2002. Our first
quarter dividends are calculated on a daily record basis of $0.002153 (.2153
cents) per day per share on the outstanding shares of common stock payable to
stockholders of record of such shares as shown on the books of the Wells REIT at
the close of business on each day during the period, commencing on December 16,
2001, and continuing on each day thereafter through and including March 15,
2002. Below is a table reflecting the level of dividends declared and paid to
date:
Annualized
Percentage Return
on an Investment
Quarter Approximate Amount (Rounded) of $10 per Share
------- ---------------------------- -----------------
3/rd/ Qtr. 1998 $0.150 per share 6.00%
4/th/ Qtr. 1998 $0.163 per share 6.50%
1/st/ Qtr. 1999 $0.175 per share 7.00%
2/nd/ Qtr. 1999 $0.175 per share 7.00%
3/rd/ Qtr. 1999 $0.175 per share 7.00%
4/th/ Qtr. 1999 $0.175 per share 7.00%
1/st/ Qtr. 2000 $0.175 per share 7.00%
2/nd/ Qtr. 2000 $0.181 per share 7.25%
3/rd/ Qtr. 2000 $0.188 per share 7.50%
4/th/ Qtr. 2000 $0.188 per share 7.50%
1/st/ Qtr. 2001 $0.188 per share 7.50%
2/nd/ Qtr. 2001 $0.188 per share 7.50%
3/rd/ Qtr. 2001 $0.188 per share 7.50%
4/th/ Qtr. 2001 $0.194 per share 7.75%
1/st/ Qtr. 2002 $0.194 per share 7.75%
Suitability Standards
The information contained on page 26 in the "Suitability Standards"
section of the prospectus is revised by the deletion of the special suitability
standards relating to the States of Arizona, Michigan, Missouri, New Hampshire,
North Carolina and Oregon on that page and the insertion of the following
paragraphs relating to the suitability requirements for residents of those
states:
2
Arizona, New Hampshire, North Carolina and Oregon - Investors
must have either (1) a net worth of at least $150,000, or (2) gross
annual income of $45,000 and a net worth of at least $45,000.
Michigan and Missouri - Investors must have either (1) a net
worth of at least $225,000, or (2) gross annual income of $60,000 and a
net worth of at least $60,000.
The Convergys Building
Purchase of the Convergys Building. On December 21, 2001, Wells Operating
----------------------------------
Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire,
own, lease and operate real properties on behalf of the Wells REIT, purchased a
two-story office building on a 12.55 acre tract of land located at 5601 Hiatus
Road in Tamarac, Broward County, Florida (Convergys Building). Wells OP
purchased the Convergys Building from Westpoint Building No. 1, L.L.C., which is
not in any way affiliated with the Wells REIT or Wells Capital, Inc., our
Advisor.
The purchase price for the Convergys Building was $13,255,000. In
addition, Wells OP incurred acquisition expenses in connection with the purchase
of the Convergys Building, including commissions, attorneys' fees, recording
fees, structural report and environmental report fees and other closing costs,
of approximately $242,400.
An independent appraisal of the Convergys Building was prepared by CB
Richard Ellis, Inc., real estate appraisers, as of October 19, 2001, pursuant to
which the market value of the real property containing the leased fee interest
subject to the lease described below was estimated to be $13,500,000, in cash or
terms equivalent to cash. This value estimate was based upon a number of
assumptions, including that the Convergys Building will continue operating at a
stabilized level with Convergys Customer Management Group, Inc. (Convergys)
occupying 100% of the rentable area, and is not necessarily an accurate
reflection of the fair market value of the property or the net proceeds which
would result from an immediate sale of this property. Wells OP also obtained an
environmental report and an engineering inspection report prior to the closing
evidencing that the condition of the land and the Convergys Building were
satisfactory.
Description of the Convergys Building and Site. The Convergys Building, which
----------------------------------------------
was completed in September 2001, is a two-story office building containing
approximately 100,000 rentable square feet located on a 12.55 acre tract of
land. The building is constructed using a concrete frame with pre-stressed
concrete beams and a reinforced concrete foundation. The exterior walls are made
of eight inch tilt-up concrete panels with a smooth stucco finish and tinted
windows set in aluminum frames. The common area interior walls and ceiling
consist of textured and painted sheetrock. In addition, the building has two
elevators located in the main lobby area and approximately 965 paved parking
spaces.
The Convergys Building is located at 5601 Hiatus Road within the
Westpoint Business Center in southern Broward County, Florida, approximately 15
miles northwest of downtown Fort Lauderdale. The Convergys Building has direct
access to the Sawgrass Expressway which leads to the I-75 and I-595 Expressways.
The Broward County office market, which is comprised of approximately 24 million
square feet, is located between Palm Beach County and Miami-Dade County on
Florida's Gold Coast and serves many multi-national companies looking to service
the tri-county area and overseas locations.
The Convergys Lease. The entire 100,000 rentable square feet of the Convergys
-------------------
Building is currently under a net lease agreement with Convergys. The current
term of the lease is 10 years, which commenced on September 10, 2001 and expires
on September 30, 2011. Convergys has the right to extend the initial 10-year
term of this lease for three additional five-year periods at 95% of the
then-current market rental rate.
3
The Convergys lease is guaranteed by Convergys' parent company,
Convergys Corporation, which is an Ohio corporation traded on the New York Stock
Exchange having its corporate headquarters in Cincinnati, Ohio. Convergys
Corporation provides outsourced billing and customer care services in the United
States, Canada, Latin America, Israel and Europe. Some of the major customers of
Convergys Corporation include AT&T, Compaq, Palm Computing, Pfizer
Pharmaceuticals, Sprint, Toys `R' Us and Deutsche Telekom. As of December 31,
2000, Convergys Corporation employed approximately 145,000 workers. For the
fiscal year ended December 31, 2000, Convergys Corporation reported net income
of approximately $194 million on total revenues of approximately $2.16 billion
and a net worth, as of December 31, 2000, of approximately $1.11 billion.
The base rent payable under the Convergys lease is as follows:
-----------------------------------------------------------
Lease Year Annual Rent Monthly Rent
-----------------------------------------------------------
1 $1,248,192 $104,016
-----------------------------------------------------------
2 $1,279,397 $106,616
-----------------------------------------------------------
3 $1,311,382 $109,282
-----------------------------------------------------------
4 $1,344,166 $112,014
-----------------------------------------------------------
5 $1,377,770 $114,814
-----------------------------------------------------------
6 $1,412,215 $117,685
-----------------------------------------------------------
7 $1,447,520 $120,627
-----------------------------------------------------------
8 $1,483,708 $123,642
-----------------------------------------------------------
9 $1,520,801 $126,733
-----------------------------------------------------------
10 $1,558,821 $129,902
-----------------------------------------------------------
Pursuant to the Convergys lease, Convergys is required to pay all taxes
relating to the Convergys Building and all operating costs, including, but not
limited to, those associated with water, gas, steam, electricity, air
conditioning, telephone, garbage removal, snow removal, common area maintenance,
landscaping, power and other utilities and services used by Convergys. Convergys
is also required to pay for all repair and maintenance costs, including but not
limited to, window cleaning, security personnel, elevator maintenance, HVAC
maintenance, janitorial service, waste recycling service and landscaping
maintenance. Convergys may not make alterations to the Convergys Building in
excess of $100,000 without Wells OP's prior written consent. Wells OP, as the
landlord, will be responsible for building repairs to the structural elements,
the building systems, exterior walls, windows and the roof of the Convergys
Building.
Convergys may terminate the Convergys lease at the end of the seventh
lease year (September 30, 2008) by providing 12 months prior written notice and
paying Wells OP a termination fee of approximately $1,341,000. Convergys also
has the option to purchase the Convergys Building for a purchase price of
$13,290,935 by providing written notice to Wells OP of such exercise on or
before March 10, 2002. In addition, in the event Convergys elects to purchase
the Convergys Building, Wells OP will have the right to receive an additional
$240,000, which was escrowed at closing and would be returned to Wells OP upon
the exercise of such option.
The ADIC Buildings
Purchase of the ADIC Buildings. On December 21, 2001, Wells Fund XIII - REIT
------------------------------
Joint Venture, a joint venture partnership between Wells Real Estate Fund XIII,
L.P. (Wells Fund XIII) and Wells OP, purchased two connected one-story office
and assembly buildings on an 8.35 acre tract of land located at 8560 Upland
Drive in Parker, Douglas County, Colorado (ADIC Buildings). Additionally, Wells
Fund XIII - REIT Joint Venture purchased an undeveloped 3.43 acre tract of land
adjacent to the ADIC Buildings
4
(ADIC Land). Wells Fund XIII - REIT Joint Venture purchased the ADIC Buildings
and the ADIC Land from Opus Northwest, L.L.C., which is not in any way
affiliated with the Wells REIT or our Advisor.
The purchase price for the ADIC Buildings was $12,954,213. In addition,
the Wells Fund XIII - REIT Joint Venture incurred acquisition expenses in
connection with the purchase of the ADIC Buildings, including commissions,
attorneys' fees, recording fees, structural report and environmental report fees
and other closing costs, of approximately $216,862.
Wells OP contributed $6,671,075 and Wells Fund XIII contributed
$6,500,000 to the Wells Fund XIII - REIT Joint Venture for their respective
shares of the acquisition costs for the ADIC Buildings. As of January 1, 2002,
Wells OP held an equity percentage interest in the Wells Fund XIII - REIT Joint
Venture of approximately 68%, and Wells Fund XIII held an equity percentage
interest in the Wells Fund XIII - REIT Joint Venture of approximately 32%.
An independent appraisal of the ADIC Buildings and ADIC Land was
prepared by Integra Realty Resources, real estate appraisers, as of December 21,
2001, pursuant to which the market value of the real property containing the
ADIC Buildings subject to the lease described below and the ADIC Land was
estimated to be $13,150,000, in cash or terms equivalent to cash. This value
estimate was based upon a number of assumptions, including that the ADIC
Buildings will continue operating at a stabilized level with ADIC occupying 100%
of the rentable area, and is not necessarily an accurate reflection of the fair
market value of the property or the net proceeds which would result from an
immediate sale of this property. Wells Fund XIII - REIT Joint Venture also
obtained an environmental report and an engineering inspection report prior to
the closing evidencing that the condition of the land and the ADIC Buildings
were satisfactory.
Description of the ADIC Buildings and Site. The ADIC Buildings, which were
------------------------------------------
completed in December 2001, consist of two connected one-story office and
assembly buildings, containing approximately 148,200 rentable square feet
located on an 11.78 acre tract of land, which includes an 8.35 acre improved
tract of land and a 3.43 acre undeveloped tract of land. The buildings are
constructed using a steel frame and a reinforced concrete foundation. The
exterior walls are made of pre-cast concrete panels. The interior walls consist
of painted gypsum board. The interior floors are carpeted, and the buildings
contain suspended and recessed fluorescent and incandescent lighting. The
buildings also contain an audio-visual presentation room, lunch room and several
conference rooms. In addition, the site contains approximately 300 paved parking
spaces with the potential to add up to an additional 400 parking spaces.
The ADIC Buildings are located in the Concord Business Center, a
100-acre mixed-use business park in the southeast portion of the greater Denver
metropolitan area in Douglas County near the Centennial Airport. The site is
within a couple of miles of I-25 and E-470 and within ten minutes of the Denver
Technology Center. The ADIC Buildings are 12 miles from the Denver Central
Business District and approximately 30 minutes from the Denver International
Airport. Douglas County is one of the most affluent and fastest growing counties
in the country.
The ADIC Lease. The entire 148,200 rentable square feet of the ADIC Buildings
--------------
are currently under a net lease agreement with Advanced Digital Information
Corporation (ADIC), which does not include the 3.43 acre undeveloped tract of
land described above. The current term of the lease is 10 years, which commenced
on December 15, 2001, and expires on December 31, 2011. ADIC has the right to
extend the term of its lease for two additional five-year periods at the
then-current fair market rental rate for the first year of each five-year
extension. The annual base rent will increase 2.5% for each subsequent year of
each five-year extension.
5
ADIC is a Washington corporation traded on NASDAQ having its corporate
headquarters in Redmond, Washington and regional management centers in
Englewood, Colorado; Bohmenkirch, Germany; and Paris, France. ADIC manufactures
data storage systems and specialized storage management software and distributes
these products through its relationships with original equipment manufacturers
such as IBM, Sony, Fujitsu, Siemens and Hewlett-Packard. For the fiscal year
ending October 31, 2000, ADIC reported net income of approximately $88 million
on net revenues of approximately $270 million and a net worth, as of October 31,
2000, of approximately $314 million.
The base rent payable under the ADIC lease is as follows:
---------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------------------------------------------------------
1 $1,222,683 $101,890
---------------------------------------------------------
2 $1,247,136 $103,928
---------------------------------------------------------
3 $1,272,079 $106,007
---------------------------------------------------------
4 $1,297,520 $108,127
---------------------------------------------------------
5 $1,323,471 $110,289
---------------------------------------------------------
6 $1,349,940 $112,495
---------------------------------------------------------
7 $1,376,939 $114,745
---------------------------------------------------------
8 $1,404,478 $117,040
---------------------------------------------------------
9 $1,432,568 $119,381
---------------------------------------------------------
10 $1,461,219 $121,768
---------------------------------------------------------
Pursuant to the ADIC lease, ADIC is required to pay all taxes relating
to the ADIC Buildings and all operating costs, including, but not limited to,
those associated with water, sewage, heat, gas, steam, electricity, cable, air
conditioning, telephone, garbage and rubbish removal, power and other utilities
and services used by ADIC. ADIC is also required to pay for all repair and
maintenance costs, including but not limited to, window cleaning, elevator
maintenance, HVAC maintenance, plumbing, janitorial service, waste recycling
service, landscaping maintenance and parking area maintenance. Wells Fund XIII -
REIT Joint Venture, as the landlord, will be responsible for building repairs to
the structural elements of the ADIC Buildings including the foundations and
structural columns and beams. ADIC may not make alterations to the ADIC
Buildings in excess of $25,000 without the landlord's prior written consent.
The Windy Point Buildings
Purchase of the Windy Point Buildings. On December 31, 2001, Wells OP purchased
-------------------------------------
a seven-story office building with approximately 186,900 rentable square feet
(Windy Point I) and an eleven-story office building with approximately 300,000
rentable square feet (Windy Point II) on an 18.73 acre tract of land located at
1500 and 1600 McConnor Parkway, Schaumburg, Cook County, Illinois (collectively,
Windy Point Buildings). Wells OP purchased the Windy Point Buildings from Windy
Point of Schaumburg, LLC, which is not in any way affiliated with the Wells REIT
or our Advisor.
The purchase price for the Windy Point Buildings was $89,275,000. In
addition, Wells OP incurred acquisition expenses in connection with the purchase
of the Windy Point Buildings, including attorneys' fees, recording fees,
structural report and environmental report fees, and other closing costs, of
approximately $123,500.
An independent appraisal of the Windy Point Buildings was prepared by
Real Estate Counselors International, Inc., real estate appraisers, as of
December 31, 2001, pursuant to which the market value of the real property
containing the leased fee interests subject to the leases described below was
estimated to be $90,200,000, in cash or terms equivalent to cash. This value
estimate was based upon a number of
6
assumptions, including that the Windy Point Buildings will continue operating at
a stabilized level with current tenants occupying 100% of the rentable area, and
is not necessarily an accurate reflection of the fair market value of the
property or the net proceeds which would result from an immediate sale of this
property. Wells OP also obtained an environmental report and an engineering
inspection report prior to the closing evidencing that the condition of the land
and the Windy Point Buildings were satisfactory.
The Windy Point Buildings are subject to a 20-year annexation agreement
with the Village of Schaumburg, Illinois originally executed on December 12,
1995 (Annexation Agreement). The Annexation Agreement covers a 235-acre tract of
land which includes a portion of the site of the Windy Point Buildings' parking
facilities. The purpose of this agreement was to allow for a potential
construction of a new eastbound on-ramp interchange for I-90 at Meacham Road.
Although the Illinois Department of Transportation has not yet decided whether
it would be economically feasible to construct the interchange, the construction
of such an interchange could have a significant financial impact on the owners
of the Windy Point Buildings. At closing, Wells OP agreed to be added as an
additional named surety on a $382,556 surety bond originally submitted by the
seller, pursuant to the request of the Village of Schaumburg, Illinois,
representing the estimated costs of demolition and restoration of constructed
parking and landscaped areas and protecting pipelines in connection with the
potential construction. The surety bond will remain in place until March 1,
2002. It is anticipated that at some time prior to March 1, 2002, Wells OP will
replace the surety bond with a $382,556 letter of credit issued on Wells OP's
behalf. The obligation to maintain the letter of credit will continue until the
costs of demolition and restoration are paid if the project proceeds or until
the Annexation Agreement expires in December 2015. If Wells OP is unable to
restore the parking spaces due to structural issues related to the utilities
underground, Wells OP would then be required to construct a new parking garage
on the site to accommodate the parking needs of its tenants. The cost for this
construction is currently estimated to be approximately $3,581,000. In addition,
if the interchange is constructed, Wells OP will be required to pay for its
share of the costs for widening Meacham Road as part of the project, which is
currently estimated to be approximately $288,300. In January 1999, the Illinois
State Toll Highway Authority performed an Interchange Feasibility Study and
determined that this proposed interchange at Meacham Road should not be
constructed at that time; however, there are no assurances that this
determination will not be reversed prior to the expiration of the Annexation
Agreement or that Wells OP will not be required to expend substantial sums to
construct a new parking garage on this property, as described above.
Description of the Windy Point Buildings and Site. The Windy Point I building
-------------------------------------------------
and the Windy Point II building, which were completed in 1999 and 2001,
respectively, are a seven-story office building with approximately 186,900
rentable square feet and an eleven-story office building with 300,000 rentable
square feet located on an 18.73 acre tract of land. The Windy Point Buildings
are constructed using a concrete and steel frame and a concrete and metal
foundation. The exterior walls of Windy Point I are made of primarily etched and
sand blasted pre-cast panels with granite inlays and punched window openings
above a two-story curtain wall of tinted and spandrel glass. The exterior walls
of Windy Point II consist of concrete panels with black granite medallions at
the base and the top of the building with seven foot high vision tinted glass
panels. The common areas of the Windy Point Buildings contain marble, granite
and stone flooring on the first floor lobby with carpeted corridors and painted
gypsum board walls and recessed florescent lighting. Windy Point I contains
three passenger elevators and one freight elevator and Windy Point II contains
five passenger elevators and one freight elevator. In addition, the Windy Point
Buildings have approximately 4.2 parking spaces per 1,000 rentable square feet
which includes a six level parking garage.
The Windy Point Buildings are located in the Northwest Suburban Office
Market approximately 30 miles northwest of downtown Chicago in the Village of
Schaumburg. The Windy Point Buildings include 500 feet of direct frontage to the
Northwest Tollway (I-90) which leads directly into downtown Chicago. The Windy
Point Buildings are one-half mile north of the 2.7 million square foot Woodfield
7
shopping mall and are in close proximity to Motorola's world headquarters and a
site for a planned Schaumburg convention center and hotel development.
The TCI Lease. TCI Great Lakes, Inc. (TCI) occupies approximately 129,150
-------------
rentable square feet (69%) of the Windy Point I building. The TCI lease
commenced on December 1, 1999 and expires on November 30, 2009. The current
annual base rent payable under the TCI lease is $2,067,204. TCI has the right to
extend the initial 10-year term of its lease for two additional five-year
periods at 95% of the then-current market rental rate.
TCI is a wholly-owned subsidiary of AT&T Broadband. AT&T Broadband
provides basic cable and digital television services, as well as high-speed
Internet access and cable telephony, with video-on-demand and other advanced
services. AT&T Broadband has its corporate headquarters in Denver, Colorado. As
of December 31, 2000, AT&T Broadband served approximately 16 million cable
customers. AT&T Broadband is a wholly-owned subsidiary of AT&T Corporation. AT&T
Corporation is listed on the New York Stock Exchange and has its corporate
headquarters in New York, New York.
The base rent payable under the remainder of the TCI lease is as
follows:
---------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------------------------------------------------------------
3 $2,067,204 $172,267
---------------------------------------------------------------
4 $2,128,503 $177,375
---------------------------------------------------------------
5 $2,192,267 $182,689
---------------------------------------------------------------
6 $2,258,214 $188,184
---------------------------------------------------------------
7 $2,325,852 $193,821
---------------------------------------------------------------
8 $2,395,957 $199,663
---------------------------------------------------------------
9 $2,467,753 $205,646
---------------------------------------------------------------
10 $2,541,850 $211,821
---------------------------------------------------------------
Pursuant to the TCI lease, TCI is required to pay its pro rata portion
of all taxes relating to the Windy Point I building and all operating costs,
including, but not limited to, those associated with water, gas, steam,
electricity, air conditioning, telephone, garbage removal, power and other
utilities and services used by TCI. Wells OP, as the landlord, will be
responsible for maintenance of parking areas, walkways and landscaping and
building repairs caused by fire or other insurable casualty.
In addition, TCI has the right to lease additional space on the fifth
floor of the Windy Point I building within 15 months of the fifth lease year by
providing Wells OP with 14 months prior written notice. TCI also has a right of
first refusal on the fifth floor space and a right of first opportunity for the
seventh floor of the Windy Point I building. TCI may terminate the TCI lease on
the last day of the seventh lease year by providing 12 months prior written
notice and paying Wells OP a termination fee of approximately $4,119,500.
The Apollo Lease. The Apollo Group, Inc. (Apollo) has entered into a lease to
----------------
occupy approximately 28,322 rentable square feet (15%) of the Windy Point I
building. The Apollo lease is to commence on April 1, 2002, and expire on June
30, 2009. The initial annual base rent payable for the first nine months under
the Apollo lease will be $357,919. Apollo has the right to extend the initial
term of its lease for one additional five-year period at 95% of the then-current
market rental rate.
Apollo is an Arizona corporation having its corporate headquarters in
Phoenix, Arizona. Apollo provides higher education programs to working adults
through its subsidiaries, the University of Phoenix, Inc., the Institute for
Professional Development, the College for Financial Planning Institutes
Corporation and Western International University, Inc. Apollo offers educational
programs and services at 58
8
campuses and 102 learning centers in 36 states, Puerto Rico, and Vancouver,
British Columbia. For the fiscal year ended August 31, 2001, Apollo reported
assets of approximately $680 million and net income of approximately $107
million on revenues of approximately $769 million and a net worth, as of August
31, 2001, of approximately $481 million.
The base rent payable under the Apollo lease is as follows:
--------------------------------------------------------
Lease Year Annual Rent Monthly Rent
--------------------------------------------------------
1 $357,919* $39,769
--------------------------------------------------------
2 $489,156 $40,763
--------------------------------------------------------
3 $501,385 $41,782
--------------------------------------------------------
4 $513,920 $42,827
--------------------------------------------------------
5 $526,768 $43,897
--------------------------------------------------------
6 $539,937 $44,995
--------------------------------------------------------
7 $553,436 $46,120
--------------------------------------------------------
8 $141,818** $47,273
--------------------------------------------------------
* Includes rent for only the last nine months.
** Includes rent for only three months.
Pursuant to the Apollo lease, Apollo is required to pay its pro rata
portion of all taxes relating to the Windy Point I building and all operating
costs, including, but not limited to, those associated with water, sewerage,
gas, steam, electricity, air conditioning, telephone, garbage removal, power and
other utilities and services used by Apollo. Wells OP, as the landlord, will be
responsible for building repairs caused by fire or other insurable casualties
and maintenance of parking areas, walkways and landscaping.
The Global Lease. Global Knowledge Network, Inc. (Global) occupies approximately
----------------
22,028 rentable square feet (12%) of the Windy Point I building. The Global
lease commenced on May 1, 2000, and expires on April 30, 2010. The current
annual base rent payable under the Global lease is $382,307. Global has the
right to extend the initial 10-year term of its lease for one additional
five-year period at the then-current market rental rate. Wells OP has the right
to terminate the Global lease on December 31, 2005 by giving Global written
notice on or before April 30, 2005.
Global is a privately held corporation with its corporate headquarters
in Cary, North Carolina and international headquarters in Tokyo, London and
Singapore. Global is owned by New York-based investment firm Welsh, Carson,
Anderson and Stowe, a New York limited partnership which acts as a private
equity investor in information services, telecommunications and healthcare.
Global provides information technology education solutions and certification
programs, offering more than 700 courses in more than 60 international locations
and in 15 languages. Global employs more than 1,600 people worldwide. Global has
posted a $100,000 letter of credit as security for the Global lease.
The base rent payable under the remainder of the Global lease is as
follows:
------------------------------------------------------
Lease Year Annual Rent Monthly Rent
------------------------------------------------------
2 $382,307 $31,859
------------------------------------------------------
3 $393,776 $32,815
------------------------------------------------------
4 $405,589 $33,799
------------------------------------------------------
5 $417,757 $34,813
------------------------------------------------------
6 $430,290 $35,857
------------------------------------------------------
7 $443,199 $36,933
------------------------------------------------------
8 $456,495 $38,041
------------------------------------------------------
9 $470,189 $39,182
------------------------------------------------------
10 $484,295 $40,358
------------------------------------------------------
9
Pursuant to the Global lease, Global is required to pay its pro rata
portion of all taxes relating to the Windy Point I building and all operating
costs, including, but not limited to, those associated with water, sewerage,
gas, steam, electricity, air conditioning, telephone, garbage removal, power and
other utilities and services used by Global. Wells OP, as the landlord, will be
responsible for building repairs caused by fire or other insurable casualties
and maintenance of parking areas, walkways and landscaping.
Together, TCI, Apollo and Global will occupy approximately 96% of the
rentable square feet of the Windy Point I building accounting for an aggregate
of $2,807,430 in annual base rent, and four other tenants will occupy the
remaining approximately 4% of rentable square feet which will account for
approximately $160,000 in annual base rent.
The Zurich Lease. The entire approximately 300,000 rentable square feet of the
----------------
Windy Point II building is currently under a net lease agreement with Zurich
American Insurance Company, Inc. (Zurich). The Zurich lease commenced on
September 1, 2001, and expires on August 31, 2011. The initial annual base rent
payable under the Zurich lease is $5,091,577. Zurich has the right to extend the
initial 10-year term of its lease for two additional five-year periods at 95% of
the then-current market rental rate.
Zurich is headquartered in Schaumburg, Illinois and is a wholly owned
subsidiary of Zurich Financial Services Group (ZFSG). ZFSG, which has its
corporate headquarters in Zurich, Switzerland, is a leading provider of
financial protection and wealth accumulation solutions for some 35 million
customers in over 60 countries. Zurich provides commercial property-casualty
insurance and serves the multinational, middle market and small business sectors
in the United States and Canada. For the fiscal year ended December 31, 2000,
Zurich reported a net income of approximately $718 million on revenues of
approximately $3.1 billion, and a net worth, as of December 31, 2000, of
approximately $2.4 billion. Zurich has approximately 11,650 employees and
received a financial strength rating of A+ from A.M. Best and a rating of AA
from Standard & Poor's.
The base rent payable under the Zurich lease is as follows:
-----------------------------------------------------------
Lease Year Annual Rent Monthly Rent
-----------------------------------------------------------
1 $5,091,577 $424,298
-----------------------------------------------------------
2 $5,244,594 $437,050
-----------------------------------------------------------
3 $5,400,612 $450,051
-----------------------------------------------------------
4 $5,562,630 $463,553
-----------------------------------------------------------
5 $5,730,649 $477,554
-----------------------------------------------------------
6 $5,901,669 $491,806
-----------------------------------------------------------
7 $6,078,689 $506,557
-----------------------------------------------------------
8 $6,261,710 $521,809
-----------------------------------------------------------
9 $6,450,731 $537,561
-----------------------------------------------------------
10 $6,642,753 $553,563
-----------------------------------------------------------
Pursuant to the Zurich lease, Zurich is required to pay all taxes and
operating costs relating to the Windy Point II building, including, but not
limited to, those associated with water, sewerage, gas, steam, electricity, air
conditioning, telephone, garbage removal, power and other utilities and services
used by Zurich. Reimbursements for taxes and certain operating expenses which
are within the control of the landlord are subject to certain limitations. Wells
OP, as the landlord, will be responsible for building repairs caused by fire or
other insurable casualties and maintenance and repair of public common areas,
10
HVAC systems and plumbing systems. In addition, Wells OP is responsible for
maintaining the landscaping, parking areas and walkways relating to the Windy
Point II building.
Zurich has the right to terminate the Zurich lease for up to 25% of the
rentable square feet leased by Zurich at the end of the fifth lease year. If
Zurich terminates a portion of the Zurich lease, it will be required to pay a
termination fee to Wells OP equal to three months of the current monthly rent
for the terminated space plus additional costs related to the space leased by
Zurich. In addition, Zurich may terminate the entire Zurich lease at the end of
the seventh lease year by providing Wells OP 18 months prior written notice and
paying Wells OP a termination fee of approximately $8,625,000. Zurich also has a
right of second opportunity behind TCI to lease the seventh floor of the Windy
Point I building should that floor become available.
The Arthur Andersen Building
Purchase of the Arthur Andersen Building. On January 11, 2002, Wells OP
----------------------------------------
purchased a three-story office building on a 9.8 acre tract of land located in
Sarasota, Sarasota County, Florida (Arthur Andersen Building). Wells OP
purchased the Arthur Andersen Building from Sarasota Haskell, LLC, which is not
in any way affiliated with the Wells REIT or our Advisor.
The purchase price for the Arthur Andersen Building was $21,400,000. In
addition, Wells OP incurred acquisition expenses in connection with the purchase
of the Arthur Andersen Building, including attorneys' fees, recording fees,
structural report and environmental report fees, and other closing costs, of
approximately $31,212.
An independent appraisal of the Arthur Andersen Building was prepared
by CB Richard Ellis, Inc., real estate appraisers, as of December 20, 2001,
pursuant to which the market value of the real property containing the leased
fee interest subject to the lease described below was estimated to be
$21,500,000, in cash or terms equivalent to cash. This value estimate was based
upon a number of assumptions, including that the Arthur Andersen Building will
continue operating at a stabilized level with Arthur Andersen, LLP occupying
100% of the rentable area, and is not necessarily an accurate reflection of the
fair market value of the property or the net proceeds which would result from an
immediate sale of this property. Wells OP also obtained an environmental report
and an engineering inspection report prior to the closing evidencing that the
condition of the land and the Arthur Andersen Building were satisfactory.
Description of the Arthur Andersen Building and Site. The Arthur Andersen
----------------------------------------------------
Building, which was completed in 1999, is a three-story office building
containing approximately 157,700 rentable square feet located on a 9.8 acre
tract of land. The building is constructed using a fireproof steel frame with
steel beams and a reinforced concrete foundation. The exterior walls are made of
concrete panels and a glass curtain wall. The common area interior walls consist
of metal studs with textured and painted sheetrock. In addition, the building
has two passenger elevators, one freight elevator and approximately 926 paved
parking spaces.
The Arthur Andersen Building is located in the Sarasota Commerce Park
at 101 Arthur Andersen Parkway in unincorporated Sarasota, Florida. The site is
south of the Tampa-St. Petersburg metropolitan area and approximately five miles
east of the Sarasota central business district with access to I-75. The
Sarasota/Bradenton MSA has added over 15,000 new jobs to the area during the
last three years.
The Andersen Lease. The entire approximately 157,700 rentable square feet of the
------------------
Arthur Andersen Building is currently under a net lease agreement with Arthur
Andersen LLP (Andersen). The current term of the lease is 10 years, which
commenced on November 1, 1999 and expires on October 31, 2009.
11
Andersen has the right to extend the initial 10-year term of this lease for two
additional five-year periods at 90% of the then-current market rental rate.
Andersen, with its corporate headquarters in Chicago, Illinois, is a
global professional services organization consisting of over 100 member firms in
84 countries. Andersen focuses its services in four main areas: business
advisory services, business consulting, global corporate finance and tax and
business advisory services. In fiscal year 2001, Andersen reported net revenues
of approximately $9.3 billion.
The base rent payable under the remainder of the Andersen lease is as
follows:
---------------------------------------------------------
Lease Year Annual Rent Monthly Rent
---------------------------------------------------------
3 $1,988,454 $165,705
---------------------------------------------------------
4 $2,067,992 $172,333
---------------------------------------------------------
5 $2,067,992 $172,333
---------------------------------------------------------
6 $2,150,712 $179,226
---------------------------------------------------------
7 $2,150,712 $179,226
---------------------------------------------------------
8 $2,236,740 $186,395
---------------------------------------------------------
9 $2,236,740 $186,395
---------------------------------------------------------
10 $2,326,210 $193,851
---------------------------------------------------------
Pursuant to the Andersen lease, Andersen is required to pay all taxes
relating to the Arthur Andersen Building and all operating costs, including, but
not limited to, those associated with water, fuel, steam, electricity, air
conditioning, telephone, painting, common area maintenance, power and other
utilities and services used by Andersen. Andersen is also required to pay for
all repair and maintenance costs, including but not limited to, security
personnel, elevator maintenance and janitorial service. Andersen has the right
to install a reception-only satellite dish antenna during the lease term and any
extension term. Wells OP, as the landlord, will be responsible for maintaining
the building's exterior walls, HVAC system, plumbing, elevators, fire
protection, other mechanical systems, public areas, including parking lot,
building structure, foundation and roof.
Andersen has the option to purchase the Arthur Andersen Building for a
purchase price of $23,250,000 by providing at least six months written notice to
Wells OP prior to the end of the fifth lease year. In addition, Andersen has the
option to purchase the Arthur Andersen Building for a purchase price of
$25,148,000 by providing at least six months written notice to Wells OP prior to
the expiration of the initial lease term.
Property Management Fees
Wells Management Company, Inc. (Wells Management), an affiliate of the
Wells REIT, Wells Fund XIII-REIT Joint Venture, and our Advisor, will manage and
lease the Convergys Building, the ADIC Buildings, the Windy Point Buildings and
the Arthur Andersen Building. Wells Management will be paid management and
leasing fees in the amount of 4.5% of gross revenues from the Convergys
Building, the ADIC Buildings, the Windy Point Buildings and the Arthur Andersen
Building, subject to certain limitations.
12
Plan of Distribution
The second full paragraph on page 157 in the "Plan of Distribution"
section of the prospectus and the information on page 13 of Supplement No. 5
previously revising such paragraph are revised as of the date of this supplement
by the deletion of such information and the insertion of the following paragraph
in lieu thereof:
Investors may agree with their broker-dealer to reduce the
amount of selling commissions payable with respect to the sale of their
shares down to zero (i) in the event that the investor has engaged the
services of a registered investment advisor or other financial advisor
with whom the investor has agreed to pay compensation for investment
advisory services or other financial or investment advice, or (ii) in
the event that the investor is investing in a bank trust account with
respect to which the investor has delegated the decision-making
authority for investments made in the account to a bank trust
department. The net proceeds to the Wells REIT will not be affected by
reducing the commissions payable in connection with such transactions.
All such sales must be made through a registered broker-dealer.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section beginning on page 98 of the prospectus.
This section and other sections of the prospectus supplement contain
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 Wells REIT, anticipated capital
expenditures required to complete certain projects, our ability to make cash
dividend payments to stockholders in the future and the anticipated amount of
such dividends and certain other matters. Readers of this supplement should be
aware that there are various factors that could cause actual results to differ
materially from any forward-looking statement made in this supplement, which
include changes in general economic conditions, changes in real estate
conditions, construction costs which may exceed estimates, construction delays,
increases in interest rates, lease-up risks, inability to obtain new tenants
upon the expiration of existing leases, lack of availability of financing and
the potential need to fund tenant improvements or other capital expenditures out
of operating cash flow.
Liquidity and Capital Resources
We began active operations on June 5, 1998, when we received and
accepted subscriptions for 125,000 shares pursuant to our initial public
offering, which commenced on January 30, 1998. We terminated our initial public
offering on December 19, 1999. Of the $132,181,919 raised in the initial
offering, we invested a total of $111,032,812 in properties. On December 20,
1999, we commenced a second public offering of up to 22,200,000 shares of common
stock. We terminated our second offering on December 19, 2000. Of the
$175,229,193 raised in the second offering, we invested a total of $147,192,522
in properties.
Pursuant to the prospectus, we commenced this third offering of shares
of our common stock on December 20, 2000. As of September 30, 2001, we had
received an additional $305,462,615 in gross offering proceeds from the sale of
30,546,262 shares in the third offering. As of January 15, 2002, we had raised
in the aggregate a total of $871,618,557 in offering proceeds through the sale
of 87,161,856 shares of common stock. As of January 15, 2002, we had paid a
total of $30,263,772 in acquisition and
13
advisory fees and acquisition expenses, had paid a total of $101,527,821 in
selling commissions and organizational and offering expenses, had expended a
total of $655,340,258 for investments in real estate joint ventures and
acquisitions of real property, had utilized $6,939,371 for the redemption of
stock pursuant to our share redemption program, and were holding net offering
proceeds of $77,547,017 available for investment in additional properties.
Cash and cash equivalents at September 30, 2001 and 2000 were $11,132,382
and $12,257,161, respectively. The decrease in cash and cash equivalents
resulted primarily from investments in real property acquisitions which were
more than offset by additional capital raised. Operating cash flows are expected
to increase as additional properties are added to the Wells REIT's investment
portfolio. Dividends to be distributed to the stockholders are determined by the
board of directors and are dependent upon a number of factors relating to the
Wells REIT, including funds available for payment of dividends, financial
condition, capital expenditure requirements and annual distribution requirements
in order to maintain our status as a REIT under the Internal Revenue Code. For a
description of our commitment and contingent liability as a result of the Take
Out Purchase and Escrow Agreement relating to the Ford Motor Credit Complex,
refer to Footnote 5 of the Condensed Notes to Consolidated Financial Statements
included at the end of this Supplement. As of September 30, 2001, we had
acquired interests in 36 real estate properties. These properties are generating
sufficient cash flows to cover our operating expenses and pay quarterly
dividends. Dividends declared for the third quarter of 2001 and the third
quarter of 2000 were approximately $0.1938 and $0.188 per share, respectively.
The dividends were declared on a daily record date basis to the stockholders of
record at the close of each business day during the quarter.
Cash Flows from Operating Activities
Net cash provided by operating activities was $26,484,288 for the nine
months ended September 30, 2001 and $6,979,295 for the nine months ended
September 30, 2000. The increase in net cash provided by operating activities
resulted primarily from additional rental revenues and equity income of joint
ventures generated from the properties acquired during the nine months ended
September 30, 2001.
Cash Flows from Investing Activities
Net cash used in investing activities was $155,704,215 for the nine months
ended September 30, 2001 and $115,665,441 for the nine months ended September
30, 2000. The increase in net cash used in investing activities resulted
primarily from our acquisition of a greater number of properties during the
first three quarters of 2001 as compared to the same period in 2000.
Cash Flows from Financing Activities
Net cash inflows generated through financing activities increased from
$118,013,503 for the nine months ended September 30, 2000, to $136,054,008 for
the nine months ended September 30, 2001, primarily due to our raising of
additional capital. We received $297,774,927 in offering proceeds for the nine
months ended September 30, 2001, as compared to $127,695,243 for the nine months
ended September 30, 2000. In addition, we received loan proceeds of $107,587,012
and repaid notes payable in the amount of $208,102,037 during the first three
quarters of 2001.
Results of Operations
As of September 30, 2001, the properties owned by the Wells REIT were 100%
occupied. Gross revenues for the nine months ended September 30, 2001, as
compared to the nine months ended September 30, 2000, increased to $34,068,857
from $15,734,638, respectively. This increase in gross revenues is primarily a
result of additional rental revenues and equity in income of joint ventures
generated from properties acquired during the prior twelve months. The purchase
of interests in
14
additional properties also resulted in increases in operating expenses,
management and leasing fees, depreciation expense, legal and accounting fees,
financing costs and interest expense. Administrative costs increased from
$282,330 for the nine months ended September 30, 2000 to $700,803 for the same
period in 2001 due to a non-use fee on the unused balance of the Bank of America
Note and additional taxes, license fees and postage and delivery costs
associated with the purchase of additional properties. Net income increased to
$14,423,380 for the nine months ended September 30, 2001, as compared to
$5,737,537 for the nine months ended September 30, 2000. Net income per share
was $0.11 for the quarters ended September 30, 2001 and 2000, respectively, and
$0.33 per share for the nine months ended September 30, 2001, an increase from
$0.30 per share for the nine months ended September 30, 2000.
Funds from Operations
Funds from Operations (FFO), as defined by the National Association of
Real Estate Investment Trusts (NAREIT), generally means net income, computed in
accordance with generally accepted accounting principles (GAAP) excluding
extraordinary items (as defined by GAAP) and gains (or losses) from sales of
property, plus depreciation and amortization on real estate assets, and after
adjustments for unconsolidated partnerships, joint ventures and subsidiaries. We
believe that FFO is helpful to investors as a measure of the performance of an
equity REIT. However, our calculation of FFO, while consistent with NAREIT's
definition, may not be comparable to similarly titled measures presented by
other REITs. Adjusted Funds from Operations (AFFO) is defined as FFO adjusted to
exclude the effects of straight-line rent, loan cost amortization and other
non-cash and/or unusual items. Neither FFO nor AFFO represent cash generated
from operating activities in accordance with GAAP and should not be considered
as alternatives to net income as an indication of our performance or to cash
flows as a measure of liquidity or ability to make distributions. The following
table reflects the calculation of FFO and AFFO for the three and nine months
ended September 30, 2001 and 2000, respectively:
Three Months Ended Nine Months Ended
-------------------------------- ---------------------------------
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
-------------- ---------------- --------------- ----------------
FUNDS FROM OPERATIONS:
Net income $ 6,109,137 $ 2,525,228 $ 14,423,380 $5,737,537
Add:
Depreciation of real assets 3,947,425 2,155,366 10,341,242 5,084,689
Amortization of deferred leasing costs 75,837 101,598 227,510 269,482
Depreciation and amortization -
unconsolidated partnerships 647,184 303,402 1,560,844 830,366
-------------- -------------- --------------- ---------------
Funds from operations (FFO) 10,779,583 5,085,594 26,552,976 11,922,074
Adjustments:
Loan cost amortization 236,816 64,016 528,715 150,143
Straight line rent (707,581) (468,487) (1,930,297) (1,132,052)
Straight line rent - unconsolidated
partnerships (100,432) (78,851) (232,678) (191,748)
Lease acquisition fees paid 0 0 0 (152,500)
Lease acquisition fees paid-
unconsolidated partnerships 0 (103) (7,826) (8,002)
------------- -------------- -------------- ---------------
Adjusted funds from operations $ 10,208,386 $ 4,602,169 $ 24,910,890 $ 10,587,915
============= ============== ============== ===============
WEIGHTED AVERAGE SHARES:
BASIC AND DILUTED 54,112,446 23,920,273 43,725,920 19,219,053
============= ============== ============== ===============
15
Financial Statements
The consolidated balance sheets of the Wells REIT as of September 30, 2001
and December 31, 2000, and the financial statements of the Wells REIT for the
periods indicated, included in this supplement, have not been audited.
The Pro Forma Balance Sheet of the Wells REIT, as of September 30, 2001,
the Pro Forma Statement of Income (Loss) for the nine months ended September 30,
2001, and the Pro Forma Statement of Income (Loss) for the year ended December
31, 2000, which are included in this supplement, have not been audited.
The Statements of Revenues Over Certain Operating Expenses of the Windy
Point Buildings and the Arthur Andersen Building for the year ended December 31,
2000, included in this supplement and elsewhere in the registration statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their reports with respect thereto, and are included in this
supplement in reliance upon the authority of said firm as experts in giving said
reports.
The Statements of Revenues Over Certain Operating Expenses of the Windy
Point Buildings and the Arthur Andersen Building for the nine months ended
September 30, 2001, included in this supplement and elsewhere in the
registration statement, have not been audited.
16
INDEX TO FINANCIAL STATEMENTS
Wells Real Estate Investment Trust, Inc. and Subsidiary Page
----
Unaudited Financial Statements
------------------------------
Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000 19
Consolidated Statements of Income for the three months ended
September 30, 2001 and September 30, 2000 and for the nine months
ended September 30, 2001 and September 30, 2000 20
Consolidated Statements of Shareholders' Equity for the year ended
December 31, 2000 and for the nine months ended September 30, 2001 21
Consolidated Statements of Cash Flows for the nine months ended
September 30, 2001 and September 30, 2000 22
Condensed Notes to Consolidated Financial Statements 23
September 30, 2001
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 32
Pro Forma Balance Sheet as of September 30, 2001 33
Pro Forma Statement of Income (Loss) for the year ended
December 31, 2000 35
Pro Forma Statement of Income (Loss) for the nine months
ended September 30, 2001 37
Windy Point Buildings
Report of Independent Accountants 38
Statements of Revenues Over Certain Operating Expenses 39
for the year ended December 31, 2000 (audited) and for the
nine months ended September 30, 2001 (unaudited)
Notes to Statements of Revenues Over Certain Operating 40
Expenses for the year ended December 31, 2000 (audited) and
for the nine months ended September 30, 2001 (unaudited)
17
Arthur Andersen Building
Report of Independent Accountants 42
Statements of Revenues over Certain Operating Expenses 43
for the year ended December 31, 2000 (audited) and for the
nine months ended September 30, 2001 (unaudited)
Notes to Statements of Revenues over Certain Operating Expenses 44
for the year ended December 31, 2000 (audited) and
for the nine months ended September 30, 2001 (unaudited)
18
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
September 30, December 31,
2001 2000
=============== ===============
ASSETS
REAL ESTATE, at cost:
Land $ 73,985,267 $ 46,237,812
Building and improvements, less accumulated depreciation of
$19,810,895 in 2001 and $9,469,653 in 2000 381,590,591 287,862,655
Construction in progress 2,202,200 3,357,720
--------------- ---------------
Total real estate 457,778,058 337,458,187
INVESTMENT IN JOINT VENTURES (Note 2) 71,060,872 44,236,597
INVESTMENT IN BONDS 22,000,000 0
DUE FROM AFFILIATES 1,649,205 734,286
CASH AND CASH EQUIVALENTS 11,132,382 4,298,301
ACCOUNTS RECEIVABLE 5,675,988 3,356,428
DEFERRED LEASE ACQUISITION COSTS, net 1,662,822 1,890,332
DEFERRED PROJECT COSTS (Note 1) 475,811 550,256
DEFERRED OFFERING COSTS (Note 1) 0 1,291,376
PREPAID EXPENSES AND OTHER ASSETS, net 994,809 4,734,583
--------------- ---------------
Total assets $ 572,429,947 $ 398,550,346
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Accounts payable and accrued expenses $ 5,475,619 $ 2,166,387
Notes payable (Note 3) 49,148,162 127,663,187
Deferred rental income 0 381,194
Due to affiliates (Note 4) 247,131 1,772,956
Dividends payable 1,071,657 1,025,010
--------------- ---------------
Total liabilities 55,942,569 133,008,734
--------------- ---------------
COMMITMENTS AND CONTINGENCIES (Note 5)
MINORITY INTEREST OF UNIT HOLDER IN
OPERATING PARTNERSHIP 200,000 200,000
--------------- ---------------
SHAREHOLDERS' EQUITY
Common shares, $.01 par value; 125,000,000 shares authorized,
61,287,300 shares issued and 60,932,270 shares outstanding at
September 30, 2001, and 31,509,807 shares issued and 31,368,510
shares outstanding at December 31, 2000 612,872 315,097
Additional paid-in capital 519,224,798 266,439,484
Treasury stock, at cost, 355,029 shares at September 30, 2001, and
141,297 shares at December 31, 2000 (3,550,292) (1,412,969)
--------------- ---------------
Total shareholders' equity 516,287,378 265,341,612
--------------- ---------------
Total liabilities and shareholders' equity $ 572,429,947 $ 398,550,346
=============== ===============
See accompanying condensed notes to consolidated financial statements.
19
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended Nine Months Ended
September 30, September 30, September 30, September 30,
2001 2000 2001 2000
============= ============= ============= =============
REVENUES:
Rental income $11,316,960 $ 5,819,968 $31,028,212 $13,712,371
Equity in income of joint ventures 1,102,453 635,065 2,621,647 1,684,247
Interest and other income (Note 5) 88,491 131,578 418,998 338,020
----------- ----------- ----------- -----------
12,507,904 6,586,611 34,068,857 15,734,638
----------- ----------- ----------- -----------
EXPENSES:
Operating costs, net of
reimbursements 1,293,845 289,140 3,168,273 631,407
Management and leasing fees 631,947 381,766 1,749,849 919,630
Depreciation 3,947,425 2,155,366 10,341,242 5,084,689
Administrative costs 58,843 43,979 700,803 282,330
Legal and accounting 82,002 32,883 199,333 130,603
Amortization of deferred financing
costs 236,816 64,016 528,715 150,143
Interest expense 147,889 1,094,233 2,957,262 2,798,299
----------- ----------- ----------- -----------
6,398,767 4,061,383 19,645,477 9,997,101
----------- ----------- ----------- -----------
NET INCOME $ 6,109,137 $ 2,525,228 $14,423,380 $ 5,737,537
=========== =========== =========== ===========
BASIC AND DILUTED
EARNINGS PER SHARE $ 0.11 $ 0.11 $ 0.33 $ 0.30
=========== =========== =========== ===========
See accompanying condensed notes to consolidated financial statements.
20
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2000
AND FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
Additional Total
Common Stock Paid-In Retained Treasury Stock Shareholders'
---------------------- ------------------------
Shares Amount Capital Earnings Shares Amount Equity
========== ========== ============ ============ ========== =========== =============
BALANCE, December 31, 1999 13,471,085 $134,710 $115,880,885 $ 0 0 $ 0 $116,015,595
Issuance of common stock 18,038,722 180,387 180,206,833 0 0 0 180,387,220
Treasury stock purchased 0 0 0 0 (141,297) (1,412,969) (1,412,969)
Net income 0 0 0 8,552,967 0 0 8,552,967
Dividends ($.73 per share) 0 0 (7,276,452) (8,552,967) 0 0 (15,829,419)
Sales commissions and
discounts 0 0 (17,002,554) 0 0 0 (17,002,554)
Other offering expenses 0 0 (5,369,228) 0 0 0 (5,369,228)
---------- --------- ------------ ------------ --------- ----------- ------------
BALANCE, December 31, 2000 31,509,807 315,097 266,439,484 0 (141,297) (1,412,969) 265,341,612
Issuance of common stock 29,777,493 297,775 297,477,152 0 0 0 297,774,927
Treasury stock purchased 0 0 0 0 (213,732) (2,137,323) (2,137,323)
Net income 0 0 0 14,423,380 0 0 14,423,380
Dividends ($.57 per share) 0 0 (9,125,583) (14,423,380) 0 0 (23,548,963)
Sales commission 0 0 (28,085,572) 0 0 0 (28,085,572)
Other offering expenses 0 0 (7,480,683) 0 0 0 (7,480,683)
---------- --------- ------------ ------------ --------- ----------- ------------
BALANCE, September 30, 2001 61,287,300 $612,872 $519,224,798 $ 0 (355,029) $(3,550,292) $516,287,378
========== ========= ============ ============ ========= =========== ============
See accompanying condensed notes to consolidated financial statements.
21
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Nine Months Ended
----------------------------------
September 30, September 30,
2001 2000
=============== ===============
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 14,423,380 $ 5,737,537
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 10,341,242 5,084,689
Amortization of deferred financing costs 528,715 150,143
Amortization of deferred leasing costs 227,510 269,482
Equity in income of joint ventures (2,621,647) (1,684,247)
Changes in assets and liabilities:
Accounts receivable (2,319,560) (1,831,539)
Deferred rental income (381,194) (236,579)
Accounts payable 3,309,232 751,100
Prepaid expenses and other assets, net 3,211,059 (1,411,068)
Due to affiliates (234,449) 149,777
--------------- ---------------
Net cash provided by operating activities 26,484,288 6,979,295
--------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (121,366,009) (103,469,511)
Investment in joint ventures (27,017,957) (7,612,005)
Deferred project costs (10,347,316) (4,446,307)
Deferred lease acquisition costs 0 (2,241,322)
Distributions received from joint ventures 3,027,067 2,103,704
--------------- ---------------
Net cash used in investing activities (155,704,215) (115,665,441)
--------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from note payable 107,587,012 67,883,130
Repayment of note payable (208,102,037) (52,903,328)
Dividends paid (23,502,316) (8,124,023)
Issuance of common stock 297,774,927 127,695,243
Sales commissions paid (28,085,572) (12,068,553)
Offering costs paid (7,480,683) (3,811,122)
Treasury stock purchased (2,137,323) (657,844)
--------------- ---------------
Net cash provided by financing activities 136,054,008 118,013,503
--------------- ---------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 6,834,081 9,327,357
CASH AND CASH EQUIVALENTS, beginning of year 4,298,301 2,929,804
--------------- ---------------
CASH AND CASH EQUIVALENTS, end of period $ 11,132,382 $ 12,257,161
=============== ===============
SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES:
Deferred project costs applied to Joint Ventures $ 1,126,657 $ 295,680
=============== ===============
Deferred project costs applied to Real Estate $ 9,295,104 $ 3,707,715
=============== ===============
Decrease in deferred offering cost accrual $ (1,291,376) $ (143,265)
=============== ===============
Assumption of mortgage $ 22,000,000 $ 0
=============== ===============
Investment in bonds $ 22,000,000 $ 0
=============== ===============
See accompanying condensed notes to consolidated financial statements.
22
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2001
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) General
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation formed on July 3, 1997. The Company is the sole general partner
of Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited
partnership organized for the purpose of acquiring, developing, owning,
operating, improving, leasing, and otherwise managing income-producing
commercial properties for investment purposes.
On January 30, 1998, the Company commenced a public offering of up to
16,500,000 shares of common stock at $10 per share pursuant to a
Registration Statement on Form S-11 under the Securities Act of 1933. The
Company commenced active operations on June 5, 1998, when it received and
accepted subscriptions for 125,000 shares. The Company terminated its
initial public offering on December 19, 1999, and on December 20, 1999, the
Company commenced a second follow-on public offering of up to 22,200,000
shares of common stock at $10 per share. As of September 30, 2001, the
Company had received gross offering proceeds of approximately $305,462,615
from the sale of 30,546,262 shares from its third public offering. As of
September 30, 2001, the Company had received aggregate gross offering
proceeds of approximately $612,872,996 from the sale of 61,287,300 shares
of its common stock. After payment of $21,326,295 in Acquisition and
Advisory Fees and Acquisition Expenses, payment of $75,253,972 in selling
commissions and organization and offering expenses, and capital
contributions and acquisition expenditures by Wells OP of $504,065,814 in
property acquisitions and common stock redemptions of $3,550,292 pursuant
to the Company's share repurchase program, the Company was holding net
offering proceeds of $8,676,623 available for investment in properties.
Wells OP owns interests in properties directly and through equity ownership
in the following joint ventures: (i) a joint venture among Wells OP, Wells
Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P., and Wells Real
Estate Fund XI, L.P. (the "Fund IX-X-XI-REIT Joint Venture"), (ii)
Wells/Fremont Associates (the "Fremont Joint Venture"), a joint venture
between Wells OP and Fund X and Fund XI Associates, which is a joint
venture between Wells Real Estate Fund X, L.P. and Wells Real Estate Fund
XI, L.P. (the "Fund X-XI Joint Venture"), (iii) Wells/Orange County
Associates (the "Cort Joint Venture"), a joint venture between Wells OP and
the Fund X-XI Joint Venture, (iv) a joint venture among Wells OP, Wells
Real Estate Fund XI, L.P., and Wells Real Estate Fund XII, L.P. (the "Fund
XI-XII-REIT Joint Venture"), (v) a joint venture between Wells OP and Wells
Real Estate Fund XII, L.P. (the "Fund XII-REIT Joint Venture"), (vi) the
Fund VIII-IX-REIT Joint Venture, a joint venture between Wells OP and the
Fund VIII-IX Joint Venture, which is a joint venture between Wells Real
Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., and (vii) a
joint venture between Wells OP and Wells Real Estate Fund XIII, L.P. (the
"Fund XIII-REIT Joint Venture").
As of September 30, 2001, Wells OP owned interests in the following
properties either directly or through its interest in the foregoing joint
ventures: (i) a three-story office building in Knoxville, Tennessee (the
"Alstom Power-Knoxville Building"), (ii) a two-story office building in
Louisville, Colorado (the "Ohmeda Building"), (iii) a three-story office
building in Broomfield, Colorado (the "360 Interlocken Building"), (iv) a
one-story office building in Oklahoma City, Oklahoma (the "Avaya
Technologies Building"), (v) a one-story warehouse and office building in
Ogden, Utah (the "Iomega Building"), all five of which are owned by the
23
Fund IX-X-XI-REIT Joint Venture, (vi) a two-story warehouse office building
in Fremont, California (the "Fremont Building"), which is owned by the
Wells/ Fremont Joint Venture, (vii) a one-story warehouse and office
building in Fountain Valley, California (the "Cort Building"), which is
owned by the Wells/Orange County Joint Venture, (viii) a four-story office
building in Tampa, Florida (the "PWC Building"), (ix) a four-story office
building in Harrisburg, Pennsylvania (the "AT&T Harrisburg Building"),
which are owned directly by Wells OP, (x) a two-story manufacturing and
office building located in Fountain Inn, South Carolina (the "EYBL CarTex
Building"), (xi) a three-story office building located in Leawood, Kansas
(the "Sprint Building"), (xii) a one story office building and warehouse in
Tredyffrin Township, Pennsylvania (the "Johnson Matthey Building"), (xiii)
a two-story office building in Ft. Meyers, Florida (the "Gartner
Building"), all four of which are owned by Fund XI-XII-REIT Joint Venture,
(xiv) a two-story office building located in Lake Forest, California (the
"Matsushita Building"), (xv) a four-story office building located in
Richmond, Virginia (the "Alstom Power-Richmond Building"), (xvi) a
two-story office building and warehouse in Wood Dale, Illinois (the
"Marconi Building"), (xvii) a five-story office building in Plano, Texas
(the "Cinemark Building"), (xviii) a three-story office building in Tulsa,
Oklahoma (the "Metris Building"), (xix) a two-story office building in
Scottsdale, Arizona (the "Dial Building"), (xx) a two-story office building
in Tempe, Arizona (the "ASML Building"), (xxi) a two-story office building
in Tempe, Arizona (the "Motorola-Arizona Building"), (xxii) a two-story
office building in Tempe, Arizona (the "Avnet Building"), (xxiii) a
three-story office building in Troy, Michigan (the "Delphi Building") all
ten of which are owned directly by Wells OP, (xxiv) a three-story office
building in Troy, Michigan (the "Siemens Building"), which is owned by the
Wells Fund XII-REIT Joint Venture Partnership, (xxv) a two-story office
building in Orange County, California (the "Quest Building"), formerly the
Bake Parkway Building, previously owned by Fund VIII-IX Joint Venture,
which is now owned by Fund VIII-IX-REIT Joint Venture, (xxvi) a three-story
office building in South Plainfield, New Jersey (the "Motorola-New Jersey
Building"), (xxvii) a nine-story office building in Minnetonka, Minnesota
(the "Metris Minnetonka Building"), (xxviii) a six-story office building in
Houston, Texas (the "Stone and Webster Building"), all three of which are
owned directly by Wells OP, (xxix) a one-story and a two-story office
building in Oklahoma City, Oklahoma (the "AT&T-Oklahoma Buildings"), which
are owned by the Fund XII-REIT Joint Venture, (xxx) a three-story office
building in Brentwood, Tennessee (the "Comdata Building"), which is owned
by the Fund XII-REIT Joint Venture, (xxxi) a two-story office building in
Jacksonville, Florida (the "Amercredit Building"), which is owned by
XIII-REIT Joint Venture, (xxxii) a seven-story office building in Quincy,
Massachusetts (the "State Street Building"), (xxxiii) two one-story office
buildings in Houston, Texas (the "IKON Buildings"), (xxxiv) a 14.873 acre
tract of land in Irving, Texas (the "Nissan Property"), (xxxv) a one-story
office and warehouse building in Millington, Tennessee (the "Ingram
Building"), and (xxxvi) a four-story office building in Cary, North
Carolina (the "Lucent-NC Building"), all five of which are owned directly
by Wells OP.
(b) Deferred Project Costs
The Company pays a percentage of shareholder contributions to Wells
Capital, Inc. (the "Advisor") for acquisition and advisory services. These
payments, are stipulated in the prospectus. These payments may not exceed 3
1/2% of shareholders' capital contributions. Cumulative Acquisition and
Advisory Fees and Acquisition Expenses paid as of September 30, 2001,
amounted to $21,326,295 and represented approximately 3 1/2% of total
shareholders' capital contributions received. These fees are allocated to
specific properties as they are purchased or developed and are capitalized
with the real estate assets of the Company or of the joint venture invested
in by the Company. Deferred project costs at September 30, 2001 and
December 31, 2000, represent fees not yet applied to properties.
(c) Deferred Offering Costs
Offering expenses, to the extent that they exceed 3% of gross offering
proceeds, will be paid by the Advisor and not by the Company. Offering
expenses do not include sales or underwriting commissions but do include
such costs as certain legal and accounting fees, printing costs, and other
offering expenses. As of September 30, 2001, the Advisor had paid offering
expenses on behalf of the Company in an aggregate amount of $16,891,235,
which did not exceed the 3% limitation.
24
(d) Employees
The Company has no direct employees. The employees of the Advisor perform a
full range of real estate services including leasing and property
management, accounting, asset management, and investor relations for the
Company.
(e) Insurance
Wells Management Company, Inc., an affiliate of the Company and the
Advisor, carries comprehensive liability and extended coverage insurance
with respect to all of the properties owned directly and indirectly by the
Company. In the opinion of management, the properties are adequately
insured.
(f) Competition
The Company will experience competition for tenants from owners and
managers of competing projects, which may include its affiliates. As a
result, the Company may be required to provide free rent, reduced charges
for tenant improvements and other inducements, all of which may have an
adverse impact on results of operations. At the time the Company elects to
dispose of its properties, the Company will also be in competition with
sellers of similar properties to locate suitable purchasers for its
properties.
(g) Basis of Presentation
Substantially all of the Company's business is conducted through Wells OP.
On December 31, 1997, Wells OP issued 20,000 limited partner units to the
Advisor in exchange for a capital contribution of $200,000. The Company is
the sole general partner in Wells OP; consequently, the accompanying
consolidated balance sheet of the Company includes the amounts of the
Company and Wells OP. The Advisor, a limited partner, is not currently
receiving distributions from its investment in Wells OP.
The consolidated financial statements of the Company 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 Board of Directors, 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 Company's Form 10-K for the year ended December
31, 2000.
(h) Distribution Policy
The Company will make distributions each taxable year (not including a
return of capital for federal income tax purposes) equal to at least 90% of
its real estate investment trusts taxable income. The Company intends to
make regular quarterly distributions to holders of the shares.
Distributions will be made to those shareholders who are shareholders as of
the record date selected by the Directors. Distributions will be declared
on a monthly basis and paid on a quarterly basis during the offering period
and declared and paid quarterly thereafter.
(i) Income Taxes
The Company has made an election under Section 856 (C) of the Internal
Revenue Code of 1986, as amended (the "Code"), to be taxed as a Real Estate
Investment Trust ("REIT") under the Code beginning with its taxable year
ended December 31, 1998. As a REIT for federal income tax purposes, the
Company generally will not be subject to federal income tax on income that
it distributes to its shareholders. If the Company fails to qualify as a
REIT in any taxable year, it will then be subject to federal income tax on
its taxable income at regular corporate rates and will not be permitted to
qualify for treatment as a REIT for federal income tax purposes for four
years following the year during which qualification is lost. Such an event
could materially adversely affect the Company's net income and net cash
available to distribute to shareholders. However, the Company believes
25
that it is organized and operates in such a manner as to qualify for
treatment as a REIT and intends to continue to operate in the foreseeable
future in such a manner so that the Company will remain qualified as a REIT
for federal income tax purposes.
(j) Statement of Cash Flows
For the purpose of the statement of cash flows, the Company considers all
highly liquid debt instruments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments.
2. INVESTMENTS IN JOINT VENTURES
As of September 30, 2001, the Company, through its ownership in Wells OP,
which owns interests in seven joint ventures which, in turn own 16
properties. The Company does not have control over the operations of these
joint ventures; however, it does exercise significant influence.
Accordingly, investment in joint ventures is recorded using the equity
method.
The following describes additional investments in joint ventures which the
Company made during the three months ended September 30, 2001.
The Fund XIII-REIT Joint Venture
On June 27, 2001, Wells OP and Wells Real Estate Fund XIII, L.P. ("Wells
Fund XIII") entered into a Joint Venture Partnership Agreement for the
purpose of acquiring, owning, leasing, operating and managing real
properties. The joint venture partnership is known as the Wells Fund
XIII-REIT Joint Venture (the "Fund XIII-REIT Joint Venture").
The AmeriCredit Building
On July 16, 2001, the Fund XIII-REIT Joint Venture acquired a two-story
office building containing approximately 85,000 rentable square feet on a
12.33 acre tract of land located in Clay County, Florida (the "AmeriCredit
Building") from Adevco Contact Centers Jacksonville, L.L.C. pursuant to
that certain Agreement for Purchase and Sale of Property between Adevco and
Wells Capital, Inc., the Advisor. The rights under the agreement were
assigned by Wells Capital, Inc., the original purchaser under the
agreement, to the Fund XIII-REIT Joint Venture at closing. The purchase
price paid for the AmeriCredit Building was $12,500,000, excluding closing
costs.
The entire 85,000 rentable square feet of the AmeriCredit Building is
currently under a triple-net lease agreement with AmeriCredit dated
November 20, 2000. The landlord's interest in the AmeriCredit lease was
assigned to the Fund XIII-REIT Joint Venture at the closing. The initial
term of the AmeriCredit lease is 10 years, which commenced June 2001 and
expires in May 2011. AmeriCredit has the right to extend the AmeriCredit
lease for two additional five-year periods of time.
For additional information regarding the acquisition of the AmeriCredit
Building, refer to Supplement No. 3 dated July 20, 2001, to the Prospectus
of Wells Real Estate Investment Trust, Inc. dated December 20, 2000, which
was filed with the Commission in Post-Effective Amendment No. 3 to the Form
S-11 Registration Statement of Wells Real Estate Investment Trust, Inc. on
July 23, 2001 (Commission File No. 333-44900).
26
SUMMARY OF OPERATIONS
The following information summarizes the operations of the unconsolidated joint
ventures in which the Company, through Wells OP, had ownership interests as of
September 30, 2001 and 2000, respectively.
Wells OP's Share of Net
Total Revenues Net Income Income
---------------------------- ---------------------------- ----------------------------
Three Months Ended Three Months Ended Three Months Ended
---------------------------- ---------------------------- ----------------------------
September 30, September 30, September 30, September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
-------------- ------------- -------------- ------------- -------------- -------------
Fund IX-X-XI-REIT
Joint Venture $1,082,768 $1,087,126 $ 669,906 $ 678,125 $ 24,864 $ 25,178
Cort Joint Venture 203,812 198,885 149,477 137,099 65,272 59,866
Fremont Joint
Venture 227,050 225,195 142,087 141,395 110,123 109,587
Fund XI-XII-REIT
Joint Venture 843,962 844,121 520,011 532,905 295,173 302,492
Fund XII-REIT Joint
Venture 1,409,716 376,457 814,542 252,825 447,634 126,413
Fund VIII-IX-REIT
Joint Venture 313,536 259,148 155,976 196,497 24,629 11,529
Fund XIII-REIT
Joint Venture 305,600 0 155,194 0 134,758 0
---------- ---------- ---------- ---------- ---------- ----------
$4,386,444 $2,990,932 $2,607,193 $1,938,846 $1,102,453 $ 635,065
========== ========== ========== ========== ========== ==========
Wells OP's Share of Net
Total Revenues Net Income Income
---------------------------- ---------------------------- ----------------------------
Nine Months Ended Nine Months Ended Nine Months Ended
---------------------------- ---------------------------- ----------------------------
September 30, September 30, September 30, September 30, September 30, September 30,
2001 2000 2001 2000 2001 2000
-------------- ------------- -------------- ------------- -------------- -------------
Fund IX-X-XI-REIT
Joint Venture $ 3,263,864 $3,297,516 $2,042,759 $1,992,374 $ 75,817 $ 74,057
Cort Joint Venture 602,280 596,656 414,603 422,477 181,046 184,484
Fremont Joint
Venture 677,406 675,585 420,689 424,058 326,051 328,663
Fund XI-XII-REIT
Joint Venture 2,533,153 2,506,049 1,534,247 1,557,772 870,883 884,236
Fund XII-REIT Joint
Venture 3,305,911 599,032 1,847,726 402,556 967,079 201,278
Fund VIII-IX-REIT
Joint Venture 894,460 259,148 416,328 196,497 66,013 11,529
Fund XIII-REIT
Joint Venture 305,600 0 155,194 0 134,758 0
----------- ---------- ---------- ---------- ---------- ----------
$11,582,674 $7,933,986 $6,831,546 $4,995,734 $2,621,647 $1,684,247
=========== ========== ========== ========== ========== ==========
27
3. INVESTMENTS IN REAL ESTATE
As of September 30, 2001, the Company, through its ownership in Wells OP,
owns 20 properties directly. The following describes acquisitions made
directly by Wells OP during the three months ended September 30, 2001.
The State Street Building
On July 30, 2001, Wells OP purchased a seven-story office building with
approximately 234,668 rentable square feet located on an 11.22 acre tract
of land at 1200 Crown Colony Drive, Norfolk County, Quincy, Massachusetts
(the "State Street Building) from Crownview, LLC. Crownview is not
affiliated with the Company or Wells Capital, Inc., our Advisor. The
purchase price for the State Street Building was $49,563,000, excluding
closing costs. The entire 234,668 rentable square feet of the State Street
Building is currently under a lease agreement with SSB Realty. The
landlord's interest in the SSB Realty Lease was assigned to Wells OP at the
closing. The current term of the lease is 10 years, which commenced on
February 1, 2001, and expires on March 31, 2011. SSB Realty has the right
to extend the term of this lease for one additional five-year period at the
then-current fair market rental rate.
Pursuant to the SSB Realty lease, SSB Realty is required to pay its
proportionate share of taxes relating to the SSB Building and all operating
costs incurred by the landlord in maintaining and operating the SSB
Building. In addition, the base operating costs and the base taxes will be
adjusted to reflect the actual operating costs and taxes for the preceding
calendar year. Wells OP, as the landlord, will be responsible for
maintaining the common areas of the building, the roof, foundation,
exterior walls and windows, load bearing items and the central heating,
ventilation and air conditioning, electrical, mechanical and plumbing
systems of the building.
For additional information regarding the acquisition of the State Street
Building, refer to Supplement No. 4 dated August 10, 2001, to the
Prospectus of Wells Real Estate Investment Trust, Inc. dated December 20,
2000, which was contained in Post-Effective Amendment No. 4 to the Form
S-11 Registration Statement of Wells Real Estate Investment Trust, Inc.
which was filed with the Commission on October 23, 2001 (Commission File
No. 333-44900).
The IKON Buildings
On September 7, 2001, Wells OP purchased two one-story office buildings
with approximately 157,900 rentable square feet located at 810 and 820
Gears Road, Harris County, Houston, Texas (the "IKON Buildings") from SV
Reserve, LP. Reserve, LP is not in any way affiliated with the Company or
Wells Capital, Inc., our Advisor.
The purchase price for the IKON Buildings was $20,650,000, excluding
closing costs. The entire 157,790 rentable square feet of the IKON
Buildings is currently under a net lease agreement with IKON. The
landlord's interest in the IKON lease was assigned to Wells OP at the
closing. The current term of the lease is 10 years, which commenced on May
1, 2000 and expires on April 30, 2010. IKON has the right to extend the
term of this lease for two additional five-year periods at the then-current
fair market rental rate, upon 12 months prior written notice.
Pursuant to the IKON lease, IKON is required to pay all taxes relating to
the IKON Buildings and all operating costs incurred by the landlord in
maintaining and operating the IKON Buildings. Wells OP, as landlord, will
be responsible for repairs related to insurable casualty and for
maintaining the roof, foundation, exterior walls and windows, load bearing
items and electrical, mechanical and plumbing systems.
For additional information regarding the acquisition of the IKON Buildings,
refer to the Company's Form 8-K dated September 7, 2001, which was filed
with the Commission on September 21, 2001 (Commission File No. 0-25739),
and Supplement No. 5 dated October 15, 2001 to the Prospectus of Wells Real
Estate Investment Trust, Inc. dated December 20, 2000, which was contained
in Post-Effective Amendment No. 4 to the Form S-11 Registration Statement
of Wells Real Estate Investment Trust, Inc. which was filed with the
Commission on October 23, 2001 (Commission File No. 333-44900).
28
The Nissan Property
On September 19, 2001, Wells OP purchased a 14.873 acre tract of land
located in Irving, Dallas County, Texas (the "Nissan Property"). Wells OP
purchased the Nissan Property from the Ruth Ray and H.L. Hunt Foundation
and the Ruth Foundation, each a Texas non-profit corporation and 50% owner
in the Nissan Property for a purchase price of $5,545,700, excluding
closing costs.
Wells OP has entered into agreements to construct a three-story office
building containing 268,290 rentable square feet (the "Nissan Project") on
the Nissan Property. The Nissan Project will be a concrete tilt-up, high
performance glass building. The site consists of a 14,873 acre tract of
land located in the Freeport Business Park.
The entire 268,290 rentable square feet of the Nissan Building is currently
under a lease agreement with Nissan Motor Acceptance Corporation
("Nissan"), a wholly owned subsidiary of Nissan North America, Inc. with
its corporate headquarters in Torrance, California. The initial lease term
began on September 19, 2001 and will extend 10 years beyond the rent
commencement date. Construction on the building is scheduled to begin on or
before February 1, 2001, and is scheduled to be completed within 20 months
from its commencement. The rent commencement date will occur shortly
thereafter. Nissan also has the right to extend the lease for two
additional five-year periods at 95% of the then current market rental rate
upon written notice. The initial annual base rent payable under the Nissan
lease will be $4,225,860.
The Ingram Micro Building
On September 27, 2001, Wells OP acquired a ground leasehold interest in a
701,819 square foot distribution facility located at 3820 Micro Drive in
the City of Millington, Shelby County, Tennessee (the "Ingram Micro
Building") pursuant to a Bond Real Property Lease dated December 20, 1995
(the "Bond Lease"). The rights under the Bond Lease were purchased from
Ingram Micro L.P. ("Ingram") in a sale lease-back transaction for a
purchase price of $21,050,000, excluding closing costs. The Bond Lease
expires on December 31, 2026. In addition, Wells OP purchased from Ingram
all rights, title and interest in an Industrial Development Revenue Note
Ingram Micro L.P. Series 1995 (the "Bond") issued by the Industrial
Development Board of the City of Millington, Tennessee ("Board") to Lease
Plan North America, Inc. ("Lease Plan") in a principal amount not to exceed
$22,000,000. The Bond is secured by a Fee Construction Mortgage Deed of
Trust and Assignment of Rents and Leases dated December 20, 1995 (the "Deed
of Trust") executed by the Board for the benefit of Lease Plan. Beginning
in 2006, Wells OP has the option under the Bond Lease to purchase the land
underlying the Ingram Micro Distribution Facility for $100 plus satisfying
the indebtedness evidenced by the Bond, which is currently held by Wells
OP.
The Board, as the fee simple owner of the Ingram Micro Building, had
originally entered into the Bond Lease with Lease Plan. The proceeds from
the issuance of the Bond were used to finance the construction of the
Ingram Micro Building. On December 20, 2000, Ingram purchased the Bond,
Deed of Trust and the ground leasehold interest in the Ingram Micro
Building under the Bond Lease from Lease Plan.
At closing, Wells OP entered into a new lease with Ingram pursuant to which
Ingram agreed to lease the entire Ingram Micro Building from Wells OP. The
Ingram lease has a term of 10 years with two successive options to extend
for 10 years each. The annual base rent for the Ingram Micro Building is
$2,035,275 for years one through five of the lease term. Ingram is also
required to pay as additional rent all other amounts, liabilities and
obligations relating to the Ingram Micro, including all taxes, assessments,
water rents, sewer rents and charges, duties, impositions, license and
permit fees, charges for public utilities and other charges of every kind
and nature incurred as a result of the use and occupation of the premises
by Ingram.
The Lucent Building
On September 28, 2001, Wells OP purchased a four-story office building with
approximately 120,000 rentable square feet located at 200 Lucent Lane,
Cary, North Carolina (the "Lucent Building"). Wells OP purchased this
29
building from Lucent Technologies, Inc. ("Lucent") pursuant to that certain
Agreement for the Purchase and Sale of Property between Lucent and Wells OP
for a purchase price of $17,650,000, excluding closing costs.
The Lucent Building, which was completed in 1999, is a four-story office
building located on a 29.19 acre tract of land, which includes a 11.84 acre
improved tract of land and a 17.34 acre undeveloped tract of land.
The Lucent Building is located at 200 Lucent Lane in Regency Park office
part in the "Research Triangle" in Cary, North Carolina, approximately 10
miles west of downtown Raleigh and 15 miles south of Raleigh-Durham
International Airport.
The entire Lucent Building is currently under a lease agreement with
Lucent, which does not include the 17.34 acre undeveloped tract of land
described above. The current term of the lease is 10 years, which commenced
September 28, 2001, and expires on September 30, 2011. Lucent has the right
to extend the term of this lease for three additional five-year periods at
the then-current fair market rental rate, upon 12 months prior written
notice. The current annual base rent payable under the Lucent lease is
$1,800,000.
For additional information regarding the acquisitions of the Nissan
property, the Ingram Micro Building and the Lucent Building, refer to the
Company's Form 8-K dated September 27, 2001, which was filed with the
Commission on October 10, 2001 (Commission File No. 0-25739), the Company's
Form 8-K/A dated September 27, 2001, which was filed with the Commission on
October 26, 2001 (Commission File No. 0-25739), and Supplement No. 5 dated
October 15, 2001 to the Prospectus of Wells Real Estate Investment Trust,
Inc. dated December 20, 2000, which was filed with the Commission in
Post-Effective Amendment No. 4 to the Form S-11 Registration Statement of
Wells Real Estate Investment Trust, Inc. on October 23, 2001 (Commission
File No. 333-44900).
4. NOTES PAYABLE
Notes payable consists of loans of (i) $21,650,000 due to Bank of America,
N.A. secured by first mortgages against the ATT, Marconi, Matsushita,
Motorola, NJ, Metris, MN, and Delphi Buildings, (the "Bank of America
Note") (ii) $5,498,162 due to SouthTrust Bank collateralized by Wells OP's
interest in the Cinemark, Dial, ASML, Alstom Power Richmond, Avaya
Technologies, Motorola, and PWC Buildings, and (iii) $22,000,000 mortgage
note secured by the Deed of Trust to the Ingram Micro Building. Cash paid
for interest on the notes payable totaled $3,466,606 for the nine months
ended September 30, 2001.
5. DUE TO AFFILIATES
Due to affiliates consists of amounts due to the Advisor for Acquisitions
and Advisory Fees and Acquisition Expenses, deferred offering costs, and
other operating expenses paid on behalf of the Company. Also included in
due to affiliates is the amount due to the Fund VIII-IX Joint Venture
related to the Matsushita Rental Income Guaranty Agreement, which is
explained in detail in the Company's Form 10-K for the year ended December
31, 2000. Aggregate payments of $601,963 have been made as of September 30,
2001 toward funding the obligation under the Matsushita Rental Income
Guaranty Agreement.
6. COMMITMENTS AND CONTINGENCIES
Take Out Purchase and Escrow Agreement
An affiliate of the Advisor ("Wells Exchange") has developed a program (the
"Wells Section 1031 Program") involving the acquisition by Wells Exchange
of income-producing commercial properties and the formation of a series of
single member limited liability companies for the purpose of facilitating
the resale of co-tenancy interests in such real estate properties to be
owned in co-tenancy arrangements with persons ("1031 Participants") who are
looking to invest the proceeds from a sale of real estate held for
investment in another real estate investment for purposes of qualifying for
like-kind exchange treatment under Section 1031 of the Code. Each of these
properties will be financed by a combination of permanent first mortgage
financing and interim loan financing obtained from institutional lenders.
30
Following the acquisition of each property, Wells Exchange will attempt to
sell co-tenancy interests to 1031 Participants, the proceeds of which will
be used to pay off the interim financing. In consideration for the payment
of a Take Out Fee to the Company, and following approval of the potential
property acquisition by the Company's Board of Directors, it is anticipated
that Wells OP will enter into a Take Out Purchase and Escrow Agreement or
similar contract providing that, in the event that Wells Exchange is unable
to sell all of the co-tenancy interests in that particular property to 1031
Participants, Wells OP will purchase, at Wells Exchange's cost, any
co-tenancy interests remaining unsold at the end of the offering period.
As a part of the initial transaction in the Wells Section 1031 Program, and
in consideration for the payment of a Take Out Fee in the amount of
$137,500 to the Company, Wells OP entered into a Take Out Purchase and
Escrow Agreement dated April 16, 2001 providing, among other things, that
Wells OP is obligated to acquire, at Wells Exchange's cost ($839,694 in
cash plus $832,060 of assumed debt for each 7.63358% interest of co-tenancy
interest unsold), any unsold co-tenancy interests in the building known as
the Ford Motor Credit Complex which remain unsold at the expiration of the
offering of Wells Exchange, which has been extended to February 28, 2002,
which is also the maturity date of the interim loan relating to such
property. The Ford Motor Credit Complex consists of two connecting office
buildings containing 167,438 rentable square feet located in Colorado
Springs, Colorado currently under a triple-net lease with Ford Motor Credit
Company, a wholly owned subsidiary of Ford Motor Company, which is the
world's largest automotive finance company with more than 10 million
customers in 40 countries.
The obligations of Wells OP under the Take Out Purchase and Escrow
Agreement are secured by reserving against Wells OP's existing line of
credit with Bank of America, N.A. (the "Interim Lender"). If, for any
reason, Wells OP fails to acquire any of the co-tenancy interests in the
Ford Motor Credit Complex which remain unsold as of February 28, 2002, or
there is otherwise an uncured default under the interim loan or the line of
credit documents, the Interim Lender is authorized to draw down Wells OP's
line of credit in the amount necessary to pay the outstanding balance of
the interim loan in full, in which event the appropriate amount of
co-tenancy interests in the Ford Motor Credit Complex would be deeded to
Wells OP. Wells OP's maximum economic exposure in the transaction is
$11,000,000, in which event Wells OP would acquire the Ford Motor Credit
Complex for $11,000,000 in cash plus assumption of the first mortgage
financing in the amount of $10,900,000. If some, but not all, of the
co-tenancy interests are sold, Wells OP's exposure would be less, and it
would own an interest in the property in co-tenancy with the 1031
Participants who had previously acquired co-tenancy interests in the Ford
Motor Credit Complex from Wells Exchange.
For further information regarding the Wells Section 1031 Program, refer to
Supplement No. 2 dated April 25, 2001 to the Prospectus of Wells Real
Estate Investment Trust, Inc. dated December 20, 2000, which was filed with
the Commission in Post-Effective Amendment No. 2 to the Form S-11
Registration Statement of Wells Real Estate Investment Trust, Inc. on April
25, 2001 (Commission File No. 333-44900).
31
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of September 30, 2001 has
been prepared to give effect to the acquisition of the ADIC Buildings by Wells
XIII-REIT Joint Venture, a joint venture partnership between Wells Real Estate
Fund XIII, L.P. and Wells Operating Partnership, L.P. ("Wells OP"), and the
acquisitions of the Convergys Building, the Windy Point Buildings and the Arthur
Andersen Building by Wells OP as if the acquisitions occurred on September 30,
2001.
The following unaudited pro forma statement of income (loss) for the nine months
ended September 30, 2001 had been prepared to give effect to the acquisitions of
the Comdata Building, the AmeriCredit Building, the State Street Building, the
IKON Buildings, the Ingram Micro Distribution Facility, the Lucent Building, the
Nissan Property (collectively, the "Prior Acquisitions"), the ADIC Buildings,
the Convergys Building, the Windy Point Buildings and the Arthur Andersen
Building as if the acquisitions occurred on January 1, 2001.
The following unaudited pro forma statement of income (loss) for the year ended
December 31, 2000 has been prepared to give effect to the acquisitions of the
Comdata Building, the State Street Bank Building, the IKON Buildings, the Ingram
Micro Distribution Facility, the Lucent Building (collectively, the "Prior
Acquisitions"), the Windy Point Buildings and the Arthur Andersen Building as if
the acquisitions occurred on January 1, 2000. Operations commenced during 2001
for the following properties acquired: The AmeriCredit Building (June 2001), the
Convergys Building (September 2001), and the ADIC Buildings (December 2001). The
Nissan Property had no operations during 2001 or 2000.
Wells OP is a Delaware limited partnership that was organized to own and operate
properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland
corporation. As the sole general partner of Wells OP, Wells Real Estate
Investment Trust, Inc. possesses full legal control and authority over the
operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated
with the accompanying pro forma financials statements of Wells Real Estate
Investment Trust, Inc.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisitions of the Comdata
Building, the AmeriCredit Building, the State Street Bank Building, the IKON
Buildings, the Ingram Micro Distribution Facility, the Lucent Building, the
Nissan Property, the ADIC Buildings, the Convergys Building, the Windy Point
Buildings and the Arthur Andersen Building been consummated at the beginning of
the periods presented.
As of September 30, 2001, the date of the accompanying pro forma balance sheet,
Wells OP held cash of $11,132,382. The additional cash used to purchase the
Convergys Building, the Windy Point Buildings and the Arthur Andersen Building,
including deferred project costs paid to Wells Capital, Inc. (an affiliate of
Wells OP), was raised through the issuance of additional shares subsequent to
September 30, 2001. This balance is reflected as purchase consideration payable
in the accompanying pro forma balance sheet.
32
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
SEPTEMBER 30, 2001
(Unaudited)
ASSETS
Pro Forma Adjustments
-----------------------------------------------------------------------
Wells Real
Estate
Investment Trust, Wendy Point
Inc. ADIC Buildings Convergys Buildings Arthur Andersen
------------------- ---------------- --------------- --------------- -----------------
REAL ESTATE ASSETS, at cost:
Land $ 73,985,267 $ 0 $ 3,500,000 (a) $ 7,960,000 (a) $ 1,700,000 (a)
145,833 (d) 331,667 (d) 70,833 (b)
Building, less accumalated
depreciation of $19,810,895 381,590,591 0 9,997,361 (a) 79,755,625 (a) 19,444,911 (a)
416,557 (d) 3,323,151 (d) 810,205 (d)
Construction in progress 2,202,200 0 0 0
------------ ----------- ----------- ----------- -----------
Total real estate assets 457,778,058 0 14,059,751 91,370,443 22,025,949
------------ ----------- ----------- ----------- -----------
CASH AND CASH EQUIVALENTS 11,132,382 (6,671,075) (a) (4,461,307) (a) 0 0
INVESTMENT IN JOINT VENTURES 71,060,872 6,949,036 (b) 0 0 0
INVESTMENT IN BONDS 22,000,000 0 0 0 0
ACCOUNTS RECEIVABLE 5,675,988 0 0 0 0
DEFERRED LEASE ACQUISITION COSTS 1,662,822 0 0 0 0
DEFERRED PROJECT COSTS 475,811 (277,961) (c) (197,850) (d) 0 0
DEFERRED OFFERING COSTS 0 0 0 0 0
DUE FROM AFFILIATES 1,649,205 0 0 0 0
PREPAID EXPENSES AND OTHER ASSETS 994,809 0 0 0 0
------------ ----------- ----------- ----------- -----------
Total assets $572,429,947 $ 0 $ 9,400,594 $91,370,443 $22,025,949
============ =========== =========== =========== ===========
Pro Forma Total
-----------------
REAL ESTATE ASSETS, at cost:
Land $ 87,693,600
Building, less accumalated
depreciation of $19,810,895 495,338,401
Construction in progress 2,202,200
------------
Total real estate assets 585,234,201
------------
CASH AND CASH EQUIVALENTS 0
INVESTMENT IN JOINT VENTURES 78,009,908
INVESTMENT IN BONDS 22,000,000
ACCOUNTS RECEIVABLE 5,675,988
DEFERRED LEASE ACQUISITION COSTS 1,662,822
DEFERRED PROJECT COSTS 0
DEFERRED OFFERING COSTS 0
DUE FROM AFFILIATES 1,649,205
PREPAID EXPENSES AND OTHER ASSETS 994,809
------------
Total assets $695,226,933
============
33
LIABILITIES AND SHAREHOLDERS' EQUITY
Pro Forma Adjustments
-----------------------------------------------------------------------
Wells Real
Estate
Investment Trust, Wendy Point
Inc. ADIC Buildings Convergys Buildings Arthur Andersen
------------------- ---------------- --------------- --------------- -----------------
LIABILITIES:
Accounts payable and accrued
expenses $ 5,475,619 $ 0 $ 0 $ 0 0
Notes payable 49,148,162 0 0 0 0
Purchase Consideration Payable 0 0 9,036,054 (a) 87,715,625 (a) 21,144,911 (a)
Dividends payable 1,071,657 0 0 0 0
Due to affiliate 247,131 0 364,540 (d) 3,654,818 (d) 881,038 (d)
Deferred rental income 0 0 0 0 0
------------ --------- ---------- ----------- -----------
Total liabilities 55,942,569 0 9,400,594 91,370,443 22,025,949
------------ --------- ---------- ----------- -----------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER
IN OPERATING PARTNERSHIP 200,000 0 0 0 0
------------ --------- ---------- ----------- -----------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value;
125,000,000 shares authorized,
61,287,300 shares issued and
60,932,270 shares outstanding 612,872 0 0 0 0
Additional paid-in capital 519,224,798 0 0 0 0
Treasury stock, at cost, 355,029
shares (3,550,292) 0 0 0 0
------------ --------- ---------- ----------- -----------
Total shareholders' equity 516,287,378 0 0 0 0
------------ --------- ---------- ----------- -----------
Total liabilities and
shareholders' equity $572,429,947 $ 0 $9,400,594 $91,370,443 $22,025,949
============ ========= ========== =========== ===========
Pro Forma Total
-----------------
LIABILITIES:
Accounts payable and accrued
expenses $ 5,475,619
Notes payable 49,148,162
Purchase Consideration Payable 117,896,590
Dividends payable 1,071,657
Due to affiliate 5,147,527
Deferred rental income 0
------------
Total liabilities 178,739,555
------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER
IN OPERATING PARTNERSHIP 200,000
------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value;
125,000,000 shares authorized,
61,287,300 shares issued and
60,932,270 shares outstanding 612,872
Additional paid-in capital 519,224,798
Treasury stock, at cost, 355,029
shares (3,550,292)
------------
Total shareholders' equity 516,287,378
------------
Total liabilities and
shareholders' equity $695,226,933
============
(a) Reflects Wells Real Estate Investment Trust, Inc.'s purchase price for the
land and building.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s contribution to Wells
XIII-REIT Joint Venture
(c) Reflects deferred project costs contributed to Wells XIII-REIT Joint
Venture at approximately 4.17% of the purchase price.
(d) Reflects deferred project costs applied to the land and building at
approximately 4.17% of the purchase price.
34
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001
(Unaudited)
Pro Forma Adjustments
-----------------------------------------------------------------
Wells Real
Estate Investment Prior Windy Point
Trust, Inc. Acquisitions Convergys Buildings Arthur Andersen
----------------- --------------- ----------- --------------- -----------------
REVENUES:
Rental income $31,028,212 $ 8,738,526 (a) $116,533 (a) $2,566,407 (a) $1,577,125 (a)
Equity in income of joint ventures 2,621,647 328,061 (b) 0 0 0
107,410 (c)
Interest income 418,998 (418,998)(d) 0 0 0
1,320,000 (e)
----------- ----------- -------- ---------- ----------
34,068,857 10,074,999 116,533 2,566,407 1,577,125
----------- ----------- -------- ---------- ----------
EXPENSES:
Depreciation and amortization 10,341,242 2,554,687 (f) 34,713 (f) 2,492,363 (f) 607,653 (f)
Interest 2,957,262 3,674,732 (g) 0 0 0
1,320,000 (h)
Operating costs, net of reimbursements 3,168,273 2,819,212 (i) 600 (i) 185,393 (i) 106,825 (i)
Management and leasing fees 1,749,849 393,234 (j) 5,244 (j) 115,488 (j) 70,971 (j)
General and administrative 700,803 0 0 0 0
Amortization of deferred financing costs 528,715 0 0 0 0
Legal and accounting 199,333 0 0 0 0
----------- ----------- -------- ---------- ----------
19,645,477 10,761,865 40,557 2,793,234 785,449
----------- ----------- -------- ---------- ----------
NET INCOME (LOSS) $14,423,380 $ (686,866) $ 75,976 $ (226,827) $ 791,676
----------- ----------- -------- ---------- ----------
EARNINGS PER SHARE, basic and diluted $ 0.33
===========
WEIGHTED AVERAGE SHARES, basic and diluted 43,707,212
===========
Pro Forma
Total
------------
REVENUES:
Rental income $44,026,803
Equity in income of joint ventures 3,057,118
Interest income 0
1,320,000
-----------
48,403,921
-----------
EXPENSES:
Depreciation and amortization 16,030,658
Interest 7,951,994
Operating costs, net of reimbursements 6,280,293
Management and leasing fees 2,334,786
General and administrative 700,803
Amortization of deferred financing costs 528,715
Legal and accounting 199,333
-----------
34,026,582
-----------
NET INCOME (LOSS) $14,377,339
===========
EARNIGS PER SHARE, basicn and diluted $ 0.33
===========
WEIGHTED AVERAGE SHARES, basic and diluted $43,707,212
===========
The accompanying notes are an integral part of these statements.
35
(a) Rental income is recognized on a straight-line basis.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of
Wells XII-REIT Joint Venture, a joint venture partnership between Wells
Real Estate Fund XII, L.P. and Wells OP, related to the acquisition of the
Comdata Building. The pro forma adjustment results from rental revenues
less operating expenses, management fees and depreciation.
(c) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of
Wells XIII-REIT Joint Venture related to the acquisition of the AmeriCredit
Building. The pro forma adjustment results from rental revenues less
operating expenses, management fees and depreciation.
(d) Represent forgone interest income related to cash utilized to purchase the
prior acquisitions.
(e) Represents interest income on the $22,000,000 investment in bonds due from
the Industrial Development Authority, which earns interest at 8% per annum.
(f) Depreciation expense on the buildings is recognized using the straight-line
method and a 25-year life.
(g) Represents interest expense on the $96,265,863 of cumulative borrowings due
to Bank of America, N.A., which bears interest at approximately 6.5% during
the period from January 1, 2001 through the respective acquisition dates.
(h) Represents interest expense on the $22,000,000 mortgage note payable to the
Industrial Development Authority, which bears interest at 8%.
(i) Consists of nonreimbursable operating expenses.
(j) Management and leasing fees are calculated at 4.5% of rental income.
36
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2000
(Unaudited)
Wells Real Pro Forma Adjustments
Estate ------------------------------------------------------
Investment Prior Windy Point Pro Forma
Trust, Inc. Acquisitions Buildings Arthur Andersen Total
----------- --------------- --------------- ----------------- -----------
REVENUES:
Rental income $20,505,000 $ 8,572,880 (a) $ 2,576,653 (a) $2,102,834 (a) $33,757,367
Equity in income of joint ventures 2,293,873 930,181 (b) 0 0 3,224,054
Interest income 520,924 (520,924)(c) 0 0 0
0 1,760,000 (d) 0 0 1,760,000
Other income 53,409 0 0 0 53,409
------------ ----------- ----------- ---------- -----------
23,373,206 10,742,137 2,576,653 2,102,834 38,794,830
------------ ----------- ----------- ---------- -----------
EXPENSES:
Depreciation and amortization 7,743,551 3,868,420 (e) 3,323,151 (e) 810,205 (e) 15,745,327
Interest 4,199,461 7,053,062 (f) 0 0 13,012,523
1,760,000 (g)
Operating costs, net of
reimbursements 888,091 553,347 (h) 144,790 (h) 122,704 (h) 1,708,932
Management and leasing fees 1,309,974 385,780 (i) 115,488 (i) 94,628 (i) 1,905,870
General and administrative 426,680 0 0 0 426,680
Legal and accounting 240,209 0 0 0 240,209
Computer costs 12,273 0 0 0 12,273
------------ ----------- ----------- ---------- -----------
14,820,239 13,620,609 3,583,429 1,027,537 33,051,814
------------ ----------- ----------- ---------- -----------
NET INCOME (LOSS) $ 8,552,967 $(2,878,472) $(1,006,776) $1,075,297 $ 5,743,016
============ =========== =========== ========== ===========
EARNINGS PER SHARE, basic and diluted $0.40 $0.27
============ ===========
WEIGHTED AVERAGE SHARES, basic and
diluted 21,382,418 21,382,418
============ ===========
(a) Rental Income is recognized on a straight-line basis.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s equity in income of
Wells XII-REIT Joint Venture, a joint venture partnership between Wells
Real Estate Fund XII, L.P. and Wells OP, related to the acquisition of the
Comdata Building. The pro forma adjustment results from rental revenues
less operating expenses, management fees and depreciation.
(c) Represent forgone interest income related to cash utilized to purchase the
prior acquisitions.
(d) Represents interest income on the $22,000,000 investment in bonds due from
the Industrial Development Authority, which earns interest at 8%.
(e) Depreciation expense on the buildings is recognized using the straight-line
method and a 25-year life.
(f) Represents interest expense on the $85,525,863 of cumulative borrowings due
to Bank of America, N.A., which bears interest at approximately 8.3% during
the year ended December 31, 2000.
(g) Represents interest expense on the $22,000,000 mortgage note payable to the
Industrial Development Authority, which bears interest at 8%.
(h) Consists of nonreimbursable operating expenses.
(i) Management and leasing fees are calculated at 4.5% of rental income.
37
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the WINDY POINT BUILDINGS for the year ended December 31, 2000.
This financial statement is the responsibility of management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues over
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues over certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would be comparable with those resulting from the operations of the Windy Point
Buildings after acquisition by the Wells Operating Partnership, L.P., a
subsidiary of Wells Real Estate Investment Trust, Inc. The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Windy Point Buildings' revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Windy Point Buildings for the year ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 11, 2002
38
WINDY POINT BUILDINGS
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2000 (AUDITED)
2001 2000
------------ ------------
(Unaudited)
RENTAL REVENUES $2,566,407 $2,576,653
OPERATING EXPENSES, net of reimbursements 185,383 144,790
---------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $2,381,024 $2,431,863
========== ==========
The accompanying notes are an integral part of these statements.
39
WINDY POINT BUILDINGS
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2000 (AUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On December 31, 2001, the Wells Operating Partnership, L.P. ("Wells OP")
acquired the Windy Point Buildings from Windy Point of Schaumburg, LLC (the
"Seller"). Wells OP is a Delaware limited partnership that was organized to
own and operate properties on behalf of Wells Real Estate Investment Trust,
Inc., a Maryland corporation. As the sole general partner of Wells OP,
Wells Real Estate Investment Trust, Inc. possesses full legal control and
authority over the operations of Wells OP. The Seller is not in anyway
affiliated with Wells OP.
Zurich American Insurance, Inc. ("Zurich") and TCI Great Lakes, Inc.
("TCI") currently occupy 300,034 square feet and 129,157 square feet,
respectively, of the total 486,956 rentable square feet of the two
multi-story office buildings comprising the Windy Point Buildings under net
lease agreements (the "Zurich Lease" and the "TCI Lease", respectively).
The Seller's interests in the Zurich Lease and the TCI Lease were assigned
to Wells OP at the closing. The initial term of the Zurich Lease commenced
on September 1, 2001 and expires on August 31, 2011. The initial term of
the TCI Lease commenced on December 1, 1999 and expires on November 30,
2009. Zurich and TCI have the right to extend their respective leases for
two additional periods of five years each at the corresponding then current
fair market rental rates.
Under the Zurich lease, Zurich is required to pay, as additional monthly
rent, its proportionate share of all controllable costs including, but not
limited to, costs for electricity, fuel, insurance, snow removal and the
wages for union employees. Beginning with the third lease year,
controllable expenses for any lease year shall not exceed an amount equal
to the product of total actual controllable expenses for the preceding
lease year multiplied by 1.04. Zurich is also required to pay its
proportionate share of property taxes not to exceed (a) for calendar year
2001: $1.63 per rentable square foot, and (b) for calendar year 2002 and
thereafter: the sum of $3.17, plus the amount which $1.63 exceeded actual
controllable costs during calendar year 2001, per rentable square foot.
Under the TCI lease, TCI is required to pay, as additional monthly rent,
its proportionate share of operating expenses and property taxes subject to
the following limitations: (a) for the first lease year: not to exceed
$7.36 per rentable square foot, (b) for the second lease year: not to
exceed $9.14 per rentable square foot, (c) for the third lease year: no
limitations, and (d) for the fourth lease year and thereafter: not to
exceed more than 5% of controllable costs for the immediately preceding
lease year, including cleaning and landscaping services. Under the TCI
lease, the following items are specifically excluded from the definition of
controllable costs: electricity, fuels, insurance, snow-plowing, and wages
of union employees. Wells OP will be responsible for repairing and
maintaining all structural elements of the premises including the roof,
exterior walls and windows, parking areas, walkways, internal common areas,
building systems including plumbing, heating, ventilating and air
conditioning, and providing landscaping services.
40
The remaining rentable square footage of the Windy Point Buildings is
occupied by the following tenants: Global Knowledge Network, Inc. (22,028
square feet), National SemiConductor Corporation (6,294 square feet),
Cushman & Wakefield (1,121 square feet), and G&R Service Management II,
Inc. (1,469 square feet). Additionally, SprintCom, Inc. leases an antenna
on the roof of the Windy Point Buildings, which is not included in the
property's total rentable square footage.
Rental Revenues
Rental income is recognized on a straight-line basis over the terms of
respective leases.
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, these
statements exclude certain historical expenses, such as depreciation,
interest, and management fees. Therefore, these statements are not
comparable to the operations of the Windy Point Buildings after acquisition
by Wells OP.
41
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the ARTHUR ANDERSEN BUILDING for the year ended December 31, 2000.
This financial statement is the responsibility of management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues over
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues over certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would be comparable with those resulting from the operations of the Arthur
Andersen Building after acquisition by the Wells Operating Partnership, L.P., a
subsidiary of Wells Real Estate Investment Trust, Inc. The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Arthur Andersen Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Arthur Andersen Building for the year ended December 31, 2000 in
conformity with accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Atlanta, Georgia
January 14, 2002
42
ARTHUR ANDERSEN BUILDING
STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2001 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2000 (AUDITED)
2001 2000
----------- -----------
(Unaudited)
RENTAL REVENUES $1,577,125 $2,102,834
OPERATING EXPENSES, net of reimbursements 106,825 122,704
---------- ----------
REVENUES OVER CERTAIN OPERATING EXPENSES $1,470,300 $1,980,130
========== ==========
The accompanying notes are an integral part of these statements.
43
ARTHUR ANDERSEN BUILDING
NOTES TO STATEMENTS OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2000 (UNAUDITED)
AND THE YEAR ENDED DECEMBER 31, 2001 (AUDITED)
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On January 11, 2002, the Wells Operating Partnership, L.P. ("Wells OP")
acquired the Arthur Andersen Building from Sarasota Haskell, LLC
("Haskell"). Wells OP is a Delaware limited partnership formed to acquire,
own, lease, operate, and manage real properties on behalf of Wells Real
Estate Investment Trust, Inc., a Maryland corporation. As the sole general
partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses
full legal control and authority over the operations of Wells OP. The
Seller is not in anyway affiliated with Wells OP.
Arthur Andersen, LLP ("Andersen") currently occupies the entire 157,704
rentable square feet of the three-story office building under a net lease
agreement (the "Andersen Lease"). Haskell's interest in the Andersen Lease
was assigned to Wells OP at the closing. The initial term of the Andersen
Lease commenced on November 1, 1999 and expires on October 31, 2009.
Andersen has the right to extend the Andersen Lease for two additional
periods of five years at a rate equal to 90% of the then current fair
market rental rates. Under the Andersen Lease, Andersen is required to pay,
as additional monthly rent, all operating costs, including but not limited
to electricity, water, heating, air cooling, property and personal
insurance and property taxes. In addition, Andersen is responsible for all
routine maintenance and repairs to the interior of the Arthur Andersen
Building. Wells OP is responsible for the repair and replacement of the
exterior walls, foundation, roof, plumbing, elevators, HVAC systems, fire
protection systems and other mechanical systems of the Arthur Andersen
Building.
Rental Revenues
Rental income is recognized on a straight-line basis over the term of the
Andersen lease.
2. BASIS OF ACCOUNTING
The accompanying statements of revenues over certain operating expenses are
presented on the accrual basis. These statements have been prepared in
accordance with the applicable rules and regulations of the Securities and
Exchange Commission for real estate properties acquired. Accordingly, these
statements exclude certain historical expenses, such as depreciation,
interest, and management fees. Therefore, these statements are not
comparable to the operations of the Arthur Andersen Building after
acquisition by Wells OP.
44
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 7 DATED MARCH 30, 2002 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001,
Supplement No. 2 dated April 25, 2001, Supplement No. 3 dated July 20, 2001,
Supplement No. 4 dated August 10, 2001, Supplement No. 5 dated October 15, 2001
and Supplement No. 6 dated January 20, 2002. When we refer to the "prospectus"
in this supplement, we are also referring to any and all supplements to the
prospectus. Unless otherwise defined in this supplement, capitalized terms used
in this supplement shall have the same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) Status of the offering of shares in Wells Real Estate Investment
Trust, Inc. (Wells REIT);
(2) Declaration of dividends for the second quarter of 2002;
(3) Revisions to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the
prospectus;
(4) Updated audited financial statements of the Wells REIT, and
unaudited Schedule III-Real Estate Investments and Accumulated
Depreciation; and
(5) Updated prior performance tables.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced our second
offering of common stock on December 20, 1999. Our second public offering was
terminated on December 19, 2000. We received approximately $175,229,193 in gross
offering proceeds from the sale of 17,522,919 shares in our second public
offering.
Pursuant to the prospectus, we commenced our third offering of common
stock on December 20, 2000. As of March 25, 2002, we had received an additional
$771,748,412 in gross offering proceeds from the sale of 77,174,841 shares in
the third offering. Accordingly, as of March 25, 2002, we had received in the
aggregate approximately $1,079,159,524 in gross offering proceeds from the sale
of 107,915,952 shares of our common stock.
Dividends
On March 6, 2002, our board of directors declared dividends for the
second quarter of 2002 in the amount of $0.19375 per share, or a 7.75%
annualized percentage return on an investment of $10.00 per share, payable to
our stockholders on a daily record basis. Below is a table reflecting the level
of dividends declared and paid to date:
1
Annualized
Percentage Return
on an Investment
Quarter Approximate Amount (Rounded) of $10 per Share
------- ---------------------------- ----------------
3/rd/ Qtr. 1998 $0.150 per share 6.00%
4/th/ Qtr. 1998 $0.163 per share 6.50%
1/st/ Qtr. 1999 $0.175 per share 7.00%
2/nd/ Qtr. 1999 $0.175 per share 7.00%
3/rd/ Qtr. 1999 $0.175 per share 7.00%
4/th/ Qtr. 1999 $0.175 per share 7.00%
1/st/ Qtr. 2000 $0.175 per share 7.00%
2/nd/ Qtr. 2000 $0.181 per share 7.25%
3/rd/ Qtr. 2000 $0.188 per share 7.50%
4/th/ Qtr. 2000 $0.188 per share 7.50%
1/st/ Qtr. 2001 $0.188 per share 7.50%
2/nd/ Qtr. 2001 $0.188 per share 7.50%
3/rd/ Qtr. 2001 $0.188 per share 7.50%
4/th/ Qtr. 2001 $0.194 per share 7.75%
1/st/ Qtr. 2002 $0.194 per share 7.75%
2/nd/ Qtr. 2002 $0.194 per share 7.75%
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section beginning on page 98 of the prospectus. The following
discussion and analysis should also be read in conjunction with our accompanying
financial statements and notes thereto.
Forward Looking Statements
This section and other sections in the prospectus contain
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 Wells REIT, anticipated capital
expenditures required to complete certain projects, amounts of anticipated cash
distributions to stockholders in the future and certain other matters. Readers
of this prospectus should be aware that there are various factors that could
cause actual results to differ materially from any forward-looking statements
made in this prospectus, which include changes in general economic conditions,
changes in real estate conditions, construction costs which may exceed
estimates, construction delays, increases in interest rates, 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.
We have made an election under Section 856 (c) of the Internal Revenue
Code (Code) to be taxed as a REIT under the Code beginning with its taxable year
ended December 31, 1999. As a REIT for federal income tax purposes, we generally
will not be subject to Federal income tax on income that we distribute to our
stockholders. If we fail to qualify as a REIT in any taxable year, we will be
subject to federal income tax on our taxable income at regular corporate rates
and will not be permitted to qualify
2
for treatment as a REIT for federal income tax purposes for four years following
the year in which our qualification is lost. Such an event could materially,
adversely affect our net income. However, we believe that we are organized and
operate in a manner, which has enabled us to qualify for treatment as a REIT for
federal income tax purposes during the year ended December 31, 2001. In
addition, we intend to continue to operate the Wells REIT so as to remain
qualified as a REIT for federal income tax purposes.
Liquidity and Capital Resources
General
During the fiscal year ended December 31, 2001, we received aggregate
gross offering proceeds of $522,516,620 from the sale of 52,251,662 shares of
our common stock. After payment of $18,143,307 in acquisition and advisory fees
and acquisition expenses, payment of $58,387,809 in selling commissions and
organization and offering expenses, and common stock redemptions of $4,137,427
pursuant to our share redemption program, we raised net offering proceeds
available for investment in properties of $441,848,077 during 2001.
As of December 31, 2001, we had received aggregate gross offering
proceeds of approximately $837,614,690 from the sale of 83,761,469 shares of our
common stock to 84,002 investors. After payment of $29,122,286 in acquisition
and advisory fees and acquisition expenses, payment of $98,125,735 in selling
commissions and organization and offering expenses, capital contributions to
joint ventures and acquisitions expenditures by Wells OP of $642,106,041 in
property acquisitions, and common stock redemptions of $5,550,396 pursuant to
our share redemption program, we held net offering proceeds of $62,711,000
available for investment in properties, as of December 31, 2001. As of March 25,
2002, we had received aggregate gross offering proceeds of approximately
$1,079,159,524 from the sale of 107,915,952 shares of our common stock to 27,809
investors.
The net increase in cash and cash equivalents during 2001, as compared
to 2000, is primarily the result of raising $522,516,620 in capital
contributions from the sale of 52,251,662 shares of common stock, offset by the
acquisition of nine properties during 2001, and the payment of acquisition and
advisory fees and acquisition expenses, commissions, organization and offering
costs and capital contributions to joint ventures.
As of December 31, 2001, we owned interests in 39 real estate
properties either directly or through interests in joint ventures. These
properties are generating operating cash flow sufficient to cover our operating
expenses and pay dividends to our stockholders. We pay dividends on a quarterly
basis regardless of the frequency with which such distributions are declared.
Dividends will be paid to investors who are stockholders as of the record dates
selected by our board of directors. We currently calculate quarterly dividends
based on the daily record and dividend declaration dates; thus, stockholders are
entitled to receive dividends immediately upon the purchase of shares. Dividends
declared during 2001 and 2000 totaled $.76 per share and $.73 per share,
respectively. Although we can make no assurance, we anticipate that dividend
distributions to stockholders will continue in 2002 at a level at least
comparable with 2001 dividend distributions.
Dividends to be distributed to the stockholders are determined by our
board of directors and are dependent on a number of factors, including funds
available for payment of dividends, financial condition, capital expenditure
requirements and annual distribution requirements in order to maintain our
status as a REIT under the Internal Revenue Code. Operating cash flows are
expected to increase as additional properties are added to our investment
portfolio.
3
Cash Flows From Operating Activities
Our net cash provided by operating activities was $42,349,342 for 2001,
$7,319,639 for 2000 and $4,008,275 for 1999. The increase in net cash provided
by operating activities was due primarily to the net income generated by
properties acquired during 2000 and 2001.
Cash Flows Used In Investing Activities
Our net cash used in investing activities was $274,605,735 for 2001,
$249,316,460 for 2000 and $105,394,956 for 1999. The increase in net cash used
in investing activities was due primarily to investments in properties, directly
and through contributions to joint ventures, and the payment of related deferred
project costs.
Cash Flows From Financing Activities
Our net cash provided by financing activities was $303,544,260 for
2001, $243,365,318 for 2000, and $96,337,082 for 1999. The increase in net cash
provided by financing activities was due primarily to the raising of additional
capital offset by the repayment of notes payable. We raised $522,516,620 in
offering proceeds for fiscal year ended December 31, 2001, as compared to
$180,387,220 for fiscal year ended December 31, 2000, and $103,169,490 for
fiscal year ended December 31, 1999. In addition, we received loan proceeds from
financing secured by properties of $110,243,145 and repaid notes payable in the
amount of $229,781,888 for fiscal year ended December 31, 2001.
Results of Operations
As of December 31, 2001, our real estate properties were 100% leased to
tenants. Gross revenues were $49,308,802 for the fiscal year ended December 31,
2001, $23,373,206 for fiscal year ended December 31, 2000 and $6,495,395 for
fiscal year ended December 31, 1999. Gross revenues for the year ended December
31, 2001, 2000 and 1999 were attributable to rental income, interest income
earned on funds we held prior to the investment in properties, and income earned
from joint ventures. The increase in revenues in 2001 was primarily attributable
to the purchase of additional properties during 2000 and 2001. The purchase of
additional properties also resulted in an increase in expenses which totaled
$27,584,835 for the year ended December 31, 2001, $14,820,239 for the year ended
December 31, 2000 and $2,610,746 for the year ended December 31, 1999. Expenses
in 2001, 2000 and 1999 consisted primarily of depreciation, interest expense and
management and leasing fees. Our net income also increased from $3,884,649 for
fiscal year ended December 31, 1999 to $8,552,967 for fiscal year ended December
31, 2000 to $21,723,967 for the year ended December 31, 2001.
4
Property Operations
The following table summarizes the operations of the joint ventures in which we
owned an interest as of December 31, 2001, 2000 and 1999:
Total Revenue Net Income Well REIT's Share of Net Income
For Years Ended December 31 For Years Ended December 31 For Years Ended December 31
------------------------------------- ------------------------------------- -----------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
----------- ----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Fund IX-X-XI-
REIT Joint $ 4,344,209 $ 4,388,193 $4,053,042 $2,684,837 $2,669,143 $2,172,244 $ 99,649 $ 99,177 $ 81,501
Venture
Orange County 797,937 795,545 795,545 546,171 568,961 550,952 238,542 248,449 240,585
Joint Venture
Fremont 907,673 902,946 902,946 562,893 563,133 559,174 436,265 436,452 433,383
Joint Venture
Fund XI-XII-
REIT Joint 3,371,067 3,349,186 1,443,503 2,064,911 2,078,556 853,073 1,172,103 1,179,848 488,500
Venture
Fund XII-REIT 4,708,467 976,865 N/A 2,611,522 614,250 N/A 1,386,877 305,060 N/A
Joint Venture
Fund VIII-IX-REIT 1,208,724 563,049 N/A 566,840 309,893 N/A 89,779 24,887 N/A
Joint Venture
Fund XIII-REIT 706,373 N/A N/A 356,355 N/A N/A 297,745 N/A N/A
Joint Venture
-----------------------------------------------------------------------------------------------------------------
$16,044,450 $10,975,784 $7,195,036 $8,977,529 $6,803,936 $4,135,443 $3,720,960 $2,293,873 $1,243,969
=================================================================================================================
Subsequent Events
As described in Supplement No. 6 to our prospectus dated January 20, 2002,
on January 11, 2002, Wells OP purchased a three-story office building containing
approximately 157,700 rentable square feet (Arthur Andersen Building) on a 9.8
acre tract of land located in Sarasota County, Florida for a purchase price of
$21,400,000. The Arthur Andersen Building is leased to Arthur Andersen LLP
(Andersen). The current term of the Andersen lease is 10 years, which commenced
on November 11, 1998 and expires on October 31, 2009. Andersen has the right to
extend the initial 10-year term of its lease for two additional five-year
periods at 90% of the ten-current market rental rate. The current annual base
rent payable under the Andersen lease is $1,988,454. Andersen has the option to
purchase the Arthur Andersen Building prior to the end of the fifth lease year
for $23,250,000 and again at the expiration of the initial lease term for
$25,148,000.
On March 6, 2002, our board of directors declared dividends for the second
quarter of 2002 in the amount of $0.19375 per share, or a 7.75% annualized
percentage return on an investment of $10.00 per share, payable to our
stockholders on a daily record basis.
Funds from Operations
Funds from Operations (FFO), as defined by the National Association of Real
Estate Investment Trusts (NAREIT), generally means net income, computed in
accordance with GAAP excluding extraordinary items (as defined by GAAP) and
gains (or losses) from sales of property, plus depreciation and amortization on
real estate assets, and after adjustments for unconsolidated partnerships, joint
ventures and subsidiaries. We believe that FFO is helpful to investors as a
measure of the performance of an equity REIT. However, our calculation of FFO,
while consistent with NAREIT's definition, may not be comparable to similarly
titled measures presented by other REITs. Adjusted Funds from Operations (AFFO)
is defined as FFO adjusted to exclude the effects of straight-line rent
adjustments, deferred loan cost amortization and other non-cash and/or unusual
items. Neither FFO nor AFFO represent cash
5
generated from operating activities in accordance with GAAP and should not be
considered as alternatives to net income as an indication of our performance or
to cash flows as a measure of liquidity or ability to make distributions.
The following table reflects the calculation of FFO and AFFO for the three years
ended December 31, 2001, 2000, and 1999, respectively:
December 31, December 31, December 31,
2001 2000 1999
---------------- ---------------- ----------------
FUNDS FROM OPERATIONS:
Net income $ 21,723,967 $ 8,552,967 $ 3,884,649
Add:
Depreciation of real assets 15,344,801 7,743,550 1,726,103
Amortization of deferred leasing costs 303,347 350,991 0
Depreciation and amortization -
unconsolidated partnerships 3,211,828 852,968 652,167
---------------- ---------------- ----------------
Funds from operations (FFO) 40,583,943 17,500,476 6,262,919
Adjustments:
Loan cost amortization 770,192 232,559 8,921
Straight line rent (2,754,877) (1,650,791) (847,814)
Straight line rent - unconsolidated
partnerships (543,039) (245,288) (140,076)
Lease acquisition fees paid 0 (152,500) 0
Lease acquisition fees paid-
unconsolidated partnerships 0 (8,002) (512)
---------------- ---------------- ----------------
Adjusted funds from operations $ 38,056,219 $ 15,676,454 $ 5,283,438
================ ================ ================
WEIGHTED AVERAGE SHARES:
BASIC AND DILUTED 51,081,867 21,616,051 7,769,298
================ ================ ================
Inflation
The real estate market has not been affected significantly by inflation
in the past three years due to the relatively low inflation rate. However, there
are provisions in the majority of tenant leases which would protect us from the
impact of inflation. These provisions include reimbursement billings for common
area maintenance charges (CAM), real estate tax and insurance reimbursements on
a per square foot basis, or in some cases, annual reimbursement of operating
expenses above a certain per square foot allowance.
Critical Accounting Policies
Our accounting policies have been established and conform with
generally accepted accounting principles in the United States (GAAP). The
preparation of financial statements in conformity with GAAP requires management
to use judgment in the application of accounting policies, including making
estimates and assumptions. These judgments affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenue and expenses
during the reporting periods. If our judgment or interpretation of the facts and
circumstances relating to various transactions had been different, it is
possible that different accounting policies would have been applied; thus,
resulting in a different presentation of our financial statements. Below is a
discussion of the accounting policies that we consider to be critical in that
they may require complex judgment in their application or require estimates
about matters which are inherently uncertain.
6
Straight-Lined Rental Revenues
We recognize rental income generated from all leases on real estate
assets in which we have an ownership interest, either directly or through
investments in joint ventures, on a straight-line basis over the terms of the
respective leases. If a tenant was to encounter financial difficulties in future
periods, the amount recorded as a receivable may not be realized.
Operating Cost Reimbursements
We generally bill tenants for operating cost reimbursements, either
directly or through investments in joint ventures, on a monthly basis at amounts
estimated largely based on actual prior period activity and the respective lease
terms. Such billings are generally adjusted on an annual basis to reflect
reimbursements owed to the landlord based on the actual costs incurred during
the period and the respective lease terms. Financial difficulties encountered by
tenants may result in receivables not being realized.
Real Estate
We continually monitor events and changes in circumstances indicating
that the carrying amounts of the real estate assets in which we have an
ownership interest, either directly or through investments in joint ventures,
may not be recoverable. When such events or changes in circumstances are
present, we assess the potential impairment by comparing the fair market value
of the asset, estimated at an amount equal to the future undiscounted operating
cash flows expected to be generated from tenants over the life of the asset and
from its eventual disposition, to the carrying value of the asset. In the event
that the carrying amount exceeds the estimated fair market value, we would
recognize an impairment loss in the amount required to adjust the carrying
amount of the asset to its estimated fair market value. Neither the Wells REIT
nor our joint ventures have recognized impairment losses on real estate assets
in 2001, 2000 or 1999.
Deferred Project Costs
Wells Capital, Inc., our advisor, expects to continue to fund 100% of
the acquisition and advisory fees and acquisition expenses and recognize related
expenses, to the extent that such costs exceed 3.5% of cumulative capital raised
(subject to certain overall limitations described in this prospectus) on our
behalf. We record acquisition and advisory fees and acquisition expenses by
capitalizing deferred project costs and reimbursing our advisor in an amount
equal to 3.5% of cumulative capital raised to date. As we invest our capital
proceeds, deferred project costs are applied to real estate assets, either
directly or through contributions to joint ventures, at an amount equal to 3.5%
of each investment and depreciated over the useful lives of the respective real
estate assets.
Deferred Offering Costs
Our advisor expects to continue to fund 100% of the organization and
offering costs and recognize related expenses, to the extent that such costs
exceed 3% of cumulative capital raised, on our behalf. Organization and offering
costs include items such as legal and accounting fees, marketing and promotional
costs, and printing costs, and specifically exclude sales costs and underwriting
commissions. We record offering costs by accruing deferred offering costs, with
an offsetting liability included in due to affiliates, at an amount equal to the
lesser of 3% of cumulative capital raised to date or actual costs incurred from
third-parties less reimbursements paid to our advisor. As the actual equity is
raised, we reverse the deferred offering costs accrual and recognize a charge to
stockholders' equity upon reimbursing our advisor.
7
Financial Statements
The consolidated balance sheets of the Wells REIT, as of December 31,
2001 and 2000, and the financial statements of the Wells REIT for each of the
years in the three year period ended December 31, 2001, included in this
supplement and elsewhere in the registration statement, have been audited by
Arthur Andersen LLP, independent public accountants, as indicated in their
report with respect thereto, and are included in this supplement in reliance
upon the authority of said firm as experts in giving said report.
Schedule III-Real Estate Investments and Accumulated Depreciation, as
of December 31, 2001, which is included in this supplement, has not been
audited.
Prior Performance Tables
The prior performance tables dated as of December 31, 2001, which are
included in this supplement, have not been audited.
8
INDEX TO FINANCIAL STATEMENTS AND PRIOR PERFORMANCE TABLES
Page
----
Wells Real Estate Investment Trust, Inc. and Subsidiary
Audited Financial Statements
----------------------------
Report of Independent Public Accountants 10
Consolidated Balance Sheets as of December 31, 2001 and
December 31, 2000 11
Consolidated Statements of Income for the years ended
December 31, 2001, December 31, 2000, and December 31, 1999 12
Consolidated Statements of Shareholders' Equity for the years ended
December 31, 2001, December 31, 2000, and December 31, 1999 13
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, December 31, 2000, and December 31, 1999 14
Notes to Consolidated Financial Statements
December 31, 2001, December 31, 2000, and December 31, 1999 15
Unaudited Financial Statements
------------------------------
Schedule III-Real Estate Investments and Accumulated
Depreciation as of December 31, 2001 49
Prior Performance Tables (Unaudited) 54
9
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying consolidated balance sheets of Wells Real
Estate investment trust, inc. (a Maryland corporation) and subsidiary as of
December 31, 2001 and 2000 and the related consolidated statements of income,
shareholders' equity, and cash flows for each of the three years in the period
ended December 31, 2001. These financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements and
schedule are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Wells Real Estate Investment
Trust, Inc. and subsidiary as of December 31, 2001 and 2000 and the results of
their operations and their cash flows for each of the three years in the period
ended December 31, 2001 in conformity with accounting principles generally
accepted in the United States.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. Schedule III--Real Estate Investments and
Accumulated Depreciation as of December 31, 2001 is presented for purposes of
complying with the Securities and Exchange Commission's rules and is not part of
the basic financial statements. This schedule has been subjected to the auditing
procedures applied in the audits of the basic financial statements and, in our
opinion, fairly states, in all material respects, the financial data required to
be set forth therein in relation to the basic financial statements taken as a
whole.
/s/ Arthur Andersen LLP
Atlanta, Georgia
January 25, 2002
10
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
--------------- ---------------
REAL ESTATE ASSETS, at cost:
Land $ 86,246,985 $ 46,237,812
Building, less accumulated depreciation of $24,814,454 and $9,469,653 at
December 31, 2001 and 2000, respectively 472,383,102 287,862,655
Construction in progress 5,738,573 3,357,720
--------------- ---------------
Total real estate assets 564,368,660 337,458,187
INVESTMENT IN JOINT VENTURES 77,409,980 44,236,597
CASH AND CASH EQUIVALENTS 75,586,168 4,298,301
INVESTMENT IN BONDS 22,000,000 0
ACCOUNTS RECEIVABLE 6,003,179 3,781,034
DEFERRED PROJECT COSTS 2,977,110 550,256
DUE FROM AFFILIATES 1,692,727 309,680
DEFERRED LEASE ACQUISITION COSTS 1,525,199 1,890,332
DEFERRED OFFERING COSTS 0 1,291,376
PREPAID EXPENSES AND OTHER ASSETS, net 718,389 4,734,583
--------------- ---------------
Total assets $ 752,281,412 $ 398,550,346
=============== ===============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable $ 8,124,444 $ 127,663,187
Obligation under capital lease 22,000,000 0
Accounts payable and accrued expenses 8,727,473 2,166,387
Due to affiliate 2,166,161 1,772,956
Dividends payable 1,059,026 1,025,010
Deferred rental income 661,657 381,194
--------------- ---------------
Total liabilities $ 42,738,761 $ 133,008,734
--------------- ---------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 200,000
--------------- ---------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 125,000,000 shares authorized, 83,761,469
shares issued and 83,206,429 shares outstanding at December 31, 2001;
125,000,000 shares authorized, 31,509,807 shares issued, and 31,368,510
shares outstanding at December 31, 2000 837,614 315,097
Additional paid-in capital 738,236,525 275,573,339
Cumulative distributions in excess of earnings (24,181,092) (9,133,855)
Treasury stock, at cost, 555,040 shares at December 31, 2001 and 141,297
shares at December 31, 2000 (5,550,396) (1,412,969)
--------------- ---------------
Total shareholders' equity 709,342,651 265,341,612
--------------- ---------------
Total liabilities and shareholders' equity $ 752,281,412 $ 398,550,346
=============== ===============
The accompanying notes are an integral part of these consolidated balance
sheets.
11
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
-------------- -------------- --------------
REVENUES:
Rental income $ 44,204,279 $ 20,505,000 $ 4,735,184
Equity in income of joint ventures 3,720,959 2,293,873 1,243,969
Take out fee (Note 9) 137,500 0 0
Interest and other income 1,246,064 574,333 516,242
-------------- -------------- --------------
49,308,802 23,373,206 6,495,395
-------------- -------------- --------------
EXPENSES:
Depreciation 15,344,801 7,743,551 1,726,103
Interest expense 3,411,210 3,966,902 442,029
Amortization of deferred financing costs 770,192 232,559 8,921
Operating costs, net of reimbursements 4,128,883 888,091 (74,666)
Management and leasing fees 2,507,188 1,309,974 257,744
General and administrative 973,785 438,953 135,144
Legal and accounting 448,776 240,209 115,471
-------------- -------------- --------------
27,584,835 14,820,239 2,610,746
-------------- -------------- --------------
NET INCOME $ 21,723,967 $ 8,552,967 $ 3,884,649
============== ============== ==============
EARNINGS PER SHARE:
Basic and diluted $0.43 $0.40 $0.50
============== ============== ==============
The accompanying notes are an integral part of these consolidated statements.
12
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
Cumulative
Additional Distributions Total
Common Stock Paid-In in Excess Retained Treasury Stock Shareholders'
--------------------- ----------------------
Shares Amount Capital of Earnings Earnings Shares Amount Equity
---------- --------- ------------- -------------- ----------- ---------- --------- -------------
BALANCE, December 31,
1998 3,154,136 $ 31,541 $ 27,567,275 $ (511,163) $ 334,034 0 0 $ 27,421,687
Issuance of common
stock 10,316,949 103,169 103,066,321 0 0 0 0 103,169,490
Net income 0 0 0 0 3,884,649 0 0 3,884,649
Dividends ($.70 per
share) 0 0 0 (1,346,240) (4,218,683) 0 0 (5,564,923)
Sales commissions and
discounts 0 0 (9,801,197) 0 0 0 0 (9,801,197)
Other offering expenses 0 0 (3,094,111) 0 0 0 0 (3,094,111)
---------- --------- ------------- ------------ ----------- -------- --------- -------------
BALANCE, December 31,
1999 13,471,085 134,710 117,738,288 (1,857,403) 0 0 0 116,015,595
Issuance of common
stock 18,038,722 180,387 180,206,833 0 0 0 0 180,387,220
Treasury stock 0
purchased 0 0 0 0 (141,297) (1,412,969) (1,412,969)
Net income 0 0 0 0 8,552,967 0 0 8,552,967
Dividends ($.73 per
share) 0 0 0 (7,276,452) (8,552,967) 0 0 (15,829,419)
Sales commissions and
discounts 0 0 (17,002,554) 0 0 0 0 (17,002,554)
Other offering expenses 0 0 (5,369,228) 0 0 0 0 (5,369,228)
---------- --------- ------------- ------------ ----------- -------- --------- -------------
BALANCE, December 31,
2000 31,509,807 315,097 275,573,339 (9,133,855) 0 (141,297) (1,412,969) 265,341,612
Issuance of common
stock 52,251,662 522,517 521,994,103 0 0 0 0 522,516,620
Treasury stock
purchased 0 0 0 0 0 (413,743) (4,137,427) (4,137,427)
Net income 0 0 0 0 21,723,967 0 0 21,723,967
Dividends ($.76 per
share) 0 0 0 (15,047,237) (21,723,967) 0 0 (36,771,204)
Sales commissions and
discounts 0 0 (49,246,118) 0 0 0 0 (49,246,118)
Other offering expenses 0 0 (10,084,799) 0 0 0 (10,084,799)
---------- --------- ------------- ------------ ----------- -------- ----------- -------------
BALANCE, December 31,
2001 83,761,469 $ 837,614 $ 738,236,525 $(24,181,092) $ 0 (555,040) $(5,550,396) $ 709,342,651
========== ========= ============= ============ =========== ======== =========== =============
The accompanying notes are an integral part of
these consolidated statements.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
--------------- --------------- ---------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,723,967 $ 8,552,967 $ 3,884,649
--------------- --------------- ---------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Equity in income of joint ventures (3,720,959) (2,293,873) (1,243,969)
Depreciation 15,344,801 7,743,551 1,726,103
Amortization of deferred financing costs 770,192 232,559 8,921
Amortization of deferred leasing costs 303,347 350,991 0
Write-off of deferred lease acquisition fees 61,786 0 0
Changes in assets and liabilities:
Accounts receivable (2,222,145) (2,457,724) (898,704)
Due from affiliates 10,995 (435,600) 0
Prepaid expenses and other assets, net 3,246,002 (6,826,568) 149,501
Accounts payable and accrued expenses 6,561,086 1,941,666 36,894
Deferred rental income 280,463 144,615 236,579
Due to affiliates (10,193) 367,055 108,301
--------------- --------------- ---------------
Total adjustments 20,625,375 (1,233,328) 123,626
--------------- --------------- ---------------
Net cash provided by operating activities 42,349,342 7,319,639 4,008,275
--------------- --------------- ---------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (227,933,858) (231,518,138) (85,514,506)
Investment in joint ventures (33,690,862) (15,063,625) (17,641,211)
Deferred project costs paid (17,220,446) (6,264,098) (3,610,967)
Distributions received from joint ventures 4,239,431 3,529,401 1,371,728
--------------- --------------- ---------------
Net cash used in investing activities (274,605,735) (249,316,460) (105,394,956)
--------------- --------------- ---------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 110,243,145 187,633,130 40,594,463
Repayments of notes payable (229,781,888) (83,899,171) (30,725,165)
Dividends paid to shareholders (36,737,188) (16,971,110) (3,806,398)
Issuance of common stock 522,516,620 180,387,220 103,169,490
Treasury stock purchased (4,137,427) (1,412,969) 0
Sales commissions paid (49,246,118) (17,002,554) (9,801,197)
Offering costs paid (9,312,884) (5,369,228) (3,094,111)
--------------- --------------- ---------------
Net cash provided by financing activities 303,544,260 243,365,318 96,337,082
--------------- --------------- ---------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 71,287,867 1,368,497 (5,049,599)
CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR 4,298,301 2,929,804 7,979,403
--------------- --------------- ---------------
CASH AND CASH EQUIVALENTS, END OF YEAR $ 75,586,168 $ 4,298,301 $ 2,929,804
=============== =============== ===============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Deferred project costs applied to real estate assets $ 14,321,416 $ 5,114,279 $ 3,183,239
=============== =============== ===============
Deferred project costs contributed to joint ventures $ 1,395,035 $ 627,656 $ 735,056
=============== =============== ===============
Deferred project costs due to affiliate $ 1,114,140 $ 191,281 $ 191,783
=============== =============== ===============
Deferred offering costs due to affiliate $ 0 $ 1,291,376 $ 964,941
=============== =============== ===============
Reversal of deferred offering costs due to affiliate $ 964,941 $ 0 $ 0
=============== =============== ===============
Other offering expenses due to affiliate $ 943,107 $ 0 $ 0
=============== =============== ===============
Assumption of obligation under capital lease $ 22,000,000 $ 0 $ 0
=============== =============== ===============
Investment in bonds $ 22,000,000 $ 0 $ 0
=============== =============== ===============
The accompanying notes are an integral part of these consolidated statements.
14
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
1. Organization and Summary of Significant Accounting Policies
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation that qualifies as a real estate investment trust ("REIT"). The
Company is conducting an offering for the sale of a maximum of 125,000,000
(exclusive of 10,000,000 shares available pursuant to the Company's
dividend reinvestment program) shares of common stock, $.01 par value per
share, at a price of $10 per share. The Company will seek to acquire and
operate commercial properties, including, but not limited to, office
buildings, shopping centers, business and industrial parks, and other
commercial and industrial properties, including properties which are under
construction, are newly constructed, or have been constructed and have
operating histories. All such properties may be acquired, developed, and
operated by the Company alone or jointly with another party. The Company
is likely to enter into one or more joint ventures with affiliated
entities for the acquisition of properties. In connection therewith, the
Company may enter into joint ventures for the acquisition of properties
with prior or future real estate limited partnership programs sponsored by
Wells Capital, Inc. (the "Advisor") or its affiliates.
Substantially all of the Company's business is conducted through Wells
Operating Partnership, L.P. (the "Operating Partnership"), a Delaware
limited partnership. During 1997, the Operating Partnership issued 20,000
limited partner units to the Advisor in exchange for $200,000. The Company
is the sole general partner in the Operating Partnership and possesses
full legal control and authority over the operations of the Operating
Partnership; consequently, the accompanying consolidated financial
statements of the Company include the accounts of the Operating
Partnership. All significant intercompany balances have been eliminated in
consolidation.
The Company owns interests in the following properties directly through
its ownership in the Operating Partnership: (i) the PricewaterhouseCoopers
property (the "PwC Building"), a four-story office building located in
Tampa, Florida; (ii) the AT&T Building, a four-story office building
located in Harrisburg, Pennsylvania; (iii) the Marconi Data Systems
property (the "Marconi Building"), a two-story office, assembly, and
manufacturing building located in Wood Dale, Illinois; (iv) the Cinemark
Property (the "Cinemark Building"), a five-story office building located
in Plano, Texas; (v) the Matsushita Property (the "Matsushita Building"),
a two-story office building located in Lake Forest, California; (vi) the
ASML Property (the "ASML Building"), a two-story office and warehouse
building located in Tempe, Arizona; (vii) the Motorola Property (the
"Motorola Tempe Building"), a two-story office building located in Tempe,
Arizona; (viii) the Dial Property (the "Dial Building"), a two-story
office building located in Scottsdale, Arizona; (ix) the Delphi Building,
a three-story office building located in Troy, Michigan; (x) the Avnet
Property (the "Avnet Building"), a two-story office building located in
Tempe, Arizona; (xi) the Metris Oklahoma Building, a three-story office
building located in Tulsa, Oklahoma; (xii) the Alstom Power-Richmond
Building, a four-story office building located in Richmond, Virginia;
(xiii) the Motorola Plainfield Building, a three-story office building
located in South Plainfield, New Jersey; (xiv) the Stone & Webster
Building, a six-story office building located in Houston, Texas; (xv) the
Metris Minnetonka Building, a nine-story office building located in
Minnetonka, Minnesota; (xvi) the State Street Bank Building, a seven-story
office building located in Quincy, Massachusetts; (xvii) the IKON
Buildings, two one-story office buildings located in Houston, Texas;
(xviii) the Ingram Micro Distribution Facility, a one-story office and
warehouse building located in Millington, Tennessee; (xix) the Lucent
Building, a four-story office building located in Cary, North Carolina;
(xx) the Nissan land (the "Nissan Property"), a 14.873 acre tract of
undeveloped land located in Irving, Texas; (xxi) the Convergys Building, a
two-story office building located in Tamarac, Florida; and (xxii) the
Windy Point Buildings, a seven-story office building and an eleven-story
office building located in Schaumburg, Illinois.
15
The Company owns an interest in one property through a joint venture
between the Operating Partnership, Wells Real Estate Fund VIII, L.P.
("Wells Fund VIII"), and Wells Real Estate Fund IX, L.P. ("Wells Fund
IX"), which is referred to as the Fund VIII, IX, and REIT Joint Venture.
The Company also owns interests in five properties through a joint venture
between the Operating Partnership, Wells Fund IX, Wells Real Estate Fund
X, L.P. ("Wells Fund X"), and Wells Real Estate Fund XI, L.P. ("Wells Fund
XI"), which is referred to as the Fund IX, Fund X, Fund XI, and REIT Joint
Venture. The Company owns an interest in one property through each of two
unique joint ventures between the Operating Partnership and Fund X and XI
Associates, a joint venture between Wells Fund X and Wells Fund XI. In
addition, the Company owns interests in four properties through a joint
venture between the Operating Partnership, Wells Fund XI, and Wells Real
Estate Fund XII, L.P. ("Wells Fund XII"), which is referred to as the Fund
XI, XII, and REIT Joint Venture. The Company owns interests in three
properties through a joint venture between the Operating Partnership and
Wells Fund XII, which is referred to as the Fund XII and REIT Joint
Venture. The Company also owns interests in two properties through a joint
venture between the Operating Partnership and Wells Fund XIII, which is
referred to as the Fund XIII and REIT Joint Venture.
Through its investment in the Fund VIII, IX, and REIT Joint Venture, the
Company owns an interest in a two-story office building in Irvine,
California (the "Quest Building").
The following properties are owned by the Company through its investment
in the Fund IX, X, XI, and REIT Joint Venture: (i) a three-story office
building in Knoxville, Tennessee (the "Alstom Power Building"), (ii) a
two-story office building in Louisville, Colorado (the "Ohmeda Building"),
(iii) a three-story office building in Broomfield, Colorado (the "360
Interlocken Building"), (iv) a one-story office and warehouse building in
Ogden, Utah (the "Iomega Building"), and (v) a one-story office building
in Oklahoma City, Oklahoma (the "Avaya Building").
Through its investment in two joint ventures with Fund X and XI
Associates, the Company owns interests in the following properties: (i) a
one-story office and warehouse building in Fountain Valley, California
(the "Cort Furniture Building"), owned by Wells/Orange County Associates
and (ii) a two-story manufacturing and office building in Fremont,
California (the "Fairchild Building"), owned by Wells/Fremont Associates.
The following properties are owned by the Company through its investment
in the Fund XI, XII, and REIT Joint Venture: (i) a two-story manufacturing
and office building in Fountain Inn, South Carolina (the "EYBL CarTex
Building"), (ii) a three-story office building Leawood, Kansas (the
"Sprint Building"), (iii) an office and warehouse building in Chester
County, Pennsylvania (the "Johnson Matthey Building"), and (iv) a
two-story office building in Ft. Myers, Florida (the "Gartner Building").
Through its investment in the Fund XII and REIT Joint Venture, the Company
owns interests in the following properties: (i) a three-story office
building in Troy, Michigan (the "Siemens Building"), (ii) a one-story
office building and a two-story office building in Oklahoma City, Oklahoma
(collectively referred to as the "AT&T Call Center Buildings"), and (iii)
a three-story office building in Brentwood, Tennessee (the "Comdata
Building").
The following properties are owned by the Company through its investment
in the Fund XIII and REIT Joint Venture: (i) a one-story office building
in Orange Park, Florida (the "AmeriCredit Building"), and (ii) two
connected one-story office and assembly buildings in Parker, Colorado (the
"ADIC Buildings").
Use of Estimates and Factors Affecting the Company
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The carrying values of real estate are based on management's current
intent to hold the real estate assets as long-term investments. The
success of the Company's future operations and the ability to realize the
investment in its assets will be dependent on the Company's ability to
maintain rental rates, occupancy, and an appropriate level of
16
operating expenses in future years. Management believes that the steps it
is taking will enable the Company to realize its investment in its assets.
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended. To qualify as a REIT, the Company must meet a
number of organizational and operational requirements, including a
requirement to currently distribute at least 90% of the REIT's ordinary
taxable income to shareholders. It is management's current intention to
adhere to these requirements and maintain the Company's REIT status. As a
REIT, the Company generally will not be subject to federal income tax on
distributed taxable income. Even if the Company qualifies as a REIT, it
may be subject to certain state and local taxes on its income and real
estate assets, and to federal income and excise taxes on its undistributed
taxable income. No provision for federal income taxes has been made in the
accompanying consolidated financial statements, as the Company made
distributions equal to or in excess of its taxable income in each of the
three years in the period ended December 31, 2001.
Real Estate Assets
Real estate assets held by the Company and joint ventures are stated at
cost less accumulated depreciation. Major improvements and betterments are
capitalized when they extend the useful life of the related asset. All
repair and maintenance expenditures are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the
asset and its eventual disposition. Management has determined that there
has been no impairment in the carrying value of real estate assets held by
the Company or the joint ventures as of December 31, 2001 and 2000.
Depreciation of building and improvements is calculated using the
straight-line method over 25 years. Tenant improvements are amortized over
the life of the related lease or the life of the asset, whichever is
shorter.
Revenue Recognition
All leases on real estate assets held by the Company or the joint ventures
are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective
leases.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers
all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized
on a straight-line basis over the terms of the related leases.
Earnings Per Share
Earnings per share are calculated based on the weighted average number of
common shares outstanding during each period. The weighted average number
of common shares outstanding is identical for basic and fully diluted
earnings per share, as there is no dilutive impact created from the
Company's stock option plan (Note 10) using the treasury stock method.
17
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year financial statement presentation.
Investment in Joint Ventures
Basis of Presentation
The Operating Partnership does not have control over the operations
of the joint ventures; however, it does exercise significant
influence. Accordingly, the Operating Partnership's investments in
joint ventures are recorded using the equity method of accounting.
Partners' Distributions and Allocations of Profit and Loss
Cash available for distribution and allocations of profit and loss
to the Operating Partnership by the joint ventures are made in
accordance with the terms of the individual joint venture
agreements. Generally, these items are allocated in proportion to
the partners' respective ownership interests. Cash is paid from the
joint ventures to the Operating Partnership on a quarterly basis.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and
amortized on a straight-line basis over the terms of the related
leases. Deferred lease acquisition costs are included in prepaid
expenses and other assets, net, in the balance sheets presented in
Note 5.
2. DEFERRED PROJECT COSTS
The Company paid a percentage of shareholder contributions to the Advisor
for acquisition and advisory services and acquisition expenses. These
payments, as stipulated in the prospectus, can be up to 3.5% of
shareholder contributions, subject to certain overall limitations
contained in the prospectus. Aggregate fees paid through December 31, 2001
were $29,122,286 and amounted to 3.5% of shareholders' contributions
received. These fees are allocated to specific properties as they are
purchased or developed and are included in capitalized assets of the joint
ventures or real estate assets. Deferred project costs at December 31,
2001 and 2000 represent fees not yet applied to properties.
3. DEFERRED OFFERING COSTS
Offering expenses, to the extent they exceed 3% of gross offering
proceeds, will be paid by the Advisor and not by the Company. Offering
expenses include such costs as legal and accounting fees, printing costs,
and other offering expenses and specifically exclude sales costs and
underwriting commissions.
As of December 31, 2001, the Advisor paid offering expenses on behalf of
the Company in the aggregate amount of $20,459,289, of which the Advisor
had been reimbursed $18,551,241, which did not exceed the 3% limitation.
18
4. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 2001 and 2000 represents the Operating
Partnership's share of the cash to be distributed from its joint venture
investments for the fourth quarter of 2001 and 2000 and advances due from
the Advisor as of December 31, 2000:
2001 2000
------------- -------------
Fund VIII, IX, and REIT Joint Venture $ 46,875 $ 21,605
Fund IX, X, XI, and REIT Joint Venture 36,073 12,781
Wells/Orange County Associates 83,847 24,583
Wells/Fremont Associates 164,196 53,974
Fund XI, XII, and REIT Joint Venture 429,980 136,648
Fund XII and REIT Joint Venture 680,542 49,094
Fund XIII and REIT 251,214 0
Advisor 0 10,995
------------- -------------
$ 1,692,727 $ 309,680
============= =============
The Operating Partnership entered into a property management and leasing
agreement with Wells Management Company, Inc. ("Wells Management"), an
affiliate of the Advisor. In consideration for supervising the management
and leasing of the Operating Partnership's properties, the Operating
Partnership will pay management and leasing fees equal to the lesser of
(a) 4.5% of the gross revenues generally paid over the life of the lease
or (b) .6% of the net asset value of the properties (excluding vacant
properties) owned by the Company to Wells Management. These management and
leasing fees are calculated on an annual basis plus a separate competitive
fee for the one-time initial lease-up of newly constructed properties
generally paid in conjunction with the receipt of the first month's rent.
The Operating Partnership's portion of the management and leasing fees and
lease acquisition costs paid to Wells Management, both directly and at the
joint venture level, were $2,468,294, $1,111,748, and $336,517 for the
years ended December 31, 2001, 2000, and 1999, respectively.
The Advisor performs certain administrative services for the Operating
Partnership, such as accounting and other partnership administration, and
incurs the related expenses. Such expenses are allocated among the
Operating Partnership and the various Wells Real Estate Funds based on
time spent on each fund by individual administrative personnel. In the
opinion of management, such allocation is a reasonable basis for
allocating such expenses.
The Advisor is a general partner in various Wells Real Estate Funds. As
such, there may exist conflicts of interest where the Advisor, while
serving in the capacity as general partner for Wells Real Estate Funds,
may be in competition with the Operating Partnership for tenants in
similar geographic markets.
19
5. INVESTMENT IN JOINT VENTURES
The Operating Partnership's investment and percentage ownership in joint
ventures at December 31, 2001 and 2000 are summarized as follows:
2001 2000
------------------------ ------------------------
Amount Percent Amount Percent
-------------- --------- -------------- ---------
Fund VIII, IX, and REIT Joint Venture $ 1,189,067 16% $ 1,276,551 16%
Fund IX, X, XI, and REIT Joint Venture 1,290,360 4 1,339,636 4
Wells/Orange County Associates 2,740,000 44 2,827,607 44
Wells/Fremont Associates 6,575,358 78 6,791,287 78
Fund XI, XII, and REIT Joint Venture 17,187,985 57 17,688,615 57
Fund XII and REIT Joint Venture 30,299,872 55 14,312,901 47
Fund XIII and REIT Joint Venture 18,127,338 68 0 0
-------------- --------------
$ 77,409,980 $ 44,236,597
============== ==============
The following is a roll forward of the Operating Partnership's investment
in joint ventures for the years ended December 31, 2001 and 2000:
2001 2000
---------------- ----------------
Investment in joint ventures, beginning of year $ 44,236,597 $ 29,431,176
Equity in income of joint ventures 3,720,959 2,293,873
Contributions to joint ventures 35,085,897 15,691,281
Distributions from joint ventures (5,633,473) (3,179,733)
---------------- ----------------
Investment in joint ventures, end of year $ 77,409,980 $ 44,236,597
================ ================
FUND VIII, IX, AND REIT JOINT VENTURE
On June 15, 2000, Fund VIII and IX Associates, a joint venture between
Wells Real Estate Fund VIII, L.P. ("Fund VIII") and Wells Real Estate Fund
IX, L.P. ("Fund IX"), entered into a joint venture with the Operating
Partnership to form Fund VIII, IX, and REIT Joint Venture, for the purpose
of acquiring, developing, operating, and selling real properties.
On July 1, 2000, Fund VIII and IX Associates contributed the Quest
Building (formerly the Bake Parkway Building) to the joint venture. Fund
VIII, IX, and REIT Joint Venture recorded the net assets of the Quest
Building at an amount equal to the respective historical net book values.
The Quest Building is a two-story office building containing approximately
65,006 rentable square feet on a 4.4-acre tract of land in Irvine,
California. During 2000, the Operating Partnership contributed $1,282,111
to the Fund VIII, IX, and REIT Joint Venture. Ownership percentage
interests were recomputed accordingly.
20
Following are the financial statements for Fund VIII, IX, and REIT Joint
Venture:
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
-------------- --------------
Real estate assets, at cost:
Land $ 2,220,993 $ 2,220,993
Building and improvements, less accumulated depreciation of $649,436 in
2001 and $187,891 in 2000 4,952,724 5,408,892
-------------- --------------
Total real estate assets 7,173,717 7,629,885
Cash and cash equivalents 297,533 170,664
Accounts receivable 164,835 197,802
Prepaid expenses and other assets, net 191,799 283,864
-------------- --------------
Total assets $ 7,827,884 $ 8,282,215
============== ==============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 676 $ 0
Partnership distributions payable 296,856 170,664
-------------- --------------
Total liabilities 297,532 170,664
-------------- --------------
Partners' capital:
Fund VIII and IX Associates 6,341,285 6,835,000
Wells Operating Partnership, L.P. 1,189,067 1,276,551
-------------- --------------
Total partners' capital 7,530,352 8,111,551
-------------- --------------
Total liabilities and partners' capital $ 7,827,884 $ 8,282,215
============== ==============
21
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
2001 2000
------------ -----------
Revenues:
Rental income $ 1,207,995 $ 563,049
Interest income 729 0
------------ -----------
1,208,724 563,049
------------ -----------
Expenses:
Depreciation 461,545 187,891
Management and leasing fees 142,735 54,395
Property administration expenses 22,278 5,692
Operating costs, net of reimbursements 15,326 5,178
------------ -----------
641,884 253,156
------------ -----------
Net income $ 566,840 $ 309,893
============ ===========
Net income allocated to Fund VIII and IX Associates $ 477,061 $ 285,006
============ ===========
Net income allocated to Wells Operating Partnership, L.P. $ 89,779 $ 24,887
============ ===========
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
Fund VIII Wells Total
and IX Operating Partners'
Associates Partnership, L.P. Capital
------------- ----------------- --------------
Balance, June 15, 2000 (inception) $ 0 $ 0 $ 0
Net income 285,006 24,887 309,893
Partnership contributions 6,857,889 1,282,111 8,140,000
Partnership distributions (307,895) (30,447) (338,342)
------------- --------------- --------------
Balance, December 31, 2000 6,835,000 1,276,551 8,111,551
Net income 477,061 89,779 566,840
Partnership contributions 0 5,377 5,377
Partnership distributions (970,776) (182,640) (1,153,416)
------------- --------------- --------------
Balance, December 31, 2001 $ 6,341,285 $ 1,189,067 $ 7,530,352
============= =============== ==============
22
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
2001 2000
------------- ------------
Cash flows from operating activities:
Net income $ 566,840 $ 309,893
------------- ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 461,545 187,891
Changes in assets and liabilities:
Accounts receivable 32,967 (197,802)
Prepaid expenses and other assets, net 92,065 (283,864)
Accounts payable 676 0
------------- ------------
Total adjustments 587,253 (293,775)
------------- ------------
Net cash provided by operating activities 1,154,093 16,118
------------- ------------
Cash flows from investing activities:
Investment in real estate (5,377) (959,887)
------------- ------------
Cash flows from financing activities:
Contributions from joint venture partners 5,377 1,282,111
Distributions to joint venture partners (1,027,224) (167,678)
------------- ------------
Net cash (used in) provided by financing activities (1,021,847) 1,114,433
------------- ------------
Net increase in cash and cash equivalents 126,869 170,664
Cash and cash equivalents, beginning of period 170,664 0
------------- ------------
Cash and cash equivalents, end of year $ 297,533 $ 170,664
============= ============
Supplemental disclosure of noncash activities:
Real estate contribution received from joint venture partner $ 0 $ 6,857,889
============= ============
Fund IX, X, XI, and REIT Joint Venture
On March 20, 1997, Fund IX and Wells Real Estate Fund X, L.P. ("Fund X") entered
into a joint venture agreement. The joint venture, Fund IX and X Associates, was
formed to acquire, develop, operate, and sell real properties. On March 20,
1997, Wells Fund IX contributed a 5.62-acre tract of real property in Knoxville,
Tennessee, and improvements thereon, known as the Alstom Power Building, to the
Fund IX and X Associates joint venture. An 84,404-square foot, three-story
building was constructed and commenced operations at the end of 1997.
On February 13, 1998, the joint venture purchased a two-story office building,
known as the Ohmeda Building, in Louisville, Colorado. On March 20, 1998, the
joint venture purchased a three-story office building, known as the 360
Interlocken Building, in Broomfield, Colorado. On June 11, 1998, Fund IX and X
Associates was amended and restated to admit Wells Real Estate Fund XI, L.P.
("Fund XI") and the Operating Partnership. The joint venture was renamed the
Fund IX, X, XI, and REIT Joint Venture. On June 24, 1998, the new joint venture
purchased a one-story office building, known as the Avaya Building, in Oklahoma
City, Oklahoma. On April 1, 1998, Wells Fund X purchased a one-story warehouse
facility, known as the Iomega Building, in Ogden, Utah. On July 1, 1998, Wells
Fund X contributed the Iomega Building to the Fund IX, X, XI, and REIT Joint
Venture.
During 1999, Fund IX and Fund XI made contributions to the Fund IX, X, XI, and
REIT Joint Venture; during 2000, Fund IX and Fund X made contributions to the
Fund IX, X, XI, and REIT Joint Venture.
23
Following are the financial statements for the Fund IX, X, XI, and REIT Joint
Venture:
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------- -------------
Real estate assets, at cost:
Land $ 6,698,020 $ 6,698,020
Building and improvements, less accumulated depreciation of
$5,619,744 in 2001 and $4,203,502 in 2000 27,178,526 28,594,768
------------- -------------
Total real estate assets, net 33,876,546 35,292,788
Cash and cash equivalents 1,555,917 1,500,044
Accounts receivable 596,050 422,243
Prepaid expenses and other assets, net 439,002 487,276
------------- -------------
Total assets $ 36,467,515 $ 37,702,351
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued liabilities $ 620,907 $ 568,517
Refundable security deposits 100,336 99,279
Due to affiliates 13,238 9,595
Partnership distributions payable 966,912 931,151
------------- -------------
Total liabilities 1,701,393 1,608,542
------------- -------------
Partners' capital:
Wells Real Estate Fund IX 13,598,505 14,117,803
Wells Real Estate Fund X 16,803,586 17,445,277
Wells Real Estate Fund XI 3,073,671 3,191,093
Wells Operating Partnership, L.P. 1,290,360 1,339,636
------------- -------------
Total partners' capital 34,766,122 36,093,809
------------- -------------
Total liabilities and partners' capital $ 36,467,515 $ 37,702,351
============= =============
24
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Revenues:
Rental income $ 4,174,379 $ 4,198,388 $ 3,932,962
Other income 119,828 116,129 61,312
Interest income 50,002 73,676 58,768
----------- ----------- -----------
4,344,209 4,388,193 4,053,042
----------- ----------- -----------
Expenses:
Depreciation 1,416,242 1,411,434 1,538,912
Management and leasing fees 357,761 362,774 286,139
Operating costs, net of reimbursements (232,601) (133,505) (34,684)
Property administration expense 91,747 57,924 59,886
Legal and accounting 26,223 20,423 30,545
1,659,372 1,719,050 1,880,798
----------- ----------- -----------
Net income $ 2,684,837 $ 2,669,143 $ 2,172,244
=========== =========== ===========
Net income allocated to Wells Real Estate Fund IX $ 1,050,156 $ 1,045,094 $ 850,072
=========== =========== ===========
Net income allocated to Wells Real Estate Fund X $ 1,297,665 $ 1,288,629 $ 1,056,316
=========== =========== ===========
Net income allocated to Wells Real Estate Fund XI $ 237,367 $ 236,243 $ 184,355
=========== =========== ===========
Net income allocated to Wells Operating Partnership, L.P. $ 99,649 $ 99,177 $ 81,501
=========== =========== ===========
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Wells Real Wells Real Wells Real Operating Total
Estate Estate Estate Partnership, Partners'
Fund IX Fund X Fund XI L.P. Capital
------------ ------------ ----------- ------------ ------------
Balance, December 31, 1998 $ 14,960,100 $ 18,707,139 $ 2,521,003 $ 1,443,378 $ 37,631,620
Net income 850,072 1,056,316 184,355 81,501 2,172,244
Partnership contributions 198,989 0 911,027 0 1,110,016
Partnership distributions (1,418,535) (1,762,586) (307,982) (135,995) (3,625,098)
------------ ------------ ----------- ----------- ------------
Balance, December 31, 1999 14,590,626 18,000,869 3,308,403 1,388,884 37,288,782
Net income 1,045,094 1,288,629 236,243 99,177 2,669,143
Partnership contributions 46,122 84,317 0 0 130,439
Partnership distributions (1,564,039) (1,928,538) (353,553) (148,425) (3,994,555)
------------ ------------ ----------- ----------- ------------
Balance, December 31, 2000 14,117,803 17,445,277 3,191,093 1,339,636 36,093,809
Net income 1,050,156 1,297,665 237,367 99,649 2,684,837
Partnership distributions (1,569,454) (1,939,356) (354,789) (148,925) (4,012,524)
------------ ------------ ----------- ----------- ------------
Balance, December 31, 2001 $ 13,598,505 $ 16,803,586 $ 3,073,671 $ 1,290,360 $ 34,766,122
============ ============ =========== =========== ============
25
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
-------------- ------------- ------------
Cash flows from operating activities:
Net income $ 2,684,837 $ 2,669,143 $ 2,172,244
-------------- ------------- ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,416,242 1,411,434 1,538,912
Changes in assets and liabilities:
Accounts receivable (173,807) 132,722 (421,708)
Prepaid expenses and other assets, net 48,274 39,133 (85,281)
Accounts payable and accrued liabilities, and
refundable security deposits 53,447 (37,118) 295,177
Due to affiliates 3,643 3,216 1,973
-------------- ------------- ------------
Total adjustments 1,347,799 1,549,387 1,329,073
-------------- ------------- ------------
Net cash provided by operating activities 4,032,636 4,218,530 3,501,317
-------------- ------------- ------------
Cash flows from investing activities:
Investment in real estate 0 (127,661) (930,401)
-------------- ------------- ------------
Cash flows from financing activities:
Distributions to joint venture partners (3,976,763) (3,868,138) (3,820,491)
Contributions received from partners 0 130,439 1,066,992
-------------- ------------- ------------
Net cash used in financing activities (3,976,763) (3,737,699) (2,753,499)
-------------- ------------- ------------
Net increase (decrease) in cash and cash equivalents 55,873 353,170 (182,583)
Cash and cash equivalents, beginning of year 1,500,044 1,146,874 1,329,457
-------------- ------------- ------------
Cash and cash equivalents, end of year $ 1,555,917 $ 1,500,044 $ 1,146,874
============== ============= ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 0 $ 43,024
============== ============= ============
Wells/Orange County Associates
On July 27, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Orange County
Associates. On July 31, 1998, Wells/Orange County Associates acquired a
52,000-square foot warehouse and office building located in Fountain Valley,
California, known as the Cort Furniture Building.
On September 1, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Orange County Associates, which resulted in Fund
X and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Cort Furniture Building.
26
Following are the financial statements for Wells/Orange County Associates:
Wells/Orange County Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------ ------------
Real estate assets, at cost:
Land $ 2,187,501 $ 2,187,501
Building, less accumulated depreciation of $651,780 in 2001 and $465,216
in 2000 4,012,335 4,198,899
------------ ------------
Total real estate assets 6,199,836 6,386,400
Cash and cash equivalents 188,407 119,038
Accounts receivable 80,803 99,154
Prepaid expenses and other assets 9,426 0
------------ ------------
Total assets $ 6,478,472 $ 6,604,592
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable 11,792 $ 1,000
Partnership distributions payable 192,042 128,227
------------ ------------
Total liabilities 203,834 129,227
------------ ------------
Partners' capital:
Wells Operating Partnership, L.P. 2,740,000 2,827,607
Fund X and XI Associates 3,534,638 3,647,758
------------ ------------
Total partners' capital 6,274,638 6,475,365
------------ ------------
Total liabilities and partners' capital $ 6,478,472 $ 6,604,592
============ ============
27
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---------- ---------- ----------
Revenues:
Rental income $ 795,528 $ 795,545 $ 795,545
Interest income 2,409 0 0
---------- ---------- ----------
797,937 795,545 795,545
---------- ---------- ----------
Expenses:
Depreciation 186,564 186,564 186,565
Management and leasing fees 33,547 30,915 30,360
Operating costs, net of reimbursements 21,855 5,005 22,229
Legal and accounting 9,800 4,100 5,439
---------- ---------- ----------
251,766 226,584 244,593
---------- ---------- ----------
Net income $ 546,171 $ 568,961 $ 550,952
========== ========== ==========
Net income allocated to Wells Operating Partnership, L.P. $ 238,542 $ 248,449 $ 240,585
========== ========== ==========
Net income allocated to Fund X and XI Associates $ 307,629 $ 320,512 $ 310,367
========== ========== ==========
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------ ------------ ------------
Balance, December 31, 1998 $ 2,958,617 $ 3,816,766 $ 6,775,383
Net income 240,585 310,367 550,952
Partnership distributions (306,090) (394,871) (700,961)
------------ ------------ ------------
Balance, December 31, 1999 2,893,112 3,732,262 6,625,374
Net income 248,449 320,512 568,961
Partnership distributions (313,954) (405,016) (718,970)
------------ ------------ ------------
Balance, December 31, 2000 2,827,607 3,647,758 6,475,365
Net income 238,542 307,629 546,171
Partnership distributions (326,149) (420,749) (746,898)
------------ ------------ ------------
Balance, December 31, 2001 $ 2,740,000 $ 3,534,638 $ 6,274,638
============ ============ ============
28
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 546,171 $ 568,961 $ 550,952
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 186,564 186,564 186,565
Changes in assets and liabilities:
Accounts receivable 18,351 (49,475) (36,556)
Accounts payable 10,792 1,000 (1,550)
Prepaid and other expenses (9,426) 0 0
----------- ----------- -----------
Total adjustments 206,281 138,089 148,459
----------- ----------- -----------
Net cash provided by operating activities 752,452 707,050 699,411
Cash flows from financing activities:
Distributions to partners (683,083) (764,678) (703,640)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 69,369 (57,628) (4,229)
Cash and cash equivalents, beginning of year 119,038 176,666 180,895
----------- ----------- -----------
Cash and cash equivalents, end of year $ 188,407 $ 119,038 $ 176,666
=========== =========== ===========
Wells/Fremont Associates
On July 15, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Fremont
Associates. On July 21, 1998, Wells/Fremont Associates acquired a 58,424-square
foot two-story manufacturing and office building located in Fremont, California,
known as the Fairchild Building.
On October 8, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Fremont Associates, which resulted in Fund X and
XI Associates becoming a joint venture partner with the Operating Partnership in
the ownership of the Fairchild Building.
29
Following are the financial statements for Wells/Fremont Associates:
Wells/Fremont Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------- -------------
Real estate assets, at cost:
Land $ 2,219,251 $ 2,219,251
Building, less accumulated depreciation of $999,301 in 2001 and $713,773
in 2000 6,138,857 6,424,385
------------- -------------
Total real estate assets 8,358,108 8,643,636
Cash and cash equivalents 203,750 92,564
Accounts receivable 133,801 126,433
------------- -------------
Total assets $ 8,695,659 $ 8,862,633
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 1,896 $ 3,016
Due to affiliate 8,030 7,586
Partnership distributions payable 201,854 89,549
------------- -------------
Total liabilities 211,780 100,151
------------- -------------
Partners' capital:
Wells Operating Partnership, L.P. 6,575,358 6,791,287
Fund X and XI Associates 1,908,521 1,971,195
------------- -------------
Total partners' capital 8,483,879 8,762,482
------------- -------------
Total liabilities and partners' capital $ 8,695,659 $ 8,862,633
============= =============
30
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---------- ---------- ----------
Revenues:
Rental income $ 902,945 $ 902,946 $ 902,946
Interest income 2,713 0 0
Other income 2,015 0 0
---------- ---------- ----------
907,673 902,946 902,946
---------- ---------- ----------
Expenses:
Depreciation 285,528 285,527 285,526
Management and leasing fees 36,267 36,787 37,355
Operating costs, net of reimbursements 16,585 13,199 16,006
Legal and accounting 6,400 4,300 4,885
---------- ---------- ----------
344,780 339,813 343,772
---------- ---------- ----------
Net income $ 562,893 $ 563,133 $ 559,174
========== ========== ==========
Net income allocated to Wells Operating Partnership, L.P. $ 436,265 $ 436,452 $ 433,383
========== ========== ==========
Net income allocated to Fund X and XI Associates $ 126,628 $ 126,681 $ 125,791
========== ========== ==========
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------ ------------ ------------
Balance, December 31, 1998 $ 7,166,682 $ 2,080,155 $ 9,246,837
Net income 433,383 125,791 559,174
Partnership distributions (611,855) (177,593) (789,448)
------------ ------------ ------------
Balance, December 31, 1999 6,988,210 2,028,353 9,016,563
Net income 436,452 126,681 563,133
Partnership distributions (633,375) (183,839) (817,214)
------------ ------------ ------------
Balance, December 31, 2000 6,791,287 1,971,195 8,762,482
Net income 436,265 126,628 562,893
Partnership distributions (652,194) (189,302) (841,496)
------------ ------------ ------------
Balance, December 31, 2001 $ 6,575,358 $ 1,908,521 $ 8,483,879
============ ============ ============
31
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 562,893 $ 563,133 $ 559,174
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 285,528 285,527 285,526
Changes in assets and liabilities:
Accounts receivable (7,368) (33,454) (58,237)
Accounts payable (1,120) 1,001 (1,550)
Due to affiliate 444 2,007 3,527
----------- ----------- -----------
Total adjustments 277,484 255,081 229,266
----------- ----------- -----------
Net cash provided by operating activities 840,377 818,214 788,440
Cash flows from financing activities:
Distributions to partners (729,191) (914,662) (791,940)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 111,186 (96,448) (3,500)
Cash and cash equivalents, beginning of year 92,564 189,012 192,512
----------- ----------- -----------
Cash and cash equivalents, end of year $ 203,750 $ 92,564 $ 189,012
=========== =========== ===========
Fund XI, XII, and REIT Joint Venture
On May 1, 1999, the Operating Partnership entered into a joint venture with Fund
XI and Wells Real Estate Fund XII, L.P. ("Fund XII"). On May 18, 1999, the joint
venture purchased a 169,510-square foot, two-story manufacturing and office
building, known as EYBL CarTex Building, in Fountain Inn, South Carolina. On
July 21, 1999, the joint venture purchased a 68,900-square foot,
three-story-office building, known as the Sprint Building, in Leawood, Kansas.
On August 17, 1999, the joint venture purchased a 130,000-square foot office and
warehouse building, known as the Johnson Matthey Building, in Chester County,
Pennsylvania. On September 20, 1999, the joint venture purchased a 62,400-square
foot, two-story office building, known as the Gartner Building, in Fort Myers,
Florida.
32
Following are the financial statements for the Fund XI, XII, and REIT Joint
Venture:
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------- -------------
Real estate assets, at cost:
Land $ 5,048,797 $ 5,048,797
Building and improvements, less accumulated depreciation of $2,692,116
in 2001 and $1,599,263 in 2000 24,626,336 25,719,189
------------- -------------
Total real estate assets 29,675,133 30,767,986
Cash and cash equivalents 775,805 541,089
Accounts receivable 675,022 394,314
Prepaid assets and other expenses 26,486 26,486
------------- -------------
Total assets $ 31,152,446 $ 31,729,875
============= =============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 114,612 $ 114,180
Partnership distributions payable 757,500 453,395
------------- -------------
Total liabilities 872,112 567,575
------------- -------------
Partners' capital:
Wells Real Estate Fund XI 7,917,646 8,148,261
Wells Real Estate Fund XII 5,174,703 5,325,424
Wells Operating Partnership, L.P. 17,187,985 17,688,615
------------- -------------
Total partners' capital 30,280,334 31,162,300
------------- -------------
Total liabilities and partners' capital $ 31,152,446 $ 31,729,875
============= =============
33
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
------------- ------------- ------------
Revenues:
Rental income $ 3,346,227 $ 3,345,932 $ 1,443,446
Interest income 24,480 2,814 0
Other income 360 440 57
------------- ------------- ------------
3,371,067 3,349,186 1,443,503
------------- ------------- ------------
Expenses:
Depreciation 1,092,853 1,092,680 506,582
Management and leasing fees 156,987 157,236 59,230
Operating costs, net of reimbursements (27,449) (30,718) 4,639
Property administration 65,765 36,707 15,979
Legal and accounting 18,000 14,725 4,000
------------- ------------- ------------
1,306,156 1,270,630 590,430
------------- ------------- ------------
Net income $ 2,064,911 $ 2,078,556 $ 853,073
============= ============= ============
Net income allocated to Wells Real Estate Fund XI $ 539,930 $ 543,497 $ 240,031
============= ============= ============
Net income allocated to Wells Real Estate Fund XII $ 352,878 $ 355,211 $ 124,542
============= ============= ============
Net income allocated to Wells Operating Partnership, L.P. $ 1,172,103 $ 1,179,848 $ 488,500
============= ============= ============
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Wells Real Wells Real Operating Total
Estate Estate Partnership, Partners'
Fund XI Fund XII L.P. Capital
------------- ------------- -------------- ---------------
Balance, December 31, 1998 $ 0 $ 0 $ 0 $ 0
Net income 240,031 124,542 488,500 853,073
Partnership contributions 8,470,160 5,520,835 18,376,267 32,367,262
Partnership distributions (344,339) (177,743) (703,797) (1,225,879)
------------- ------------- -------------- ---------------
Balance, December 31, 1999 8,365,852 5,467,634 18,160,970 31,994,456
Net income 543,497 355,211 1,179,848 2,078,556
Partnership distributions (761,088) (497,421) (1,652,203) (2,910,712)
------------- ------------- -------------- ---------------
Balance, December 31, 2000 8,148,261 5,325,424 17,688,615 31,162,300
Net income 539,930 352,878 1,172,103 2,064,911
Partnership distributions (770,545) (503,599) (1,672,733) (2,946,877)
------------- ------------- -------------- ---------------
Balance, December 31, 2001 $ 7,917,646 $ 5,174,703 $ 17,187,985 $ 30,280,334
============= ============= ============== ===============
34
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- ------------
Cash flows from operating activities:
Net income $ 2,064,911 $ 2,078,556 $ 853,073
----------- ----------- ------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,092,853 1,092,680 506,582
Changes in assets and liabilities:
Accounts receivable (280,708) (260,537) (133,777)
Prepaid expenses and other assets 0 0 (26,486)
Accounts payable 432 1,723 112,457
----------- ----------- ------------
Total adjustments 812,577 833,866 458,776
----------- ----------- ------------
Net cash provided by operating activities 2,877,488 2,912,422 1,311,849
Cash flows from financing activities:
Distributions to joint venture partners (2,642,772) (3,137,611) (545,571)
----------- ----------- ------------
Net increase (decrease) in cash and cash equivalents 234,716 (225,189) 766,278
Cash and cash equivalents, beginning of year 541,089 766,278 0
----------- ----------- ------------
Cash and cash equivalents, end of year $ 775,805 $ 541,089 $ 766,278
=========== =========== ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 0 $ 1,294,686
=========== =========== ============
Contribution of real estate assets to joint venture $ 0 $ 0 $ 31,072,562
=========== =========== ============
Fund XII and REIT Joint Venture
On May 10, 2000, the Operating Partnership entered into a joint venture with
Fund XII. The joint venture, Fund XII and REIT Joint Venture, was formed to
acquire, develop, operate, and sell real property. On May 20, 2000, the joint
venture purchased a 77,054-square foot, three-story office building known as the
Siemens Building in Troy, Oakland County, Michigan. On December 28, 2000, the
joint venture purchased a 50,000-square foot, one-story office building and a
78,500-square foot two-story office building collectively known as the AT&T Call
Center Buildings in Oklahoma City, Oklahoma County, Oklahoma. On May 15, 2001,
the joint venture purchased a 201,237-square foot, three-story office building
known as the Comdata Building located in Brentwood, Williamson County,
Tennessee.
35
Following are the financial statements for Fund XII and REIT Joint Venture:
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------ ------------
Real estate assets, at cost:
Land $ 8,899,574 $ 4,420,405
Building and improvements, less accumulated depreciation of $ 2,131,838
in 2001 and $324,732 in 2000 45,814,781 26,004,918
------------ ------------
Total real estate assets 54,714,355 30,425,323
Cash and cash equivalents 1,345,562 207,475
Accounts receivable 442,023 130,490
------------ ------------
Total assets $ 56,501,940 $ 30,763,288
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 134,969 $ 0
Partnership distributions payable 1,238,205 208,261
------------ ------------
Total liabilities 1,373,174 208,261
------------ ------------
Partners' capital:
Wells Real Estate Fund XII 24,828,894 16,242,127
Wells Operating Partnership, L.P. 30,299,872 14,312,900
------------ ------------
Total partners' capital 55,128,766 30,555,027
------------ ------------
Total liabilities and partners' capital $ 56,501,940 $ 30,763,288
============ ============
36
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
2001 2000
---------- ---------
Revenues:
Rental income $4,683,323 $974,796
Interest income 25,144 2,069
---------- --------
4,708,467 976,865
---------- --------
Expenses:
Depreciation 1,807,106 324,732
Management and leasing fees 224,033 32,756
Partnership administration 38,928 3,917
Legal and accounting 16,425 0
Operating costs, net of reimbursements 10,453 1,210
---------- --------
2,096,945 362,615
---------- --------
Net income $2,611,522 $614,250
========== ========
Net income allocated to Wells Real Estate Fund XII $1,224,645 $309,190
========== ========
Net income allocated to Wells Operating Partnership, L.P. $1,386,877 $305,060
========== ========
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
Wells Real Wells Total
Estate Operating Partners'
Fund XII Partnership, L.P. Capital
------------ ------------------ ------------
Balance, May 10, 2000 (inception) $ 0 $ 0 $ 0
Net income 309,190 305,060 614,250
Partnership contributions 16,340,884 14,409,171 30,750,055
Partnership distributions (407,948) (401,330) (809,278)
------------ -------------- ------------
Balance, December 31, 2000 16,242,126 14,312,901 30,555,027
Net income 1,224,645 1,386,877 2,611,522
Partnership contributions 9,298,084 16,795,441 26,093,525
Partnership distributions (1,935,961) (2,195,347) (4,131,308)
------------ -------------- ------------
Balance, December 31, 2001 $ 24,828,894 $ 30,299,872 $ 55,128,766
============ ============== ============
37
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
2001 2000
------------ ------------
Cash flows from operating activities:
Net income $ 2,611,522 $ 614,250
------------ ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,807,106 324,732
Changes in assets and liabilities:
Accounts receivable (311,533) (130,490)
Accounts payable 134,969 0
------------ ------------
Total adjustments 1,630,542 194,242
------------ ------------
Net cash provided by operating activities 4,242,064 808,492
------------ ------------
Cash flows from investing activities:
Investment in real estate (26,096,138) (29,520,043)
------------ ------------
Cash flows from financing activities:
Distributions to joint venture partners (3,101,364) (601,017)
Contributions received from partners 26,093,525 29,520,043
------------ ------------
Net cash provided by financing activities 22,992,161 28,919,026
------------ ------------
Net increase in cash and cash equivalents 1,138,087 207,475
Cash and cash equivalents, beginning of period 207,475 0
------------ ------------
Cash and cash equivalents, end of year $ 1,345,562 $ 207,475
============ ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 1,230,012
============ ============
38
Fund XIII and REIT Joint Venture
On June 27, 2001, Wells Real Estate Fund XIII, L.P. ("Fund XIII") entered into a
joint venture with the Operating Partnership to form the Fund XIII and REIT
Joint Venture. On July 16, 2001, the Fund XIII and REIT Joint Venture purchased
an 85,000-square foot, two-story office building known as the AmeriCredit
Building in Clay County, Florida. On December 21, 2001, the Fund XIII and REIT
Joint Venture purchased two connected one-story office and assembly buildings
consisting of 148,200 square feet known as the ADIC Buildings in Douglas County,
Colorado.
Following are the financial statements for the Fund XIII and REIT Joint Venture:
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheet
December 31, 2001
Assets
Real estate assets, at cost:
Land $ 3,724,819
Building and improvements, less accumulated depreciation of $266,605 in 2001 22,783,948
-------------
Total real estate assets 26,508,767
Cash and cash equivalents 460,380
Accounts receivable 71,236
Prepaid assets and other expenses 773
-------------
Total assets $ 27,041,156
=============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 145,331
Partnership distributions payable 315,049
-------------
Total liabilities 460,380
-------------
Partners' capital:
Wells Real Estate Fund XIII 8,453,438
Wells Operating Partnership, L.P. 18,127,338
-------------
Total partners' capital 26,580,776
-------------
Total liabilities and partners' capital $ 27,041,156
=============
39
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Income
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
Revenues:
Rental income $ 706,373
---------
Expenses:
Depreciation 266,605
Management and leasing fees 26,954
Operating costs, net of reimbursements 53,659
Legal and accounting 2,800
---------
350,018
---------
Net income $ 356,355
=========
Net income allocated to Wells Real Estate Fund XIII $ 58,610
=========
Net income allocated to Wells Operating Partnership, L.P. $ 297,745
=========
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
Wells
Wells Real Operating Total
Estate Partnership, Partners'
Fund XIII L.P. Capital
------------- -------------- -----------
Balance, June 27, 2001 (inception) $ 0 $ 0 $ 0
Net income 58,610 297,745 356,355
Partnership contributions 8,491,069 18,285,076 26,776,145
Partnership distributions (96,241) (455,483) (551,724)
---------- ----------- -----------
Balance, December 31, 2001 $8,453,438 $18,127,338 $26,580,776
========== =========== ===========
40
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Cash Flows
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
Cash flows from operating activities:
Net income $ 356,355
-------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 266,605
Changes in assets and liabilities:
Accounts receivable (71,236)
Prepaid expenses and other assets (773)
Accounts payable 145,331
-------------
Total adjustments 339,927
-------------
Net cash provided by operating activities 696,282
-------------
Cash flows from investing activities:
Investment in real estate (25,779,337)
-------------
Cash flows from financing activities:
Contributions from joint venture partners 25,780,110
Distributions to joint venture partners (236,675)
-------------
Net cash provided by financing activities 25,543,435
-------------
Net increase in cash and cash equivalents 460,380
Cash and cash equivalents, beginning of period 0
-------------
Cash and cash equivalents, end of year $ 460,380
=============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to Joint Venture $ 996,035
=============
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Operating Partnership's income tax basis net income for the years ended
December 31, 2001 and 2000 are calculated as follows:
2001 2000
------------ ------------
Financial statement net income $ 21,723,967 $ 8,552,967
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 7,347,459 3,511,353
Rental income accrued for financial reporting purposes in excess of
amounts for income tax purposes (2,735,237) (1,822,220)
Expenses deductible when paid for income tax purposes, accrued for
financial reporting purposes 25,658 37,675
------------ ------------
Income tax basis net income $ 26,361,847 $ 10,279,775
============ ============
41
The Operating Partnership's income tax basis partners' capital at December
31, 2001 and 2000 is computed as follows:
2001 2000
------------ ------------
Financial statement partners' capital $710,285,758 $265,341,612
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 11,891,061 4,543,602
Capitalization of syndication costs for income tax purposes, which
are accounted for as cost of capital for financial reporting
purposes 12,896,312 12,896,312
Accumulated rental income accrued for financial reporting purposes
in excess of amounts for income tax purposes (5,382,483) (2,647,246)
Accumulated expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 114,873 89,215
Dividends payable 1,059,026 1,025,010
Other (222,378) (222,378)
------------ ------------
Income tax basis partners' capital $730,642,169 $281,026,127
============ ============
7. RENTAL INCOME
The future minimum rental income due from the Operating Partnership's
direct investment in real estate or its respective ownership interest in
the joint ventures under noncancelable operating leases at December 31,
2001 is as follows:
Year ended December 31:
2002 $ 69,364,229
2003 70,380,691
2004 71,184,787
2005 70,715,556
2006 71,008,821
Thereafter 270,840,299
-------------
$ 623,494,383
=============
One tenant contributed 10% of rental income for the year ended December 31,
2001. In addition, one tenant will contribute 12% of future minimum rental
income.
Future minimum rental income due from Fund VIII, IX, and REIT Joint Venture
under noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 1,287,119
2003 1,287,119
2004 107,260
2005 0
2006 0
Thereafter 0
-----------
$ 2,681,498
===========
One tenant contributed 100% of rental income for the year ended December
31, 2001. In addition, one tenant will contribute 100% of future minimum
rental income.
42
The future minimum rental income due from Fund IX, X, XI, and REIT Joint
Venture under noncancelable operating leases at December 31, 2001 is as
follows:
Year ended December 31:
2002 $ 3,648,769
2003 3,617,432
2004 3,498,472
2005 2,482,815
2006 2,383,190
Thereafter 3,053,321
------------
$ 18,683,999
============
Four tenants contributed 26%, 23%, 13%, and 13% of rental income for the
year ended December 31, 2001. In addition, four tenants will contribute
38%, 21%, 20%, and 17% of future minimum rental income.
The future minimum rental income due Wells/Orange County Associates under
noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 834,888
2003 695,740
------------
$ 1,530,628
============
One tenant contributed 100% of rental income for the year ended December
31, 2001 and will contribute 100% of future minimum rental income.
The future minimum rental income due Wells/Fremont Associates under
noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 922,444
2003 950,118
2004 894,832
------------
$ 2,767,394
============
One tenant contributed 100% of rental income for the year ended December
31, 2001 and will contribute 100% of future minimum rental income.
The future minimum rental income due from Fund XI, XII, and REIT Joint
Venture under noncancelable operating leases at December 31, 2001 is as
follows:
Year ended December 31:
2002 $ 3,277,512
2003 3,367,510
2004 3,445,193
2005 3,495,155
2006 3,552,724
Thereafter 2,616,855
------------
$ 19,754,949
============
Four tenants contributed approximately 30%, 28%, 24%, and 18% of rental
income for the year ended December 31, 2001. In addition, four tenants will
contribute approximately 30%, 27%, 25%, and 18% of future minimum rental
income.
43
The future minimum rental income due from Fund XII and REIT Joint Venture
under noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 5,352,097
2003 5,399,451
2004 5,483,564
2005 5,515,926
2006 5,548,289
Thereafter 34,677,467
------------
$ 61,976,794
============
Three tenants contributed approximately 31%, 29%, and 27% of rental income
for the year ended December 31, 2001. In addition, three tenants will
contribute approximately 58%, 21%, and 18% of future minimum rental income.
The future minimum rental income due Fund XIII and REIT Joint Venture under
noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 2,545,038
2003 2,602,641
2004 2,661,228
2005 2,721,105
2006 2,782,957
Thereafter 13,915,835
------------
$ 27,228,804
============
One tenant contributed approximately 95% of rental income for the year
ended December 31, 2001. In addition, two tenants will contribute
approximately 51% and 49% of future minimum rental income.
8. INVESTMENT IN BONDS AND OBLIGATION UNDER CAPITAL LEASE
On September 27, 2001, the Operating Partnership acquired a ground
leasehold interest in the Ingram Micro Distribution Facility pursuant to a
Bond Real Property Lease dated December 20, 1995 (the "Bond Lease"). The
ground leasehold interest under the Bond Lease, along with the Bond and
Bond Deed of Trust described below, were purchased from Ingram Micro, L.P.
("Ingram") in a sale lease-back transaction for a purchase price of
$21,050,000. The Bond Lease expires on December 31, 2026. At closing, the
Operating Partnership also entered into a new lease with Ingram pursuant to
which Ingram agreed to lease the entire Ingram Micro Distribution Facility
for a lease term of 10 years with two successive 10-year renewal options.
In connection with the original development of the Ingram Micro
Distribution Facility, the Industrial Development Board of the City of
Milington, Tennessee (the "Industrial Development Board") issued an
Industrial Development Revenue Note dated December 20, 1995 in the
principal amount of $22,000,000 (the "Bond") to Lease Plan North America,
Inc. (the "Original Bond Holder"). The proceeds from the issuance of the
Bond were utilized to finance the construction of the Ingram Micro
Distribution Facility. The Bond is secured by a Fee Construction Mortgage
Deed of Trust Assignment of Rents and Leases also dated December 20, 1995
(the "Bond Deed of Trust") executed by the Industrial Development Board for
the benefit of the Original Bond Holder. Beginning in 2006, the holder of
the Bond Lease has the option to purchase the land underlying the Ingram
Micro Distribution Facility for $100.00 plus satisfaction of the
indebtedness evidenced by the Bond which, as set forth below, was acquired
and is currently held by the Operating Partnership.
On December 20, 2000, Ingram purchased the Bond and the Bond Deed of Trust
from the Original Bond Holder. On September 27, 2001, along with purchasing
the Ingram Micro Distribution Facility through its acquisition of the
ground leasehold interest under the Bond Lease, the Operating Partnership
also acquired the Bond and the Bond
44
Deed of Trust from Ingram. Because the Operating Partnership is
technically subject to the obligation to pay the $22,000,000
indebtedness evidenced by the Bond, the obligation to pay the Bond is
carried on the Company's books as a liability; however, since Operating
Partnership is also the owner of the Bond, the Bond is also carried on
the Company's books as an asset.
9. NOTES PAYABLE
As of December 31, 2001, the Operating Partnership's notes payable
included the following:
Note payable to Bank of America, interest at 5.9%, interest
payable monthly, due July 30, 2003, collateralized by the
Nissan property $ 468,844
Note payable to SouthTrust Bank, interest at LIBOR plus 175
basis points, principal and interest payable monthly, due June
10, 2002; collateralized by the Operating Partnership's
interests in the Cinemark Building, the Dial Building, the
ASML Building, the Motorola Tempe Building, the Avnet
Building, the Matsushita Building, and the PwC Building 7,655,600
-----------
Total $ 8,124,444
===========
The contractual maturities of the Operating Partnership's notes payable
are as follows as of December 31, 2001:
2002 $7,655,600
2003 468,844
----------
Total $8,124,444
==========
10. COMMITMENTS AND CONTINGENCIES
Take Out Purchase and Escrow Agreement
An affiliate of the Advisor ("Wells Exchange") has developed a program
(the "Wells Section 1031 Program") involving the acquisition by Wells
Exchange of income-producing commercial properties and the formation of
a series of single member limited liability companies for the purpose
of facilitating the resale of co-tenancy interests in such real estate
properties to be owned in co-tenancy arrangements with persons ("1031
Participants") who are looking to invest the proceeds from a sale of
real estate held for investment in another real estate investment for
purposes of qualifying for like-kind exchange treatment under Section
1031 of the Code. Each of these properties will be financed by a
combination of permanent first mortgage financing and interim loan
financing obtained from institutional lenders.
Following the acquisition of each property, Wells Exchange will attempt
to sell co-tenancy interests to 1031 Participants, the proceeds of
which will be used to pay off the interim financing. In consideration
for the payment of a take out fee to the Company, and following
approval of the potential property acquisition by the Company's board
of directors, it is anticipated that Wells OP will enter into a take
out purchase and escrow agreement or similar contract providing that,
in the event that Wells Exchange is unable to sell all of the
co-tenancy interest in that particular property to 1031 Participants,
the Operating Partnership will purchase, at Wells Exchange's cost, any
co-tenancy interests remaining unsold at the end of the offering
period.
As a part of the initial transaction in the Wells Section 1031 Program,
and in consideration for the payment of a take out fee in the amount of
$137,500 to the Company, Wells OP entered into a take out purchase and
escrow agreement dated April 16, 2001 providing that, among other
things, Wells OP is obligated to acquire, at Wells Exchange's cost
($839,694 in cash plus $832,060 of assumed debt for each 7.63358%
interest of co-tenancy interest unsold), any co-tenancy interest in the
building known as the Ford Motor Credit Complex which remains unsold at
the expiration of the offering of Wells Exchange, which has been
extended to April 15, 2002, which is also the maturity date of the
interim loan relating to such property. The Ford Motor Credit Complex
consists of two connecting office buildings containing 167,438 rentable
square feet located in Colorado Springs, Colorado, currently under a
triple-net lease with Ford Motor Credit Company, a wholly owned
subsidiary of Ford Motor Company.
45
The obligations of Wells OP under the take out purchase and escrow agreement are
secured by reserving against a portion of Wells OP's existing line of credit
with Bank of America, N.A. (the "Interim Lender"). If, for any reason, Wells OP
fails to acquire any of the co-tenancy interest in the Ford Motor Credit Complex
which remains unsold as of April 15, 2002, or there is otherwise an uncured
default under the interim loan or the line of credit documents, the Interim
Lender is authorized to draw down Wells OP's line of credit in the amount
necessary to pay the outstanding balance of the interim loan in full, in which
event the appropriate amount of co-tenancy interest in the Ford Motor Credit
Complex would be deeded to Wells OP. Wells OP's maximum economic exposure in the
transaction is $21,900,000, in which event Wells OP would acquire the Ford Motor
Credit Complex for $11,000,000 in cash plus assumption of the first mortgage
financing in the amount of $10,900,000. If some, but not all, of the co-tenancy
interests are sold, Wells OP's exposure would be less, and it would own an
interest in the property in co-tenancy with the 1031 Participants who had
previously acquired co-tenancy interests in the Ford Motor Credit Complex from
Wells Exchange.
Development of the Nissan Property
The Operating Partnership has entered into an agreement with an independent
third-party general contractor for the purpose of designing and constructing a
three-story office building containing 268,290 rentable square feet on the
Nissan Property. The construction agreement provides that the Operating
Partnership will pay the contractor a maximum of $25,326,017 for the design and
construction of the building. Construction commenced on January 25, 2002 and is
scheduled to be completed within 20 months.
General
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company, the Operating Partnership,
or the Advisor. In the normal course of business, the Company, the Operating
Partnership, or the Advisor may become subject to such litigation or claims.
46
11. SHAREHOLDERS' EQUITY
Common Stock Option Plan
The Wells Real Estate Investment Trust, Inc. Independent Director Stock
Option Plan ("the Plan") provides for grants of stock to be made to
independent nonemployee directors of the Company. Options to purchase
2,500 shares of common stock at $12 per share are granted upon
initially becoming an independent director of the Company. Of these
shares, 20% are exercisable immediately on the date of grant. An
additional 20% of these shares become exercisable on each anniversary
following the date of grant for a period of four years. Effective on
the date of each annual meeting of shareholders of the Company,
beginning in 2000, each independent director will be granted an option
to purchase 1,000 additional shares of common stock. These options vest
at the rate of 500 shares per full year of service thereafter. All
options granted under the Plan expire no later than the date
immediately following the tenth anniversary of the date of grant and
may expire sooner in the event of the disability or death of the
optionee or if the optionee ceases to serve as a director.
The Company has adopted the disclosure provisions in Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for
Stock-Based Compensation." As permitted by the provisions of SFAS No.
123, the Company applies Accounting Principles Board Opinion No. 25 and
the related interpretations in accounting for its stock option plans
and, accordingly, does not recognize compensation cost.
A summary of the Company's stock option activity during 2001 and 2000
is as follows:
Exercise
Number Price
-------- ---------
Outstanding at December 31, 1999 17,500 $12
Granted 7,000 12
-------
Outstanding at December 31, 2000 24,500 12
Granted 7,000 12
-------
Outstanding at December 31, 2001 31,500 12
=======
Outstanding options exercisable as of December 31, 2001 10,500 12
=======
For SFAS No. 123 purposes, the fair value of each stock option for 2001
and 2000 has been estimated as of the date of the grant using the
minimum value method. The weighted average risk-free interest rates
assumed for 2001 and 2000 were 5.05% and 6.45%, respectively. Dividend
yields of 7.8% and 7.3% were assumed for 2001 and 2000, respectively.
The expected life of an option was assumed to be six years and four
years for 2001 and 2000, respectively. Based on these assumptions, the
fair value of the options granted during 2001 and 2000 is $0.
Treasury Stock
During 1999, the Company's board of directors authorized a dividend
reinvestment program (the "DRP"), through which common shareholders may
elect to reinvest an amount equal to the dividends declared on their
common shares into additional shares of the Company's common stock in
lieu of receiving cash dividends. During 2000, the Company's board of
directors authorized a common stock repurchase plan subject to the
amount reinvested in the Company's common shares through the DRP, less
shares already redeemed, and a limitation in the amount of 3% of the
average common shares outstanding during the preceding year. During
2001 and 2000, the Company repurchased 413,743 and 141,297 of its own
common shares at an aggregate cost of $4,137,427 and $1,412,969,
respectively. These transactions were funded with cash on hand and did
not exceed either of the foregoing limitations.
47
12. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 2001 and 2000:
2001 Quarters Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ----------- -------------- --------------
Revenues $10,669,713 $10,891,240 $ 12,507,904 $ 15,239,945
Net income 3,275,345 5,038,898 6,109,137 7,300,587
Basic and diluted earnings per share
(a) $ 0.10 $ 0.12 $ 0.11 $ 0.10
Dividends per share (a) 0.19 0.19 0.19 0.19
(a) The totals of the four quarterly amounts for the year
ended December 31, 2001 do not equal the totals for
the year. This difference results from rounding
differences between quarters.
2000 Quarters Ended
------------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ ----------- -------------- --------------
Revenues $ 3,710,409 $ 5,537,618 $ 6,586,611 $ 7,538,568
Net income 1,691,288 1,521,021 2,525,228 2,815,430
Basic and diluted earnings per share $ 0.11 $ 0.08 $ 0.11 $ 0.10
Dividends per share 0.18 0.18 0.18 0.19
13. SUBSEQUENT EVENT
On January 11, 2002, the Operating Partnership purchased a three-story
office building on a 9.8-acre tract of land located in Sarasota County,
Florida known as the Arthur Andersen Building, from an unaffiliated
third party for $21,400,000. The Operating Partnership incurred
additional related acquisition expenses, including attorneys' fees,
recording fees, structural report and environmental report fees, and
other closing costs, of approximately $30,000.
48
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Initial Cost
---------------------------
Costs of
Ownership Buildings and Capitalized
Description Percentage Encumbrances Land Improvements Improvements
-------------------- ---------- ------------ ----------- ------------ ------------
ALSTOM
POWER--KNOXVILLE
PROPERTY
(a) 4% None $ 582,897 744,164 $ 6,744,547
AVAYA BUILDING 4 None 1,002,723 4,386,374 242,241
360
INTERLOCKEN (c) 4 None 1,570,000 6,733,500 437,266
IOMEGA
PROPERTY(d) 4 None 597,000 4,674,624 876,459
OHMEDA
PROPERTY (e) 4 None 2,613,600 7,762,481 528,415
FAIRCHILD
PROPERTY (f) 78 None 2,130,480 6,852,630 374,300
ORANGE COUNTY
PROPERTY (g) 44 None 2,100,000 4,463,700 287,916
PRICEWATER-
HOUSECOOPERS
PROPERTY (h) 100 None 1,460,000 19,839,071 825,560
EYBL CARTEX
PROPERTY (i) 57 None 330,000 4,791,828 213,411
SPRINT BUILDING
(j) 57 None 1,696,000 7,850,726 397,783
JOHNSON
MATTHEY (k) 57 None 1,925,000 6,131,392 335,685
GARTNER
PROPERTY (l) 57 None 895,844 7,451,760 347,820
AT&T--PA
PROPERTY (m) 100 None 662,000 11,836,368 265,740
Gross Amount at Which Carried at December 31, 2001
--------------------------------------------------
Life on Which
Depreciation
Buildings and Construction Accumulated Date of Date is Computed
Description Land Improvements in Progress Total Depreciation Construction Acquired (dd)
------------------ ---------- ------------ ----------- ---------- ------------ ------------ -------- ---------------
ALSTOM
POWER--KNOXVILLE
PROPERTY
(a) $ 607,930 $ 7,463,678 $ 0 $ 8,071,608 $ 1,844,482 1997 12/10/96 20 to 25 years
AVAYA BUILDING 1,051,138 4,580,200 0 5,631,338 656,495 1998 6/24/98 20 to 25 years
360
INTERLOCKEN (c) 1,650,070 7,090,696 0 8,740,766 1,098,339 1996 3/20/98 20 to 25 years
IOMEGA
PROPERTY(d) 641,988 5,506,095 0 6,148,083 742,404 1998 7/01/98 20 to 25 years
OHMEDA
PROPERTY (e) 2,746,894 8,157,602 0 10,904,496 1,278,024 1998 2/13/98 20 to 25 years
FAIRCHILD
PROPERTY (f) 2,219,251 7,138,159 0 9,357,410 999,301 1998 7/21/98 20 to 25 years
ORANGE COUNTY
PROPERTY (g) 2,187,501 4,664,115 0 6,851,616 651,780 1988 7/31/98 20 to 25 years
PRICEWATER-
HOUSECOOPERS
PROPERTY (h) 1,520,834 20,603,797 0 22,124,631 2,469,792 1998 12/31/98 20 to 25 years
EYBL CARTEX
PROPERTY (i) 343,750 4,991,489 0 5,335,239 532,416 1998 5/18/99 20 to 25 years
SPRINT BUILDING
(j) 1,766,667 8,177,842 0 9,944,509 817,785 1998 7/2/99 20 to 25 years
JOHNSON
MATTHEY (k) 2,005,209 6,386,868 0 8,392,077 617,438 1973 8/17/99 20 to 25 years
GARTNER
PROPERTY (l) 933,171 7,762,253 0 8,695,424 724,477 1998 9/20/99 20 to 25 years
AT&T--PA
PROPERTY (m) 689,583 12,074,525 0 12,764,108 1,408,686 1998 2/4/99 20 to 25 years
49
Initial Cost Gross Amount at Which Carried at December 31, 2001
-------------------------- ----------------------------------------------------
Costs of
Ownership Buildings and Capitalized Buildings and Construction
Description Percentage Encumbrances Land Improvements Improvements Land Improvements in Progress Total
--------------- ---------- ------------ ------------ ------------- ------------ ------------ ------------- ------------ ------------
MARCONI
PROPERTY (n) 100 None 5,000,000 28,161,665 1,381,747 5,208,335 29,335,077 0 34,543,412
CINEMARK
PROPERTY (O) 100 None 1,456,000 20,376,881 908,217 1,516,667 21,224,431 0 22,741,098
MATSUSHITA
PROPERTY (p) 100 None 4,577,485 0 13,860,142 4,768,215 13,773,660 0 18,541,875
ALSTOM
POWER--
RICHMOND
PROPERTY(q) 100 None 948,401 0 9,938,308 987,918 9,923,454 0 10,911,372
METRIS--OK
PROPERTY (r) 100 None 1,150,000 11,569,583 541,489 1,197,917 12,063,155 0 13,261,072
DIAL
PROPERTY
(s) 100 None 3,500,000 10,785,309 601,264 3,645,835 11,240,738 83,125 14,969,698
ASML PROPERTY
(t) 100 None 0 17,392,633 731,685 0 18,124,318 0 18,124,318
MOTOROLA--AZ
PROPERTY (u) 100 None 0 16,036,219 669,639 0 16,705,858 0 16,705,858
AVNET
PROPERTY (v) 100 None 0 13,271,502 551,156 0 13,822,658 0 13,822,658
DELPHI
PROPERTY (w) 100 None 2,160,000 16,775,971 1,676,956 2,250,008 18,469,408 14,877 20,734,293
SIEMENS
PROPERTY (x) 47 None 2,143,588 12,048,902 591,358 2,232,905 12,550,943 43,757 14,827,605
QUEST
PROPERTY (y) 16 None 2,220,993 5,545,498 51,285 2,220,993 5,602,160 0 7,823,153
MOTOROLA--NJ
PROPERTY (z) 100 None 9,652,500 20,495,243 0 10,054,720 25,540,919 392,104 35,987,743
METRIS--MN
PROPERTY (aa) 100 None 7,700,000 45,151,969 2,181 8,020,859 47,042,309 0 55,063,168
STONE &
WEBSTER
PROPERTY (bb) 100 None 7,100,000 37,914,954 0 7,395,857 39,498,469 0 46,894,326
AT&T--OK
PROPERTY (cc) 47 None 2,100,000 13,227,555 638,651 2,187,500 13,785,631 0 15,973,131
COMDATA
PROPERTY 64 None 4,300,000 20,650,000 572,944 4,479,168 21,566,287 0 26,045,455
AMERICREDIT
PROPERTY 87 None 1,610,000 10,890,000 563,257 1,677,084 11,386,174 0 13,063,258
STATE STREET
PROPERTY 100 None 10,600,000 38,962,988 4,344,837 11,041,670 40,666,305 2,201,913 53,909,888
IKON PROPERTY 100 None 2,735,000 17,915,000 985,856 2,847,300 18,792,672 0 21,639,972
NISSAN
PROPERTY 100 $8,124,444 5,545,700 0 21,353 5,567,053 0 2,653,777 8,220,830
Life on Which
Depreciation
Accumulated Date of Date is Computed
Description Depreciation Consturction Acquired (dd)
--------------- --------------- ------------ -------- --------------
MARCONI
PROPERTY (n) 2,737,941 1991 9/10/99 20 to 25 years
CINEMARK
PROPERTY (O) 1,768,692 1999 12/21/99 20 to 25 years
MATSUSHITA
PROPERTY (p) 2,032,803 1999 3/15/99 20 to 25 years
ALSTOM
POWER--
RICHMOND
PROPERTY(q) 921,980 1999 7/22/99 20 to 25 years
METRIS--OK
PROPERTY (r) 881,413 2000 2/11/00 20 to 25 years
DIAL
PROPERTY 1997 3/29/00 20 to 25 years
(s) 821,315
ASML PROPERTY
(t) 1,314,573 1995 3/29/00 20 to 25 years
MOTOROLA--AZ
PROPERTY (u) 1,218,400 1998 3/29/00 20 to 25 years
AVNET
PROPERTY (v) 868,060 2000 6/12/00 20 to 25 years
DELPHI
PROPERTY (w) 1,286,705 2000 6/29/00 20 to 25 years
SIEMENS
PROPERTY (x) 959,465 2000 5/10/00 20 to 25 years
QUEST
PROPERTY (y) 649,436 1997 9/10/97 20 to 25 years
MOTOROLA--NJ
PROPERTY (z) 1,541,768 2000 11/1/00 20 to 25 years
METRIS--MN
PROPERTY (aa) 2,000,737 2000 12/21/00 20 to 25 years
STONE &
WEBSTER
PROPERTY (bb) 1,679,981 1994 12/21/00 20 to 25 years
AT&T--OK
PROPERTY (cc) 597,317 1999 12/28/00 20 to 25 years
COMDATA
PROPERTY 575,056 1986 5/15/2001 20 to 25 years
AMERICREDIT
PROPERTY 227,724 2001 7/16/2001 20 to 25 years
STATE STREET
PROPERTY 807,903 1998 7/30/2001 20 to 25 years
IKON PROPERTY
250,689 2000 9/7/2001 20 to 25 years
NISSAN
PROPERTY 0 2002 9/19/2001 20 to 25 years
50
Costs of
Ownership Buildings and Capitalized
Description Partnership Encumbrances Land Improvements Improvements Land
----------- ----------- ------------ ---- ------------ ------------ ----
INGRAM MICRO
PROPERTY 100 $22,000,000 333,049 20,666,951 922,657 333,049
LUCENT
PROPERTY 100 None 7,000,000 10,650,000 1,106,240 7,275,830
CONVERGYS
PROPERTY 100 None 3,500,000 9,755,000 791,672 3,642,442
ADIC
PROPERTY 51 None 1,954,213 11,000,000 757,902 2,047,735
WINDY POINT
I PROPERTY 100 None 4,360,000 29,298,642 1,440,568 4,536,862
WINDY POINT II
PROPERTY 100 None 3,600,000 52,016,358 2,385,402 3,746,033
----------- ------------ ------------ ----------- ------------
Total $30,124,444 $112,812,473 $584,077,441 $57,913,909 $117,245,941
=========== ============ ============ =========== ============
Life on Which
Depreciation
Buildings and Construction Accumulated Date of Date is Computed
Improvements in Progress Total Depreciation Construction Acquired (dd)
------------ ----------- ----- ------------ ------------ -------- ----
INGRAM MICRO
PROPERTY 21,590,010 0 21,923,059 292,307 1997 9/27/2001 20 to 25 years
LUCENT
PROPERTY 11,484,562 0 18,760,392 153,093 2000 9/28/2001 20 to 25 years
CONVERGYS
PROPERTY 10,404,230 0 14,046,672 34,681 2001 12/21/2001 20 to 25 years
ADIC
PROPERTY 11,664,380 0 13,712,115 38,881 2001 12/21/2001 20 to 25 years
WINDY POINT
I PROPERTY 30,562,349 0 35,099,211 101,875 1999 12/31/2001 20 to 25 years
WINDY POINT II
PROPERTY 54,255,727 0 58,001,760 180,852 2001 12/31/2001 20 to 25 years
------------ ---------- ------------ -----------
Total $645,673,203 $5,389,553 $768,308,697 $37,785,066
============ ========== ============ ===========
(a) The Alstom Power Knoxville Property consists of a three-story
office building located in Knoxville, Tennessee. It is owned by
Fund IX-X-XI-REIT Joint Venture.
(b) The Avaya Building consists of a one-story office building
located in Oklahoma City, Oklahoma. It is owned by Fund
IX-X-XI-REIT Joint Venture.
(c) The 360 Interlocken Property consists of a three-story
multi-tenant office building located in Broomfield, Colorado. It
is owned by Fund IX-X-XI-REIT Joint Venture.
(d) The Iomega Property consists of a one-story warehouse and office
building located in Ogden, Utah. It is owned by Fund IX-X-XI-REIT
Joint Venture.
(e) The Ohmeda Property consists of a two-story office building
located in Louisville, Colorado. It is owned by Fund IX-X-XI-REIT
Joint Venture.
(f) The Fairchild Property consists of a two-story warehouse and
office building located in Fremont, California. It is owned by
Wells/Freemont Associates.
(g) The Orange County Property consists of a one-story warehouse and
office building located in Fountain Valley, California. It is
owned by Wells/Orange County Associates.
(h) The PriceWaterhouseCoopers Property consists of a four-story
office building located in Tampa, Florida. It is 100% owned by
the Company.
(i) The EYBL CarTex Property consists of a one-story manufacturing
and office building located in Fountain Inn, South Carolina. It
is owned by Fund XI-XII-REIT Joint Venture.
(j) The Sprint Building consists of a three-story office building
located in Leawood, Kansas. It is owned by Fund XI-XII-REIT Joint
Venture.
(k) The Johnson Matthey Property consists of a one-story research and
development office and warehouse building located in Chester
County, Pennsylvania. It is owned by Fund XI-XII-REIT Joint
Venture.
(l) The Gartner Property consists of a two-story office building
located in Ft. Myers, Florida. It is owned by Fund XI-XII-REIT
Joint Venture
51
(m) The AT&T--PA Property consists of a four-story office
building located in Harrisburg, Pennsylvania. It is
100% owned by the Company.
(n) The Marconi Property consists of a two-story office
building located in Wood Dale, Illinois. It is 100%
owned by the Company.
(o) The Cinemark Property consists of a five-story office
building located in Plano, Texas. It is 100% owned by
the Company.
(p) The Matsushita Property consists of a two-story office
building located in Lake Forest, California. It is 100%
owned by the Company.
(q) The Alstom Property consists of a four-story office
building located in Midlothian, Chesterfield County,
Virginia. It is 100% owned by the Company.
(r) The Metris--OK Property consists of a three-story
office building located in Tulsa, Oklahoma. It is 100%
owned by the Company.
(s) The Dial Property consists of a two-story office
building located in Scottsdale, Arizona. It is 100%
owned by the Company.
(t) The ASML Property consists of a two-story office
building located in Tempe, Arizona. It is 100% owned by
the Company.
(u) The Motorola--AZ Property consists of a two-story
office building located in Tempe, Arizona. It is 100%
owned by the Company.
(v) The Avnet Property consists of a two-story office
building located in Tempe, Arizona. It is 100% owned by
the Company.
(w) The Delphi Property consists of a three-story office
building located in Troy, Michigan. It is 100% owned by
the Company.
(x) The Siemens Property consists of a three-story office
building located in Troy, Michigan. It is owned by Fund
XII-REIT Joint Venture.
(y) The Quest Property consists of a two-story office
building located in Orange County, California. It is
owned by Fund VIII-IX-REIT Joint Venture.
(z) The Motorola--NJ Property consists of a three-story
office building located in South Plainfield, New
Jersey. It is 100% owned by the Company.
(aa) The Metris--MN Property consists of a nine-story office
building located in Minnetonka, Minnesota. It is 100%
owned by the Company.
(bb) The Stone & Webster Property consists of a six-story
office building located in Houston, Texas. It is 100%
owned by the Company.
(cc) The AT&T--OK Property consists of a two-story office
building located in Oklahoma City, Oklahoma. It is
owned by the Fund XII-REIT Joint Venture.
(dd) Depreciation lives used for buildings are 25 years.
Depreciation lives used for land improvements are 20
years.
52
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Accumulated
Cost Depreciation
-------------- --------------
BALANCE AT DECEMBER 31, 1998 $ 76,201,910 $ 1,487,963
1999 additions 103,916,288 4,243,688
------------- ------------
BALANCE AT DECEMBER 31, 1999 180,118,198 5,731,651
2000 additions 293,450,036 11,232,378
------------- ------------
BALANCE AT DECEMBER 31, 2000 473,568,234 16,964,029
============= ============
============= ============
2001 additions 294,740,403 20,821,037
============= ============
BALANCE AT DECEMBER 31, 2001 $ 768,308,697 $ 37,785,066
============= ============
53
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (Tables) provide information
relating to real estate investment programs sponsored by Wells Capital, Inc.,
our advisor, and its affiliates (Wells Public Programs) which have investment
objectives similar to Wells Real Estate Investment Trust, Inc. (Wells REIT).
(See "Investment Objectives and Criteria.") Except for the Wells REIT, all of
the Wells Public Programs, have used capital, and no acquisition indebtedness,
to acquire their properties.
Prospective investors should read these Tables carefully together with the
summary information concerning the Wells Public Programs as set forth in the
"Prior Performance Summary" section of this prospectus.
Investors in the Wells REIT will not own any interest in the other Wells
Public Programs and should not assume that they will experience returns, if any,
comparable to those experienced by investors in other Wells Public Programs.
The advisor is responsible for the acquisition, operation, maintenance and
resale of the real estate properties. The financial results of the Wells Public
Programs, thus, may provide some indication of the advisor's performance of its
obligations during the periods covered. However, general economic conditions
affecting the real estate industry and other factors contribute significantly to
financial results.
The following tables are included herein:
Table I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
Table II - Compensation to Sponsor (in Dollars)
Table III - Annual Operating Results of Wells Public Programs
Table IV (Results of completed programs) has been omitted since none of the
Wells Public Programs have been liquidated.
Table V - Sales or Disposals of Property
Additional information relating to the acquisition of properties by the
Wells Public Programs is contained in Table VI, which is included in Part II of
the registration statement which the Wells REIT has filed with the Securities
and Exchange Commission. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"Acquisition Fees" shall mean fees and commissions paid by a Wells Public
Program in connection with its purchase or development of a property, except
development fees paid to a person not affiliated with the Wells Public Program
or with a general partner or advisor of the Wells Public Program in connection
with the actual development of a project after acquisition of the land by the
Wells Public Program.
"Organization Expenses" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
sponsor in connection with the planning and formation of the Wells Public
Program.
"Underwriting Fees" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
54
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the sponsors of Wells
Public Programs for which offerings have been completed since December 31, 1998.
Information is provided with regard to the manner in which the proceeds of the
offerings have been applied. Also set forth is information pertaining to the
timing and length of these offerings and the time period over which the proceeds
have been invested in the properties. All figures are as of December 31, 2001.
Wells Real Wells Real Wells Real Estate
Estate Fund Estate Fund Investment
XI, L.P. XII, L.P. Trust, Inc.
-------- --------- -----------
Dollar Amount Raised $ 16,532,802/(3)/ $ 35,611,192/(4)/ $ 307,411,112/(5)/
============ ============ =============
Percentage Amount Raised 100%/(3)/ 100%/(4)/ 100%/(5)/
Less Offering Expenses
Underwriting Fees 9.5% 9.5% 9.5%
Organizational Expenses 3.0% 3.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0%
------------- ------------- -------------
Percent Available for Investment 87.5% 87.5% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property 0.0% 0.0 0.5%
Cash Down Payment 84.0% 84.0% 73.8%
Acquisition Fees/(2)/ 3.5% 3.5% 3.5%
Development and Construction Costs 0.0% 0.0 9.7%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0%
------------- ------------- -------------
Total Acquisition and Development Cost 87.5% 87.5% 87.5%
Percent Leveraged 0.0% 0.0% 30.9%
============= ============ =============
Date Offering Began 12/31/97 03/22/99 01/30/98
Length of Offering 12 mo. 24 mo. 35 mo.
Months to Invest 90% of Amount Available
for Investment (Measured from Beginning of 20 mo. 26 mo. 21 mo.
Offering)
Number of Investors as of 12/31/01 1,338 1,337 7,422
(1) Does not include general partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor fees
and/or architectural fees paid to affiliates of the general partners.
(3) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998,
and the total dollar amount raised was $16,532,802.
(4) Total dollar amount registered and available to be offered was $70,000,000.
Wells Real Estate Fund XII, L.P. closed its offering on March 21, 2001, and
the total dollar amount raised was $35,611,192.
(5) The total dollar amount registered and available to be offered in the first
offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed
its initial offering on December 19, 1999, and the total dollar amount
raised in its initial offering was $132,181,919. The total dollar amount
registered and available to be offered in the second offering was
$222,000,000. Wells Real Estate Investment Trust, Inc. closed its second
offering on December 19, 2000, and the total dollar amount raised in its
second offering was $175,229,193.
55
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by Wells Capital and its
affiliates, including compensation paid out of offering proceeds and
compensation paid in connection with the ongoing operations of Wells Public
Programs having similar or identical investment objectives the offerings of
which have been completed since December 31, 1998. All figures are as of
December 31, 2001.
Wells Real
Wells Real Wells Real Estate Other
Estate Fund Estate Fund Investment Public
XI, L.P. XII, L.P. Trust, Inc./(1)/ Programs/(2)/
-------- --------- -------------- -----------
Date Offering Commenced 12/31/97 03/22/99 01/30/98 --
Dollar Amount Raised $ 16,532,802 $ 35,611,192 $307,411,112 $268,370,007
To Sponsor from Proceeds of Offering:
Underwriting Fees/(3)/ $ 151,911 $ 362,416 $ 3,076,844 $ 1,494,470
Acquisition Fees
Real Estate Commissions -- -- -- --
Acquisition and Advisory Fees/(4)/ $ 578,648 $ 1,246,392 $ 10,759,389 $ 12,644,556
Dollar Amount of Cash Generated from
Operations Before Deducting Payments to Sponsor/(5)/ $ 3,494,174 $ 3,508,128 $116,037,681 $ 58,169,461
Amount Paid to Sponsor from Operations:
Property Management Fee/(2)/ $ 90,731 $ 113,238 $ 1,899,140 $ 2,257,424
Partnership Management Fee -- -- -- --
Reimbursements $ 164,746 $ 142,990 $ 1,047,449 $ 2,503,609
Leasing Commissions $ 90,731 $ 113,238 $ 1,899,140 $ 2,257,426
General Partner Distributions -- -- -- --
Other -- -- -- --
Dollar Amount of Property Sales and
Refinancing Payments to Sponsors:
Cash -- -- -- --
Notes -- -- -- --
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- --
Incentive Fees -- -- -- --
Other -- -- -- --
(1) The total dollar amount registered and available to be offered in the first
offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed
its initial offering on December 19, 1999, and the total dollar amount
raised in its initial offering was $132,181,919. The total dollar amount
registered and available to be offered in the second offering was
$222,000,000. Wells Real Estate Investment Trust, Inc. closed its second
offering on December 19, 2000, and the total dollar amount raised in its
second offering was $175,229,193.
(2) Includes compensation paid to the general partners from Wells Real Estate
Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate
Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII,
L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P.
and Wells Real Estate Fund X, L.P. during the past three years. In addition
to the amounts shown, affiliates of the general partners of Wells Real
Estate Fund I are entitled to certain property management and leasing fees
but have elected to defer the payment of such fees until a later year on
properties owned by Wells Real Estate Fund I. As of December 31, 2001, the
amount of such deferred fees totaled $2,627,841.
(3) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offering which was not
reallowed to participating broker-dealers.
56
(4) Fees paid to the general partners or their affiliates for acquisition and
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(5) Includes $(161,104) in net cash provided by operating activities,
$3,308,970 in distributions to limited partners and $346,208 in payments to
sponsor for Wells Real Estate Fund XI, L.P.; $167,620 in net cash used by
operating activities, $2,971,042 in distributions to limited partners and
$369,466 in payments to sponsor for Wells Real Estate Fund XII, L.P.;
$53,677,256 in net cash provided by operating activities, $57,514,696 in
dividends and $4,845,729 in payments to sponsor for Wells Real Estate
Investment Trust, Inc.; and $956,542 in net cash provided by operating
activities, $50,169,329 in distributions to limited partners and $7,018,457
in payments to sponsor for other public programs.
57
TABLE III
(UNAUDITED)
The following five tables set forth operating results of Wells Public
Programs the offerings of which have been completed since December 31, 1996. The
information relates only to public programs with investment objectives similar
to those of the Wells REIT. All figures are as of December 31 of the year
indicated.
58
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND VIII, L.P.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,521,303 $ 1,373,795 $ 1,360,497 $ 1,362,513 $ 1,204,018
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 87,597 85,732 87,301 87,092 95,201
Depreciation and Amortization/(3)/ 0 0 6,250 6,250 6,250
------------ ----------- ----------- ------------ ------------
Net Income GAAP Basis/(4)/ $ 1,433,706 1,288,063 $ 1,266,946 $ 1,269,171 $ 1,102,567
============ =========== =========== ============ ============
Taxable Income: Operations $ 2,000,231 1,707,431 $ 1,672,844 $ 1,683,192 $ 1,213,524
============ =========== =========== ============ ============
Cash Generated (Used By):
Operations (85,637) (68,968) (87,298) (63,946) 7,909
Joint Ventures 2,602,975 2,474,151 2,558,623 2,293,504 1,229,282
------------ ----------- ----------- ------------ ------------
$ 2,517,338 $ 2,405,183 2,471,325 $ 2,229,558 $ 1,237,191
Less Cash Distributions to Investors:
Operating Cash Flow 2,507,159 2,405,183 2,379,215 2,218,400 1,237,191
Return of Capital -- -- -- -- 183,315
Undistributed Cash Flow from Prior Year Operations -- 82,180 -- -- --
------------ ----------- ----------- ------------ ------------
Cash Generated (Deficiency) after Cash Distributions $ 10,179 $ (82,180) $ 92,110 $ 11,158 $ (183,315)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions/(5)/ -- -- -- -- --
------------ ----------- ----------- ------------ ------------
$ 10,179 $ (82,180) $ 92,110 $ 11,158 $ (183,315)
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- --
------------
Return of Limited Partner's Investment -- -- -- -- 8,600
Property Acquisitions and Deferred Project Costs 0 0 1,850,859 10,675,811
------------ ----------- ----------- ------------ ------------
Cash Generated (Deficiency) after Cash
Distributions and Special Items $ 10,179 $ (82,180) $ 92,110 $ (1,839,701) $(10,867,726)
============ =========== =========== ============ ============
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 51 84 91 91 73
- Operations Class B Units (93) (219) (247) (212) (150)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 98 89 88 89 65
- Operations Class B Units (190) (169) (154) (131) (95)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 51 83 87 83 54
- Return of Capital Class A Units 38 7 -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 89 87 87 83 47
- Return of Capital Class A Units -- 3 -- -- 7
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 77 73 70 69 42
- Return of Capital Class A Units 12 17 17 16 12
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested
in Program Properties at the end of the Last Year
Reported in the Table 100%
59
(1) Includes $1,034,907 in equity in earnings of joint ventures and $169,111
from investment of reserve funds in 1997; $1,346,367 in equity in earnings
of joint ventures and $16,146 from investment of reserve funds in 1998;
$1,360,494 in equity in earnings of joint ventures and $3 from investment
of reserve funds in 1999; $1,363,174 in equity in earnings of joint
ventures and $10,621 from investment of reserve funds in 2000; and
$1,519,727 in equity in earnings of joint ventures and $1,576 from
investment of reserve funds in 2001. As of December 31, 2001, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $841,666 for 1997; $1,157,355 for 1998; $1,209,171 for
1999; $1,173,630 for 2000; and $992,830 for 2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $1,947,536 to Class A Limited
Partners, $(844,969) to Class B Limited Partners and $0 to the General
Partners for 1997; $2,431,246 to Class A Limited Partners, $(1,162,075) to
Class B Limited Partners and $0 to the General Partners for 1998;
$2,481,559 to Class A Limited Partners, $(1,214,613) to Class B Limited
Partners and $0 to the General Partners for 1999; $2,294,288 to Class A
Limited Partners, $(1,006,225) to Class B Limited Partners and $0 to the
General Partners for 2000; and $1,433,706 to Class A Limited Partners, $(0)
to Class B Limited Partners and $0 to the General Partners for 2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$2,295,381.
60
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,874,290 $ 1,836,768 $ 1,593,734 $ 1,561,456 $ 1,199,300
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 105,816 78,092 90,903 105,251 101,284
Depreciation and Amortization/(3)/ 0 0 12,500 6,250 6,250
----------- ----------- ----------- ------------ -------------
Net Income GAAP Basis/(4)/ $ 1,768,474 $ 1,758,676 $ 1,490,331 $ 1,449,955 $ 1,091,766
=========== =========== =========== =========== =============
Taxable Income: Operations $ 2,251,474 $ 2,147,094 $ 1,924,542 $ 1,906,011 $ 1,083,824
=========== =========== =========== =========== =============
Cash Generated (Used By):
Operations $ (101,573) $ (66,145) $ (94,403) $ 80,147 $ 501,390
Joint Ventures 2,978,785 2,831,329 2,814,870 2,125,489 527,390
----------- ----------- ----------- ----------- -------------
$ 2,877,212 $ 2,765,184 $ 2,720,467 $ 2,205,636 $ 1,028,780
Less Cash Distributions to Investors:
Operating Cash Flow 2,877,212 2,707,684 2,720,467 2,188,189 1,028,780
Return of Capital -- -- 15,528 -- 41,834
Undistributed Cash Flow From Prior Year Operations (20,074) -- 17,447 -- 1,725
----------- ----------- ----------- ------------ -------------
Cash Generated (Deficiency) after Cash Distributions $ (20,074 $ 57,500 $ (32,975) $ 17,447 $ (43,559)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- --
----------- ----------- ----------- ----------- -------------
$ (20,074) $ 57,500 $ (32,975) $ 17,447 $ (43,559)
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- 323,039
Return of Original Limited Partner's Investment -- -- -- -- 100
Property Acquisitions and Deferred Project Costs -- 44,357 190,853 9,455,554 13,427,158
----------- ----------- ----------- ------------ -------------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (20,074) $ 13,143 $ (223,828) $(9,438,107) $ (13,793,856)
=========== =========== =========== =========== =============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 57 93 89 88 53
- Operations Class B Units (0) (267) (272) (218) (77)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 94 91 86 85 46
- Operations Class B Units (195) (175) (164) (123) (47)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 56 87 88 73 36
- Return of Capital Class A Units 36 -- 2 -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 92 87 89 73 35
- Return of Capital Class A Units -- -- 1 -- 1
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 81 76 77 61 29
- Return of Capital Class A Units 11 11 13 12 7
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
61
(1) Includes $593,914 in equity in earnings of joint ventures and $605,386 from
investment of reserve funds in 1997; $1,481,869 in equity in earnings of
joint ventures and $79,587 from investment of reserve funds in 1998;
$1,593,734 in equity in earnings of joint ventures and $0 from investment
of reserve funds in 1999; and $1,829,216 in equity in earnings of joint
ventures and $7,552 from investment of reserve funds in 2000; and
$1,870,378 in equity in earnings of joint ventures and $3,912 from
investment of reserve funds in 2001. As of December 31, 2001, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $469,126 for 1997; $1,143,407 for 1998; $1,210,939 for
1999; $1,100,915 for 2000; and $1,076,802 for 2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $1,564,778 to Class A Limited
Partners, $(472,806) to Class B Limited Partners and $(206) to the General
Partners for 1997; $2,597,938 to Class A Limited Partners, $(1,147,983) to
Class B Limited Partners and $0 to the General Partners for 1998;
$2,713,636 to Class A Limited Partners, $(1,223,305) to Class B Limited
Partners and $0 to the General Partners for 1999; $2,858,806 to Class A
Limited Partners, $(1,100,130) to Class B Limited Partners and $0 to the
General Partners for 2000; and $1,768,474 to Class A Limited Partners, $(0)
to Class B Limited Partners and $0 to the General Partners for 2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,668,253.
62
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,559,026 $ 1,557,518 $ 1,309,281 $ 1,204,597 $ 372,507
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 109,177 81,338 98,213 99,034 88,232
Depreciation and Amortization/(3)/ 0 0 18,750 55,234 6,250
----------- ----------- ----------- ------------ ------------
Net Income GAAP Basis/(4)/ $ 1,449,849 $ 1,476,180 $ 1,192,318 $ 1,050,329 $ 278,025
=========== =========== =========== ============ ============
Taxable Income: Operations $ 1,688,775 $ 1,692,792 1,449,771 $ 1,277,016 $ 382,543
=========== =========== =========== ============ ============
Cash Generated (Used By):
Operations (100,983) (59,595) (99,862) 300,019 200,668
Joint Ventures 2,307,137 2,192,397 2,175,915 886,846 --
----------- ----------- ----------- ------------ ------------
$ 2,206,154 $ 2,132,802 2,076,053 $ 1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow $ 2,206,154 2,103,260 2,067,801 1,186,865 --
Return of Capital -- -- -- 19,510 --
Undistributed Cash Flow From Prior Year Operations 25,647 -- -- 200,668 --
----------- ----------- ----------- ------------ ------------
Cash Generated (Deficiency) after Cash Distributions $ (25,647) $ 29,542 $ 8,252 $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 27,128,912
----------- ----------- ----------- ------------ ------------
$ (25,647) $ 29,542 $ 8,252 $ (220,178) $ 27,329,580
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 300,725 3,737,363
Return of Original Limited Partner's Investment -- -- -- -- 100
Property Acquisitions and Deferred Project Costs 0 81,022 0 17,613,067 5,188,485
----------- ----------- ----------- ------------ ------------
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (25,647) $ (51,480) $ 8,252 $(18,133,970) $ 18,403,632
=========== =========== =========== ============ ============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 99 104 97 85 28
- Operations Class B Units (188) (159) (160) (123) (9)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 95 98 92 78 35
- Operations Class B Units (130) (107) (100) (64) 0
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 96 94 95 66 --
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 96 94 95 56 --
- Return of Capital Class A Units -- -- -- 10 --
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 80 74 71 48 --
- Return of Capital Class A Units 16 20 24 18 --
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year Reported in
the Table 100%
63
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542
from investment of reserve funds in 1997; $869,555 in equity in earnings of
joint ventures and $215,042 from investment of reserve funds in 1998;
$1,309,281 in equity in earnings of joint ventures and $0 from investment
of reserve funds in 1999; 1,547,664 in equity in earnings of joint ventures
and $9,854 from investment of reserve funds in 2000; and $1,549,588 in
equity in earnings of joint ventures and $9,438 from investment of reserve
funds in 2001. As of December 31, 2001, the leasing status was 100%
including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997; $674,986 for 1998; $891,911 for 1999;
$816,544 for 2000; and $814,502 for 2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997; $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998;
$2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited
Partners and $0 to the General Partners for 1999; $2,292,724 to Class A
Limited Partners, $(816,544) to Class B Limited Partners and $0 to the
General Partners for 2000; and $2,264,351 to Class A Limited Partners,
$(814,502) to Class B Limited Partners and $0 to the General Partners for
2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,735,882.
64
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 960,676 $ 975,850 $ 766,586 $ 262,729 N/A
Profit on Sale of Properties -- -- -- --
Less: Operating Expenses/(2)/ 90,326 79,861 111,058 113,184
Depreciation and Amortization/(3)/ 0 -- 25,000 6,250
----------- ----------- ------------ -----------
Net Income GAAP Basis/(4)/ $ 870,350 $ 895,989 $ 630,528 $ 143,295
=========== =========== ============ ===========
Taxable Income: Operations $ 1,038,394 $ 944,775 $ 704,108 $ 177,692
=========== =========== ============ ===========
Cash Generated (Used By):
Operations (128,985) (72,925) 40,906 (50,858)
Joint Ventures 1,376,673 1,333,337 705,394 102,662
----------- ----------- ------------ -----------
$ 1,247,688 $ 1,260,412 $ 746,300 $ 51,804
Less Cash Distributions to Investors:
Operating Cash Flow 1,247,688 1,205,303 746,300 51,804
Return of Capital 4,809 -- 49,761 48,070
Undistributed Cash Flow From Prior Year Operations 55,109 -- -- --
----------- ----------- ------------ ------------
Cash Generated (Deficiency) after Cash Distributions $ (59,918) $ 55,109 $ (49,761) $ (48,070)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- -- 16,532,801
----------- ----------- ------------ -----------
$ (59,918) $ 55,109 $ (49,761) $16,484,731
Use of Funds:
Sales Commissions and Offering Expenses -- -- 214,609 1,779,661
Return of Original Limited Partner's Investment -- -- 100 --
Property Acquisitions and Deferred Project Costs -- -- 9,005,979 5,412,870
----------- ----------- ---------- -----------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ (59,918) $ 55,109 $ (9,270,449) $ 9,292,200
=========== =========== ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 101 103 77 50
- Operations Class B Units (158) (155) (112) (77)
Capital Gain (Loss) -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 100 97 71 18
- Operations Class B Units (100) (112) (73) (17)
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 97 90 60 8
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 97 90 56 4
- Return of Capital Class A Units -- -- 4 4
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 75 69 46 6
- Return of Capital Class A Units 22 21 14 2
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year
Reported in the Table 100%
65
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566 from
investment of reserve funds in 1998; $607,579 in equity in earnings of
joint ventures and $159,007 from investment of reserve funds in 1999;
$967,900 in equity in earnings of joint ventures and $7,950 from investment
of reserve funds in 2000; and $959,631 in equity in earnings of joint
ventures and $1,045 from investment of reserve funds in 2001. As of
December 31, 2001, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $105,458 for 1998; $353,840 for 1999; $485,558 for 2000;
and $491,478 for 2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998; $1,009,368 to Class A Limited Partners, $(378,840) to
Class B Limited Partners and $0 to the General Partners for 1999;
$1,381,547 to Class A Limited Partners, $(485,558) to Class B Limited
Partners and $0 to General Partners for 2000; and $1,361,828 to Class A
Limited Partners, $(491,478) to Class B Limited Partners and $0 to the
General Partners for 2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$791,502.
66
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XII, L.P.
2001 2000 1999
---- ---- ----
Gross Revenues/(1)/ $ 1,661,194 $ 929,868 $ 160,379
Profit on Sale of Properties -- -- --
Less: Operating Expenses/(2)/ 105,776 73,640 37,562
Depreciation and Amortization/(3)/ 0 0 0
------------ ------------ -----------
Net Income GAAP Basis/(4)/ $ 1,555,418 $ 856,228 $ 122,817
============ ======= =======
Taxable Income: Operations $ 1,850,674 $ 863,490 $ 130,108
============ ======= ===========
Cash Generated (Used By):
Operations (83,406) 247,244 3,783
Joint Ventures 2,036,837 737,266 61,485
$ 1,953,431 $ 984,510 $ 65,268
Less Cash Distributions to Investors:
Operating Cash Flow 1,953,431 779,818 62,934
Return of Capital -- -- --
Undistributed Cash Flow From Prior Year Operations 174,859 -- --
Cash Generated (Deficiency) after Cash Distributions $ (174,859) $ 204,692 $ 2,334
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions 10,625,431 15,617,575 9,368,186
$ 10,450,572 $ 15,822,267 $ 9,370,520
Use of Funds:
Sales Commissions and Offering Expenses 1,328,179 1,952,197 1,171,024
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 9,298,085 16,246,485 5,615,262
Cash Generated (Deficiency) after Cash Distributions and
Special Items $ (175,692) $ (2,376,415) $ 2,584,134
============ ============ ===========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 98 89 50
- Operations Class B Units (131) (92) (56)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 84 58 23
- Operations Class B Units (74) (38) (25)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 77 41 8
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 77 41 8
- Return of Capital Class A Units -- -- --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 55 13 6
- Return of Capital Class A Units 22 28 2
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year
Reported in the Table 100%
67
(1) Includes $124,542 in equity in earnings of joint ventures and $35,837 from
investment of reserve funds in 1999; $664,401 in equity in earnings of
joint ventures and $265,467 from investment of reserve funds in 2000; and
$1,577,523 in equity in earnings of joint ventures and $83,671 from
investment of reserve funds in 2001. As of December 31, 2001, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $72,427 for 1999; $355,210 for 2000; and $1,035,609 for
2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $195,244 to Class A Limited
Partners, $(71,927) to Class B Limited Partners and $(500) to the General
Partners for 1999; $1,209,438 to Class A Limited Partners, $(353,210) to
Class B Limited Partners and $0 to General Partners for 2000; and
$2,591,027 to Class A Limited Partners, $(1,035,609) to Class B Limited
Partners and $0 to the General Partners for 2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$870,747.
68
TABLE V (UNAUDITED)
SALES OR DISPOSALS OF PROPERTIES
The following Table sets forth sales or other disposals of properties
by Wells Public Programs within the most recent three years. The information
relates to only public programs with investment objectives similar to those of
Wells Real Estate Investment Trust, Inc. All figures are as of December 31,
2001.
Date Cost Of Properties
Date Of Selling Price, Net Of Including Closing And
Property Acquired Sale Closing Costs And GAAP Adjustments Soft Costs
====================================================================================================================================
Total
Cash Adjustments Acquisition
Received Mortgage Purchase Resulting Cost,
Net Of Balance Money From Original/1/ Capital
Closing At Time Mortgage Application Mortgage Improvement,
Costs Of Sale Taken Of GAAP Total Financing Closing And Total
Back By Soft Costs/1/
Program
------------------------------------------------------------------------------------------------------------------------------------
3875 12/1/85 08/31/00 $ 727,982 -0- -0- -0- $ 727,982/2/ -0- $ 647,648 $ 647,648
Peachtree
Place,
Atlanta,
Georgia
Crowe's 12/31/86 01/11/01 $6,487,000 -0- -0- -0- $6,487,000/3/ -0- $ 9,388,869 $ 9,368,869
Crossing
Shopping
Center,
DeKalb
Count,
Georgia
Cherokee 10/30/87 10/01/01 $8,434,089 -0- -0- -0- $8,434,089/4/ -0- $10,650,750 $10,650,750
Commons
Shopping
Center,
Cherokee
County,
Georgia
Excess
(Deficiency)
Of Property
Operating
Cash
Receipts
Over
Cash
Property Expenditures
==========================
==========================
3875
Peachtree
Place,
Atlanta,
Georgia
Crowe's
Crossing
Shopping
Center,
DeKalb
Count,
Georgia
Cherokee
Commons
Shopping
Center,
Cherokee
County,
Georgia
__________________
1 Amount shown does not include pro rata share of original offering costs.
2 Includes Wells Real Estate Fund I's share of taxable gain from this sale in
the amount of $205,019, of which $205,019 is allocated to capital gain and $0
is allocated to ordinary gain.
3 Includes taxable gain from this sale in the amount of $11,496, of which
$11,496 is allocated to capital gain and $0 is allocated to ordinary gain.
4 Includes taxable gain from this sale in the amount of $207,613, of which
$207,613 is allocated to capital gain and $0 is allocated to ordinary gain.
69
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 8 DATED APRIL 15, 2002 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001,
Supplement No. 2 dated April 25, 2001, Supplement No. 3 dated July 20, 2001,
Supplement No. 4 dated August 10, 2001, Supplement No. 5 dated October 15, 2001,
Supplement No. 6 dated January 20, 2002 and Supplement No. 7 dated March 30,
2002. When we refer to the "prospectus" in this supplement, we are also
referring to any and all supplements to the prospectus. Unless otherwise defined
in this supplement, capitalized terms used in this supplement shall have the
same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) Status of the offering of shares in Wells Real Estate Investment
Trust, Inc. (Wells REIT);
(2) Acquisition of a six-story office building in Houston, Texas
(Transocean Houston Building);
(3) Acquisition of a four-story office building in Duluth, Georgia
(Novartis Atlanta Building);
(4) Acquisition of a three-story office and research and development
building in Farmington Hills, Michigan and a two-story office and
industrial building in Kalamazoo, Michigan (Dana Corporation
Buildings;
(5) Acquisition of two connected one-story office buildings in Lakewood,
Colorado (Travelers Express Denver Buildings);
(6) Revisions to the "Management's Discussion and Analysis of Financial
Condition and Results of Operations" section of the prospectus;
(7) Audited financial statements relating to the Novartis Atlanta Building
and Dana Corporation Buildings; and
(8) Unaudited pro forma financial statements of Wells REIT reflecting the
acquisitions of the Transocean Houston Building, Novartis Atlanta
Building, Dana Corporation Buildings and Travelers Express Denver
Buildings.
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced our second
offering of common stock on December 20, 1999. Our second public offering was
terminated on December 19, 2000. We received approximately $175,229,193 in gross
offering proceeds from the sale of 17,522,919 shares in our second public
offering.
Pursuant to the prospectus, we commenced our third offering of common stock
on December 20, 2000. As of April 15, 2002, we had received an additional
$840,447,424 in gross offering proceeds from the sale of 84,044,742 shares in
the third offering. Accordingly, as of April 15, 2002, we had received in
1
the aggregate approximately $1,147,858,536 in gross offering proceeds from the
sale of 114,785,854 shares of our common stock.
The Transocean Houston Building
Purchase of the Transocean Houston Building. On March 15, 2002, Wells Operating
-------------------------------------------
Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire,
own, lease and operate real properties on behalf of the Wells REIT, purchased a
six-story office building in Houston, Harris County, Texas (Transocean Houston
Building). Wells OP purchased the Transocean Houston Building from Broadfield
Associates, L.P., which is not in any way affiliated with the Wells REIT or
Wells Capital, Inc. (Wells Capital), our advisor.
The purchase price for the Transocean Houston Building was $22,000,000. In
addition, Wells OP incurred acquisition expenses in connection with the purchase
of the Transocean Houston Building, including attorneys' fees, recording fees,
structural report and environmental report fees and other closing costs, of
$45,082.
An independent appraisal of the Transocean Houston Building was prepared by
CB Richard Ellis, Inc., real estate appraisers, as of February 5, 2002, pursuant
to which the market value of the real property containing the leased fee
interest subject to the leases described below was estimated to be $22,400,000,
in cash or terms equivalent to cash. This value estimate was based upon a number
of assumptions, including that the Transocean Houston Building will continue
operating at a stabilized level with 100% occupancy of the rentable area, and is
not necessarily an accurate reflection of the fair market value of the property
or the net proceeds which would result from an immediate sale of this property.
Wells OP also obtained an environmental report and an engineering inspection
report prior to the closing evidencing that the condition of the land and the
Transocean Houston Building were satisfactory.
Description of the Transocean Houston Building and Site. The Transocean Houston
-------------------------------------------------------
Building, which was completed in 1999, is a six-story office building containing
155,991 rentable square feet located on a 3.88 acre tract of land. The building
is constructed using a composite frame with a metal deck and concrete slab at
elevated levels and a reinforced concrete foundation. The exterior walls are
made of reflective glass with color accent panels. The common area interior
walls consists of wall coverings with granite around the elevators and the
ceiling consists of gypsum board. In addition, the building has three elevators
and approximately 550 paved parking spaces, which include 430 garage spaces and
120 surface spaces.
The Transocean Houston Building is located at 1311 Broadfield Avenue in
Houston, Harris County, Texas in the western portion of the city of Houston. The
Transocean Houston Building is accessible from Interstate 10 and Highway 6. The
city of Houston is one of North America's major international business centers
with 65 consulates, 27 foreign chambers of commerce and trade associations and
57 foreign bank offices.
The entire Transocean Houston Building is under net lease agreements (i.e.,
operating costs and maintenance costs are paid by the tenant) with Transocean
Deepwater Offshore Drilling, Inc. (Transocean) which occupies 103,260 rentable
square feet (66%), and Newpark Drilling Fluids, Inc. (Newpark) which occupies
52,731 rentable square feet (34%).
The Transocean Lease. The Transocean lease commenced in December 2001 and
--------------------
expires in March 2011. The current annual base rent payable under the Transocean
lease is $2,110,035. Transocean, at its option, has the right to extend the
initial term of its lease for either (1) two additional five-year periods, or
(2) one additional ten-year period, at the then-current market rental rate. In
addition, Transocean has an expansion option and a right of first refusal for up
to an additional 52,731 rentable square feet.
2
Transocean is an offshore drilling company specializing in technically
demanding segments of the offshore drilling industry. The Transocean lease is
guaranteed by Transocean Sedco Forex, Inc., one of the world's largest offshore
drilling companies whose shares are traded on the NASDAQ. Transocean Sedco
Forex, Inc. reported a net worth, as of September 30, 2001, of approximately
$10.86 billion.
The base rent payable under the Transocean lease is as follows:
------------------------------------------------------------------
Lease Period Annual Rent Monthly Rent
------------------------------------------------------------------
December 2001-August 2003 $2,110,635 $175,836
------------------------------------------------------------------
September 2003-August 2005 $2,161,815 $180,151
------------------------------------------------------------------
September 2005-March 2011 $2,291,265 $190,939
------------------------------------------------------------------
Pursuant to the Transocean lease, Transocean is required to pay its
proportionate share of taxes relating to the Transocean Houston Building and its
proportionate share of operating costs, including, but not limited to, those
associated with water, gas, steam, electricity, air conditioning, telephone,
garbage removal, power and other utilities and services used by Transocean.
Wells OP, as the landlord, will be responsible for building maintenance and
repairs to the structural elements, the building systems and the roof of the
Transocean Houston Building. In addition, Wells OP will be responsible for
maintenance and repair of all common areas of the Transocean Houston Building,
including landscaping.
The Newpark Lease. The Newpark lease commenced in August 1999 and expires in
-----------------
August 2009. The current annual base rent payable under the Newpark lease is
$1,153,227.
Newpark is a full service drilling fluids processing, management and waste
disposal company. The Newpark lease is guaranteed by Newpark Resources, Inc.,
which provides drilling fluids services to the oil and gas production industry,
primarily in North America. Newpark Resources, Inc. reported a net worth, as of
December 31, 2001, of approximately $294 million.
The base rent payable under the Newpark lease is as follows:
------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
------------------------------------------------------------
2003 $1,153,227 $96,102
------------------------------------------------------------
2004 $1,132,135 $94,345
------------------------------------------------------------
2005 $1,132,662 $94,388
------------------------------------------------------------
2006 $1,165,355 $97,113
------------------------------------------------------------
2007-2010 $1,122,116 $93,510
------------------------------------------------------------
Pursuant to the Newpark lease, Newpark is required to pay its proportionate
share of taxes relating to the Transocean Houston Building and its proportionate
share of operating costs, including, but not limited to, those associated with
water, gas, steam, electricity, air conditioning, telephone, garbage removal,
power and other utilities and services used by Newpark. Wells OP, as the
landlord, will be responsible for building maintenance and repairs to all common
areas and to the structural elements, the building systems and the roof of the
Transocean Houston Building. In addition, Wells OP will be responsible for
maintenance and repair of all common areas of the Transocean Houston Building,
including landscaping.
3
The Novartis Atlanta Building
Purchase of the Novartis Atlanta Building. On March 28, 2002, Wells OP purchased
-----------------------------------------
a four-story office building located in Duluth, metropolitan Atlanta, Georgia
(Novartis Atlanta Building). Wells OP purchased the Novartis Atlanta Building
from Technology Park/Atlanta Inc., which is not in any way affiliated with the
Wells REIT or Wells Capital, our advisor.
The purchase price for the Novartis Atlanta Building was $15,000,000.
In addition, Wells OP incurred acquisition expenses in connection with the
purchase of the Novartis Atlanta Building, including attorneys' fees, recording
fees, structural report and environmental report fees and other closing costs,
of $45,996.
An independent appraisal of the Novartis Atlanta Building was prepared
by CB Richard Ellis, Inc., real estate appraisers, as of March 12, 2002,
pursuant to which the market value of the real property containing the leased
fee interest subject to the lease described below was estimated to be
$15,000,000, in cash or terms equivalent to cash. This value estimate was based
upon a number of assumptions, including that the Novartis Atlanta Building will
continue operating at a stabilized level with 100% occupancy of the rentable
area, and is not necessarily an accurate reflection of the fair market value of
the property or the net proceeds which would result from an immediate sale of
this property. Wells OP also obtained an environmental report and an engineering
inspection report prior to the closing evidencing that the condition of the land
and the Novartis Atlanta Building were satisfactory.
Description of the Novartis Atlanta Building and Site. The Novartis Atlanta
-----------------------------------------------------
Building, which was completed in 2001, is a four-story office building
containing 100,087 rentable square feet located on a 7.57 acre tract of land.
The building is constructed using a steel frame with steel beams and steel deck
and a reinforced concrete foundation. The exterior walls are made of reflective
glass panels with brick and masonry accents. The common area interior walls
consist of cloth wall covering and extensive wood trim in the ground floor lobby
and textured and painted gypsum board in the upper levels. The ceiling consists
of textured and painted gypsum board with suspended acoustic tiles. In addition,
the building has two elevators located in the main lobby area and approximately
419 paved parking spaces.
The Novartis Atlanta Building is located at 11695 Johns Creek Parkway
in Duluth, metropolitan Atlanta, Georgia in the northeastern portion of Fulton
County, approximately 25 miles north of the Atlanta central business district.
The Novartis Atlanta Building is five miles east of Georgia Highway 400 and is
easily accessible from Peachtree Parkway (Georgia Highway 141). The Atlanta
metropolitan area is headquarters for many major companies including Delta Air
Lines, BellSouth Corporation, The Home Depot and United Parcel Service.
The Novartis Lease. The entire Novartis Atlanta Building is currently under a
------------------
net lease agreement with Novartis Opthalmics, Inc. (Novartis) that commenced in
August 2001 and expires in July 2011. The current annual base rent payable under
the Novartis lease is $1,426,240. Novartis, at its option, has the right to
extend the initial term of its lease for three additional five-year periods at
the then-current market rental rate. In addition, Novartis may terminate the
lease at the end of the fifth lease year by paying a $1,500,000 termination fee.
The Novartis lease is guaranteed by Novartis' parent company, Novartis
Corporation. Novartis is a global leader in research, development and
manufacturing of innovative ophthalmic pharmaceuticals that assist in the
treatment of glaucoma, Age-related Macular Degeneration, infections,
inflammation, ocular allergies, dry eye and other diseases and disorders of the
eye. Novartis Corporation, a public company whose shares are traded on the NYSE,
is a world leader in healthcare with core businesses in pharmaceuticals,
consumer health, generics, eye-care and animal health. Novartis Corporation
reported a
4
net worth, as of December 31, 2001, of approximately $28.1 billion.
The base rent payable under the Novartis lease is as follows:
----------------------------------------------------------------------
Lease Year Annual Rent Monthly Rent
----------------------------------------------------------------------
1 $1,426,240 $118,853
----------------------------------------------------------------------
2 $1,454,765 $121,230
----------------------------------------------------------------------
3 $1,483,860 $123,655
----------------------------------------------------------------------
4 $1,513,537 $126,128
----------------------------------------------------------------------
5 $1,543,808 $128,651
----------------------------------------------------------------------
6 $1,574,684 $131,224
----------------------------------------------------------------------
7 $1,606,178 $133,848
----------------------------------------------------------------------
8 $1,638,301 $136,525
----------------------------------------------------------------------
9 $1,671,067 $139,256
----------------------------------------------------------------------
10 $1,704,489 $142,041
----------------------------------------------------------------------
Pursuant to the Novartis lease, Novartis is required to pay all taxes,
assessments and governmental charges relating to the Novartis Atlanta Building
and all operating costs, expenses and disbursements including, but not limited
to, employees, supplies and materials, insurance, repairs and general
maintenance, accounting fees, management fees, window cleaning, landscaping,
necessary capital expenditures, water, sewer, heating, lighting, ventilation,
air conditioning, electricity and other utilities and services benefiting the
Novartis Atlanta Building. Novartis may make non-structural alterations,
additions and improvements to the Novartis Atlanta Building and may install or
attach fixtures without Wells OP's consent only so long as they do not affect
the structural components of the Novartis Atlanta Building or overburden the
systems therein. Wells OP, as the landlord, will be responsible for building
repairs to the roof, exterior walls, window frames, windows, foundation,
structural elements, irrigation facilities, parking lot lights, roads,
driveways, parking areas, grounds, utilities and landscaping relating to the
Novartis Atlanta Building.
The Dana Corporation Buildings
Purchase of the Dana Corporation Buildings. On March 29, 2002, Wells OP
------------------------------------------
purchased all of the membership interests in Danacq Farmington Hills, LLC and
Danacq Kalamazaoo, LLC, two Delaware limited liability companies which own,
respectively, a three-story office and research and development building located
in Farmington Hills, Oakland County, Michigan (Dana Detroit Building) and a
two-story office and industrial building located in Kalamazoo, Kalamazoo County,
Michigan (Dana Kalamazoo Building). Wells OP purchased the Dana Corporation
Buildings from Gebam, Inc., which is not in any way affiliated with the Wells
REIT or Wells Capital, our advisor.
The purchase price for the Dana Corporation Buildings was $41,950,000.
In addition, Wells OP incurred acquisition expenses in connection with the
purchase of the Dana Corporation Buildings, including commissions, tenant lease
amendment payments, attorneys' fees, recording fees, structural report and
environmental report fees and other closing costs, of $862,669.
Independent appraisals of the Dana Detroit Building and the Dana
Kalamazoo Building were prepared by CB Richard Ellis, Inc., real estate
appraisers, as of March 15, 2002, and March 14, 2002, respectively, pursuant to
which the respective market value of the real property containing the leased fee
interest subject to the leases described below was estimated to be $24,200,000
and $18,700,000, in cash or terms equivalent to cash. These value estimates were
based upon a number of assumptions, including that the Dana Corporation
Buildings will continue operating at a stabilized level with 100% occupancy of
5
the rentable area, and is not necessarily an accurate reflection of the fair
market value of the property or the net proceeds which would result from an
immediate sale of this property. Wells OP also obtained environmental reports
and engineering inspection reports prior to the closing evidencing that the
condition of the land and the Dana Corporation Buildings were satisfactory.
Description of the Dana Detroit Building and Site. The Dana Detroit Building,
-------------------------------------------------
which was completed in 1999, is a three-story office and research and
development building containing 112,480 rentable square feet located on a 7.8
acre tract of land. The building is constructed using a steel frame with steel
beams and steel deck and a reinforced concrete foundation. The exterior walls
are made of brick veneer and the roof is made of flat rubber with balast and
pitched shingles. The interior office walls consist of textured and painted
sheetrock and the ceilings are equipped with acoustic tile. The interior
research area floors and walls consist of concrete with exposed steel webbed
ceilings. In addition, the building has one elevator located in the center of
the building and approximately 257 paved parking spaces. The landscaping at the
facility contains grass and natural forest landscaping.
The Dana Detroit Building is located at 27404 Drake Road in Farmington
Hills, Michigan in Southwest Oakland County about 25 miles northwest of the
Detroit central business district and within the Detroit metropolitan area. The
Dana Detroit Building is easily accessible from Interstate Highway 696 and
Interstate 275. The Detroit metropolitan area serves as the headquarters for
three of the top five industrial corporations and 12 of the top 500 businesses
in the country.
The Dana Detroit Lease. The entire Dana Detroit Building is leased to Dana
----------------------
Corporation (Dana). The Dana Detroit lease is a net lease that commenced in
October 2001 and expires in October 2021. The current annual base rent payable
under the Dana Detroit lease is $2,330,600. Dana, at its option, has the right
to extend the initial term of its lease for six additional five-year periods at
the then-current market rental rate. Dana may terminate the lease at any time
during the initial lease term after the 11/th/ lease year, subject to certain
conditions.
Dana is one of the world's largest suppliers of components, modules and
complete systems to global vehicle manufacturers and their related aftermarkets.
Dana operates approximately 300 major facilities in 34 countries and employs
nearly 70,000 people. Dana reported a net worth, as of December 31, 2001, of
approximately $1.9 billion.
The base rent payable under the Dana Detroit lease is as follows:
------------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
------------------------------------------------------------------
1-10 $2,330,600 $194,217
------------------------------------------------------------------
11-20 $2,563,660 $213,638
------------------------------------------------------------------
Pursuant to the Dana Detroit lease, Dana is required to pay all taxes
relating to the Dana Detroit Building and all operating costs, including, but
not limited to, those associated with water, gas, steam, electricity, air
conditioning, telephone, garbage removal, snow removal, common area maintenance,
landscaping, power and other utilities and services used by Dana. Dana is also
required to pay for all repair and maintenance costs, including but not limited
to, window cleaning, security personnel, elevator maintenance, HVAC maintenance,
janitorial service, waste recycling service and landscaping maintenance. In
addition, Dana will be responsible for building repairs to the structural
elements, the building systems, exterior walls, windows and the roof of the Dana
Detroit Building.
6
Description of the Dana Kalamazoo Building and Site. The Dana Kalamazoo
---------------------------------------------------
Building, which was completed in 1999, is a two-story office and industrial
building containing 147,004 rentable square feet located on a 27.5 acre tract of
land. The building is constructed using a steel frame with steel beams and steel
deck and a reinforced concrete foundation. The exterior walls are made of brick
veneer. The interior office walls consist of textured and painted sheetrock and
the ceilings are equipped with acoustic tile. The interior research area floors
and walls consist of concrete with exposed steel webbed ceilings. In addition,
the building has one elevator and four stairwells and approximately 344 paved
parking spaces. The landscaping at the facility includes grass and natural
forest landscaping.
The Dana Kalamazoo Building is located at 6938 Elm Valley Drive in
Kalamazoo, Michigan, approximately 20 miles west of Battle Creek, Michigan and
40 miles south of Grand Rapids, Michigan. The Dana Kalamazoo Building is easily
accessible from Interstate 94, which links Chicago with Detroit. Some of
Kalamazoo's major employers include Pharmacia and Upjohn, Western Michigan
University (with an enrollment of approximately 30,000 students) and National
City Bank.
The Dana Kalamazoo Lease. The entire Dana Kalamazoo Building is also leased to
------------------------
Dana. The Dana Kalamazoo lease is a net lease that commenced in October 2001 and
expires in October 2021. The current annual base rent payable under the Dana
Kalamazoo lease is $1,842,800. Dana, at its option, has the right to extend the
initial term of its lease for six additional five-year periods at the
then-current market rental rate. Dana may terminate the lease at any time during
the initial lease term after the sixth lease year and before the 19th lease
year, subject to certain conditions.
The base rent payable under the Dana Kalamazoo lease is as follows:
--------------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
--------------------------------------------------------------------
1-10 $1,842,800 $153,567
--------------------------------------------------------------------
11-20 $2,027,080 $168,923
--------------------------------------------------------------------
Pursuant to the Dana Kalamazoo lease, Dana is required to pay all taxes
relating to the Dana Kalamazoo Building and all operating costs, including, but
not limited to, those associated with water, gas, steam, electricity, air
conditioning, telephone, garbage removal, snow removal, common area maintenance,
landscaping, power and other utilities and services used by Dana. Dana is also
required to pay for all repair and maintenance costs, including but not limited
to, window cleaning, security personnel, elevator maintenance, HVAC maintenance,
janitorial service, waste recycling service and landscaping maintenance. In
addition, Dana will be responsible for building repairs to the structural
elements, the building systems, exterior walls, windows and the roof of the Dana
Kalamazoo Building.
The Travelers Express Denver Buildings
Purchase of the Travelers Express Denver Buildings. On April 10, 2002, Wells OP
--------------------------------------------------
purchased two connected one-story office buildings located in Lakewood,
Metropolitan Denver, Colorado (Travelers Express Denver Buildings). Wells OP
purchased the Travelers Express Denver Buildings from Opus Northwest, L.L.C.,
which is not in any way affiliated with the Wells REIT or Wells Capital, our
advisor.
The purchase price for the Travelers Express Denver Buildings was
$10,395,845. In addition, Wells OP incurred acquisition expenses in connection
with the purchase of the Travelers Express Denver Buildings, including
attorneys' fees, recording fees, structural report and environmental report fees
and other closing costs, of $159,646.
An independent appraisal of the Travelers Express Denver Buildings was
prepared by Integra Joseph Farner & Company, real estate appraisers, as of
October 17, 2001, pursuant to which the market value of the real property
containing the leased fee interest subject to the lease described below was
7
estimated to be $10,700,000, in cash or terms equivalent to cash. This value
estimate was based upon a number of assumptions, including that the Travelers
Express Denver Buildings will continue operating at a stabilized level with 100%
occupancy of the rentable area, and is not necessarily an accurate reflection of
the fair market value of the property or the net proceeds which would result
from an immediate sale of this property. Wells OP also obtained an environmental
report and an engineering inspection report prior to the closing evidencing that
the condition of the land and the Travelers Express Denver Buildings were
satisfactory.
Description of the Travelers Express Denver Buildings and Site. The Travelers
--------------------------------------------------------------
Express Denver Buildings, which were completed in 2002, are two connected
one-story office buildings containing 68,165 rentable square feet located on a
7.88 acre tract of land. The buildings are constructed using a pre-cast concrete
and steel frame and a reinforced concrete foundation. The exterior walls are
made of concrete panels and a storefront window system. The interior walls
consist of gypsum board and the ceilings are equipped with acoustic tile. In
addition, the building has 350 paved parking spaces.
The Travelers Express Denver Buildings are located at 3940 South Teller
Street in Lakewood, Metropolitan Denver, Colorado in the Academy Business Park
approximately 15 miles southwest of downtown Denver. The Denver metropolitan
area's largest employers include Qwest Communications International, Safeway
Inc., United Airlines and AT&T Corp.
The Travelers Lease. The Travelers Express Denver Buildings are currently
-------------------
under a net lease agreement with Travelers Express Company, Inc. (Travelers)
that commenced in April 2002 and expires in March 2012. The current annual base
rent payable under the Travelers lease is $1,012,250. Travelers, at its option,
has the right to extend the initial term of its lease for two additional
five-year periods. The annual base rent for the first three years of the first
renewal term shall be $19 per rentable square foot and the annual base rent for
the last two years shall be $20.50 per rentable square foot. The annual base
rent for the second renewal term shall be at the then-current market rental rate
for each year of the renewal term. In addition, Travelers may terminate the
Travelers lease at the end of the seventh lease year by paying a termination fee
of $1,040,880. Travelers also has the right to expand the Travelers Express
Denver Buildings between 10% and 20% by providing notice on or before May 1,
2004, subject to certain limitations and potential acceleration.
Travelers is the largest money order processor and second largest
money-wire transfer company in the nation, processing more than 775 million
transactions per year, including official checks and share drafts for financial
institutions. Travelers is a wholly owned subsidiary of Viad Corporation, a
public company whose shares are traded on the NYSE. Travelers reported a net
worth, as of December 31, 2000, of approximately $652 million.
The base rent payable under the Travelers lease is as follows:
---------------------------------------------------------------------
Lease Years Annual Rent Monthly Rent
---------------------------------------------------------------------
1-3 $1,012,250 $84,354
---------------------------------------------------------------------
4-5 $1,090,640 $90,887
---------------------------------------------------------------------
6-8 $1,169,030 $97,419
---------------------------------------------------------------------
9-10 $1,239,921 $103,327
---------------------------------------------------------------------
Pursuant to the Travelers lease, Travelers is required to pay all
taxes, assessments and governmental charges relating to the Travelers Express
Denver Buildings and all operating costs, expenses and disbursements including,
but not limited to, insurance, repairs and general maintenance, window washing,
janitorial, trash and rubbish removal costs, water, sewer, heating, lighting,
ventilation, air conditioning, electricity, and other utilities and services
benefiting the Travelers Express Denver
8
Buildings. Travelers may make non-structural alterations, additions and
improvements to the Travelers Express Denver Buildings and may install or attach
fixtures without Wells OP's consent only so long as they do not affect the
structural components of the Travelers Express Denver Buildings or overburden
the systems therein. Wells OP, as the landlord, will be responsible for building
repairs to the roof, exterior walls, foundation, structural elements, lobbies,
elevators, stairways, restrooms and HVAC system, driveways, parking areas,
grounds, relating to the Travelers Express Denver Buildings.
Property Management Fees
Wells Management Company, Inc. (Wells Management), an affiliate of the
Wells REIT, and our advisor, will manage and lease the Transocean Houston
Building, the Novartis Atlanta Building, the Dana Corporation Buildings and the
Travelers Express Denver Buildings. Wells Management will be paid management and
leasing fees in the amount of 4.5% of gross revenues from the Transocean Houston
Building, the Novartis Atlanta Building, the Dana Corporation Buildings and the
Travelers Express Denver Buildings, subject to certain limitations.
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section beginning on page 98 of the prospectus, as supplemented by
Supplement No. 7 dated March 30, 2002.
We began active operations on June 5, 1998, when we received and
accepted subscriptions for 125,000 shares pursuant to our initial public
offering, which commenced on January 30, 1998. We terminated our initial public
offering on December 19, 1999. Of the $132,181,919 raised in the initial
offering, we invested a total of $111,032,812 in properties. On December 20,
1999, we commenced a second public offering of up to 22,200,000 shares of common
stock. We terminated our second offering on December 19, 2000. Of the
$175,229,193 raised in the second offering, we invested a total of $147,192,522
in properties.
Pursuant to the prospectus, we commenced this third offering of shares
of our common stock on December 20, 2000. As of April 15, 2002, we had received
an additional $840,447,424 in gross offering proceeds from the sale of
84,044,742 shares in the third offering. As of April 15, 2002, we had raised in
the aggregate a total of $1,147,858,536 in offering proceeds through the sale of
114,785,854 shares of common stock. As of April 15, 2002, we had paid a total of
$39,874,315 in acquisition and advisory fees and acquisition expenses, had paid
a total of $130,797,646 in selling commissions and organizational and offering
expenses, had expended a total of $735,823,145 for investments in real estate
joint ventures and acquisitions of real property, had utilized $8,592,385 for
redemptions of stock pursuant to our share redemption program, and were holding
net offering proceeds of $232,771,045 available for investment in additional
properties.
Financial Statements
The Statements of Revenues Over Certain Operating Expenses of the
Novartis Atlanta Building and the Dana Corporation Buildings for the year ended
December 31, 2001, which are included in this supplement and elsewhere in the
registration statement, have been audited by Arthur Andersen LLP, independent
public accountants, as indicated in their reports with respect thereto, and are
included in this supplement in reliance upon the authority of said firm as
experts in giving said reports.
The Pro Forma Balance Sheet of the Wells REIT, as of December 31,
2001, and the Pro Forma Statement of Income (loss) for the year ended December
31, 2001, which are included in this supplement, have not been audited.
9
INDEX TO FINANCIAL STATEMENTS
Page
----
Novartis Atlanta Building
Report of Independent Accountants 11
Statements of Revenues Over Certain Operating Expenses 12
for the year ended December 31, 2001 (audited)
Notes to Statements of Revenues Over Certain Operating 13
Expenses for the year ended December 31, 2001 (audited)
Dana Corporation Buildings
Report of Independent Accountants 14
Statements of Revenues over Certain Operating Expenses 15
for the year ended December 31, 2001 (audited)
Notes to Statements of Revenues over Certain Operating Expenses 16
for the year ended December 31, 2001 (audited)
Wells Real Estate Investment Trust, Inc. and Subsidiary
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 17
Pro Forma Balance Sheet as of December 31, 2001 18
Pro Forma Statement of Income (Loss) for the year ended 20
December 31, 2001
10
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the NOVARTIS ATLANTA BUILDING for the year ended December 31, 2001.
This financial statement is the responsibility of management. Our responsibility
is to express an opinion on this financial statement based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues over
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues over certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Novartis
Atlanta Building after acquisition by the Wells Operating Partnership, L.P., a
subsidiary of Wells Real Estate Investment Trust, Inc. The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Novartis Atlanta Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Novartis Atlanta Building for the year ended December 31, 2001
in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 12, 2002
11
NOVARTIS ATLANTA BUILDING
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2001
RENTAL REVENUES $650,705
OPERATING EXPENSES, net of reimbursements 4,929
------------
REVENUES OVER CERTAIN OPERATING EXPENSES $645,776
============
The accompanying notes are an integral part of this statement.
12
NOVARTIS ATLANTA BUILDING
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2001
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 28, 2002, the Wells Operating Partnership, L.P. ("Wells OP")
acquired the Novartis Atlanta Building from Technology Park/Atlanta,
Inc. ("Technology Park"). Wells OP is a Delaware limited partnership
formed to acquire, own, lease, operate, and manage real properties on
behalf of Wells Real Estate Investment Trust, Inc., a Maryland
corporation. As the sole general partner of Wells OP, Wells Real Estate
Investment Trust, Inc. possesses full legal control and authority over
the operations of Wells OP.
Novartis Opthalmics, Inc ("Novartis") currently occupies the entire
100,087 rentable square feet of the four-story office building under a
net lease agreement (the "Novartis Lease"). Novartis is a wholly owned
subsidiary of Novartis Corporation, which is the guarantor of the
Novartis Lease. Novartis Corporation is a public entity traded on the
New York Stock Exchange. Technology Park's interest in the Novartis
Lease was assigned to Wells OP at the closing. The initial term of the
Novartis Lease commenced on August 1, 2001 and expires on July 31,
2011. Novartis has the right to extend the Novartis Lease for up to
three consecutive renewal terms of five years each at a rate equal to
the then current fair market rental rate. Under the Novartis Lease,
Novartis is required to pay, as additional monthly rent, all operating
costs, including but not limited to water, sewer, heating, air
conditioning, lighting, property and personal insurance and property
taxes. In addition, Novartis is responsible for all supplies,
materials, wages and salaries and all attributable overhead expenses
related to routine maintenance and repairs to the Novartis Atlanta
Building. Wells OP will be responsible for the repair and replacement
of the structural portions of the building, including, roof, exterior
walls, window frames, foundation, irrigation, parking lots, roads,
walkways and landscaping of the Novartis Atlanta Building.
Rental Revenues
Rental income is recognized on a straight-line basis over the terms of
the respective lease.
2. BASIS OF ACCOUNTING
The accompanying statement of revenues over certain operating expenses
is presented in conformity with accounting principles generally
accepted in the United States and in accordance with the applicable
rules and regulations of the Securities and Exchange Commission for
real estate properties acquired. Accordingly, this statement excludes
certain historical expenses, such as depreciation, interest, and
management fees. Therefore, this statement is not comparable to the
operations of the Novartis Atlanta Building after acquisition by Wells
OP.
13
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To Wells Real Estate Investment Trust, Inc.:
We have audited the accompanying statement of revenues over certain operating
expenses for the DANA CORPORATION BUILDINGS for the year ended December 31,
2001. This financial statement is the responsibility of management. Our
responsibility is to express an opinion on this financial statement based on our
audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. These standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues over
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues over certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
As described in Note 2, this financial statement excludes certain expenses that
would not be comparable with those resulting from the operations of the Dana
Corporation Buildings after acquisition by the Wells Operating Partnership,
L.P., a subsidiary of Wells Real Estate Investment Trust, Inc. The accompanying
statement of revenues over certain operating expenses was prepared for the
purpose of complying with the rules and regulations of the Securities and
Exchange Commission and is not intended to be a complete presentation of the
Dana Corporation Buildings' revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
presents fairly, in all material respects, the revenues over certain operating
expenses of the Dana Corporation Buildings for the year ended December 31, 2001
in conformity with accounting principles generally accepted in the United
States.
/s/ ARTHUR ANDERSEN LLP
Atlanta, Georgia
April 12, 2002
14
DANA CORPORATION BUILDINGS
STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2001
RENTAL REVENUES $730,345
OPERATING EXPENSES, net of reimbursements 0
-------------
REVENUES OVER CERTAIN OPERATING EXPENSES $730,345
=============
The accompanying notes are an integral part of this statement.
15
DANA CORPORATION BUILDINGS
NOTES TO STATEMENT OF REVENUES
OVER CERTAIN OPERATING EXPENSES
FOR THE YEAR ENDED DECEMBER 31, 2001
1. ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Description of Real Estate Property Acquired
On March 29, 2002, the Wells Operating Partnership, L.P. ("Wells OP")
acquired the Dana Corporation Buildings from GEBAM, Inc. ("GEBAM").
Wells OP is a Delaware limited partnership formed to acquire, own,
lease, operate, and manage real properties on behalf of Wells Real
Estate Investment Trust, Inc., a Maryland corporation. As the sole
general partner of Wells OP, Wells Real Estate Investment Trust, Inc.
possesses full legal control and authority over the operations of Wells
OP.
The Dana Corporation Buildings are comprised of Dana Corporation
Detroit, which consists of 112,480 square feet in one three-story
building and Dana Corporation Kalamazoo, which consists of 147,004
square feet in one two-story building. Dana Corporation, Inc ("Dana")
currently occupies the entire 259,484 rentable square feet of the two
office buildings under two net lease agreements (the "Dana Leases").
Dana Corporation is a public entity traded on the New York Stock
Exchange. GEBAM's interest in the Dana Leases was assigned to Wells OP
at the closing. The initial term of the Dana Leases commenced on
October 26, 2001 and expires on October 31, 2021. Dana has the right to
extend the Dana Leases for up to six successive renewal terms of five
years each at the then current market rental rate. Under the Dana
Leases, Dana is required to pay, as additional monthly rent, all ad
valorem real estate taxes, insurance premiums, utility charges,
maintenance, repair and replacement expenses. In addition, Dana is
responsible for maintaining the buildings in good order and repair,
subject to ordinary wear and tear, including necessary repairs,
replacements and renewals, whether interior or exterior, structural or
nonstructural.
Rental Revenues
Rental income is recognized on a straight-line basis over the terms of
the respective leases.
2. Basis of Accounting
The accompanying statement of revenues over certain operating expenses
is presented in conformity with accounting principles generally
accepted in the United States and in accordance with the applicable
rules and regulations of the Securities and Exchange Commission for
real estate properties acquired. Accordingly, this statement excludes
certain historical expenses, such as depreciation, interest, and
management fees. Therefore, this statement is not comparable to the
operations of the Dana Corporation Buildings after acquisition by Wells
OP.
16
WELLS REAL ESTATE INVESTMENT TRUST, INC.
UNAUDITED PRO FORMA FINANCIAL STATEMENTS
The following unaudited pro forma balance sheet as of December 31, 2001 has been
prepared to give effect to the acquisitions of the Arthur Andersen Building, the
Transocean Houston Building, the Novartis Atlanta Building, the Dana Corporation
Buildings and the Travelers Express Denver Buildings by Wells OP as if the
acquisitions occurred on December 31, 2001.
The following unaudited pro forma statement of income for the year ended
December 31, 2001 has been prepared to give effect to the acquisitions of the
Arthur Andersen Building, the Transocean Houston Building, the Novartis Atlanta
Building, and the Dana Corporation Buildings as if the acquisitions occurred on
January 1, 2001. The Travelers Express Denver Buildings had no operations during
2001.
Wells OP is a Delaware limited partnership that was organized to own and operate
properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland
corporation. As the sole general partner of Wells OP, Wells Real Estate
Investment Trust, Inc. possesses full legal control and authority over the
operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated
with the accompanying pro forma financials statements of Wells Real Estate
Investment Trust, Inc.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisitions of the Arthur
Andersen Building, the Transocean Houston Building, the Novartis Atlanta
Building, the Dana Corporation Buildings and the Travelers Express Denver
Buildings been consummated at the beginning of the period presented.
As of December 31, 2001, the date of the accompanying pro forma balance sheet,
Wells OP held cash of $75,586,168. The additional cash used to purchase the Dana
Corporation Buildings and the Travelers Express Denver Buildings, including
deferred project costs paid to Wells Capital, Inc. (an affiliate of Wells OP),
was raised through the issuance of additional shares subsequent to December 31,
2001. This balance is reflected as purchase consideration payable in the
accompanying pro forma balance sheet.
17
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 2001
(Unaudited)
ASSETS
Pro Forma Adjustments
-----------------------------------------------------------------------------------------
Wells Real
Estate
Investment Arthur Andersen Transocean Novartis Atlanta Dana Corporation
Trust, Inc. Building Houston Building Building Buildings
---------------- ----------------- ------------------ ------------------ ------------------
REAL ESTATE
ASSETS, at cost:
Land $ 86,246,985 $1,700,000(a) $845,000(a) $ 2,000,000(a) $ 3,171,000(a)
70,833(b) 33,994(c) 80,460(c) 127,569(c)
Buildings, less
accumulated
depreciation of
$24,814,454 472,383,102 19,444,911(a) 21,203,182(a) 13,047,316(a) 39,608,512(a)
810,205(b) 853,002(c) 524,892(c) 1,593,446(c)
Construction in
progress 5,738,573 0 0 0 0
---------------- ----------------- ------------------ ------------------ ------------------
Total real
estate assets 564,368,660 22,025,949 22,935,178 15,652,668 44,500,527
---------------- ----------------- ------------------ ------------------ ------------------
CASH AND CASH 0
EQUIVALENTS 75,586,168 (21,144,911)(a) (22,048,182)(a) (15,047,316)(a) (17,345,759)(a)
INVESTMENT IN
JOINT VENTURES 77,409,980 0 0 0 0
INVESTMENT IN
BONDS 22,000,000 0 0 0 0
ACCOUNTS
RECEIVABLE 6,003,179 0 0 0 0
DEFERRED LEASE
ACQUISITION
COSTS 1,525,199 0 0 0 0
DEFERRED
PROJECT COSTS 2,977,110 (881,038)(b) (886,996)(c) (605,352)(c) (603,724)(c)
DEFERRED
OFFERING COSTS 0 0 0 0 0
DUE FROM
AFFILIATES 1,692,727 0 0 0 0
PREPAID
EXPENSES AND
OTHER ASSETS 718,389 0 0 0 0
---------------- ----------------- ------------------ ------------------ ------------------
Total assets $752,281,412 $ 0 $ 0 $ 0 $26,551,044
================ ================= ================== ================== ==================
Pro Forma Adjustments
-------------------------------
Travelers Express
Buildings Pro Forma
------------------- -----------------
REAL ESTATE
ASSETS, at cost:
Land $1,487,000(a) $ 95,822,663
59,822(c)
Buildings, less
accumulated
depreciation of
$24,814,454 9,068,492(a) 578,901,884
364,824(c)
Construction in
progress 0 5,738,573
------------------- -----------------
Total real
estate assets 10,980,138 680,463,120
------------------- -----------------
CASH AND CASH
EQUIVALENTS 0 0
INVESTMENT IN
JOINT VENTURES 0 77,409,980
INVESTMENT IN
BONDS 0 22,000,000
ACCOUNTS
RECEIVABLE 0 6,003,179
DEFERRED LEASE
ACQUISITION
COSTS 0 1,525,199
DEFERRED
PROJECT COSTS 0 0
DEFERRED
OFFERING COSTS 0 0
DUE FROM
AFFILIATES 0 1,692,727
PREPAID
EXPENSES AND
OTHER ASSETS 0 718,389
------------------- -----------------
Total assets $10,980,138 $789,812,594
=================== =================
18
LIABILITIES AND SHAREHOLDERS' EQUITY
Pro Forma Adjustments
--------------------------------------------------------------------------------------
Wells Real
Estate Arthur Transocean Novartis
Investment Andersen Houston Atlanta Dana Corporation Travelers Express
Trust, Inc. Building Building Building Buildings Building Pro Forma Total
------------- -------- ----------- -------- ----------------- ----------------- ---------------
LIABILITIES:
Accounts payable and
accrued expenses $ 8,727,473 $0 $0 $0 $ 0 $ 0 $ 8,727,473
Notes payable 8,124,444 0 0 0 0 0 8,124,444
Obligations under
capital lease 22,000,000 0 0 0 0 0 22,000,000
Purchase Consideration
Payable 0 0 0 0 25,433,753 (a) 10,555,492 (a) 35,989,245
Dividends payable 1,059,026 0 0 0 0 0 1,059,026
Due to affiliate 2,166,161 0 0 0 1,117,291 (c) 424,646 (c) 3,708,098
Deferred rental income 661,657 0 0 0 0 0 661,657
------------- -------- ----------- -------- ----------------- ----------------- ---------------
Total liabilities 42,738,761 0 0 0 26,551,044 10,980,138 80,269,943
------------- -------- ----------- -------- ----------------- ----------------- ---------------
COMMITMENTS AND
CONTINGENCIES
MINORITY INTEREST
OF UNIT HOLDER IN
OPERATING
PARTNERSHIP 200,000 0 0 0 0 0 200,000
------------- -------- ----------- -------- ----------------- ----------------- ---------------
SHAREHOLDERS'
EQUITY:
Common shares, $.01 par
value; 125,000,000 shares
authorized, 83,761,469
shares issued and
83,206,429 shares
outstanding 837,614 0 0 0 0 0 837,614
Additional paid-in capital 738,236,525 0 0 0 0 0 738,236,525
Cumulative distributions in
excess of earnings (24,181,092) 0 0 0 0 0 (24,181,092)
Treasury stock, at cost,
555,040 shares (5,550,396) 0 0 0 0 0 (5,550,396)
------------- -------- ----------- -------- ----------------- ----------------- ---------------
Total shareholders' equity 709,342,651 0 0 0 0 0 709,342,651
------------- -------- ----------- -------- ----------------- ----------------- ---------------
Total liabilities and
shareholders' equity $ 752,281,412 $0 $0 $0 $ 26,551,044 $ 10,980,138 $ 789,812,594
============= ======== =========== ======== ================= ================= ===============
(a) Reflects Wells Real Estate Investment Trust, Inc.'s purchase
price for the land and the building.
(b) Reflects deferred project costs applied to the land and building
at approximately 4.17% of the purchase price.
(c) Reflects deferred project costs applied to the land and building
at approximately 4.02% of the purchase price.
19
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME (LOSS)
FOR THE YEAR ENDED DECEMBER 31, 2001
(Unaudited)
Pro Forma Adjustments
---------------------------------------------------------------------------
Wells Real Estate Arthur Transocean Dana
Investment Andersen Houston Novartis Atlanta Corporation Pro Forma
Trust, Inc. Building Building Building Buildings Total
----------------- ----------------- ----------------- ---------------- -------------- -------------
REVENUES:
Rental income $ 44,204,279 $ 2,102,834 (a) $ 1,549,527 (a) $ 650,705 (a) $ 730,345 (a) $ 49,237,690
Equity in income of
joint ventures 3,720,959 0 0 0 0 3,720,959
Interest income 1,246,064 (1,246,064) (b) 0 0 0 0
Take out fee 137,500 0 0 0 0 137,500
----------------- ----------------- ----------------- ---------------- -------------- -------------
49,308,802 856,770 1,549,527 650,705 730,345 53,096,149
----------------- ----------------- ----------------- ---------------- -------------- -------------
EXPENSES:
Depreciation and
amortization 15,344,801 810,205 (c) 882,247 (c) 542,888 (c) 1,648,078 (c) 19,228,219
Interest 3,411,210 0 0 0 0 3,411,210
Operating costs, net
of reimbursements 4,128,883 142,433 (d) 1,151,107 (d) 4,929 (d) 0 5,427,352
Management and
leasing fees 2,507,188 94,628 (e) 69,729 (e) 29,282 (e) 32,866 (e) 2,733,693
General and
administrative 973,785 0 0 0 0 973,785
Amortization of
deferred financing
costs 770,192 0 0 0 0 770,192
Legal and
accounting 448,776 0 0 0 0 448,776
----------------- ----------------- ----------------- ---------------- -------------- -------------
27,584,835 1,047,266 2,103,083 577,099 1,680,944 32,993,227
----------------- ----------------- ----------------- ---------------- -------------- -------------
NET INCOME (LOSS) $ 21,723,967 $ (190,496) $ (553,556) $ 73,606 $ (950,599) $ 20,102,922
================= ================= ================= ================ ============== =============
EARNINGS PER
SHARE, basic
and diluted $ 0.43 $ 0.40
================= =============
WEIGHTED AVERAGE
SHARES, basic
and diluted 50,520,853 50,520,853
================= =============
(a) Rental income is recognized on a straight-line basis.
(b) Represent forgone interest income related to cash utilized to purchase the
prior acquisitions.
(c) Depreciation expense on the buildings is recognized using the straight-line
method and a 25-year life.
(d) Consists of nonreimbursable operating expenses.
(e) Management and leasing fees are calculated at 4.5% of rental income.
20
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 9 DATED JULY 10, 2002 TO THE PROSPECTUS
DATED DECEMBER 20, 2000
This document supplements, and should be read in conjunction with, the
prospectus of Wells Real Estate Investment Trust, Inc. dated December 20, 2000,
as supplemented and amended by Supplement No. 1 dated February 5, 2001,
Supplement No. 2 dated April 25, 2001, Supplement No. 3 dated July 20, 2001,
Supplement No. 4 dated August 10, 2001, Supplement No. 5 dated October 15, 2001,
Supplement No. 6 dated January 20, 2002, Supplement No. 7 dated March 30, 2002
and Supplement No. 8 dated April 15, 2002. When we refer to the "prospectus" in
this supplement, we are also referring to any and all supplements to the
prospectus. Unless otherwise defined in this supplement, capitalized terms used
in this supplement shall have the same meanings as set forth in the prospectus.
The purpose of this supplement is to describe the following:
(1) Status of the offering of shares in Wells Real Estate Investment
Trust, Inc. (Wells REIT);
(2) Revisions to the "Management - Executive Officers and Directors"
section of the prospectus to describe the addition of Michael
Buchanan as a new director;
(3) Revisions to the "Description of Properties" section of the
prospectus to describe the following real property acquisitions:
(A) Acquisition of a two-story office building in Alpharetta,
Georgia (Agilent Atlanta Building);
(B) Acquisition of a one-story office building in Ft.
Lauderdale, Florida (BellSouth Ft. Lauderdale Building);
(C) Acquisition of two two-story office buildings in Allen,
Texas (Experian/TRW Buildings);
(D) Acquisition of a three-story office building in Boxborough,
Massachusetts (Agilent Boston Building);
(E) Acquisition of a three-story office building in Aurora,
Colorado (TRW Denver Building); and
(F) Acquisition of a three-story office building in Phoenix,
Arizona (MFS Phoenix Building);
(4) Revisions to the "Management's Discussion and Analysis of
Financial Condition and Results of Operations" section of the
prospectus;
(5) Revisions to the "Experts - Audited Financial Statements" section
of the prospectus;
(6) Unaudited Financial Statements of the Wells REIT for the quarter
ended March 31, 2002;
(7) Audited financial statements relating to the Experian/TRW
Buildings and the Agilent Boston Building; and
(8) Unaudited pro forma financial statements of the Wells REIT
reflecting the acquisitions of the Agilent Atlanta Building, the
BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings,
the Agilent Boston Building, the TRW Denver Building and the MFS
Phoenix Building.
1
Status of the Offering
We commenced our initial public offering of common stock on January 30,
1998. Our initial public offering was terminated on December 19, 1999. We
received approximately $132,181,919 in gross offering proceeds from the sale of
13,218,192 shares in our initial public offering. We commenced our second
offering of common stock on December 20, 1999. Our second public offering was
terminated on December 19, 2000. We received approximately $175,229,193 in gross
offering proceeds from the sale of 17,522,919 shares in our second public
offering.
Pursuant to the prospectus, we commenced our third public offering of
common stock on December 20, 2000. As of June 30, 2002, we had received gross
proceeds of approximately $1,148,480,414 from the sale of approximately
114,848,041 shares in our third public offering. Accordingly, as of June 30,
2002, we had received aggregate gross offering proceeds of approximately
$1,455,891,526 from the sale of approximately 145,589,153 shares in our three
prior public offerings. After payment of $50,528,371 in acquisition and advisory
fees and acquisition expenses, payment of $163,576,134 in selling commissions
and organization and offering expenses, and common stock redemptions of
$12,223,808 pursuant to our share redemption program, as of June 30, 2002, we
had raised aggregate net offering proceeds available for investment in
properties of $1,229,563,213, out of which $885,294,095 had been invested in
real estate properties, and $344,269,118 remained available for investment in
real estate properties.
Management
The following information should be read in conjunction with the
"Management - Executive Officers and Directors" section beginning on page 31 of
the prospectus to include background information on Michael R. Buchanan. On June
26, 2002, our board of directors unanimously approved an increase in the number
of our directors from nine to ten and elected Michael R. Buchanan as a new
director to fill the vacancy.
Michael R. Buchanan was employed by Bank of America, N.A. and its
predecessor banks, NationsBank and C&S National Bank, from 1972 until his
retirement in March 2002. Mr. Buchanan has over 30 years of real estate banking
and financial experience and, while at Bank of America, he held several key
positions including Managing Director of the Real Estate Banking Group from 1998
until his retirement where he managed approximately 1,100 associates in 90
offices. This group was responsible for providing real estate loans including
construction, acquisition, development and bridge financing for the commercial
and residential real estate industry, as well as providing structured financing
for REITs.
Mr. Buchanan is a graduate of the University of Kentucky where he
earned a Bachelor of Economics degree and a Masters of Business Administration
degree. He also attended Harvard University in the graduate program for
management development.
Description of Properties
As of June 30, 2002, we had purchased interests in 52 real estate
properties located in 19 states, each of which was 100% leased to tenants. Below
are the descriptions of our recent real property acquisitions through June 30,
2002.
Agilent Atlanta Building
Wells Operating Partnership, L.P. (Wells OP), a Delaware limited
partnership formed to acquire, own, lease and operate real properties on behalf
of the Wells REIT, purchased the Agilent Atlanta Building on April 18, 2002 for
a purchase price of $15,100,000. The Agilent Atlanta Building, which was built
in 2001, is a two-story office building containing 101,207 rentable square feet
located in Alpharetta, Georgia.
Agilent Technologies, Inc. (Agilent) leases 66,811 rentable square feet
of the Agilent Atlanta Building (66%). Agilent is a major producer of measuring
and monitoring devices, semiconductor products and chemical
2
analysis tools for communications and life sciences companies, such as Internet
service providers and biopharmaceutical companies. Agilent reported a net worth,
as of January 31, 2002, of approximately $5.4 billion.
The Agilent Atlanta lease commenced in September 2001 and expires in
September 2011. The initial annual base rent payable under the Agilent Atlanta
lease is $1,344,905. Agilent, at its option, has the right to extend the initial
term of its lease for either (1) one additional three-year period, or (2) one
additional five-year period, at the then-current market rental rate. In
addition, Agilent may terminate the lease at the end of the seventh lease year
by paying a $763,650 termination fee.
Koninklijke Philips Electronics N.V. (Philips) leases the remaining
34,396 rentable square feet of the Agilent Atlanta Building (34%). Philips is
one of the world's largest electronics companies and is a global leader in color
television sets, lighting, electric shavers, medical diagnostic imaging, patient
monitoring and one-chip TV products. Philips reported a net worth, as of March
31, 2002, of approximately $16.47 billion.
The Philips lease commenced in September 2001 and expires in September
2011. The current annual base rent payable under the Philips lease is $692,391.
Philips, at its option, has the right to extend the initial term of its lease
for either (1) one additional three-year period, or (2) one additional five-year
period, at the then-current market rental rate. In addition, Philips may
terminate the lease at the end of the seventh lease year by paying a $393,146
termination fee.
BellSouth Ft. Lauderdale Building
Wells OP purchased the BellSouth Ft. Lauderdale Building on April 18,
2002 for a purchase price of $6,850,000. The BellSouth Ft. Lauderdale Building,
which was built in 2001, is a one-story office building containing 47,400
rentable square feet located in Ft. Lauderdale, Florida.
The entire BellSouth Ft. Lauderdale Building is leased to BellSouth
Advertising and Publishing Corporation (BellSouth Advertising). BellSouth
Advertising is a major provider of print directories throughout the southeastern
states and markets served by BellSouth Corporation, which is the parent company
of BellSouth Advertising.
The BellSouth Advertising lease is a net lease that commenced in July
2001 and expires in July 2008. The current annual base rent payable under the
BellSouth Advertising lease is $747,033. BellSouth Advertising, at its option,
has the right to extend the initial term of its lease for three additional
five-year periods at 95% of the then-current market rental rate.
Experian/TRW Buildings
Wells OP purchased the Experian/TRW Buildings on May 1, 2002 for a
purchase price of $35,150,000. The Experian/TRW Buildings, which were built in
1982 and 1993, respectively, consist of two two-story office buildings
containing a total of 292,700 rentable square feet located in Allen, Texas.
The Experian/TRW Buildings are both leased to Experian Information
Solutions, Inc. (Experian). Experian is an information services company that
uses decision-making software and comprehensive databases of information on
consumers, businesses, motor vehicles and property to provide companies with
information about their customers. TRW, Inc. (TRW), the original tenant on the
Experian/TRW lease, assigned its interest in the Experian/TRW lease to Experian
in 1996 but remains as an obligor of the Experian/TRW lease. TRW is a global
technology, manufacturing and service company that provides advanced technology,
systems, and services to customers worldwide. TRW reported a net worth, as of
March 31, 2002, of approximately $2.24 billion.
The Experian/TRW lease is a net lease that commenced in April 1993 and
expires in October 2010. The current annual base rent payable under the
Experian/TRW lease is $3,438,277. Experian, at its option, has the right to
extend the initial term of its lease for four additional five-year periods at
95% of the then-current market rental rate.
3
Agilent Boston Building
Wells OP purchased the Agilent Boston Building on May 3, 2002 for a
purchase price of $31,742,274. The Agilent Boston Building, which was built in
2002, is a three-story office building containing 174,585 rentable square feet
located in Boxborough, Massachusetts. Wells OP assumed the obligation, as the
landlord under the Agilent Boston lease described below, to provide Agilent an
additional $3,407,496 for tenant improvements.
The entire Agilent Boston Building is leased to Agilent. The Agilent
Boston lease is a net lease that commenced in September 2001 and expires in
September 2011. The current annual base rent payable under the Agilent Boston
lease is $3,578,993. Agilent, at its option, has the right to extend the initial
term of its lease for one additional five-year period at a rate equal to the
greater of (1) the then-current market rental rate, or (2) 75% of the annual
base rent in the final year of the initial term of the Agilent Boston lease. In
addition, Agilent may terminate the lease at the end of the seventh lease year
by paying a $4,190,000 termination fee.
TRW Denver Building
Wells OP purchased the TRW Denver Building on May 29, 2002 for a
purchase price of $21,060,000. The TRW Denver Building, which was built in 1997,
is a three-story office building containing 108,240 rentable square feet located
in Aurora, Colorado.
The entire TRW Denver Building is leased to TRW. The TRW Denver lease
is a net lease that commenced in October 1997 and expires in September 2007. The
current annual base rent payable under the TRW Denver lease is $2,870,709. TRW,
at its option, has the right to extend the initial term of its lease for two
additional five-year periods at 95% of the then-current market rental rate.
MFS Phoenix Building
Wells OP purchased the MFS Phoenix Building on June 5, 2002 for a
purchase price of $25,800,000. The MFS Phoenix Building, which was built in
2000, is a three-story office building containing 148,605 rentable square feet
located in Phoenix, Arizona.
The entire MFS Phoenix Building is leased to Massachusetts Financial
Services Company (MFS). MFS is a Massachusetts corporation having its corporate
headquarters in Boston, Massachusetts with offices in London, Tokyo and
Singapore. MFS is an investment management firm which offers annuities,
institutional products, insurance services, mutual funds and retirement
products. MFS reported a net worth, as of December 31, 2001, of approximately
$440 million.
The MFS Phoenix lease is a net lease that commenced in April 2001 and
expires in July 2011. The current annual base rent payable under the MFS Phoenix
lease is $2,347,959. MFS, at its option, has the right to extend the initial
term of its lease for two additional five-year periods at 95% of the
then-current market rental rate.
Property Management Fees
Wells Management Company, Inc. (Wells Management), an affiliate of the
Wells REIT and our advisor, will be paid management and leasing fees in the
amount of 4.5% of gross revenues from the Agilent Atlanta Building, the
BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent
Boston Building , the MFS Phoenix Building and the TRW Denver Building subject
to certain limitations.
4
Management's Discussion and Analysis of Financial Condition and Results of
Operation
The following information should be read in conjunction with the
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" section beginning on page 98 of the prospectus.
This section and other sections of the prospectus supplement contain
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 Wells REIT, anticipated capital
expenditures required to complete certain projects, our ability to make cash
dividend payments to stockholders in the future and the anticipated amount of
such dividends and certain other matters. Readers of this supplement should be
aware that there are various factors that could cause actual results to differ
materially from any forward-looking statement made in this supplement, which
include changes in general economic conditions, changes in real estate
conditions, construction costs which may exceed estimates, construction delays,
increases in interest rates, lease-up risks, inability to obtain new tenants
upon the expiration of existing leases, lack of availability of financing and
the potential need to fund tenant improvements or other capital expenditures out
of operating cash flow.
Liquidity and Capital Resources
During the three months ended March 31, 2002, we received aggregate
gross offering proceeds of $255,702,943 from the sale of 25,570,294 shares of
our common stock. After payment of $8,843,134 in acquisition and advisory fees
and acquisition expenses, payment of $27,106,265 in selling commissions and
organization and offering expenses, and common stock redemptions of $3,041,981
pursuant to our share redemption program, we raised net offering proceeds of
$216,711,563 during the first quarter of 2002, of which $185,290,197 remained
available for investment in properties at quarter end.
During the three months ended March 31, 2001, we received aggregate
gross offering proceeds of $66,174,704 from the sale of 6,617,470 shares of our
common stock. After payment of $2,288,933 in acquisition and advisory fees and
acquisition expenses, payment of $8,175,768 in selling commissions and
organizational and offering expenses, and common stock redemptions of $776,555
pursuant to our share redemption program, we raised net offering proceeds of
$54,933,448, of which $5,952,930 was available for investment in properties at
quarter end.
The net increase in cash and cash equivalents for the three months
ended March 31, 2002, as compared to the three months ended March 31, 2001, is
primarily the result of raising increased amounts of capital from the sale of
shares of common stock, offset by the acquisition of properties during 2001 and
the first quarter of 2002, and the payment of acquisition and advisory fees and
acquisition expenses, commissions and organization and offering costs.
As of March 31, 2002, we owned interests in 44 real estate properties
either directly or through interests in joint ventures. These properties are
generating operating cash flow sufficient to cover our operating expenses and
pay dividends to our stockholders. We pay dividends on a quarterly basis
regardless of the frequency with which such distributions are declared.
Dividends will be paid to investors who are stockholders as of the record dates
selected by our board of directors. We currently calculate quarterly dividends
based on the daily record and dividend declaration dates; thus, stockholders are
entitled to receive dividends immediately upon the purchase of shares. Dividends
declared for the first quarter of 2002 and the first quarter of 2001 were
approximately $0.194 and $0.188 per share, respectively.
Dividends to be distributed to the stockholders are determined by our
board of directors and are dependent on a number of factors, including funds
available for payment of dividends, financial condition, capital expenditure
requirements and annual distribution requirements in order to maintain our
status as a REIT under the Internal Revenue Code. Operating cash flows are
expected to increase as additional properties are added to our investment
portfolio.
5
Cash Flows From Operating Activities
Our net cash provided by operating activities was $13,113,549 and
$8,235,314 for the three months ended March 31, 2002 and 2001, respectively. The
increase in net cash provided by operating activities was due primarily to the
net income generated by additional properties acquired during 2002 and 2001.
Cash Flows From Investing Activities
Our net cash used in investing activities was $111,821,692 and
$4,264,257 for the three months ended March 31, 2002 and 2001, respectively. The
increase in net cash used in investing activities was due primarily to
investments in properties and the payment of related deferred project costs,
partially offset by distributions received from joint ventures.
Cash Flows From Financing Activities
Our net cash provided by financing activities was $210,144,548 for the
three months ended March 31, 2002 and net cash used in financing activities for
the three months ended March 31, 2001 was $113,042. The increase in net cash
provided by financing activities was due primarily to the raising of additional
capital and the related repayment of notes payable. We raised $255,702,943 in
offering proceeds for the three months ended March 31, 2002, as compared to
$66,174,705 for the same period in 2001.
Results of Operations
As of March 31, 2002, our real estate properties were 100% leased to
tenants. Gross revenues were $19,192,803 and $10,669,713 for the three months
ended March 31, 2002 and 2001, respectively. Gross revenues for the three months
ended March 31, 2002 and 2001 were attributable to rental income, interest
income earned on funds we held prior to the investment in properties, and income
earned from joint ventures. The increase in revenues in 2002 was primarily
attributable to the purchase of additional properties for $104,051,998 during
2002 and the purchase of additional properties for $227,933,858 in the last
three quarters of 2001. The purchase of additional properties also resulted in
an increase in expenses which totaled $8,413,139 for the three months ended
March 31, 2002, as compared to $7,394,368 for the three months ended March 31,
2001. Expenses in 2002 and 2001 consisted primarily of depreciation, interest
expense, management and leasing fees and general and administrative costs. As a
result, our net income also increased from $3,275,345 for the three months ended
March 31, 2001 to $10,779,664 for the three months ended March 31, 2002.
Funds from Operations
Funds from Operations (FFO), as defined by the National Association of Real
Estate Investment Trusts (NAREIT), generally means net income, computed in
accordance with GAAP excluding extraordinary items (as defined by GAAP) and
gains (or losses) from sales of property, plus depreciation and amortization on
real estate assets, and after adjustments for unconsolidated partnerships, joint
ventures and subsidiaries. We believe that FFO is helpful to investors as a
measure of the performance of an equity REIT. However, our calculation of FFO,
while consistent with NAREIT's definition, may not be comparable to similarly
titled measures presented by other REITs. Adjusted Funds from Operations (AFFO)
is defined as FFO adjusted to exclude the effects of straight-line rent
adjustments, deferred loan cost amortization and other non-cash and/or unusual
items. Neither FFO nor AFFO represent cash generated from operating activities
in accordance with GAAP and should not be considered as alternatives to net
income as an indication of our performance or to cash flows as a measure of
liquidity or ability to make distributions.
6
The following table reflects the calculation of FFO and AFFO for the
three months ended March 31, 2002 and 2001, respectively:
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
----------------- ----------------
FUNDS FROM OPERATIONS:
Net income $ 10,779,664 $ 3,275,345
Add:
Depreciation of real assets 5,744,452 3,187,179
Amortization of deferred leasing costs 72,749 75,837
Depreciation and amortization -
unconsolidated partnerships 706,176 299,116
----------------- ----------------
Funds from operations (FFO) 17,303,041 6,837,477
Adjustments:
Loan cost amortization 175,462 214,757
Straight line rent (1,038,378) (616,465)
Straight line rent -
unconsolidated partnerships (99,315) (39,739)
Lease acquisition fees paid-
unconsolidated partnerships 0 (2,356)
----------------- ----------------
Adjusted funds from operations (AFFO) $ 16,340,810 $ 6,393,674
================= ================
WEIGHTED AVERAGE SHARES:
BASIC AND DILUTED 95,130,210 34,359,444
================= ================
Experts
The following information should be inserted after the second paragraph
in the "Experts - Audited Financial Statements" section beginning on page 159 of
the prospectus.
In June 2002, Arthur Andersen LLP (Andersen) was tried and convicted of
federal obstruction of justice charges. Events arising out of the conviction or
other events relating to the financial condition of Andersen may adversely
affect the ability of Andersen to satisfy any potential claims that may arise
out of Andersen's audits of the financial statements contained in the
prospectus. In addition, Andersen has notified us that it will no longer be able
to provide us with the necessary consents related to previously audited
financial statements contained in the prospectus. Our inability to obtain such
consents may also adversely affect your ability to pursue potential claims
against Andersen.
Financial Statements
Changes in Principal Accountant
On May 8, 2002, the audit committee of our board of directors
recommended to the board of directors the dismissal of Andersen as our
independent public accountants, and our board of directors approved the
dismissal of Andersen as our independent public accountants effective
immediately.
Andersen's reports on the consolidated financial statements of the
Wells REIT for the years ended December 31, 2001 and December 31, 2000 did not
contain an adverse opinion or disclaimer of opinion, nor were they qualified or
modified as to uncertainty, audit scope or accounting principles.
During the fiscal years ended December 31, 2001 and December 31, 2000,
and through the date of Andersen's dismissal, there were no disagreements with
Andersen on any matter of accounting principle or practice, financial statement
disclosure, or auditing scope or procedure which, if not resolved to Andersen's
satisfaction, would have caused Andersen to make reference to the subject matter
in connection with its report on the consolidated financial statements of the
Wells REIT for such years and there were no reportable events as set forth in
Item 304(a)(1)(v) of Regulation S-K.
7
On June 26, 2002, our board of directors approved the recommendation of
the audit committee to engage Ernst & Young LLP (Ernst & Young) to audit the
financial statements of the Wells REIT, effective immediately. During the fiscal
years ended December 31, 2001 and December 31, 2000, and through the date
hereof, the Wells REIT did not consult Ernst & Young with respect to the
application of accounting principles to a specified transaction, either
completed or proposed, or the type of audit opinion that might be rendered on
the consolidated financial statements of the Wells REIT, or any other matters or
reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.
Audited Financial Statements
The statements of revenues over certain operating expenses of the
Experian/TRW Buildings and the Agilent Boston Building for the year ended
December 31, 2001, which are included in this supplement and elsewhere in the
registration statement, have been audited by Ernst & Young, independent
auditors, as set forth in their reports appearing elsewhere herein, and are
included in reliance upon such reports given on the authority of such firm as
experts in accounting and auditing.
Unaudited Financial Statements
The financial statements of the Wells REIT, as of March 31, 2002, and
for the three month periods ended March 31, 2002 and March 31, 2001, which are
included in this supplement, have not been audited.
The statements of revenues over certain operating expenses of the
Experian/TRW Buildings and the Agilent Boston Building for the three month
period ended March 31, 2002, which are included in this supplement, have not
been audited.
8
INDEX TO FINANCIAL STATEMENTS
Wells Real Estate Investment Trust, Inc. and Subsidiary Page
----
Unaudited Financial Statements
------------------------------
Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 10
Consolidated Statements of Income for the three months ended
March 31, 2002 and March 31, 2001 11
Consolidated Statements of Shareholders' Equity for the year ended
December 31, 2001 and for the three months ended March 31, 2002 12
Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and March 31, 2001 13
Condensed Notes to Consolidated Financial Statements 14
March 31, 2002
Experian/TRW Buildings
Report of Independent Auditors 22
Statements of Revenues Over Certain Operating Expenses 23
for the year ended December 31, 2001 (audited) and for the
three months ended March 31, 2002 (unaudited)
Notes to Statements of Revenues Over Certain Operating 24
Expenses for the year ended December 31, 2001 (audited) and
for the three months ended March 31, 2002 (unaudited)
Agilent Boston Building
Report of Independent Auditors 26
Statements of Revenues Over Certain Operating Expenses 27
for the year ended December 31, 2001 (audited) and for the
three months ended March 31, 2002 (unaudited)
Notes to Statements of Revenues Over Certain Operating 28
Expenses for the year ended December 31, 2001 (audited) and
for the three months ended March 31, 2002 (unaudited)
Wells Real Estate Investment Trust, Inc. and Subsidiary
Unaudited Pro Forma Financial Statements
----------------------------------------
Summary of Unaudited Pro Forma Financial Statements 30
Pro Forma Balance Sheet as of March 31, 2002 (unaudited) 31
Pro Forma Statement of Income for the year ended 33
December 31, 2001 (unaudited)
Pro Forma Statement of Income for the three months ended 34
March 31, 2002 (unaudited)
9
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
(UNAUDITED)
March 31, December 31,
2002 2001
------------- -------------
REAL ESTATE ASSETS, at cost:
Land $ 94,273,542 $ 86,246,985
Building and improvements, less accumulated depreciation of $30,558,906 in 2002
and $24,814,454 in 2001 563,639,005 472,383,102
Construction in progress 8,827,823 5,738,573
------------- -------------
Total real estate assets 666,740,370 564,368,660
INVESTMENT IN JOINT VENTURES 76,811,543 77,409,980
CASH AND CASH EQUIVALENTS 187,022,573 75,586,168
INVESTMENT IN BONDS 22,000,000 22,000,000
ACCOUNTS RECEIVABLE 7,697,487 6,003,179
DEFERRED PROJECT COSTS 7,739,896 2,977,110
DEFERRED LEASE ACQUISITION COSTS, net 1,868,674 1,525,199
DUE FROM AFFILIATES 1,820,241 1,692,727
PREPAID EXPENSES AND OTHER ASSETS, net 1,584,942 718,389
DEFERRED OFFERING COSTS 244,761 0
------------- -------------
Total assets $ 973,530,487 $ 752,281,412
============= =============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable $ 11,071,586 $ 8,124,444
Obligation under capital lease 22,000,000 22,000,000
Accounts payable and accrued expenses 8,570,735 8,727,473
Dividends payable 3,657,498 1,059,026
Due to affiliates 990,923 2,166,161
Deferred rental income 1,567,241 661,657
------------- -------------
Total liabilities 47,857,983 42,738,761
------------- -------------
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 200,000
------------- -------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 125,000,000 shares authorized, 109,331,764
shares issued and 108,472,526 shares outstanding at March 31, 2002, and 83,761,469
shares issued and 83,206,429 shares outstanding at December 31, 2001 1,093,317 837,614
Additional paid-in capital 966,577,500 738,236,525
Cumulative distributions in excess of earnings (33,555,824) (24,181,092)
Treasury stock, at cost, 859,238 shares at March 31, 2002 and 555,040 shares at
December 31, 2001 (8,592,377) (5,550,396)
Other comprehensive loss (50,112) 0
------------- -------------
Total shareholders' equity 925,472,504 709,342,651
------------- -------------
Total liabilities and shareholders' equity $ 973,530,487 $ 752,281,412
============= =============
The accompanying condensed notes are an integral part of these consolidated
financial statements.
10
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
Three Months Ended
-------------------------------
March 31, March 31,
2002 2001
----------- -----------
REVENUES:
Rental income $16,738,163 $ 9,860,085
Equity in income of joint ventures 1,206,823 709,713
Interest income 1,113,715 99,915
Take out fee 134,102 0
----------- -----------
19,192,803 10,669,713
----------- -----------
EXPENSES:
Depreciation 5,744,452 3,187,179
Management and leasing fees 899,495 565,714
Operating costs, net of reimbursements 624,698 1,091,185
General and administrative 529,031 175,107
Interest expense 440,001 2,160,426
Amortization of deferred financing costs 175,462 214,757
----------- -----------
8,413,139 7,394,368
----------- -----------
NET INCOME $10,779,664 $ 3,275,345
=========== ===========
EARNINGS PER SHARE
Basic and diluted $ 0.11 $ 0.10
=========== ===========
The accompanying condensed notes are an integral part of these consolidated
financial statements.
11
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE THREE MONTHS ENDED MARCH 31, 2002 (UNAUDITED)
Cumulative
Additional Distributions
Common Stock Common Stock Paid-In in Excess of Retained Treasury
Shares Amount Capital Earnings Earnings Stock Shares
------------ ------------ ------------- -------------- ------------- ------------
BALANCE, December 31, 2000 31,509,807 $ 315,097 $ 275,573,339 $ (9,133,855) $ 0 (141,297)
Issuance of common stock 52,251,662 522,517 521,994,103 0 0 0
Treasury stock purchased 0 0 0 0 0 (413,743)
Net income 0 0 0 0 21,723,967 0
Dividends ($.76 per share) 0 0 0 (15,047,237) (21,723,967) 0
Sales commissions and discounts 0 0 (49,246,118) 0 0 0
Other offering expenses 0 0 (10,084,799) 0 0 0
------------ ----------- ------------- ------------- ------------- ----------
BALANCE, December 31, 2001 83,761,469 837,614 738,236,525 (24,181,092) 0 (555,040)
Issuance of common stock 25,570,295 255,703 255,447,240 0 0 0
Treasury stock purchased 0 0 0 0 0 (304,198)
Net income 0 0 0 0 10,779,664 0
Dividends ($.19 per share) 0 0 0 (9,374,732) (10,779,664) 0
Sales commissions and discounts 0 0 (24,579,655) 0 0 0
Other offering expenses 0 0 (2,526,610) 0 0 0
Gain/(loss) on interest rate swap 0 0 0 0 0 0
------------ ----------- ------------- ------------- ------------- ----------
BALANCE, March 31, 2002 (UNAUDITED) 109,331,764 $ 1,093,317 $ 966,577,500 $ (33,555,824) $ 0 (859,238)
============ =========== ============= ============= ============= ==========
Other Total
Treasury Stock Comprehensive Shareholders'
Amount Income Equity
-------------- ------------- --------------
BALANCE, December 31, 2000 $ (1,412,969) $ 0 $ 265,341,612
Issuance of common stock 0 0 522,516,620
Treasury stock purchased (4,137,427) 0 (4,137,427)
Net income 0 0 21,723,967
Dividends ($.76 per share) 0 0 (36,771,204)
Sales commissions and discounts 0 0 (49,246,118)
Other offering expenses 0 0 (10,084,799)
------------ --------- -------------
BALANCE, December 31, 2001 (5,550,396) 0 709,342,651
Issuance of common stock 0 0 255,702,943
Treasury stock purchased (3,041,981) 0 (3,041,981)
Net income 0 0 10,779,664
Dividends ($.19 per share) 0 0 (20,154,396)
Sales commissions and discounts 0 0 (24,579,655)
Other offering expenses 0 0 (2,526,610)
Gain/(loss) on interest rate swap 0 (50,112) (50,112)
------------ --------- -------------
BALANCE, March 31, 2002 (UNAUDITED) $ (8,592,377) $ (50,112) $ 925,472,504
============ ========= =============
The accompanying condensed notes are an integral part of these consolidated
financial statements.
12
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
Three Months Ended
----------------------------------
March 31, March 31,
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,779,664 $ 3,275,345
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in income of joint ventures (1,206,823) (709,713)
Depreciation 5,744,452 3,187,179
Amortization of deferred financing costs 175,462 214,757
Amortization of deferred leasing costs 72,749 75,837
Deferred lease acquisition costs paid (400,000) 0
Changes in assets and liabilities:
Accounts receivable (1,694,308) (264,416)
Due from affiliates (13,740) 0
Deferred rental income 905,584 (142,888)
Prepaid expenses and other assets, net (1,092,127) 2,481,643
Accounts payable and accrued expenses (156,738) 96,828
Due to affiliates (626) 20,742
--------------- --------------
Net cash provided by operating activities 13,113,549 8,235,314
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (104,051,998) (2,703,858)
Investment in joint ventures 0 (5,749)
Deferred project costs paid (9,461,180) (2,288,936)
Distributions received from joint ventures 1,691,486 734,286
--------------- --------------
Net cash used in investing activities (111,821,692) (4,264,257)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 2,947,142 5,800,000
Repayment of notes payable 0 (56,923,187)
Dividends paid to shareholders (17,555,924) (6,213,236)
Issuance of common stock 255,702,943 66,174,705
Sales commissions paid (24,579,655) (6,212,824)
Offering costs paid (3,327,977) (1,961,945)
Treasury stock purchased (3,041,981) (776,555)
--------------- --------------
Net cash (used in) provided by financing activities 210,144,548 (113,042)
--------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 111,436,405 3,858,015
CASH AND CASH EQUIVALENTS, beginning of year 75,586,168 4,298,301
--------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 187,022,573 $ 8,156,316
=============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to real estate assets $ 4,080,388 $ 1,430,111
=============== ==============
Deferred project costs due to affiliate $ 496,134 $ 0
=============== ==============
Interest rate swap $ (50,112) $ 0
=============== ==============
Deferred offering costs due to affiliate $ 244,761 $ 0
=============== ==============
Other offering costs due to affiliate $ 141,761 $ 0
=============== ==============
Write-off of deferred offering costs due to affiliate $ 0 $ 709,686
=============== ==============
The accompanying condensed notes are an integral part of these consolidated
financial statements.
13
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
(UNAUDITED)
1. Summary of Significant Accounting Policies
(a) General
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation formed on July 3, 1997, which qualifies as a real estate
investment trust ("REIT"). Substantially all of the Company's business is
conducted through Wells Operating Partnership, L.P. ("Wells OP"), a Delaware
limited partnership organized for the purpose of acquiring, developing,
owning, operating, improving, leasing, and otherwise managing income
producing commercial properties for investment purposes on behalf of the
Company. The Company is the sole general partner of Wells OP.
On January 30, 1998, the Company commenced its initial public offering of up
to 16,500,000 shares of common stock at $10 per share pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933.
The Company commenced active operations on June 5, 1998, upon receiving and
accepting subscriptions for 125,000 shares. The Company terminated its
initial public offering on December 19, 1999 at which time gross proceeds of
approximately $132,181,919 had been received from the sale of approximately
13,218,192 shares. The Company commenced its second public offering of shares
of common stock on December 20, 1999, which was terminated on December 19,
2000 after receipt of gross proceeds of approximately $175,229,193 from the
sale of approximately 17,522,919 shares from the second public offering. The
Company commenced its third public offering of the shares of common stock on
December 20, 2000. As of March 31, 2002, the Company has received gross
proceeds of approximately $785,906,526 from the sale of approximately
78,590,653 shares from its third public offering. Accordingly, as of March
31, 2002, the Company has received aggregate gross offering proceeds of
approximately $1,093,317,638 from the sale of 109,331,764 shares of its
common stock to 27,900 investors. After payment of $37,965,419 in acquisition
and advisory fees and acquisition expenses, payment of $125,647,820 in
selling commissions and organization and offering expenses, capital
contributions to joint ventures and acquisitions expenditures by Wells OP of
$735,821,825 for property acquisitions, and common stock redemptions of
$8,592,377 pursuant to the Company's share redemption program, the Company
was holding net offering proceeds of $185,290,197 available for investment in
properties, as of March 31, 2002.
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(b) Properties
As of March 31, 2002, the Company owned interests in 44 properties listed in the
table below through its ownership in Wells OP. As of March 31, 2002, all of
these properties were 100% leased.
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Property Property % Purchase Square Annual
Name Tenant Location Owned Price Feet Rent
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Dana Detroit Building Dana Corporation Detroit, MI 100% $23,650,000 112,480 $2,330,600
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Dana Kalamazoo Building Dana Corporation Kalamazoo, MI 100% $18,300,000 147,004 $1,842,800
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Novartis Building Novartis Opthalmics, Inc. Atlanta, GA 100% $15,000,000 100,087 $1,426,240
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Transocean Houston Building Transocean Deepwater Houston, TX 100% $22,000,000 103,260 $2,110,035
Offshore Drilling, Inc.
Newpark Resources, Inc. 52,731 $1,153,227
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Andersen Building Arthur Andersen LLP Sarasota, FL 100% $21,400,000 157,704 $1,988,454
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Windy Point Buildings TCI Great Lakes, Inc. Schaumburg, IL 100% $89,275,000 129,157 $1,940,404
The Apollo Group, Inc. 28,322 $ 242,948
Global Knowledge Network 22,028 $ 358,094
Zurich American Insurance 300,000 $4,718,285
Various other tenants 8,884 $ 129,947
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Convergys Building Convergys Customer Tamarac, FL 100% $13,255,000 100,000 $1,144,176
Management Group, Inc.
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ADIC Buildings Advanced Digital Parker, CO 68.2% $12,954,213 148,200 $1,124,868
Information Corporation
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Lucent Building Lucent Technologies, Inc. Cary, NC 100% $17,650,000 120,000 $1,813,500
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Ingram Micro Building Ingram Micro, L.P. Millington, TN 100% $21,050,000 701,819 $2,035,275
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Nissan Property Nissan Motor Acceptance Irving, TX 100% $ 5,545,700(1) 268,290 $4,225,860(2)
Corporation
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IKON Buildings IKON Office Solutions, Inc. Houston, TX 100% $20,650,000 157,790 $2,015,767
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State Street Building SSB Realty, LLC Quincy, MA 100% $49,563,000 234,668 $6,922,706
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AmeriCredit Building AmeriCredit Financial Orange Park, FL 68.2% $12,500,000 85,000 $1,322,388
Services Corporation
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Comdata Building Comdata Network, Inc. Nashville, TN 55.0% $24,950,000 201,237 $2,443,647
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AT&T Oklahoma Buildings AT&T Corp. Oklahoma City, OK 55.0% $15,300,000 103,500 $1,242,000
Jordan Associates, Inc. 25,000 $ 294,504
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Metris Minnesota Building Metris Direct, Inc. Minnetonka, MN 100% $52,800,000 300,633 $4,960,445
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Stone & Webster Stone & Webster, Inc. Houston, TX 100% $44,970,000 206,048 $4,533,056
Building SYSCO Corporation 106,516 $2,130,320
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Motorola Plainfield Building Motorola, Inc. South Plainfield, NJ 100% $33,648,156 236,710 $3,324,427
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Quest Building Quest Software, Inc. Irvine, CA 15.8% $ 7,193,000 65,006 $1,287,119
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Delphi Building Delphi Automotive Systems, LLC Troy, MI 100% $19,800,000 107,193 $1,937,664
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Avnet Building Avnet, Inc. Tempe, AZ 100% $13,250,000 132,070 $1,516,164
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Siemens Building Siemens Automotive Corp. Troy, MI 56.8% $14,265,000 77,054 $1,371,946
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Motorola Tempe Building Motorola, Inc. Tempe, AZ 100% $16,000,000 133,225 $1,913,999
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ASML Building ASM Lithography, Inc. Tempe, AZ 100% $17,355,000 95,133 $1,927,788
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Dial Building Dial Corporation Scottsdale, AZ 100% $14,250,000 129,689 $1,387,672
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Metris Tulsa Building Metris Direct, Inc. Tulsa, OK 100% $12,700,000 101,100 $1,187,925
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Cinemark Building Cinemark USA, Inc. Plano, TX 100% $21,800,000 65,521 $1,366,491
The Coca Cola Co. 52,587 $1,354,524
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Gartner Building The Gartner Group, Inc. Ft. Myers, FL 56.8% $ 8,320,000 62,400 $ 830,968
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Videojet Technologies Videojet Technologies, Inc. Wood Dale, IL 100% $32,630,940 250,354 $3,376,743
Chicago (formerly known as
the "Marconi Building")
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Johnson Matthey Building Johnson Matthey, Inc. Tredyffrin 56.8% $ 8,000,000 130,000 $ 841,750
Township, PA
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Alstom Power Richmond Building Alstom Power, Inc. Midlothian, VA 100% $11,400,000 99,057 $1,225,963
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Sprint Building Sprint Communications Leawood, KS 56.8% $ 9,500,000 68,900 $1,062,949
Company, L.P.
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EYBL CarTex Building EYBL CarTex, Inc. Greenville, SC 56.8% $ 5,085,000 169,510 $ 543,845
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Matsushita Building Matsushita Avionics Systems Lake Forest, CA 100% $18,431,206 144,906 $1,995,704
Corporation
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AT&T Pennsylvania Building Pennsylvania Cellular Harrisburg, PA 100% $12,291,200 81,859 $1,442,116
Telephone Corp.
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PwC Building PricewaterhouseCoopers, LLP Tampa, FL 100% $21,127,854 130,091 $2,093,382
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Fairchild Building Fairchild Technologies Fremont, CA 77.5% $ 8,900,000 58,424 $ 922,444
U.S.A., Inc.
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Cort Furniture Building Cort Furniture Rental Fountain Valley, CA 44.0% $ 6,400,000 52,000 $ 834,888
Corporation
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Iomega Building Iomega Corporation Ogden City, UT 3.7% $ 5,025,000 108,250 $ 539,958
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Interlocken Building ODS Technologies, L.P. and Broomfield, CO 3.7% $ 8,275,000 51,975 $1,031,003
GAIAM, Inc.
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Ohmeda Building Ohmeda, Inc. Louisville, CO 3.7% $10,325,000 106,750 $1,004,517
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Alstom Power Knoxville Building Alstom Power, Inc. Knoxville, TN 3.7% $ 7,900,000 84,404 $1,106,519
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Avaya Building Avaya, Inc. Oklahoma City, OK 3.7% $ 5,504,276 57,186 $ 536,977
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(1) This represents the costs incurred by Wells OP to purchase the land.
Total costs to be incurred for development of the Nissan Property are
currently estimated to be $42,259,000.
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(2) Annual rent does not take effect until construction of the building is
completed and the tenant is occupying the building.
Wells OP owns interests in properties directly and through equity ownership in
the following joint ventures:
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Joint Venture Joint Venture Partners Properties Held by Joint Venture
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Fund XIII-REIT Joint Venture Wells Operating Partnership, L.P. The AmeriCredit Building
Wells Real Estate Fund XIII, L.P. The ADIC Buildings
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Fund XII-REIT Joint Venture Wells Operating Partnership, L.P. The Siemens Building
Wells Real Estate Fund XII, L.P. The AT&T Oklahoma Buildings
The Comdata Building
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Fund XI-XII-REIT Joint Wells Operating Partnership, L.P. The EYBL CarTex Building
Venture Wells Real Estate Fund XI, L.P. The Sprint Building
Wells Real Estate Fund XII, L.P. The Johnson Matthey Building
The Gartner Building
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Fund IX-X-XI-REIT Joint Wells Operating Partnership, L.P. The Alstom Power Knoxville Building
Venture Wells Real Estate Fund IX, L.P. The Ohmeda Building
Wells Real Estate Fund X, L.P. The Interlocken Building
Wells Real Estate Fund XI, L.P. The Avaya Building
The Iomega Building
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Wells/Fremont Associates Wells Operating Partnership, L.P. The Fairchild Building
Joint Venture (the "Fremont Fund X-XI Joint Venture
Joint Venture")
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Wells/Orange County Wells Operating Partnership, L.P. The Cort Building
Associates Joint Venture Fund X-XI Joint Venture
(the "Orange County Joint
Venture")
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Fund VIII-IX-REIT Joint Wells Operating Partnership, L.P. Quest Building
Venture Fund VIII-IX Joint Venture
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(c) Critical Accounting Policies
The Company's accounting policies have been established in accordance with
accounting principles generally accepted in the United States ("GAAP"). The
preparation of financial statements in conformity with GAAP requires management
to use judgment in the application of accounting policies, including making
estimates and assumptions. These judgments affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the dates
of the financial statements and the reported amounts of revenue and expenses
during the reporting periods. If our judgment or interpretation of the facts and
circumstances relating to various transactions had been different, it is
possible that different accounting policies would have been applied; thus,
resulting in a different presentation of our financial statements. Below is a
discussion of the accounting policies that we consider to be critical in that
they may require complex judgment in their application or require estimates
about matters which are inherently uncertain.
Revenue Recognition
The Company recognizes rental income generated from all leases on real estate
assets in which the Company has an ownership interest, either directly or
through investments in joint ventures, on a straight-line basis over the terms
of the respective leases. If a tenant was to encounter financial difficulties in
future periods, the amount recorded as a receivable may not be realized.
Operating Cost Reimbursements
The Company generally bills tenants for operating cost reimbursements, either
directly or through investments in joint ventures, on a monthly basis at amounts
estimated largely based on actual prior period activity and the respective lease
terms. Such billings are generally adjusted on an annual basis to reflect
reimbursements owed to
16
the landlord based on the actual costs incurred during the period and the
respective lease terms. Financial difficulties encountered by tenants may result
in receivables not being realized.
Real Estate
Management continually monitors events and changes in circumstances indicating
that the carrying amounts of the real estate assets in which the Company has an
ownership interest, either directly or through investments in joint ventures,
may not be recoverable. When such events or changes in circumstances are
present, management assesses the potential impairment by comparing the fair
market value of the asset, estimated at an amount equal to the future
undiscounted operating cash flows expected to be generated from tenants over the
life of the asset and from its eventual disposition, to the carrying value of
the asset. In the event that the carrying amount exceeds the estimated fair
market value, the Company would recognize an impairment loss in the amount
required to adjust the carrying amount of the asset to its estimated fair market
value. Neither the Company nor its joint ventures have recognized impairment
losses on real estate assets in 2002 or 2001.
Deferred Project Costs
Wells Capital, Inc. (the "Advisor") expects to continue to fund 100% of the
acquisition and advisory fees and acquisition expenses and recognize related
expenses, to the extent that such costs exceed 3.5% of cumulative capital raised
(subject to certain overall limitations described in the prospectus), on behalf
of the Company. The Company records acquisition and advisory fees and
acquisition expenses by capitalizing deferred project costs and reimbursing the
Advisor in an amount equal to 3.5% of cumulative capital raised to date. As the
Company invests its capital proceeds, deferred project costs are applied to real
estate assets, either directly or through contributions to joint ventures, at an
amount equal to 3.5% of each investment and depreciated over the useful lives of
the respective real estate assets. Acquisition and advisory fees and acquisition
expenses paid as of March 31, 2002, amounted to $37,965,419 and represented
approximately 3.5% of shareholders' capital contributions received. These fees
are allocated to specific properties as they are purchased or developed and are
included in capitalized assets of the joint venture, or real estate assets.
Deferred project costs at March 31, 2002 and December 31, 2001, represent fees
paid, but not yet applied to properties.
Deferred Offering Costs
The Advisor expects to continue to fund 100% of the organization and offering
costs and recognize related expenses, to the extent that such costs exceed 3% of
cumulative capital raised, on behalf of the Company. Organization and offering
costs include items such as legal and accounting fees, marketing and promotional
costs, and printing costs, and specifically exclude sales costs and underwriting
commissions. The Company records offering costs by accruing deferred offering
costs, with an offsetting liability included in due to affiliates, at an amount
equal to the lesser of 3% of cumulative capital raised to date or actual costs
incurred from third-parties less reimbursements paid to the Advisor. As the
actual equity is raised, the Company reverses the deferred offering costs
accrual and recognizes a charge to stockholders' equity upon reimbursing the
Advisor. As of March 31, 2002, the Advisor had paid offering expenses on behalf
of the Company in an aggregate amount of $23,230,560, of which the Advisor had
been reimbursed $22,021,962, which did not exceed the 3% limitation. Deferred
offering costs in the accompanying balance sheet represent costs incurred by the
Advisor which will be reimbursed by the Company.
(d) Distribution Policy
The Company will make distributions each taxable year (not including a return of
capital for federal income tax purposes) equal to at least 90% of its real
estate investment trusts taxable income. The Company intends to make regular
quarterly distributions to holders of the shares. Distributions will be made to
those shareholders who are shareholders as of the record date selected by the
Directors. The Company currently calculates quarterly dividends based on the
daily record and dividend declaration dates; thus, shareholders are entitled to
receive dividends immediately upon the purchase of shares.
17
Dividends to be distributed to the shareholders are determined by the Board of
Directors and are dependent on a number of factors related to the Company,
including funds available for payment of dividends, financial condition, capital
expenditure requirements and annual distribution requirements in order to
maintain the Company's status as a REIT under the Code. Operating cash flows are
expected to increase as additional properties are added to the Company's
investment portfolio.
(e) Income Taxes
The Company has made an election under Section 856 (C) of the Internal Revenue
Code of 1986, as amended (the "Code"), to be taxed as a Real Estate Investment
Trust ("REIT") under the Code beginning with its taxable year ended December 31,
1998. As a REIT for federal income tax purposes, the Company generally will not
be subject to federal income tax on income that it distributes to its
shareholders. If the Company fails to qualify as a REIT in any taxable year, it
will then be subject to federal income tax on its taxable income at regular
corporate rates and will not be permitted to qualify for treatment as a REIT for
federal income tax purposes for four years following the year during which
qualification is lost. Such an event could materially adversely affect the
Company's net income and net cash available to distribute to shareholders.
However, the Company believes that it is organized and operates in such a manner
as to qualify for treatment as a REIT and intends to continue to operate in the
foreseeable future in such a manner so that the Company will remain qualified as
a REIT for federal income tax purposes.
(f) Employees
The Company has no direct employees. The employees of the Advisor and Wells
Management Company, Inc., perform a full range of real estate services including
leasing and property management, accounting, asset management and investor
relations for the Company.
(g) Insurance
Wells Management Company, Inc., an affiliate of the Company and the Advisor,
carries comprehensive liability and extended coverage with respect to all the
properties owned directly or indirectly by the Company. In the opinion of
management, the properties are adequately insured.
(h) Competition
The Company will experience competition for tenants from owners and managers of
competing projects, which may include its affiliates. As a result, the Company
may be required to provide free rent, reduced charges for tenant improvements
and other inducements, all of which may have an adverse impact on results of
operations. At the time the Company elects to dispose of its properties, the
Company will also be in competition with sellers of similar properties to locate
suitable purchasers for its properties.
(i) Statement of Cash Flows
For the purpose of the statement of cash flows, the Company considers all highly
liquid debt instruments purchased with an original maturity of three months or
less to be cash equivalents. Cash equivalents include cash and short-term
investments.
(j) Basis of Presentation
Substantially all of the Company's business is conducted through Wells OP. On
December 31, 1997, Wells OP issued 20,000 limited partner units to the Advisor
in exchange for a capital contribution of $200,000. The Company is the sole
general partner in Wells OP; consequently, the accompanying consolidated balance
sheet of the Company includes the amounts of the Company and Wells OP. The
Advisor, a limited partner, is not currently receiving distributions from its
investment in Wells OP.
18
The consolidated financial statements of the Company 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 Board of
Directors, 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. Results for interim
periods are not necessarily indicative of full year results. For further
information, refer to the financial statements and footnotes included in the
Company's Form 10-K for the year ended December 31, 2001.
2. INVESTMENT IN JOINT VENTURES
(a) Basis of Presentation
As of March 31, 2002, the Company owned interests in 17 properties in joint
ventures with related entities through its ownership in Wells OP, which owns
interests in seven such joint ventures. The Company does not have control over
the operations of these joint ventures; however, it does exercise significant
influence. Accordingly, investment in joint ventures is recorded using the
equity method.
(b) Summary of Operations
The following information summarizes the operations of the unconsolidated joint
ventures in which the Company, through Wells OP, had ownership interests as of
March 31, 2002 and 2001, respectively. There were no additional investments in
joint ventures made by the Company during the three months ended March 31, 2002.
Total Revenues Net Income Wells OP's Share of Net Income
-------------------------- ------------------------- ---------------------------------
Three Months Ended Three Months Ended Three Months Ended
-------------------------- ------------------------- ---------------------------------
March 31, March 31, March 31, March 31, March 31, March 31,
2002 2001 2002 2001 2002 2001
----------- ------------ ------------ ----------- ---------------- ---------------
Fund IX-X-XI-REIT
Joint Venture $1,379,059 $1,449,856 $ 554,268 $ 638,435 $ 20,572 $ 23,696
Cort Joint Venture 212,006 199,586 129,750 133,753 56,658 58,406
Fremont Joint
Venture 225,161 225,178 135,948 142,612 105,365 110,530
Fund XI-XII-REIT
Joint Venture 858,219 847,030 497,149 514,277 282,197 291,918
Fund XII-REIT
Joint Venture 1,670,863 947,943 805,513 445,321 442,726 208,634
Fund VIII-IX-REIT
Joint Venture 323,746 267,624 160,696 105,033 273,931 16,529
Fund XIII-REIT
Joint Venture 700,648 0 401,674 0 25,374 0
---------- ---------- ---------- ---------- ----------- ---------
$5,369,702 $3,937,217 $2,684,998 $1,979,431 $ 1,206,823 $ 709,713
========== ========== ========== ========== =========== =========
3. INVESTMENTS IN REAL ESTATE
As of March 31, 2002, the Company, through its ownership in Wells OP, owns 27
properties directly. The following describes acquisitions made directly by Wells
OP during the three months ended March 31, 2002.
The Andersen Building
On January 11, 2002, Wells OP purchased the Andersen Building, a three-story
office building containing approximately 157,700 rentable square feet on a 9.8
acre tract of land located in Sarasota County, Florida for a purchase price of
$21,400,000, excluding closing costs. The Andersen Building is leased to Arthur
Andersen LLP ("Andersen"). The current term of the Andersen lease is 10 years,
which commenced on November 11, 1998 and expires on October 31, 2009. Andersen
has the right to extend the initial 10-year term of its lease for two additional
five-year periods at 90% of the then-current market rental rate. The current
annual base rent payable under the
19
Andersen lease is $1,988,454. Andersen has the option to purchase the Andersen
Building prior to the end of the fifth lease year for $23,250,000 and again at
the expiration of the initial lease term for $25,148,000.
The Transocean Houston Building
On March 15, 2002, Wells OP purchased the Transocean Houston Building, a six
story office building containing approximately 156,000 rentable square feet
located in Houston, Harris County, Texas for a purchase price of $22,000,000,
excluding closing costs. The Transocean Houston Building is 100% leased to
Transocean Deepwater Offshore Drilling, Inc. ("Transocean") and Newpark Drilling
Fluids, Inc. ("Newpark").
The Transocean lease is a triple net lease which covers approximately 103,260
square feet commencing in December 2001 and expiring in March 2011. The initial
annual base rent payable under the Transocean lease is $2,110,035. Transocean
has the option to extend the initial term of its lease for either (1) two
additional five-year periods, or (2) one additional ten-year period, at the
then-current market rental rate. In addition, Transocean has an expansion option
and a right of first refusal for up to an additional 51,780 rentable square
feet.
The Newpark lease covers approximately 52,731 rentable square feet and is a net
lease that commenced in August 1999 and expires in August 2009. The current
annual base rent payable under the Newpark lease is $1,153,227.
The Novartis Atlanta Building
On March 28, 2002, Wells OP purchased the Novartis Atlanta Building, a
four-story office building containing approximately 100,000 rentable square feet
located in Duluth, Fulton County, Georgia for a purchase price of $15,000,000,
excluding closing costs. The Novartis Atlanta Building is 100% leased to
Novartis Opthalmics, Inc. ("Novartis"). The Novartis lease is a net lease which
commenced in August 2001 and expires in July 2011. Novartis Corporation, the
parent of Novartis, has guaranteed the lease. The current annual base rent
payable is $1,426,240. Novartis, at its option, may extend the initial term of
its lease for three additional five-year periods at the then-current market
rental rate. In addition, Novartis may terminate the lease at the end of the
fifth lease year by paying a $1,500,000 termination fee.
The Dana Corporation Buildings
On March 29, 2002, Wells OP purchased all of the membership interests in Dana
Farmington Hills, LLC and Dana Kalamazoo, LLC, which respectively owned a
three-story office and research development building containing approximately
112,400 rentable square feet located in Farmington Hills, Oakland County,
Michigan (the "Dana Detroit Building") and a two-story office and industrial
building containing approximately 147,000 rentable square feet located in
Kalamazoo, Kalamazoo County, Michigan (the "Dana Kalamazoo Building") for an
aggregate purchase price of $41,950,000, excluding closing costs.
The Dana Detroit Building is 100% leased to the Dana Corporation ("Dana") under
a net lease that commenced in October 2001 and expires in October 2021. The
current annual base rent payable under the Dana lease for Detroit is $2,330,600.
Dana may, at its option, extend the initial term of its lease for six additional
five-year periods at the then-current market rental rate. Additionally, Dana may
terminate the lease after the eleventh year of its initial lease term subject to
certain conditions.
The Dana Kalamazoo Building is also 100% leased to Dana. The Dana lease for
Kalamazoo is a net lease which commenced in October 2001 and expires in October
2011. The current annual base rent payable is $1,842,800. Dana has the option to
extend the initial term of the Dana lease in Kalamazoo for six additional
five-year periods at the then-current market rental rate. Additionally, Dana may
terminate the lease at any time after the sixth year of the initial lease term
and before the end of the nineteenth lease year, subject to certain conditions.
20
4. NOTES PAYABLE
Notes payable consists of (i) $7,655,600 of draws on a line of credit from
SouthTrust Bank secured by a first mortgage against the Cinemark, ASML, Dial,
PwC, Motorola Tempe and Avnet Buildings and (ii) $3,415,986 outstanding on the
construction loan from Bank of America which is being used to fund the
development of the Nissan Property.
5. DUE TO AFFILIATES
Due to affiliates consists of amounts due to the Advisor for Acquisitions and
Advisory Fees and Acquisition Expenses, deferred offering costs, and other
operating expenses paid on behalf of the Company. Also included in due to
affiliates is the amount due to the Fund VIII-IX Joint Venture related to the
Matsushita lease guarantee, which is explained in detail in the financial
statements and footnotes included in the Company's Form 10-K for the year ended
December 31, 2001. Payments of $601,963 have been made as of March 31, 2002
toward funding the obligation under the Matsushita agreement.
6. COMMITMENTS AND CONTINGENCIES
Take Out Purchase and Escrow Agreement
An affiliate of the Advisor ("Wells Exchange") has developed a program (the
"Wells Section 1031 Program") involving the acquisition by Wells Exchange of
income-producing commercial properties and the formation of a series of single
member limited liability companies for the purpose of facilitating the resale of
co-tenancy interests in such real estate properties to be owned in co-tenancy
arrangements with persons ("1031 Participants") who are looking to invest the
proceeds from a sale of real estate held for investment in another real estate
investment for purposes of qualifying for like-kind exchange treatment under
Section 1031 of the Code. Each of these properties will be financed by a
combination of permanent first mortgage financing and interim loan financing
obtained from institutional lenders.
Following the acquisition of each property, Wells Exchange will attempt to sell
co-tenancy interests to 1031 Participants, the proceeds of which will be used to
pay off the interim financing. In consideration for the payment of a Take Out
Fee to the Company, and following approval of the potential property acquisition
by the Company's Board of Directors, it is anticipated that Wells OP will enter
into a contractual relationship providing that, in the event that Wells Exchange
is unable to sell all of the co-tenancy interests in that particular property to
1031 Participants, Wells OP will purchase, at Wells Exchange's cost, any
co-tenancy interests remaining unsold at the end of the offering period. As a
part of the initial transaction in the Wells Section 1031 Program, and in
consideration for the payment of a take out fee in the amount of $137,500 to the
Company, Wells OP entered into a take out purchase and escrow agreement dated
April 16, 2001 providing, among other things, that Wells OP would be obligated
to acquire, at Wells Exchange's cost, any unsold co-tenancy interests in the
building known as the Ford Motor Credit Complex which remained unsold at the
expiration of the offering of Wells Exchange on April 15, 2002. On April 12,
2002, Wells Exchange paid off the interim financing on the Ford Motor Credit
Complex and, accordingly, Wells OP has been released from its prior obligations
under the take out purchase and escrow agreement relating to such property.
21
Report of Independent Auditors
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
We have audited the accompanying statement of revenues over certain operating
expenses of the Experian/TRW Buildings (the "Buildings") for the year ended
December 31, 2001. This statement is the responsibility of the Buildings'
management. Our responsibility is to express an opinion on this statement based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues over
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues over certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement
of revenues over certain operating expenses. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying statement of revenues over certain operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 2, and is not intended
to be a complete presentation of the Buildings' revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
referred to above presents fairly, in all material respects, the revenues and
certain operating expenses described in Note 2 of the Experian/TRW Buildings for
the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
Atlanta, Georgia
July 11, 2002
/s/ Ernst & Young LLP
22
Experian/TRW Buildings
Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2001 and the three months ended March 31, 2002
2002 2001
--------------------- ---------------------
(Unaudited)
Rental revenues $812,665 $3,250,659
Operating expenses, net of reimbursements - -
--------------------- ---------------------
Revenues over certain operating expenses $812,665 $3,250,659
===================== =====================
See accompanying notes.
23
Experian/TRW Buildings
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2001 and the three months ended March 31,
2002
1. Organization and Significant Accounting Policies
Description of Real Estate Property Acquired
On May 1, 2002, the Wells Operating Partnership, L.P. ("Wells OP') acquired
the Experian/TRW Buildings from Allen Office Investment Limited Partners,
Inc. ("Allen Office Investment"). Wells OP is a Delaware limited partnership
formed to acquire, own, lease, operate, and manage real properties on behalf
of Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the
sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc.
possesses full legal control and authority over the operations of Wells OP.
Experian, Inc ("Experian") currently occupies the entire 292,700 rentable
square feet of the two two-story office buildings under a net lease agreement
(the "Experian Lease"). The Experian lease was assigned to Experian in 1998;
however, TRW, Inc ("TRW") remains obligated on the Experian lease. Experian
is a wholly owned subsidiary of GUS, Plc. TRW is a public entity traded on
the New York Stock Exchange. Allen Office Investment's interest in the
Experian Lease was assigned to Wells OP upon acquisition of the buildings.
The initial term of the Experian Lease commenced on April 15, 1993 and
expires on October 15, 2010. Experian has the right to extend the Experian
Lease for up to four consecutive renewal terms of five years each at a rate
equal to the then current fair market rental rate. The Experian Lease is
structured on a triple-net basis with the tenant directly responsible for any
and all expenses. As such, Experian is required to pay all operating costs,
including but not limited to, water, sewer, heating, air conditioning,
lighting, property and personal insurance and property taxes.
Rental Revenues
Rental income is recognized on a straight-line basis over the term of the
lease.
2. Basis of Accounting
The accompanying statements of revenues over certain operating expenses are
presented in conformity with accounting principles generally accepted in the
United States and in accordance with the applicable rules and regulations of
the Securities and Exchange Commission for real estate properties acquired.
Accordingly, these statements exclude certain historical expenses that are
not comparable to the proposed future operations of the properties such as
depreciation, interest, and management fees. Therefore, these statements are
not comparable to the statement of operations of the Experian/TRW Buildings
after their acquisition by Wells OP.
24
Notes to Statements of Revenues Over Certain Operating Expenses (Continued)
3. Future Minimum Rental Commitments
Future minimum rental commitments for the years ended December 31 are as
follows:
2002 $ 3,449,606
2003 3,447,848
2004 3,445,954
2005 3,443,913
2006 3,441,713
Thereafter 14,392,284
-----------
$31,621,318
25
Report of Independent Auditors
Shareholders and Board of Directors
Wells Real Estate Investment Trust, Inc.
We have audited the accompanying statement of revenues over certain operating
expenses of the Agilent Boston Building (the "Building") for the year ended
December 31, 2001. This statement is the responsibility of the Building's
management. Our responsibility is to express an opinion on this statement based
on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the statement of revenues over
certain operating expenses is free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the statement of revenues over certain operating expenses. An audit also
includes assessing the accounting principles used and significant estimates made
by management, as well as evaluating the overall presentation of the statement
of revenues over certain operating expenses. We believe that our audit provides
a reasonable basis for our opinion.
The accompanying statement of revenues over certain operating expenses was
prepared for the purpose of complying with the rules and regulations of the
Securities and Exchange Commission, as described in Note 2, and is not intended
to be a complete presentation of the Building's revenues and expenses.
In our opinion, the statement of revenues over certain operating expenses
referred to above presents fairly, in all material respects, the revenues and
certain operating expenses described in Note 2 of Agilent Boston Building for
the year ended December 31, 2001 in conformity with accounting principles
generally accepted in the United States.
Atlanta, Georgia
July 11, 2002
/s/ Ernst & Young LLP
26
Agilent Boston Building
Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2001 and the three months ended March 31, 2002
2002 2001
------------------------------
(Unaudited)
Rental revenues $981,606 $1,177,928
Operating expenses, net of reimbursements - -
-----------------------------
Revenues over certain operating expenses $981,606 $1,177,928
=============================
See accompanying notes.
27
Agilent Boston Building
Notes to Statements of Revenues Over Certain Operating Expenses
For the year ended December 31, 2001 and the three months ended March 31, 2002
1. Organization and Significant Accounting Policies
Description of Real Estate Property Acquired
On May 3, 2002, the Wells Operating Partnership, L.P. ("Wells OP') acquired
the Agilent Boston Building from BPF Tech Central, LLC ("BPF"). Wells OP is
a Delaware limited partnership formed to acquire, own, lease, operate, and
manage real properties on behalf of Wells Real Estate Investment Trust,
Inc., a Maryland corporation. As the sole general partner of Wells OP,
Wells Real Estate Investment Trust, Inc. possesses full legal control and
authority over the operations of Wells OP.
Agilent Technologies, Inc ("Agilent") currently occupies the entire 174,585
rentable square feet of the three-story office building under a net lease
agreement (the "Agilent Lease"). Agilent is a public entity traded on the
New York Stock Exchange. BPF's interest in the Agilent Lease was assigned
to Wells OP upon acquisition of the building. The initial term of the
Agilent Lease commenced on September 12, 2001 and expires on September 30,
2011. Agilent has the right to extend the Agilent Lease for a term of five
years at a rate equal to the greater of (1) the then current fair market
rental rate, or (2) 75% of the annual base rent in the final year of the
initial term of the Agilent lease. Under the Agilent Lease, Agilent is
required to reimburse the landlord for all costs of operations, including
but not limited to electricity, water, heating, air-cooling, property and
personal insurance and property taxes. In addition, Agilent, at its
expense, will be responsible for maintaining the property in good order,
condition and repair.
Rental Revenues
Rental income is recognized on a straight-line basis over the term of the
lease.
2. Basis of Accounting
The accompanying statements of revenues over certain operating expenses are
presented in conformity with accounting principles generally accepted in
the United States and in accordance with the applicable rules and
regulations of the Securities and Exchange Commission for real estate
properties acquired. Accordingly, these statements exclude certain
historical expenses that are not comparable to the proposed future
operations of the property such as depreciation, interest, and management
fees. Therefore, these statements are not comparable to the statement of
operations of the Agilent Boston Building after its acquisition by Wells
OP.
28
Notes to Statements of Revenues Over Certain Operating Expenses (Continued)
3. Future Minimum Rental Commitments
Future minimum rental commitments for the years ended December 31 are as
follows:
2002 $ 3,578,993
2003 3,578,993
2004 3,578,993
2005 3,578,993
2006 3,753,573
Thereafter 20,317,308
------------
$ 38,386,853
29
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
This pro forma information should be read in conjunction with the financial
statements and notes of Wells Real Estate Investment Trust, Inc. included in its
annual report on Form 10-K for the year ended December 31, 2001 and quarterly
report on form 10-Q for period ended March 31, 2002. In addition, this pro forma
information should be read in conjunction with the financial statements and
notes of certain acquired properties included in this document.
The following unaudited pro forma balance sheet as of March 31, 2002 has been
prepared to give effect to the second quarter 2002 acquisitions of the Novartis
Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver
Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building,
the Experian /TRW Buildings, the Agilent Boston Building, the TRW Denver
Building and the MFS Phoenix Building (collectively, the "Recent Acquisitions")
by Wells OP as if the acquisitions occurred on March 31, 2002.
The following unaudited pro forma statement of income for the three months ended
March 31, 2002 has been prepared to give effect to the first quarter 2002
acquisitions of the Arthur Andersen Building, the Transocean Houston Building
(collectively, the "2002 Acquisitions") and the Recent Acquisitions as if the
acquisitions occurred on January 1, 2001.
The following unaudited pro forma statement of income for the year ended
December 31, 2001 has been prepared to give effect to the 2001 acquisitions of
the Comdata Building, the AmeriCredit Building, the State Street Bank Building,
the IKON Buildings, the Ingram Micro Building, the Lucent Building, the ADIC
Buildings, the Convergys Building, the Windy Point Buildings (collectively, the
"2001 Acquisitions"), the 2002 Acquisitions and the Recent Acquisitions as if
the acquisitions occurred on January 1, 2001. The Nissan Property and the
Travelers Express Denver Buildings had no operations during 2001.
Wells OP is a Delaware limited partnership that was organized to own and operate
properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland
corporation. As the sole general partner of Wells OP, Wells Real Estate
Investment Trust, Inc. possesses full legal control and authority over the
operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated
with the accompanying pro forma financials statements of Wells Real Estate
Investment Trust, Inc.
These unaudited pro forma financial statements are prepared for informational
purposes only and are not necessarily indicative of future results or of actual
results that would have been achieved had the acquisitions of the 2001
Acquisitions, 2002 Acquisitions and the Recent Acquisitions been consummated as
of January 1, 2001.
30
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 2002
(Unaudited)
ASSETS
Pro Forma Adjustments
Wells Real ----------------------------------------------------------------------------
Estate Recent Acquisitions
Investment ----------------------------------------------------------------------------
Trust, Agilent BellSouth
Inc. (f) Other Atlanta Ft. Lauderdale Experian/TRW
------------ --------------- ---------------- ---------------- ----------------
REAL ESTATE ASSETS, at cost:
Land $ 94,273,542 $ 6,658,000 (a) $ 1,500,000 (a) $ 1,100,000 (a) $ 4,000,000 (a)
267,851 (b) 61,047 (c) 44,767 (c) 162,791 (c)
Buildings, less accumulated
depreciation of $24,814,454 563,639,005 61,724,320 (a) 13,651,643 (a) 5,791,748 (a) 31,694,725 (a)
2,483,162 (b) 555,590 (c) 235,711 (c) 1,289,902 (c)
Construction in progress 8,827,823 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total real estate assets 666,740,370 71,133,333 15,768,280 7,172,226 37,147,418
------------ ------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS 187,022,573 (68,382,320)(a) (15,151,643)(a) (6,891,748)(a) (35,694,725)(a)
357,482,930 (d)
(12,511,903)(e)
INVESTMENT IN JOINT VENTURES 76,811,543 0 0 0 0
INVESTMENT IN BONDS 22,000,000 0 0 0 0
ACCOUNTS RECEIVABLE 7,697,487 0 0 0 0
DEFERRED LEASE ACQUISITION COSTS 1,868,674 0 0 0 0
DEFERRED PROJECT COSTS 7,739,896 (2,751,013)(b) (616,637)(c) (280,478)(c) (1,452,693)(c)
12,511,903 (e)
DEFERRED OFFERING COSTS 244,761 0 0 0 0
DUE FROM AFFILIATES 1,820,241 0 0 0 0
NOTE RECEIVABLE 0 0 0 0 0
PREPAID EXPENSES AND OTHER ASSETS 1,584,942 0 0 0 0
------------ ------------ ------------ ------------ ------------
Total assets $973,530,487 $357,482,930 $ 0 $ 0 $ 0
============ ============ ============ ============ ============
--------------------------------------------------
--------------------------------------------------
Agilent TRW MFS Pro Forma
Boston Denver Phoenix Total
--------------- ---------------- ----------------
REAL ESTATE ASSETS, at cost:
Land $ 3,500,000 (a) $ 1,325,000 (a) $ 2,500,000 (a) $ 115,708,783
142,442 (c) 71,599 (c) 101,744 (c)
Buildings, less accumulated
depreciation of $24,814,454 28,343,732 (a) 14,570,469 (a) 23,381,252 (a) 750,253,689
1,153,524 (c) 787,344 (c) 951,562 (c)
Construction in progress 3,407,496 (a) 0 0 12,235,319
------------ ------------ ------------ --------------
Total real estate assets 36,547,194 16,754,412 26,934,558 878,197,791
------------ ------------ ------------ --------------
CASH AND CASH EQUIVALENTS (31,843,732)(a) (21,105,469)(a) (25,881,251)(a) 327,042,712
INVESTMENT IN JOINT VENTURES 0 0 0 76,811,543
INVESTMENT IN BONDS 0 0 0 22,000,000
ACCOUNTS RECEIVABLE 0 0 0 7,697,487
DEFERRED LEASE ACQUISITION COSTS 0 0 0 1,868,674
DEFERRED PROJECT COSTS (1,295,966)(c) (858,943)(c) (1,053,307)(c) 11,942,762
DEFERRED OFFERING COSTS 0 0 0 244,761
DUE FROM AFFILIATES 0 0 0 1,820,241
NOTE RECEIVABLE 0 5,210,000 (a) 0 5,210,000
PREPAID EXPENSES AND OTHER ASSETS 0 0 0 1,584,942
------------ ------------ ------------ --------------
Total assets $ 3,407,496 $ 0 0 $1,334,420,913
============ ============ ============ ==============
31
LIABILITIES AND SHAREHOLDERS' EQUITY
Wells Real Pro Forma Adjustments
-------------------------------------------
Estate Recent Acquisitions
-------------------------------------------
Investment Agilent BellSouth
Trust, Inc.(f) Other Atlanta Ft. Lauderdale
-------------- --------------- ------- -----------------
LIABILITIES:
Accounts payable and accrued expenses $ 8,570,735 $ 0 $ 0 $ 0
Notes payable 11,071,586 0 0 0
Obligations under capital lease 22,000,000 0 0 0
Purchase consideration payable 0 0 0 0
Dividends payable 3,657,498 0 0 0
Due to affiliate 990,923 0 0 0
Deferred rental income 1,567,241 0 0 0
------------- ------------ ------ ----------------
Total liabilities 47,857,983 0 0 0
------------- ------------ ------ ----------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN
OPERATING PARTNERSHIP 200,000 0 0 0
------------- ------------ ------ ----------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value;
125,000,000 shares authorized,
109,331,764 shares issued and
108,472,526 outstanding at March
31, 2002 1,093,317 231,839(d) 0 0
Additional paid-in capital 966,577,500 357,251,091(d) 0 0
Cumulative distributions in excess
of earnings (33,555,824) 0 0 0
Treasury stock, at cost, 555,040
shares (8,592,377) 0 0 0
Other Comprehensive Loss (50,112) 0 0 0
------------- ------------ ------ ----------------
Total shareholders' equity 925,472,504 357,482,930 0 0
------------- ------------ ------ ----------------
Total liabilities and
shareholders' equity $973,530,487 $357,482,930 $ 0 $ 0
============= ============ ====== ================
Agilent TRW MFS Pro Forma
Experian/TRW Boston Denver Phoenix
------------ -------------- -------- ------- Total
LIABILITIES:
Accounts payable and accrued expenses $ 0 $ 3,407,496(a) $ 0 $ 0 $ 11,978,231
Notes payable 0 0 0 0 11,071,586
Obligations under capital lease 0 0 0 0 22,000,000
Purchase consideration payable 0 0 0 0 0
Dividends payable 0 0 0 0 3,657,498
Due to affiliate 0 0 0 0 990,923
Deferred rental income 0 0 0 0 1,567,241
------------ -------------- -------- ------- ---------------
Total liabilities 0 3,407,496 0 0 51,265,479
------------ -------------- -------- ------- ---------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN
OPERATING PARTNERSHIP 0 0 0 0 200,000
------------ -------------- -------- ------- ---------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value;
125,000,000 shares authorized,
109,331,764 shares issued and
108,472,526 outstanding at March 0 0 0 0 1,325,156
31, 2002
Additional paid-in capital 0 0 0 0 1,323,828,591
Cumulative distributions in excess
of earnings 0 0 0 0 (33,555,824)
Treasury stock, at cost, 555,040
shares 0 0 0 0 (8,592,377)
Other Comprehensive Loss 0 0 0 0 (50,112)
------------ -------------- -------- ------- ---------------
Total shareholders' equity 0 0 0 0 1,282,955,434
------------ -------------- -------- ------- ---------------
Total liabilities and
shareholders' equity $ 0 $ 3,407,496 $ 0 $ 0 $1,334,420,913
============ ============== ======== ======= ===============
(a) Reflects Wells Real Estate Investment Trust, Inc.'s purchase price for the
land, building and liabilities assumed.
(b) Reflects deferred project costs applied to the land and building at
approximately 4.02% of the purchase price.
(c) Reflects deferred project costs applied to the land and building at
approximately 4.07% of the purchase price.
(d) Reflects capital raised through issuance of additional shares subsequent to
March 31, 2002 through MFS Phoenix acquisition date.
(e) Reflects deferred project costs capitalized as a result of additional
capital raised described in note (d) above.
(f) Historical financial information derived from quarterly report on Form 10-Q
The accompanying notes are an integral part of this statement.
32
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE THREE MONTHS ENDED MARCH 31, 2002
(Unaudited)
Wells Real Pro Forma Adjustments
-------------------------------------------------------------------
Estate Recent Acquisitions
-------------------------------------------------
Investment 2002 Agilent BellSouth
Trust, Inc. (e) Acquisitions Other Atlanta Ft. Lauderdale
----------------- -------------- -------------- ------------ ----------------
REVENUES:
Rental income $ 16,738,163 $ 748,670 $ 1,444,245(a) $ 551,958(a) $ 201,215(a)
Equity in income of joint ventures 1,206,823 0 0 0 0
Interest income 1,113,715 0 0 0 0
Take out fee 134,102 0 0 0 0
-------------- ----------- --------------- ------------- -------------
19,192,803 748,670 1,444,245 551,958 201,215
-------------- ----------- --------------- ------------- -------------
EXPENSES:
Depreciation and amortization 5,744,452 201,406 626,887(b) 142,072(b) 60,275(b)
Interest 440,001 0 0 0 0
Operating costs, net of reimbursements 624,698 237,375 1,178(c) 155,100(c) 0
Management and leasing fees 899,495 33,690 64,991(d) 24,838(d) 9,055(d)
General and administrative 529,031 0 0 0 0
Amortization of deferred financing costs 175,462 0 0 0 0
------------- ---------- --------------- ------------- -------------
8,413,139 472,471 693,056 322,010 69,330
------------- ---------- --------------- ------------- -------------
NET INCOME $ 10,779,664 $ 276,199 $ 751,189 $ 229,948 $ 131,885
============= ========== =============== ============= =============
EARNINGS PER SHARE, basic and diluted $ 0.11
=============
WEIGHTED AVERAGE SHARES, basic and diluted 97,996,945
=============
-----------------------------------------------------------
Agilent TRW MFS Pro Forma
Experian/TRW Boston Denver Phonenix Total
--------------- ------------ ------------ ------------- --------------
REVENUES:
Rental income $ 854,856(a) $ 981,606(a) $ 418,017(a) $ 601,307(a) $ 22,540,037(a)
Equity in income of joint ventures 0 0 0 0 1,206,823
Interest income 0 0 0 0 1,113,715
Take out fee 0 0 0 0 134,102
------------- ------------- ------------- ------------- ----------------
854,856 981,606 418,017 601,307 24,994,677
------------- ------------- ------------- ------------- ----------------
EXPENSES:
Depreciation and amortization 329,846(b) 294,973(b) 153,570(b) 243,328(b) 7,796,809
Interest 0 0 0 0 440,001
Operating costs, net of reimbursements 0 0 0 0 1,018,351
Management and leasing fees 38,469(d) 44,192(d) 18,811(d) 27,059(d) 1,160,600
General and administrative 0 0 0 0 529,031
Amortization of deferred financing costs 0 0 0 0 175,462
------------- ------------- ------------- ------------- ----------------
368,315 339,165 172,381 270,387 11,120,254
------------- ------------- ------------- ------------- ----------------
NET INCOME $ 486,541 $ 642,441 $ 245,636 $ 330,920 $ 13,874,423
============= ============= ============= ============= ================
EARNINGS PER SHARE, basic and diluted $ 0.10
================
WEIGHTED AVERAGE SHARES, basic and diluted 132,515,600
================
(a) Rental income is recognized on a straight-line basis.
(b) Depreciation expense on the buildings is recognized using the
straight-line method and a 25-year life.
(c) Consists of nonreimbursable operating expenses.
(d) Management and leasing fees are calculated at 4.5% of rental income.
(e) Historical financial information derived from quarterly report on Form
10-Q
The accompanying notes are an integral part of this statement.
33
WELLS REAL ESTATE INVESTMENT TRUST, INC.
PRO FORMA STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 2001
(Unaudited)
Pro Forma Adjustments
----------------------------------------------------------------------
Wells Real Recent Acquisitions
Estate ----------------------------------------------------------------------
Investment
Trust, 2001 2002 Agilent BellSouth
Inc. (f) Acquisitions Acquisitions Other Atlanta Ft. Lauderdale
------------- -------------- ------------- ------------ ----------- --------------
REVENUES:
Rental income $44,204,279 $11,349,076(a) $3,652,361(a) $1,381,050(a) $735,944(a) $402,430(a)
Equity in income of joint ventures 3,720,959 1,111,850(b) 0 0 0 0
Interest income 1,246,064 0 0 0 0 0
Take out fee 137,500 0 0 0 0 0
------------- -------------- ------------- ------------- ----------- --------------
49,308,802 12,460,926 3,652,361 1,381,050 735,944 402,430
------------- -------------- ------------- ------------- ----------- --------------
EXPENSES:
Depreciation and amortization 15,344,801 5,772,761(c) 1,692,452(c) 500,883(c) 189,430(c) 241,098(c)
Interest 3,411,210 0 0 0 0 0
Operating costs, net of reimbursements 4,128,883 2,854,275(d) 1,293,540(d) 4,929(d) 206,800(d) 0
Management and leasing fees 2,507,188 510,708(e) 164,357(e) 62,148(e) 33,117(e) 18,109(e)
General and administrative 973,785 0 0 0 0 0
Amortization of deferred financing costs 770,192 0 0 0 0 0
Legal and accounting 448,776 0 0 0 0 0
------------- -------------- ------------- ------------- ----------- --------------
27,584,835 9,137,744 3,150,349 567,960 429,347 259,207
------------- -------------- ------------- ------------- ----------- --------------
NET INCOME $21,723,967 $3,323,182 $ 502,012 $ 813,090 $306,597 $143,223
============= ============== ============= ============= =========== ==============
EARNINGS PER SHARE, basic and diluted $ 0.43
==============
WEIGHTED AVERAGE SHARES, basic and diluted 50,520,853
==============
Pro Forma Adjustments
----------------------------------------------------------------
Recent Acquisitions
----------------------------------------------------------------
Agilent TRW MFS Pro Forma
Experian/TRW Boston Denver Phoenix Total
-------------- ------------- ------------ -------------- ------------
REVENUES:
Rental income $3,419,425(a) $1,177,928(a) $1,672,067(a) $2,405,226(a) $70,399,786
Equity in income of joint ventures 0 0 0 0 4,832,809
Interest income 0 0 0 0 1,246,064
Take out fee 0 0 0 0 137,500
-------------- -------------- --------------- -------------- ------------
3,419,425 1,177,928 1,672,067 2,405,226 76,616,159
-------------- -------------- --------------- -------------- ------------
EXPENSES:
Depreciation and amortization 1,319,385(c) 393,297(c) 614,282(c) 405,547(c) 26,473,936
Interest 0 0 0 0 3,411,210
Operating costs, net of reimbursements 0 0 0 0 8,488,427
Management and leasing fees 153,874(e) 53,007(e) 75,243(e) 108,235(e) 3,685,986
General and administrative 0 0 0 0 770,192
Amortization of deferred financing costs 0 0 0 0 973,785
Legal and accounting 0 0 0 0 448,776
-------------- -------------- --------------- -------------- ------------
1,473,259 446,304 689,525 513,782 44,252,312
-------------- -------------- --------------- -------------- ------------
NET INCOME $1,946,166 $ 731,624 $ 982,542 $1,891,444 $32,363,847
============== ============== =============== ============== ============
EARNINGS PER SHARE, basic and diluted $ 0.24
============
WEIGHTED AVERAGE SHARES, basic and diluted 132,515,600
============
(a) Rental income is recognized on a straight-line basis.
(b) Reflects Wells Real Estate Investment Trust, Inc.'s equity
in income of Wells XII-REIT Joint Venture related to the
acquisition of the Comdata Building and equity in income of
Wells XIII-REIT Joint Venture related to the acquisition of
the AmeriCredit Building and the ADIC Building.
(c) Depreciation expense on the buildings is recognized using
the straight-line method and a 25-year life.
(d) Consists of nonreimbursable operating expenses.
(e) Management and leasing fees are calculated at 4.5% of rental
income.
(f) Historical financial information derived from annual report
on Form 10-K
The accompanying notes are an integral part of this statement.
34
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Items 31 through 35 and Item 37 of Part II are incorporated by reference to the
Registrant's Registration Statement, as amended to date, Commission File No.
333-44900
Item 36 Financial Statements and Exhibits
---------------------------------
(a) Financial Statements:
--------------------
The following financial statements of the Registrant are filed
as part of this Registration Statement and included in the
Prospectus:
Audited Financial Statements
----------------------------
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December 31, 1999
and December 31, 1998,
(3) Consolidated Statements of Income for the years
ended December 31, 1999 and 1998,
(4) Consolidated Statements of Stockholders' Equity for
the years ended December 31, 1999 and 1998,
(5) Consolidated Statements of Cash Flows for the years
ended December 31, 1999 and 1998, and
(6) Notes to Consolidated Financial Statements.
Unaudited Financial Statements
------------------------------
(1) Balance Sheets as of September 30, 2000 and
December 31, 1999,
(2) Statements of Income for the three months and nine
months ended September 30, 2000 and 1999,
(3) Statements of Shareholders' Equity for the year
ended December 31, 1999 and the nine months ended
September 30, 2000,
(4) Statements of Cash Flows for the nine months ended
September 30, 2000 and 1999, and
(5) Condensed Notes to Financial Statements.
The following financial statements relating to the
acquisition of the Dial Building are filed as part of
this Registration Statement and are included in the
Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999, and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended December 31,
1999.
II-1
The following financial statements relating to the
acquisition of the ASML Building are filed as part of
this Registration Statement and are included in the
Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31,
1999, and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended
December 31, 1999.
The following financial statements relating to the
acquisition of the Motorola Tempe Building are filed as
part of this Registration Statement and are included in
the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31,
1999, and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended
December 31, 1999.
The following financial statements relating to the
acquisition of the Motorola Plainfield Building are
filed as part of this Registration Statement and are
included in the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statement of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999
(audited) and the nine months ended September
30, 2000 (unaudited), and
(3) Notes to Statement of Revenues Over Certain
Operating Expenses for the year ended
December 31, 1999 (audited), and the nine
months ended September 30, 2000 (unaudited).
The following unaudited pro forma financial statements
of the Registrant are filed as part of this Registration
Statement and are included in the Prospectus:
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of September 30,
2000,
(3) Pro Forma Statement of Income for the year
ended December 31, 1999, and
(4) Pro Forma Statement of Income for the nine
months ended September 30, 2000.
The following financial statements relating to the
acquisition of the Stone & Webster Building are filed as
part of this Registration Statement and included in
Supplement No. 1 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999
(audited) and the nine months ended September
30, 2000 (unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended
December 31, 1999 (audited) and the nine
months ended September 30, 2000 (unaudited).
II-2
The following financial statements relating to the
acquisition of the AT&T Call Center Buildings are filed
as part of this Registration Statement and included in
Supplement No. 1 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 1999
(audited) and the nine months ended September
30, 2000 (unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for year ended December
31, 1999 (audited) and the nine months ended
September 30, 2000 (unaudited).
The following unaudited pro forma financial statements
of the Registrant are filed as part of this Registration
Statement and included in Supplement No. 1 to the
Prospectus:
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of September 30,
2000,
(3) Pro Forma Statements of Income (Loss) for the
year ended December 31, 1999, and
(4) Pro Forma Statements of Income for the nine
months ended September 30, 2000.
The following financial statements of the Registrant are
filed as part of this Registration Statement and
included in Supplement No. 2 to the Prospectus:
Audited Financial Statements
----------------------------
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December
31, 2000 and December 31, 1999,
(3) Consolidated Statements of Income for the
years ended December 31, 2000, 1999 and 1998,
(4) Consolidated Statements of Stockholders'
Equity for the years ended December, 31,
2000, 1999 and 1998,
(5) Consolidated Statements of Cash Flows for the
years ended December 31, 2000, 1999 and 1998,
and
(6) Notes to Consolidated Financial Statements.
The following financial statements relating to the
acquisition of the Comdata Building are filed as part of
this Registration Statement and included in Supplement
No. 3 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2000
(audited) and the three months ended March
31, 2001 (unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended
December 31, 2000 (audited) and the three
months ended March 31, 2001 (unaudited).
The following unaudited pro forma financial statements
of the Registrant are filed as part of this Registration
Statement and included in Supplement No. 3 to the
Prospectus:
II-3
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of March 31, 2001,
(3) Pro Forma Statement of Income for the three
months ended March 31, 2001, and
(4) Pro Forma Statement of Income for the year
ended December 31, 2000.
The following financial statements relating to the
acquisition of the State Street Building are filed as
part of this Registration Statement and included in
Supplement No. 4 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2000
(audited) and the six months ended June 30,
2001 (unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended
December 31, 2000 (audited) and the six
months ended June 30, 2001 (unaudited).
The following unaudited pro forma financial statements
of the Registrant are filed as part of this Registration
Statement and included in Supplement No. 4 to the
Prospectus:
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of June 30, 2001,
(3) Pro Forma Statement of Income for the six
months ended June 30, 2001, and
(4) Pro Forma Statement of Income for the year
ended December 31, 2000.
The following financial statements relating to the
acquisition of the IKON Buildings are filed as part of
this Registration Statement and included in Supplement
No. 5 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Revenues Over Certain Operating
Expenses for the year ended December 31, 2000
(audited) and the six months ended June 30,
2001 (unaudited), and
(3) Notes to Statements of Revenues Over Certain
Operating Expenses for the year ended
December 31, 2000 (audited) and the six
months ended June 30, 2001 (unaudited).
The following financial statements relating to the
acquisition of the Ingram Micro Distribution Facility
are filed as part of this Registration Statement and
included in Supplement No. 5 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Certain Operating Expenses in
Excess of Revenues for the year ended
December 31, 2000 (audited) and the six
months ended June 30, 2001 (unaudited), and
(3) Notes to Statements of Certain Operating
Expenses in Excess of Revenues for the year
ended December 31, 2000 (audited) and the six
months ended June 30, 2001 (unaudited).
II-4
The following financial statements relating to the
acquisition of the Lucent Building are filed as part of
this Registration Statement and included in Supplement
No. 5 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Certain Operating Expenses in
Excess of Revenues for the year ended
December 31, 2000 (audited) and the six
months ended June 30, 2001 (unaudited), and
(3) Notes to Statements of Certain Operating
Expenses in Excess of Revenues for the year
ended December 31, 2000 (audited) and the six
months ended June 30, 2001 (unaudited).
The following unaudited pro forma financial statements
of the Registrant are filed as part of this Registration
Statement and included in Supplement No. 5 to the
Prospectus:
(1) Summary of Unaudited Pro Forma Financial
Statements,
(2) Pro Forma Balance Sheet as of June 30, 2001,
(3) Pro Forma Statement of Income for the six
months ended June 30, 2001, and
(4) Pro Forma Statement of Income (Loss) for the
year ended December 31, 2000.
The following financial statements relating to the
acquisition of the Windy Point Buildings are filed as
part of this Registration Statement and included in
Supplement No. 6 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Certain Operating Expenses in
Excess of Revenues for the year ended
December 31, 2000 (audited) and the nine
months ended September 30, 2001 (unaudited),
and
(3) Notes to Statements of Certain Operating
Expenses in Excess of Revenues for the year
ended December 31, 2000 (audited) and the
nine months ended September 30, 2001
(unaudited).
The following financial statements relating to the
acquisition of the Arthur Andersen Building are filed as
part of this Registration Statement and included in
Supplement No. 6 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Certain Operating Expenses in
Excess of Revenues for the year ended
December 31, 2000 (audited) and the nine
months ended September 30, 2001 (unaudited),
and
(3) Notes to Statements of Certain Operating
Expenses in Excess of Revenues for the year
ended December 31, 2000 (audited) and the
nine months ended September 30, 2001
(unaudited).
II-5
The following financial statements of the Registrant are filed as part
of this Registration Statement and included in Supplement No. 6 to the
Prospectus:
Unaudited Financial Statements
------------------------------
(1) Consolidated Balance Sheets as of September 30, 2001 and
December 31, 2000,
(2) Consolidated Statements of Income for the three months ended
September 30, 2001 and September 30, 2000 and for the nine
months ended September 30, 2001 and September 30, 2000, (3)
Consolidated Statements of Shareholders' Equity for the year
ended December 31, 2000 and for the nine months ended
September 30, 2001,
(4) Consolidated Statements of Cash Flows for the nine months
ended September 30, 2001 and September 30, 2000, and
(5) Condensed Notes to Consolidated Financial Statements.
The following unaudited pro forma financial statements of the
Registrant are filed as part of this Registration Statement and
included in Supplement No. 6 to the Prospectus:
(1) Summary of Unaudited Pro Forma Financial Statements,
(2) Pro Forma Balance Sheet as of September 30, 2001,
(3) Pro Forma Statement of Income (Loss) for the nine months
ended September 30, 2001, and
(4) Pro Forma Statement of Income (Loss) for the year ended
December 31, 2000.
The following financial statements of the Registrant are filed as part
of this Registration Statement and included in Supplement No. 7 to the
Prospectus:
Audited Financial Statements
----------------------------
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December 31, 2001 and
December 31, 2000,
(3) Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999,
(4) Consolidated Statements of Stockholders' Equity for the
years ended December, 31, 2001, 2000 and 1999,
(5) Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999, and
(6) Notes to Consolidated Financial Statements.
The following financial statements relating to the acquisition of the
Novartis Atlanta Building are filed as part of this Registration
Statement and included in Supplement No. 8 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Certain Operating Expenses in Excess of
Revenues for the year ended December 31, 2001 (audited), and
(3) Notes to Statements of Certain Operating Expenses in Excess
of Revenues for the year ended December 31, 2001 (audited)
II-6
The following financial statements relating to the acquisition of the
Dana Corporation Buildings are filed as part of this Registration
Statement and included in Supplement No. 8 to the Prospectus:
(1) Report of Independent Public Accountants,
(2) Statements of Certain Operating Expenses in Excess of
Revenues for the year ended December 31, 2001 (audited), and
(3) Notes to Statements of Certain Operating Expenses in Excess
of Revenues for the year ended December 31, 2001 (audited).
The following unaudited pro forma financial statements of the
Registrant are filed as part of this Registration Statement and
included in Supplement No. 8 to the Prospectus:
(1) Summary of Unaudited Pro Forma Financial Statements,
(2) Pro Forma Balance Sheet as of December 31, 2001, and
(3) Pro Forma Statement of Income (Loss) for the year ended
December 31, 2001.
The following financial statements of the Registrant are filed as part
of this Registration Statement and included in Supplement No. 9 to the
Prospectus:
Unaudited Financial Statements
------------------------------
(1) Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001,
(2) Consolidated Statements of Income for the three months ended
March 31, 2002 and March 31, 2001,
(3) Consolidated Statements of Shareholders' Equity for the year
ended December 31, 2001 and for the three months ended March
31, 2002,
(4) Consolidated Statements of Cash Flows for the three months
ended March 31, 2002 and March 31, 2001, and
(5) Condensed Notes to Consolidated Financial Statements.
The following financial statements relating to the acquisition of the
Experian/TRW Buildings are filed as part of this Registration
Statement and included in Supplement No. 9 to the Prospectus:
(1) Report of Independent Auditors,
(2) Statements of Revenues over Certain Operating Expenses
for the year ended December 31, 2001 (audited) and
the three months ended March 31, 2002 (unaudited), and
(3) Notes to Statements of Revenues over Certain Operating
Expenses for the year ended December 31, 2001 (audited)
and the three months ended March 31, 2002 (unaudited).
II-7
The following financial statements relating to the acquisition of
the Agilent Boston Building are filed as part of this
Registration Statement and included in Supplement No. 9 to the
Prospectus:
(1) Report of Independent Auditors,
(2) Statements of Revenues over Certain Operating Expenses
for the year ended December 31, 2001 (audited)
and the three months ended March 31, 2002 (unaudited),
and
(3) Notes to Statements of Revenues over Certain Operating
Expenses for the year ended December 31, 2001
(audited) and the three months ended March 31, 2002
(unaudited).
The following unaudited pro forma financial statements of the
Registrant are filed as part of this Registration Statement and
included in Supplement No. 9 to the Prospectus:
(1) Summary of Unaudited Pro Forma Financial Statements,
(2) Pro Forma Balance Sheet as of March 31, 2002,
(3) Pro Forma Statement of Income for the three months
ended March 31, 2002, and
(4) Pro Forma Statement of Income (Loss) for the year ended
December 31, 2001.
(b) Exhibits (See Exhibit Index):
----------------------------
Exhibit No. Description
----------- -----------
1.1 Form of Dealer Manager Agreement (previously filed in and
incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on December 1, 2000)
1.2 Form of Warrant Purchase Agreement (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
3.1 Amended and Restated Articles of Incorporation (previously filed in
and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
August 31, 2000)
3.2 Form of Bylaws (previously filed in and incorporated by reference
to Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-32099, filed on January 23,
1998)
3.3 Amendment No. 1 to Bylaws (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on April 15, 1999)
3.4 Articles of Amendment to Amended and Restated Articles of
Incorporation dated as June 26, 2002 (previously filed in and
incorporated by reference to Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-85848,
filed on July 15, 2002)
4.1 Form of Subscription Agreement and Subscription Agreement Signature
Page (included as Exhibit A to Prospectus)
II-8
5.1 Opinion of Holland & Knight LLP as to legality of securities
(previously filed in and incorporated by reference to Amendment No. 1
to Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on December 1, 2000)
8.1 Opinion of Holland & Knight LLP as to tax matters (previously filed in
and incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on December 1, 2000)
8.2 Opinion of Holland & Knight LLP as to ERISA matters (previously filed
in and incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on December 1, 2000)
10.1 Agreement of Limited Partnership of Wells Operating Partnership, L.P.
(previously filed in and incorporated by reference to Amendment No. 4
to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on January 23, 1998)
10.2 Advisory Agreement dated January 30, 2002 (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-85848, filed on April 8, 2002)
10.3 Amended and Restated Property Management and Leasing Agreement among
Registrant, Wells Operating Partnership, L.P. and Wells Management
Company, Inc. (previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
December 18, 2000)
10.4 Amended and Restated Joint Venture Agreement of The Fund IX, Fund X,
Fund XI and REIT Joint Venture (previously filed in and incorporated
by reference to Post-Effective Amendment No. 2 of the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on July 9, 1998)
10.5 Lease Agreement for the Alstom Power Knoxville Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 of the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on July 9, 1998)
10.6 Net Lease Agreement for the Avaya Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on July 9, 1998)
10.7 First Amendment to Net Lease Agreement for the Avaya Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 2 of the Registrant's Registration Statement on Form
S-11, Commission File No. 333-32099, filed on July 9, 1998)
10.8 Lease Agreement for the Iomega Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on August 14, 1998)
10.9 Joint Venture Agreement of Wells/Fremont Associates (previously filed
in and incorporated by reference to Post-Effective Amendment No. 3 of
the Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on August 14, 1998)
10.10 Lease Agreement for the Fairchild Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on August 14, 1998)
II-9
10.11 Joint Venture Agreement of Wells/Orange County Associates (previously
filed in and incorporated by reference to Post-Effective Amendment No.
3 of the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on August 14, 1998)
10.12 Lease for the PwC Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 of the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on January 15, 1999)
10.13 Amended and Restated Promissory Note for $15,500,000 for the
SouthTrust Loan (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
January 15, 1999)
10.14 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents for the PwC Building securing the SouthTrust Loan
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 of the Registrant's Registration Statement on Form
S-11, Commission File No. 333-32099, filed on January 15, 1999)
10.15 Build-To-Suit Office Lease Agreement for the AT&T Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
5 of the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on April 15, 1999)
10.16 Amendment No. 1 to Build-To-Suit Office Lease Agreement for the AT&T
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on April
15, 1999).
10.17 Amendment No. 2 to Build-To-Suit Office Lease Agreement for the AT&T
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on April
15, 1999)
10.18 Build-To-Suit Office Lease Agreement Guaranty Payment and Performance
for the AT&T Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 of the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on April 15, 1999)
10.19 Rental Income Guaranty Agreement relating to the Quest Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 5 of the Registrant's Registration Statement on Form
S-11, Commission File No. 333-32099, filed on April 15, 1999)
10.20 Office Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on April 15, 1999)
10.21 Guaranty of Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on April 15, 1999)
10.22 Fifth Amendment to Lease for the Johnson Matthey Building (previously
filed as Exhibit 10.7 and incorporated by reference to Post-Effective
Amendment No. 1 to the Registration Statement of Wells Real Estate
Fund XII, L.P. on Form S-11, Commission File No. 33-66657, filed on
September 1, 1999)
10.23 Lease Agreement for the Gartner Building (previously filed in and
incorporated by
II-10
reference to Post-Effective Amendment No. 7 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on October 14, 1999)
10.24 Lease Agreement for the Alstom Power Richmond Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
7 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on October 14, 1999)
10.25 Second Amendment to Lease Agreement for the Alstom Power Richmond
Building (previously filed in and incorporated by reference to
Amendment No. 1 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-83933, filed on November 17, 1999)
10.26 Amended and Restated Joint Venture Partnership Agreement of The Wells
Fund XI-Fund XII - REIT Joint Venture (previously filed in and
incorporated by reference to Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on November 17, 1999)
10.27 Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to Registrant's Registration Statement
on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)
10.28 Lease Agreement with The Coca-Cola Company for a portion of the
Cinemark Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on March
15, 2000)
10.29 Lease Agreement for the Metris Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on March 15, 2000)
10.30 Promissory Note for $26,725,000 for the Bank of America Loan
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on March 15, 2000)
10.31 Mortgage, Assignment and Security Agreement for the Marconi Building
and the AT&T Building securing the Bank of America Loan (previously
filed in and incorporated by reference to Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on March 15, 2000)
10.32 Assumption and Modification Agreement for the Metris Loan (previously
filed in and incorporated by reference to Post-Effective Amendment No.
1 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on March 15, 2000)
10.33 Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership (previously filed as Exhibit 10.11 and
incorporated by reference to Post-Effective Amendment No. 2 to Form
S-11 Registration Statement of Wells Real Estate Fund XII, L.P. on
Form S-11, Commission File No. 33-66657, filed on April 25, 2000)
10.34 Lease Agreement for the Dial Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.35 First Amendment to Lease Agreement for the Dial Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 to Registrant's
II-11
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on June 9, 2000)
10.36 Lease Agreement for the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.37 First Amendment to Lease Agreement for the ASML Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.38 Ground Lease Agreement for the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.39 First Amendment to Ground Lease Agreement for the ASML Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on June 9, 2000)
10.40 Lease Agreement for the Motorola Tempe Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.41 First Amendment to Lease Agreement for the Motorola Tempe Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on June 9, 2000)
10.42 Ground Lease Agreement for the Motorola Tempe Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.43 Office Lease for the Siemens Building (previously filed as Exhibit
10.13 and incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement of Wells Real Estate Fund XII, L.P. on
Form S-11, Commission File No. 33-66657, filed on July 25, 2000)
10.44 Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint Venture
(previously filed in and incorporated by reference to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on August 31, 2000)
10.45 Lease Agreement for the Avnet Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.46 Ground Lease Agreement for the Avnet Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.47 Lease Agreement for the Delphi Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
II-12
10.48 Lease Agreement for the Quest Building (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on August 31, 2000)
10.49 Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000 revolving
line of credit dated May 3, 2000 (previously filed in and incorporated
by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.50 Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (previously
filed in and incorporated by reference to Post-Effective Amendment No.
3 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.51 Deed of Trust and Security Agreement with SouthTrust, N.A. relating to
the Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.52 Deed of Trust and Security Agreement with SouthTrust, N.A. relating to
the Dial Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
September 8, 2000)
10.53 Leasehold Deed of Trust and Security Agreement with SouthTrust, N.A.
relating to the ASML Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.54 Lease Agreement for the Motorola Plainfield Building (previously filed
in and incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on December 1, 2000)
10.55 Allonge to Revolving Note relating to the SouthTrust Bank N.A.
$32,393,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.56 First Amendment to Revolving Loan Agreement and Other Loan Documents
relating to the SouthTrust Bank N.A. $32,393,000 revolving line of
credit (previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
December 18, 2000)
10.57 Second Note Modification Agreement relating to the SouthTrust Bank
N.A. $12,844,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.58 Second Amendment to Amended and Restated Loan Agreement and Other Loan
Documents relating to the SouthTrust Bank N.A. $12,844,000 revolving
line of credit (previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
December 18, 2000)
10.59 Revolving Note relating to the SouthTrust Bank N.A. $19,003,000
revolving line of credit (previously filed in and incorporated by
reference to Pre-Effective Amendment
II-13
No. 2 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on December 18, 2000)
10.60 Revolving Loan Agreement relating to the SouthTrust Bank N.A.
$19,003,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.61 Leasehold Deed of Trust and Security Agreement with SouthTrust Bank
N.A. relating to the Motorola Tempe Building and the Avnet Building
(previously filed in and incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on December 18, 2000)
10.62 Amended and Restated Revolving Note relating to the SouthTrust Bank
N.A. $7,900,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.63 Amended and Restated Loan Agreement relating to the SouthTrust Bank
N.A. $7,900,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.64 Credit Line Deed of Trust and Security Agreement to SouthTrust N.A.
relating to the Alstom Power Richmond Building (previously filed in
and incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.65 First Amendment to Credit Line Deed of Trust and Security Agreement to
SouthTrust N.A. relating to the Alstom Power Richmond Building
(previously filed in and incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on December 18, 2000)
10.66 Agreement for Purchase and Sale of Property for the Stone & Webster
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.67 First Amendment to Agreement for Purchase and Sale of Property for the
Stone & Webster Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on February 9, 2001)
10.68 Promissory Note for $35,900,000 for the Guaranty Federal Bank Loan
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on February 9, 2001)
10.69 Deed of Trust, Mortgage and Security Agreement with Guaranty Federal
Bank, F.S.B., relating to the Stone & Webster Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
1 to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on February 9, 2001)
10.70 Promissory Note for $3,000,000 for the Cardinal Paragon, Inc. Loan
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 1 to the Registrant's
II-14
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on February 9, 2001)
10.71 Deed of Trust with Cardinal Paragon, Inc. relating to the Stone &
Webster Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.72 Lease Agreement with Stone & Webster, Inc. for a portion of the Stone
& Webster Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.73 Lease Agreement with Sysco Corporation for a portion of the Stone &
Webster Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.74 Purchase Agreement for Metris Minnetonka Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.75 Lease Agreement for the Metris Minnetonka Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on February 9, 2001)
10.76 Fourth Amendment to Lease Agreement for the Metris Minnetonka Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on February 9, 2001)
10.77 Guaranty of Lease for the Metris Minnetonka Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on February 9, 2001)
10.78 Agreement for the Purchase and Sale of Property for the AT&T Call
Center Buildings (previously filed as Exhibit 10.14 and incorporated
by reference to Post-Effective Amendment No. 4 to the Registration
Statement of Wells Real Estate Fund XII, L.P., Commission File No.
333-66657, filed on February 9, 2001)
10.79 First Amendment to Agreement for the Purchase and Sale of Property for
the AT&T Call Center Buildings (previously filed as Exhibit 10.15 and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement of Wells Real Estate Fund XII, L.P., Commission
File No. 333-66657, filed on February 9, 2001)
10.80 Lease Agreement with AT&T Corp. for a portion of the AT&T Call Center
Buildings (previously filed as Exhibit 10.16 and incorporated by
reference to Post-Effective Amendment No. 4 to the Registration
Statement of Wells Real Estate Fund XII, L.P., Commission File No.
333-66657, filed on February 9, 2001)
10.81 Lease Agreement with Jordan Associates, Inc. for a portion of the AT&T
Call Center Buildings (previously filed as Exhibit 10.17 and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement of Wells Real Estate Fund XII, L.P., Commission
File No. 333-66657, filed on February 9, 2001)
II-15
10.82 Agreement for the Purchase and Sale of Property for the Comdata
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on July
23, 2001)
10.83 Lease Agreement for the Comdata Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on July 23, 2001)
10.84 First Amendment to Lease Agreement for the Comdata Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 3 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on July 23, 2001)
10.85 Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint
Venture Partnership (previously filed in and incorporated by reference
to Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on July
23, 2001)
10.86 Agreement for the Purchase and Sale of Property for the AmeriCredit
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on July
23, 2001)
10.87 Lease Agreement for the AmeriCredit Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on July 23, 2001)
10.88 Agreement for the Purchase and Sale of Property for the State Street
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.89 Lease Agreement for the State Street Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.90 Agreement for the Purchase and Sale of Property for the IKON Buildings
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23, 2001)
10.91 Lease Agreement for the IKON Buildings (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.92 First Amendment to Lease Agreement for the IKON Buildings (previously
filed in and incorporated by reference to Post-Effective Amendment No.
4 to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.93 Reinstatement of and Second Amendment to Lease Agreement for the IKON
Buildings (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
II-16
10.94 Agreement of Sale for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.95 Lease Agreement for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.96 Guaranty of Lease for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.97 Development Agreement for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.98 Architect Agreement for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.99 Design and Build Construction Agreement for the Nissan Property
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23, 2001)
10.100 Agreement for the Purchase and Sale of Property for the Ingram Micro
Distribution Facility (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on October 23, 2001)
10.101 Indenture of Lease Agreement for Ingram Micro Distribution Facility
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23, 2001)
10.102 Guaranty of Lease Agreement for Ingram Micro Distribution Facility
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23, 2001)
10.103 Absolute Assignment of Lease and Assumption Agreement for Ingram Micro
Distribution Facility (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on October 23, 2001)
10.104 Bond Real Property Lease Agreement for the Ingram Micro Distribution
Facility (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.105 Agreement for the Purchase and Sale of Property for the Lucent
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.106 Lease Agreement for the Lucent Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
II-17
10.107 Second Amendment to Lease Agreement for Matsushita Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23, 2001)
10.108 Agreement of Limited Partnership of Wells Operating Partnership, L.P.
as Amended and Restated as of January 1, 2000 (previously filed in and
incorporated by reference to Form 10-K of Registrant for the fiscal
year ended December 31, 2000, Commission File No. 0-25739)
10.109 Agreement for the Purchase and Sale of Property for the Convergys
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.110 Lease Agreement for the Convergys Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on January 23, 2002)
10.111 Purchase Agreement for the ADIC Buildings (previously filed as Exhibit
10.6 and incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement of Wells Real Estate Fund XIII, L.P. on
Form S-11, Commission File No. 333-48984)
10.112 Purchase Agreement for the land immediately adjacent to the ADIC
Buildings (previously filed as Exhibit 10.7 and incorporated by
reference to Post-Effective Amendment No. 3 to the Registration
Statement of Wells Real Estate Fund XIII, L.P. on Form S-11,
Commission File No. 333-48984)
10.113 Lease Agreement for the ADIC Buildings (previously filed as Exhibit
10.8 and incorporated by reference to Post-Effective Amendment No. 3
to the Registration Statement of Wells Real Estate Fund XIII, L.P. on
Form S-11, Commission File No. 333-48984)
10.114 Agreement for Purchase and Sale of the Windy Point Buildings
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on January 23, 2002)
10.115 Lease Agreement with TCI Great Lakes, Inc. for a portion of the Windy
Point I Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.116 First Amendment to Office Lease with TCI Great Lakes, Inc. (previously
filed in and incorporated by reference to Post-Effective Amendment No.
5 to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on January 23, 2002)
10.117 Lease Agreement with The Apollo Group, Inc. for a portion of the Windy
Point I Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.118 Lease Agreement with Global Knowledge Network, Inc. for a portion of
the Windy Point I Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on January 23, 2002)
II-18
10.119 Lease Agreement with Zurich American Insurance Company for the Windy
Point II Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.120 Third Amendment to Office Lease with Zurich American Insurance Company
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on January 23, 2002)
10.121 Agreement for Purchase and Sale of the Arthur Andersen Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on January 23, 2002)
10.122 Lease Agreement for the Arthur Andersen Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on January 23, 2002)
10.123 Revolving Credit Agreement relating to the Bank of America, N.A.
$85,000,000 revolving line of credit (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-85848, filed on April 8, 2002)
10.124 Construction Loan Agreement relating to the Bank of America, N.A.
$34,200,000 construction loan (previously filed in and incorporated by
reference to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on April 8, 2002)
10.125 Agreement for Purchase and Sale of the Transocean Houston Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on April 22, 2002)
10.126 Lease Agreement with Transocean Deepwater Offshore Drilling, Inc. for
a portion of the Transocean Houston Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.127 Lease Agreement with Newpark Drilling Fluids, Inc. for a portion of
the Transocean Houston Building (previously filed in and incorporated
by reference to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on April 22, 2002)
10.128 Membership Interests Purchase Agreement for the Dana Detroit Building
and the Dana Kalamazoo Building (previously filed in and incorporated
by reference to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on April 22, 2002)
10.129 Lease Agreement for the Dana Detroit Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.130 Second Amendment to Lease Agreement for the Dana Detroit Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's
II-19
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on April 22, 2002)
10.131 Lease Agreement for the Dana Kalamazoo Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.132 Second Amendment to Lease Agreement for the Dana Kalamazoo Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on April 22, 2002)
10.133 Purchase and Sale Agreement for the Experian/TRW Buildings (previously
filed in and incorporated by reference to Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-85848, filed on June 10, 2002)
10.134 Lease Agreement for the Experian/TRW Buildings (previously filed in
and incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-85848,
filed on June 10, 2002)
10.135 Lease Amendment to Lease Agreement for the Experian/TRW Buildings
(previously filed in and incorporated by reference to Amendment No. 1
to Registrant's Registration Statement on Form S-11, Commission File
No. 333-85848, filed on June 10, 2002)
10.136 Purchase and Sale Agreement and Escrow Instructions for the Agilent
Boston Building (previously filed in and incorporated by reference to
Amendment No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on June 10, 2002)
10.137 Lease Agreement for the Agilent Boston Building (previously filed in
and incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-85848,
filed on June 10, 2002)
10.138 Purchase and Sale Agreement for the TRW Denver Building (previously
filed in and incorporated by reference to Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-85848, filed on July 15, 2002)
10.139 Lease Agreement for the TRW Denver Building (previously filed in and
incorporated by reference to Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-85848,
filed on July 15, 2002)
10.140 Purchase and Sale Agreement for the MFS Phoenix Building (previously
filed in and incorporated by reference to Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-85848, filed on July 15, 2002)
10.141 Lease Agreement for the MFS Phoenix Building (previously filed in and
incorporated by reference to Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-85848,
filed on July 15, 2002)
23.1 Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)
23.2 Consent of Arthur Andersen LLP (previously filed in and incorporated
by reference to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on April 22, 2002)
23.3 Consent of Ernst & Young LLP
24.1 Power of Attorney
II-20
24.2 Power of Attorney
99.1 Letter regarding independent public accountants (previously filed in
and incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
II-21
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all the
requirements for filing on Form S-11 and has duly caused this Post-Effective
Amendment No. 7 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Norcross, and State of
Georgia, on the 22/nd/ day of July, 2002.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
A Maryland corporation
(Registrant)
By: /s/ Leo F. Wells, III
------------------------------------
Leo F. Wells, III, President
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. 7 to Registration Statement has been signed below
on July 22, 2002 by the following persons in the capacities indicated.
Name Title
/s/ Leo F. Wells, III President and Director
-----------------------------------------------------
Leo F. Wells, III (Principal Executive Officer)
/s/ Douglas P. Williams Executive Vice President and Director
-----------------------------------------------------
Douglas P. Williams (Principal Financial and Accounting
Officer)
/s/ John L. Bell * Director
-----------------------------------------------------
John L. Bell (By Douglas P. Williams, as Attorney-in-fact)
/s/ Michael R. Buchanan ** Director
-----------------------------------------------------
Michael R. Buchanan (By Douglas P. Williams, as Attorney-in-fact)
/s/ Richard W. Carpenter * Director
-----------------------------------------------------
Richard W. Carpenter (By Douglas P. Williams, as Attorney-in-fact)
/s/ Bud Carter * Director
-----------------------------------------------------
Bud Carter (By Douglas P. Williams, as Attorney-in-fact)
/s/ William H. Keogler, Jr. * Director
--------------------------------------------------------------
William H. Keogler, Jr. (By Douglas P. Williams, as Attorney-in-fact)
/s/ Donald S. Moss * Director
-----------------------------------------------------
Donald S. Moss (By Douglas P. Williams, as Attorney-in-fact)
/s/ Walter W. Sessoms * Director
-----------------------------------------------------
Walter W. Sessoms (By Douglas P. Williams, as Attorney-in-fact)
/s/ Neil H. Strickland * Director
-----------------------------------------------------
Neil H. Strickland (By Douglas P. Williams, as Attorney-in-fact)
* By Douglas P. Williams, as Attorney-in-fact, pursuant to Power of Attorney
dated October 31, 2001 and included as Exhibit 24.1 herein.
** By Douglas P. Williams, as Attorney-in-fact, pursuant to Power of Attorney
dated July 10, 2002 and included as Exhibit 24.2 herein.
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
1.1 Form of Dealer Manager Agreement (previously filed in and
incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 1, 2000)
1.2 Form of Warrant Purchase Agreement (previously filed in and
incorporated by reference to Registrant's Registration Statement
on Form S-11, Commission File No. 333-44900, filed on August 31,
2000)
3.1 Amended and Restated Articles of Incorporation (previously filed
in and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
August 31, 2000)
3.2 Form of Bylaws (previously filed in and incorporated by reference
to Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-32099, filed on January 23,
1998)
3.3 Amendment No. 1 to Bylaws (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-32099, filed on April 15, 1999)
3.4 Articles of Amendment to Amended and Restated Articles of
Incorporation dated as June 26, 2002 (previously filed in and
incorporated by reference to Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-85848, filed on July 15, 2002)
4.1 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit A to Prospectus)
5.1 Opinion of Holland & Knight LLP as to legality of securities
(previously filed in and incorporated by reference to Amendment
No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on December 1, 2000)
8.1 Opinion of Holland & Knight LLP as to tax matters (previously
filed in and incorporated by reference to Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on December 1, 2000)
8.2 Opinion of Holland & Knight LLP as to ERISA matters (previously
filed in and incorporated by reference to Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on December 1, 2000)
10.1 Agreement of Limited Partnership of Wells Operating Partnership,
L.P. (previously filed in and incorporated by reference to
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-32099, filed on January 23, 1998)
10.2 Advisory Agreement dated January 30, 2002 (previously filed in and
incorporated by reference to Registrant's Registration Statement
on Form S-11, Commission File No. 333-85848, filed on April 8,
2002)
10.3 Amended and Restated Property Management and Leasing Agreement
among Registrant, Wells Operating Partnership, L.P. and Wells
Management Company, Inc. (previously filed in and incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.4 Amended and Restated Joint Venture Agreement of The Fund IX, Fund
X, Fund XI and REIT Joint Venture (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on July 9, 1998)
10.5 Lease Agreement for the Alstom Power Knoxville Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 2 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
July 9, 1998)
10.6 Net Lease Agreement for the Avaya Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 2 of
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on July 9, 1998)
10.7 First Amendment to Net Lease Agreement for the Avaya Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 2 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
July 9, 1998)
10.8 Lease Agreement for the Iomega Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on August 14, 1998)
10.9 Joint Venture Agreement of Wells/Fremont Associates (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 3 of the Registrant's Registration Statement on Form S-11,
Commission File No. 333-32099, filed on August 14, 1998)
10.10 Lease Agreement for the Fairchild Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 3 of
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on August 14, 1998)
10.11 Joint Venture Agreement of Wells/Orange County Associates
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
August 14, 1998)
10.12 Lease for the PwC Building (previously filed in and incorporated
by reference to Post-Effective Amendment No. 4 of the Registrant's
Registration Statement on Form S-11, Commission File No.
333-32099, filed on January 15, 1999)
10.13 Amended and Restated Promissory Note for $15,500,000 for the
SouthTrust Loan (previously filed in and incorporated by reference
to Post-Effective Amendment No. 4 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
January 15, 1999)
10.14 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents for the PwC Building securing the SouthTrust Loan
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
January 15, 1999)
10.15 Build-To-Suit Office Lease Agreement for the AT&T Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999)
10.16 Amendment No. 1 to Build-To-Suit Office Lease Agreement for the
AT&T Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999).
10.17 Amendment No. 2 to Build-To-Suit Office Lease Agreement for the
AT&T Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999)
10.18 Build-To-Suit Office Lease Agreement Guaranty Payment and
Performance for the AT&T Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on April 15, 1999)
10.19 Rental Income Guaranty Agreement relating to the Quest Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
April 15, 1999)
10.20 Office Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on April 15, 1999)
10.21 Guaranty of Lease for the Matsushita Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 5 of
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on April 15, 1999)
10.22 Fifth Amendment to Lease for the Johnson Matthey Building
(previously filed as Exhibit 10.7 and incorporated by reference to
Post-Effective Amendment No. 1 to the Registration Statement of
Wells Real Estate Fund XII, L.P. on Form S-11, Commission File No.
33-66657, filed on September 1, 1999)
10.23 Lease Agreement for the Gartner Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 7 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on October 14, 1999)
10.24 Lease Agreement for the Alstom Power Richmond Building (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 7 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-32099, filed on October 14, 1999)
10.25 Second Amendment to Lease Agreement for the Alstom Power Richmond
Building (previously filed in and incorporated by reference to
Amendment No. 1 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-83933, filed on November 17, 1999)
10.26 Amended and Restated Joint Venture Partnership Agreement of the
Wells Fund XI-Fund XII - REIT Joint Venture (previously filed in
and incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on November 17, 1999)
10.27 Lease Agreement with Cinemark USA, Inc. for a portion of the
Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-83933, filed on March 15, 2000)
10.28 Lease Agreement with The Coca-Cola Company for a portion of the
Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-83933, filed on March 15, 2000)
10.29 Lease Agreement for the Metris Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on March 15, 2000)
10.30 Promissory Note for $26,725,000 for the Bank of America Loan
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
March 15, 2000)
10.31 Mortgage, Assignment and Security Agreement for the Marconi
Building and the AT&T Building securing the Bank of America Loan
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
March 15, 2000)
10.32 Assumption and Modification Agreement for the Metris Loan
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
March 15, 2000)
10.33 Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership (previously filed as Exhibit 10.11 and
incorporated by reference to Post-Effective Amendment No. 2 to
Form S-11 Registration Statement of Wells Real Estate Fund XII,
L.P. on Form S-11, Commission File No. 33-66657, filed on April
25, 2000)
10.34 Lease Agreement for the Dial Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.35 First Amendment to Lease Agreement for the Dial Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
June 9, 2000)
10.36 Lease Agreement for the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.37 First Amendment to Lease Agreement for the ASML Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
June 9, 2000)
10.38 Ground Lease Agreement for the ASML Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.39 First Amendment to Ground Lease Agreement for the ASML Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
June 9, 2000)
10.40 Lease Agreement for the Motorola Tempe Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 2
to Registrant's Registration Statement on Form S-11, Commission
File No. 333-83933, filed on June 9, 2000)
10.41 First Amendment to Lease Agreement for the Motorola Tempe Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
June 9, 2000)
10.42 Ground Lease Agreement for the Motorola Tempe Building (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on June 9, 2000)
10.43 Office Lease for the Siemens Building (previously filed as Exhibit
10.13 and incorporated by reference to Post-Effective Amendment
No. 3 to the Registration Statement of Wells Real Estate Fund XII,
L.P. on Form S-11, Commission File No. 33-66657, filed on July 25,
2000)
10.44 Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint
Venture (previously filed in and incorporated by reference to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on August 31, 2000)
10.45 Lease Agreement for the Avnet Building (previously filed in and
incorporated by reference to Registrant's Registration Statement
on Form S-11, Commission File No. 333-44900, filed on August 31,
2000)
10.46 Ground Lease Agreement for the Avnet Building (previously filed in
and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
August 31, 2000)
10.47 Lease Agreement for the Delphi Building (previously filed in and
incorporated by reference to Registrant's Registration Statement
on Form S-11, Commission File No. 333-44900, filed on August 31,
2000)
10.48 Lease Agreement for the Quest Building (previously filed in and
incorporated by reference to Registrant's Registration Statement
on Form S-11, Commission File No. 333-44900, filed on August 31,
2000)
10.49 Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000
revolving line of credit dated May 3, 2000 (previously filed in
and incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.50 Promissory Note for $35,000,000 to SouthTrust Bank, N.A.
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed on
September 8, 2000)
10.51 Deed of Trust and Security Agreement with SouthTrust, N.A.
relating to the Cinemark Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.52 Deed of Trust and Security Agreement with SouthTrust, N.A.
relating to the Dial Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.53 Leasehold Deed of Trust and Security Agreement with SouthTrust,
N.A. relating to the ASML Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.54 Lease Agreement for the Motorola Plainfield Building (previously
filed in and incorporated by reference to Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on December 1, 2000)
10.55 Allonge to Revolving Note relating to the SouthTrust Bank N.A.
$32,393,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on December 18, 2000)
10.56 First Amendment to Revolving Loan Agreement and Other Loan
Documents relating to the SouthTrust Bank N.A. $32,393,000
revolving line of credit (previously filed in and incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.57 Second Note Modification Agreement relating to the SouthTrust Bank
N.A. $12,844,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on December 18, 2000)
10.58 Second Amendment to Amended and Restated Loan Agreement and Other
Loan Documents relating to the SouthTrust Bank N.A. $12,844,000
revolving line of credit (previously filed in and incorporated by
reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on December 18, 2000)
10.59 Revolving Note relating to the SouthTrust N.A. $19,003,000
revolving line of credit (previously filed in and incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.60 Revolving Loan Agreement relating to the SouthTrust Bank N.A.
$19,003,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on December 18, 2000)
10.61 Leasehold Deed of Trust and Security Agreement with SouthTrust
Bank N.A. relating to the Motorola Tempe Building and the Avnet
Building (previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
December 18, 2000)
10.62 Amended and Restated Revolving Note relating to the SouthTrust
Bank N.A. $7,900,000 revolving line of credit (previously filed in
and incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on December 18, 2000)
10.63 Amended and Restated Loan Agreement relating to the SouthTrust
Bank N.A. $7,900,000 revolving line of credit (previously filed in
and incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on December 18, 2000)
10.64 Credit Line Deed of Trust and Security Agreement to SouthTrust
Bank N.A. relating to the Alstom Power Richmond Building
(previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
December 18, 2000)
10.65 First Amendment to Credit Line Deed of Trust and Security
Agreement to SouthTrust Bank N.A. relating to the Alstom Power
Richmond Building (previously filed in and incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.66 Agreement for Purchase and Sale of Property for the Stone &
Webster Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.67 First Amendment to Agreement for Purchase and Sale of Property for
the Stone & Webster Building (previously filed in and incorporated
by reference to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.68 Promissory Note for $35,900,000 for the Guaranty Federal Bank Loan
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.69 Deed of Trust, Mortgage and Security Agreement with Guaranty
Federal Bank, F.S.B., relating to the Stone & Webster Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.70 Promissory Note for $3,000,000 for the Cardinal Paragon, Inc. Loan
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.71 Deed of Trust with Cardinal Paragon, Inc. relating to the Stone &
Webster Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.72 Lease Agreement with Stone & Webster, Inc. for a portion of the
Stone & Webster Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.73 Lease Agreement with Sysco Corporation for a portion of the Stone
& Webster Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.74 Purchase Agreement for Metris Minnetonka Building (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on February 9, 2001)
10.75 Lease Agreement for the Metris Minnetonka Building (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on February 9, 2001)
10.76 Fourth Amendment to Lease Agreement for the Metris Minnetonka
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.77 Guaranty of Lease for the Metris Minnetonka Building (previously
filed in and incorporated by reference to Post-Effective Amendment
No. 1 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on February 9, 2001)
10.78 Agreement for the Purchase and Sale of Property for the AT&T Call
Center Buildings (previously filed as Exhibit 10.14 and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement of Wells Real Estate Fund XII, L.P.,
Commission File No. 333-66657, filed on February 9, 2001)
10.79 First Amendment to Agreement for the Purchase and Sale of Property
for the AT&T Call Center Buildings (previously filed as Exhibit
10.15 and incorporated by reference to Post-Effective Amendment
No. 4 to the Registration Statement of Wells Real Estate Fund XII,
L.P., Commission File No. 333-66657, filed on February 9, 2001)
10.80 Lease Agreement with AT&T Corp. for a portion of the AT&T Call
Center Buildings (previously filed as Exhibit 10.16 and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement of Wells Real Estate Fund XII, L.P.,
Commission File No. 333-66657, filed on February 9, 2001)
10.81 Lease Agreement with Jordan Associates, Inc. for a portion of the
AT&T Call Center Buildings (previously filed as Exhibit 10.17 and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registration Statement of Wells Real Estate Fund XII, L.P.,
Commission File No. 333-66657, filed on February 9, 2001)
10.82 Agreement for the Purchase and Sale of Property for the Comdata
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
July 23, 2001)
10.83 Lease Agreement for the Comdata Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on July 23, 2001)
10.84 First Amendment to Lease Agreement for the Comdata Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
July 23, 2001)
10.85 Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint
Venture Partnership (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on July 23, 2001)
10.86 Agreement for the Purchase and Sale of Property for the
AmeriCredit Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on July 23, 2001)
10.87 Lease Agreement for the AmeriCredit Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 3 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on July 23, 2001)
10.88 Agreement for the Purchase and Sale of Property for the State
Street Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.89 Lease Agreement for the State Street Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 4 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.90 Agreement for the Purchase and Sale of Property for the IKON
Buildings (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.91 Lease Agreement for the IKON Buildings (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on October 23, 2001)
10.92 First Amendment to Lease Agreement for the IKON Buildings
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.93 Reinstatement of and Second Amendment to Lease Agreement for the
IKON Buildings (previously filed in and incorporated by reference
to Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.94 Agreement of Sale for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on October 23, 2001)
10.95 Lease Agreement for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on October 23, 2001)
10.96 Guaranty of Lease for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on October 23, 2001)
10.97 Development Agreement for the Nissan Property (previously filed in
and incorporated by reference to Post-Effective Amendment No. 4 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.98 Architect Agreement for the Nissan Property (previously filed in
and incorporated by reference to Post-Effective Amendment No. 4 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.99 Design and Build Construction Agreement for the Nissan Property
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.100 Agreement for the Purchase and Sale of Property for the Ingram
Micro Distribution Facility (previously filed in and incorporated
by reference to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.101 Indenture of Lease Agreement for Ingram Micro Distribution
Facility (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.102 Guaranty of Lease Agreement for Ingram Micro Distribution Facility
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.103 Absolute Assignment of Lease and Assumption Agreement for Ingram
Micro Distribution Facility (previously filed in and incorporated
by reference to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.104 Bond Real Property Lease Agreement for the Ingram Micro
Distribution Facility (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.105 Agreement for the Purchase and Sale of Property for the Lucent
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.106 Lease Agreement for the Lucent Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on October 23, 2001)
10.107 Second Amendment to Lease Agreement for Matsushita Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
October 23, 2001)
10.108 Agreement of Limited Partnership of Wells Operating Partnership,
L.P. as Amended and Restated as of January 1, 2000 (previously
filed in and incorporated by reference to Form 10-K of Registrant
for the fiscal year ended December 31, 2000, Commission File No.
0-25739)
10.109 Agreement for the Purchase and Sale of Property for the Convergys
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.110 Lease Agreement for the Convergys Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 5 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on January 23, 2002)
10.111 Purchase Agreement for the ADIC Buildings (previously filed as
Exhibit 10.6 and incorporated by reference to Post-Effective
Amendment No. 3 to the Registration Statement of Wells Real Estate
Fund XIII, L.P. on Form S-11, Commission File No. 333-48984)
10.112 Purchase Agreement for the land immediately adjacent to the ADIC
Buildings (previously filed as Exhibit 10.7 and incorporated by
reference to Post-Effective Amendment No. 3 to the Registration
Statement of Wells Real Estate Fund XIII, L.P. on Form S-11,
Commission File No. 333-48984)
10.113 Lease Agreement for the ADIC Buildings (previously filed as
Exhibit 10.8 and incorporated by reference to Post-Effective
Amendment No. 3 to the Registration Statement of Wells Real Estate
Fund XIII, L.P. on Form S-11, Commission File No. 333-48984)
10.114 Agreement for Purchase and Sale of the Windy Point Buildings
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.115 Lease Agreement with TCI Great Lakes, Inc. for a portion of the
Windy Point I Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on January 23, 2002)
10.116 First Amendment to Office Lease with TCI Great Lakes, Inc.
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.117 Lease Agreement with The Apollo Group, Inc. for a portion of the
Windy Point I Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on January 23, 2002)
10.118 Lease Agreement with Global Knowledge Network, Inc. for a portion
of the Windy Point I Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on January 23, 2002)
10.119 Lease Agreement with Zurich American Insurance Company for the
Windy Point II Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on January 23, 2002)
10.120 Third Amendment to Office Lease with Zurich American Insurance
Company (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.121 Agreement for Purchase and Sale of the Arthur Andersen Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
January 23, 2002)
10.122 Lease Agreement for the Arthur Andersen Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 5
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on January 23, 2002)
10.123 Revolving Credit Agreement relating to the Bank of America, N.A.
$85,000,000 revolving line of credit (previously filed in and
incorporated by reference to Registrant's Registration Statement
on Form S-11, Commission File No. 333-85848, filed on April 8,
2002)
10.124 Construction Loan Agreement relating to the Bank of America, N.A.
$34,200,000 construction loan (previously filed in and
incorporated by reference to Registrant's Registration Statement
on Form S-11, Commission File No. 333-85848, filed on April 8,
2002)
10.125 Agreement for Purchase and Sale of the Transocean Houston Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
April 22, 2002)
10.126 Lease Agreement with Transocean Deepwater Offshore Drilling, Inc.
for a portion of the Transocean Houston Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 6
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on April 22, 2002)
10.127 Lease Agreement with Newpark Drilling Fluids, Inc. for a portion
of the Transocean Houston Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on April 22, 2002)
10.128 Membership Interests Purchase Agreement for the Dana Detroit
Building and the Dana Kalamazoo Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on April 22, 2002)
10.129 Lease Agreement for the Dana Detroit Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 6 to
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on April 22, 2002)
10.130 Second Amendment to Lease Agreement for the Dana Detroit Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
April 22, 2002)
10.131 Lease Agreement for the Dana Kalamazoo Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 6
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on April 22, 2002)
10.132 Second Amendment to Lease Agreement for the Dana Kalamazoo
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 6 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
April 22, 2002)
10.133 Purchase and Sale Agreement for the Experian/TRW Buildings
(previously filed in and incorporated by reference to Amendment
No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on June 10, 2002)
10.134 Lease Agreement for the Experian/TRW Buildings (previously filed
in and incorporated by reference to Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-85848, filed on June 10, 2002)
10.135 Lease Amendment to Lease Agreement for the Experian/TRW Buildings
(previously filed in and incorporated by reference to Amendment
No. 1 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on June 10, 2002)
10.136 Purchase and Sale Agreement and Escrow Instructions for the
Agilent Boston Building (previously filed in and incorporated by
reference to Amendment No. 1 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-85848, filed on
June 10, 2002)
10.137 Lease Agreement for the Agilent Boston Building (previously filed
in and incorporated by reference to Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-85848, filed on June 10, 2002)
10.138 Purchase and Sale Agreement for the TRW Denver Building
(previously filed in and incorporated by reference to Amendment
No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on July 15, 2002)
10.139 Lease Agreement for the TRW Denver Building (previously filed in
and incorporated by reference to Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-85848, filed on July 15, 2002)
10.140 Purchase and Sale Agreement for the MFS Phoenix Building
(previously filed in and incorporated by reference to Amendment
No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on July 15, 2002)
10.141 Lease Agreement for the MFS Phoenix Building (previously filed in
and incorporated by reference to Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-85848, filed on July 15, 2002)
23.1 Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)
23.2 Consent of Arthur Andersen LLP (previously filed in and
incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on April 22, 2002)
23.3 Consent of Ernst & Young LLP, filed herewith
24.1 Power of Attorney, filed herewith
24.2 Power of Attorney, filed herewith
99.1 Letter regarding independent public accountants (previously filed
in and incorporated by reference to Post-Effective Amendment No. 6
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on April 22, 2002)