FILED PURSUANT TO RULE 424 (B) (3) REGISTRATION NO: 333-44900 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