Form 10-K, REIT

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549


FORM 10-K


(Mark One)

x
Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  
  [Fee Required]  
     
  For the fiscal year ended December 31, 2002 or  
     
o
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934  
  [No Fee Required]  
     
  For the transition period from __________________________ to __________________________  

Commission file number 0-25739


WELLS REAL ESTATE INVESTMENT TRUST, INC.

(Exact name of registrant as specified in its charter)


  Maryland
(State or other jurisdiction of incorporation or organization)
  58-2328421
(I.R.S. Employer Identification Number)
 

  6200 The Corners Parkway,
Norcross, Georgia

(Address of principal executive offices)
  30092
(Zip Code)
 

  Registrant’s telephone number, including area code
  (770) 449-7800  

Securities registered pursuant to Section 12 (b) of the Act:

  Title of each class
NONE
  Name of exchange on which registered
NONE
 

Securities registered pursuant to Section 12 (g) of the Act:

COMMON STOCK
(Title of Class)

COMMON STOCK
(Title of Class)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes x No o

Aggregate market value of the voting stock held by nonaffiliates:

While there is no established market for the Registrant’s shares of voting stock, the Registrant has offered and sold shares of its voting stock pursuant to a Form S-11 Registration Statement under the Securities Act of 1933 at a price of $10 per share. The number of shares of common stock outstanding as of February 28, 2003 was 238,765,265.

Documents Incorporated by Reference:

Registrant incorporates by reference portions of the Wells Real Estate Investment Trust, Inc. Definitive Proxy Statement for the 2003 Annual Meeting of Stockholders (Items 10, 11, 12 and 13 of Part III) to be filed no later than April 30, 2002.



 



PART I

ITEM 1.          BUSINESS

General

Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation formed on July 3, 1997, which qualifies as a real estate investment trust (“REIT”). Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership, or Wells OP’s subsidiaries. The Company is the sole general partner of Wells OP. In addition, the Company owns Wells REIT Independence Square, LLC, (“Wells REIT-Independence”), a single member Georgia limited liability company. Wells OP and its subsidiaries and Wells REIT-Independence comprise the Company’s subsidiaries. References to the Company herein shall include Wells OP and its subsidiaries and Wells REIT-Independence.

The Company was organized for the purpose of acquiring, developing, and owning income producing commercial properties throughout the United States, 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 operating histories, for investment purposes. All such properties to date were acquired, developed and operated by the Company alone or jointly with another party. In connection therewith, the Company has entered into joint ventures for the acquisition of properties with real estate limited partnership programs sponsored by Wells Capital, Inc. (the “Advisor”) or its affiliates.

On January 30, 1998, the Company commenced a public offering of up to 16.5 million shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998, upon receiving and accepting subscriptions for 125,000 shares. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132.2 million had been received from the sale of approximately 13.2 million shares from its initial public offering. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175.2 million from the sale of approximately 17.5 million shares from the second public offering. The Company commenced its third public offering of shares of common stock on December 20, 2000, which was terminated on July 26, 2002 after receipt of gross proceeds of approximately $1,283.0 million from the sale of approximately 128.3 million shares. The Company commenced its fourth public offering of shares of common stock on July 26, 2002. As of December 31, 2002, the Company has received gross proceeds of approximately $587.5 million from the sale of 58.8 million shares from its fourth public offering. Accordingly, as of December 31, 2002, the Company has received aggregate gross offering proceeds of approximately $2,177.9 million from the sale of 217.8 million shares of its common stock to 58,136 investors.

After payment of $75.5 million in acquisition and advisory fees and acquisition expenses, payment of $206.4 million in selling commissions, payment of $40.0 million in organization and offering expenses, capital contributions to joint ventures and property acquisitions expenditures of $1,808.5 million, and common stock redemptions of $20.9 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of approximately $26.6 million available for investment in properties, as of December 31, 2002.


2


The Company has engaged the Advisor and Wells Management Company, Inc. (“Wells Management”), to provide a full range of real estate services including operating, managing, and leasing the Company’s assets and perform other administrative responsibilities of the Company including accounting services and investor relations.

Employees

The Company has no direct employees. The employees of the Advisor and Wells Management perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. The related expenses are allocated among the Company and the various Wells Real Estate Funds based on time spent on each entity by individual administrative personnel. The Company was allocated salaries, wages, and other payroll related costs by the Advisor and Wells Management totaling $2.0 million, $0.7 million, and $0.2 million for the years ended December 31, 2002, 2001, and 2000, respectively. These amounts are included in general and administrative expenses in the consolidated statements of income.

Insurance

Wells Management carries comprehensive liability and extended coverage with respect to all the properties owned directly or indirectly by the Company. In the opinion of management of the Company, the properties are adequately insured.

Competition

The Company will experience competition for tenants from owners and managers of competing projects, which may include its affiliates. As a result, the Company may have to provide free rent, incur charges for tenant improvements and other inducements, all of which may have an adverse impact on results of operations. At the time the Company elects to dispose of its properties, the Company will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.

Economic Dependency

The Company is dependent on the Advisor for certain services which are essential to the Company, including the sale of the Company’s shares of common stock available for issue, asset acquisition and disposition decisions and other general administrative responsibilities. Additionally, the Company is dependent upon Wells Management to provide certain property management and leasing services. In the event that these companies were unable to provide the respective services to the Company, the Company would be required to obtain such services from other sources.

The Company is dependent upon the ability of its current tenants to pay their contractual rent amounts as they become due. The inability of a tenant to pay future rental amounts would have a negative impact on the Company. One tenant, the National Aeronautics and Space Administration, represents approximately 12% of the future rental income under non-cancelable leases at December 31, 2002. No other tenants exceed 10% of future rental income. Except as noted in Item 2, the Company is not aware of any reason that its current tenants would not be able to pay their contractual rental amounts as they become due.

Web Site Address

Copies of all of the Company’s filings with the SEC may be obtained from the website of the Company at http://www.wellsref.com through a link to the http://www.sec.gov website. Access to these filings is free of charge.


3


ITEM 2.          PROPERTIES

The Company owns 100% interests in the following properties at December 31, 2002. Operating results of the properties are included in the financial statements of the Company from the date of acquisition.

 

Property
Name

Tenant

Lease
Expiration

Property
Location

Date
Acquired

Purchase
Price

Square
Feet

Annual
Rent









Nestle Los
Angeles (1)

Nestle USA, Inc.
Various other tenants

8/2010

Glendale, CA

12/2002

$157,000,000

505,115

$14,844,799
$       29,065

 

 

 

 

 

 

 

 

Capital One
Richmond (2)

Capital One Services, Inc.
Capital One Services, Inc.
Capital One Services, Inc.

3/2010
5/2004
2/2010

Glen Allen, VA

11/2002

$  28,509,000

225,220

$     786,573
       913,076
       940,249

 

 

 

 

 

 

 

 

Caterpillar
Nashville

Caterpillar Financial
Services Corporation

2/2015

Nashville, TN

11/2002

$  61,525,000

312,297

$  7,384,111

Thoughtworks, Inc. 5/2005 $     162,944
Highwoods Properties, Inc. 9/2005 $     129,946

 

 

 

 

 

 

 

 

NASA

National Aeronautics and
Space Administration

7/2012

Washington, D.C.

11/2002

$345,000,000

948,800

$21,534,124

Office of the Comptroller
of the Currency
5/2006 $12,159,948

 

 

 

 

 

 

 

 

Daimler Chrysler
Dallas

Daimler Chrysler
Services North America
LLC

12/2011

Westlake, TX

9/2002

$  25,100,000

130,290

$  2,389,517

 

 

 

 

 

 

 

 

Allstate
Indianapolis

Allstate Insurance
Company

8/2012

Indianapolis, IN

9/2002

$  10,900,000

 84,200
   

$  1,246,164

Holladay Property
Services Midwest, Inc.
9/2006

5,756

$       74,832

 

 

 

 

 

 

 

 

Intuit Dallas

Lacerte Software
Corporation

6/2011

Plano, TX

9/2002

$  26,500,000

166,238

$  2,461,985

 

 

 

 

 

 

 

 

EDS Des Moines

EDS Information
Services LLC

4/2012

Des Moines, IA

9/2002

$  26,500,000

405,000

$  2,389,500

 

 

 

 

 

 

 

 

Federal Express
Colorado Springs

Federal Express
Corporation

10/2016

Colorado Springs, CO

9/2002

$  26,000,000

155,808

$  2,248,309

 

 

 

 

 

 

 

 

KeyBank
Parsippany

KeyBank U.S.A., N.A.
Gemini Technology
Services

2/2016
12/2013

Parsippany, NJ

9/2002

$101,350,000

200,000
204,515

$  3,800,000
$  5,726,420

 

 

 

 

 

 

 

 

IRS Long Island (3)

IRS Collection
IRS Compliance
IRS Daycare Facility

8/2005
12/2011
9/2004

Holtsville, NY

9/2002

$  50,975,000

128,000
  50,949
  12,100

$  5,029,380
$  1,663,200
$     486,799

 

 

 

 

 

 

 

 

AmeriCredit
Phoenix (4) (5)

AmeriCredit Financial
Services, Inc.

12/2013

Chandler, AZ

8/2002

$  24,700,000

153,494

$  1,609,315

 

 

 

 

 

 

 

 

Harcourt Austin

Harcourt, Inc.

6/2016

Austin, TX

8/2002

$  39,000,000

195,230

$  3,353,040

 

 

 

 

 

 

 

 

Nokia Dallas

Nokia, Inc.
Nokia, Inc.
Nokia, Inc.

7/2009
12/2010
7/2009

Irving, TX

8/2002

$119,550,000

228,678
223,470
152,086

$  4,413,485
$  4,547,614
$  3,024,990

 

 

 

 

 

 

 

 

Kraft Atlanta

Kraft Foods North
America, Inc.

1/2012

Suwanee, GA

8/2002

$  11,625,000

  73,264
  

$     945,106

Perkin Elmer Instruments,
LLC
11/2016 13,955 $     198,580

 

 

 

 

 

 

 

 

BMG Greenville (1)

BMG Direct Marketing,
Inc.

12/2010

Duncan, SC

7/2002

$  26,900,000

473,398

$  1,394,156

BMG Music 12/2009 313,380 $     763,600

 

 

 

 

 

 

 

 

Kerr-McGee (1) (4) (5)

Kerr-McGee Oil & Gas
Corporation

8/2014

Houston, TX

7/2002

$  15,760,000

100,000

$  1,655,000

 

 

 

 

 

 

 

 

PacifiCare
San Antonio

PacifiCare Health
Systems, Inc.

11/2010

San Antonio, TX

7/2002

$  14,650,000

142,500

$  1,471,700

 

 

 

 

 

 

 

 

ISS Atlanta (6)

Internet Security
Systems, Inc.

5/2013

Atlanta, GA

7/2002

$  40,500,000

238,600

$  4,055,985

 

 

 

 

 

 

 

 

MFS Phoenix

Massachusetts Financial
Services Company

7/2011

Phoenix, AZ

6/2002

$  25,800,000

148,605

$  2,347,959

 

 

 

 

 

 

 

 

TRW Denver

TRW, Inc.

9/2007

Aurora, CO

5/2002

$  21,060,000

108,240

$  2,871,069

 

 

 

 

 

 

 

 

Agilent Boston (7)

Agilent Technologies, Inc.

9/2011

Boxborough, MA

5/2002

$  31,742,274

174,585

$  3,578,993

 

 

 

 

 

 

 

 

Experian/TRW

Experian Information
Solutions, Inc.

10/2010

Allen, TX

5/2002

$  35,150,000

292,700

$  3,701,918

 

 

 

 

 

 

 

 

BellSouth

Ft. Lauderdale (8)

BellSouth Advertising
and Publishing
Corporation

7/2008

Ft. Lauderdale, FL

4/2002

$    6,850,000

  47,400

$     765,519

 

 

 

 

 

 

 

 

Agilent Atlanta (1)

Agilent Technologies, Inc.

9/2011

Alpharetta, GA

4/2002

$  15,100,000

  66,811

$  1,368,289

  Koninklijke Philips
Electronics N.V.
9/2011       34,396 $     704,430

 

 

 

 

 

 

 

 

Travelers Express
Denver

Travelers Express
Company, Inc.

3/2012

Lakewood, CO

4/2002

$  10,395,845

  68,165

$  1,012,250

 

 

 

 

 

 

 

 

Dana Kalamazoo (9)

Dana Corporation

10/2021

Kalamazoo, MI

3/2002

$  41,950,000

147,004

$  1,842,800


4


 

 

Property
Name

Tenant

Lease
Expiration

Property
Location

Date
Acquired

Purchase
Price

Square
Feet

Annual
Rent









Dana Detroit (9)

Dana Corporation

10/2021

Farmington Hills, MI

3/2002

$ 41,950,000

112,480

$  2,330,600

               

Novartis Atlanta (1)

Novartis Opthalmics, Inc.

7/2011

Duluth, GA

3/2002

$ 15,000,000

100,087

$  1,454,765

               

Transocean Houston

Transocean Deepwater Offshore
Drilling, Inc.

3/2011

Houston, TX

3/2002

$ 22,000,000

103,260

$  2,103,285

  Newpark Drilling Fluids, Inc. 10/2009       52,731 $  1,153,227
               

Vertex Sarasota (formerly,
Arthur Andersen) (10)

Vertex Tax Technology

10/2009

Sarasota, FL

1/2002

$ 21,400,000

157,700

$     621,257

               

Windy Point I (11)

TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Various other tenants

11/2009
7/2009
4/2010
Various

Schaumburg, IL

12/2001

$ 32,225,000

129,157
28,322
22,028
8,884

$  2,128,503
$     477,226
$     393,776
$     141,010

               

Windy Point II (11)

Zurich American Insurance

8/2011

Schaumburg, IL

12/2001

$ 57,050,000

300,034

$  5,244,594

               

Convergys

Convergys Customer
Management Group, Inc.

9/2011

Tamarac, FL

12/2001

$ 13,255,000

100,000

$  1,279,397

               

Lucent

Lucent Technologies, Inc.

9/2011

Cary, NC

9/2001

$ 17,650,000

120,000

$  1,854,000

               

Ingram Micro (6)

Ingram Micro, L.P.

9/2011

Millington, TN

9/2001

$ 21,050,000

701,819

$  2,035,275

               

Nissan (1) (4) (5)

Nissan Motor Acceptance
Corporation

3/2013

Irving, TX

9/2001

$ 42,259,000

268,290

$  4,225,860

               

IKON

IKON Office Solutions, Inc.

4/2010

Houston, TX

9/2001

$ 20,650,000

157,790

$  2,015,767

               

State Street

SSB Realty, LLC

3/2011

Quincy, MA

7/2001

$ 49,563,000

234,668

$  6,922,706

               

Metris Minnesota (1)

Metris Direct, Inc.

12/2011

Minnetonka, MN

12/2000

$ 52,800,000

300,633

$  4,960,445

               

Stone & Webster

Stone & Webster, Inc.
SYSCO Corporation

12/2010
9/2008

Houston, TX

12/2000

$ 44,970,000

206,048
106,516

$  4,533,056
$  2,130,320

               

Motorola Plainfield (1)

Motorola, Inc.

10/2010

S. Plainfield, NJ

11/2000

$ 33,648,156

236,710

$  3,324,428

               

Delphi (1)

Delphi Automotive Systems, LLC

4/2007

Troy, MI

6/2000

$ 19,800,000

107,193

$  1,955,520

               

Avnet (1) (8)

Avnet, Inc.

4/2010

Tempe, AZ

6/2000

$ 13,250,000

132,070

$  1,516,164

               

Motorola Tempe (8)

Motorola, Inc.

8/2005

Tempe, AZ

3/2000

$ 16,000,000

133,225

$  2,054,329

               

ASML (1) (8)

ASM Lithography, Inc.

6/2013

Tempe, AZ

3/2000

$ 17,355,000

95,133

$  1,927,788

               

Dial (1)

Dial Corporation

8/2008

Scottsdale, AZ

3/2000

$ 14,250,000

129,689

$  1,387,672

               

Metris Tulsa

Metris Direct, Inc.

1/2010

Tulsa, OK

2/2000

$ 12,700,000

101,100

$  1,187,925

               

Cinemark (1)

Cinemark USA, Inc.

12/2009

Plano, TX

12/1999

$ 21,800,000

65,521

$  1,366,491

  The Coca-Cola Company 11/2006       52,587 $  1,406,268
               

Videojet Technologies
Chicago (1)

Videojet Technologies, Inc.

11/2011

Wood Dale, IL

9/1999

$ 32,630,940

250,354

$  3,376,743

               

Alstom Power
Richmond (1) (4)

Alstom Power, Inc.

7/2007

Midlothian, VA

7/1999

$ 11,400,000

99,057

$  1,244,501

               

Matsushita (1) (4)

Matsushita Avionics Systems
Corporation

1/2007

Lake Forest, CA

3/1999

$ 18,431,206

144,906

$  1,998,768

               

AT&T Pennsylvania (1)

Pennsylvania Cellular Telephone
Corp.

11/2008

Harrisburg, PA

2/1999

$ 12,291,200

81,859

$  1,468,529

               

Eisenhower Boulevard
(formerly, PwC) (1)

IBM (formerly,
PricewaterhouseCoopers, LLP)

12/2008

Tampa, FL

12/1998

$ 21,127,854

130,091

$  2,093,382


  

(1) Property is security for a debt facility. Refer to Note 6 in the financial statements.
(2) The previous owner has provided a guarantee of the Capital One leases for a specified period subsequent to the acquisition of the buildings, whereby the previous owner agrees to pay any rental shortfall, but also has the right to repurchase one of the buildings under certain terms.
(3) Excludes space subject to earn-out agreement. Refer to Note 8 in the financial statements.
(4) Includes the actual costs incurred or estimate to be incurred by Company to develop and construct the building in addition to the purchase price of the land.
(5) The related lease agreement and annual rent for the Americredit Phoenix, Kerr McGee and Nissan Properties do not take effect until construction of the building is completed and the tenant is occupying the building.
(6) Property is subject to capital lease obligation. Refer to Leasehold Interest Properties section.
(7) In connection with the acquisition of the property, the Company assumed the obligation as landlord to provide the tenant $3.4 million for tenant improvements, of which $1.1 million had not been incurred at December 31, 2002.
(8) Property is subject to operating ground lease obligation. Refer to Leasehold Interest Properties section.
(9) Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.

   

5


(10) As of December 31, 2002, 111,000 square feet, or approximately 70%, of the property was vacant and unleased as a result of the Company negotiating a lease termination agreement with the former tenant whereby the Company received approximately $1.0 million in cash and a 1.3 acre tract of land adjacent to the property which is used for parking.
(11) Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.

The following table shows lease expirations of 2003 annualized gross base rent amounts during each of the next ten years for all leases in which the Company owns a 100% interest directly or through a subsidiary as of December 31, 2002, assuming no exercise of renewal options or termination rights.

 

   

Year of
Lease
Expiration

 

Number
of
Leases 
Expiring 

Square
Feet
Expiring

Annualized
Gross Base
Rent (1)

Percentage
Of Total
Square
Feet
Expiring

 

Percentage
Of Total
Annualized
Gross Base
Rent

 
   

 



 


 





   

2003

 

 

 

 

 

0.0

%

0.0

%

   

2004

 

2

 

 

91,775

 

$

1,399,875

 

0.8

 

0.7

 

   

2005

 

5

 

 

278,915

 

7,490,112

 

2.5

 

3.8

 

   

2006

 

3

 

 

399,863

 

13,641,048

 

3.6

 

7.0

 

   

2007

 

4

 

 

459,396

 

8,069,856

 

4.1

 

4.1

 

   

2008

 

5

 

 

495,555

 

7,845,420

 

4.4

 

4.0

 

   

2009

 

8

 

 

1,017,263

 

13,948,764

 

9.1

 

7.2

 

   

2010

 

13

 

 

2,616,222

 

38,569,090

 

23.3

 

19.8

 

   

2011

 

16

 

 

2,982,729

 

43,745,568

 

26.6

 

22.5

 

   

2012

 

5

 

 

1,221,318

 

27,127,144

 

10.9

 

13.9

 

   

Thereafter

 

10

 

 

1,667,571

 

32,867,628

 

14.7

 

17.0

 

       
   
 
 
 
 
   

 

 

    71

 

 
11,230,607

 

 $

 194,704,505

 100.0

%

100.0

%

 

       
   
 
 
 
 

   (1)   Amounts due in 2003 under current leases.

Joint Ventures with Affiliates

At December 31, 2002, the Company, through its ownership in Wells OP, owns interests in certain properties through joint ventures with affiliates as outlined below:

 

Joint Venture

 

Joint Venture Partners

 

Ownership
Percentage

 

Properties Held by Joint Venture

 


 


 


 


 

Fund XIII-REIT Joint Venture

 

Wells OP
Wells Real Estate Fund XIII, L.P.

 

61%

 

AmeriCredit Building
ADIC Buildings
John Wiley Building

 


Fund XII-REIT Joint Venture

 

Wells OP
Wells Real Estate Fund XII, L.P.

 

55%

 

Siemens Building
AT&T Oklahoma Buildings
Comdata Building

 


Fund XI-XII-REIT Joint Venture

 

Wells OP
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.

 

57%

 

EYBL CarTex Building
Sprint Building
Johnson Matthey Building
Gartner Building

 


Fund IX-X-XI-REIT Joint Venture

 

Wells OP
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.

 

4%

 

Alstom Power Knoxville Building
Ohmeda Building
Interlocken Building
Avaya Building
Iomega Building

 


Wells/Freemont Associates
Joint Venture (the “Freemont
Joint Venture”)

 

Wells OP
Fund X-XI Joint Venture

 

78%

 

Fairchild Building

 


Wells/Orange County
Associates Joint Venture
(the “Orange County Joint
Venture”)

 

Wells OP
Fund X-XI Joint Venture

 

44%

 

Cort Building

 


Fund VIII-IX-REIT Joint
Venture

 

Wells OP
Fund VIII-IX Joint Venture

 

16%

 

Quest Building

 



6


Details of the properties owned by the Company through the Company’s joint venture investments are as follows.

 

Property
Name

Tenant

Lease
Expiration

Property
Location

Date
Acquired

Purchase
Price

Square
Feet

Annual
Rent









John Wiley Indianapolis (1)

John Wiley & Sons, Inc.
United Student Aid Funds, Inc.

10/2009
7/2005

Fishers, IN

12/2002

$17,450,000

141,047

$1,940,892

$   223,401

  Robert Half International, Inc. 4/2005        
$     55,500
               

ADIC (1)

Advanced Digital Information
Corporation

10/2011

Parker, CO

12/2001

$12,954,213

148,204

$1,247,137

               

AmeriCredit (1)

AmeriCredit Financial Services
Corporation

6/2011

Orange Park, FL

7/2001

$12,500,000

85,000

$1,336,200

               

Comdata (1)

Comdata Network, Inc.

5/2016

Brentwood, TN

5/2001

$24,950,000

201,237

$2,458,638

               

AT&T Oklahoma (1)

AT&T Corp.
Jordan Associates, Inc.

8/2010
12/2008

Oklahoma City, OK

12/2000

$15,300,000

103,500

25,000

$1,242,000

$   294,504

               

Quest (1)

Quest Software, Inc.

1/2004

Irvine, CA

7/2000

$  7,193,000

65,006

$1,287,119

               

Siemens (1)

Siemens Automotive Corp.

8/2010

Troy, MI

5/2000

$14,265,000

77,054

$1,374,643

               

Gartner (1)

The Gartner Group, Inc.

1/2008

Ft. Myers, FL

9/1999

$  8,320,000

62,400

$   830,656

               

Johnson Matthey (1)

Johnson Matthey, Inc.

6/2007

Wayne, PA

8/1999

$  8,000,000

130,000

$   854,750

               

Sprint (1)

Sprint Communications
Company, L.P.

5/2007

Leawood, KS

7/1999

$  9,500,000

68,900

$1,102,400

               

EYBL CarTex (2)

EYBL CarTex, Inc.

Fountain Inn, SC

5/1999

$  5,085,000

169,510

               

Cort Furniture (1)

Cort Furniture Rental
Corporation

10/2003

Fountain Valley, CA

7/1998

$  6,400,000

52,000

$   834,888

               

Fairchild (1)

Fairchild Technologies
U.S.A., Inc.

11/2004

Fremont, CA

7/1998

$  8,900,000

58,424

$   945,564

               

Avaya (1)

Avaya, Inc.

1/2008

Oklahoma City, OK

6/1998

$  5,504,276

57,186

$   536,977

               

Iomega (1)

Iomega Corporation

4/2009

Ogden, UT

7/1998

$  5,025,000

108,250

$   539,958

               

Interlocken (3)

GAIAM, Inc.
ODS Technologies, LP
Infocenter

5/2005
9/2003
5/2005

Broomfield, CO

3/1998

$  8,275,000

51,975

$   574,464
$   205,835
$     69,840

               

Ohmeda (1)

Ohmeda, Inc.

1/2005

Louisville, CO

2/1998

$10,325,000

106,750

$1,004,517

               

Alstom Power
Knoxville (1)

Alstom Power, Inc.

11/2007

Knoxville, TN

3/1997

$  7,900,000

84,404

$1,059,522


   (1)   Property is 100% leased as of December 31, 2002.

   (2)   The tenant vacated the space in November 2002 and filed for corporate dissolution in December 2002. The company is pursuing legal action for satisfaction of the tenant's obligations under the lease agreement against the parent company of the tenant; however, the result of this pursuit cannot be determined at this time. The Company is currently attempting to obtain suitable tenants for the property.

   (3)   Property is 75% leased as of December 31, 2002.

The investment objectives of each joint venture in which Wells OP is a partner are consistent with those of the Company. Wells OP is acting as the initial administrative venturer, as defined in the respective agreements, of each of the joint ventures included above, and as such, is responsible for establishing policies and operating procedures with respect to the business and affairs of each of these joint ventures. However, approval of the other joint venturers is required for any major decision or any action that materially affects these joint ventures or their real property investments.


7


Descriptions of Properties

General

At December 31, 2002, the Company’s 72 properties were 98.3% leased with an average lease term remaining of 8.3 years. Rental income from tenants with a net worth greater than $100 million and $1 billion at the time of acquisition was 97% and 83%, respectively, of the Company’s annual rental income.

Significant Properties

Descriptions of properties or a group of properties for which the acquisition price, excluding closing costs and acquisition and advisory fees paid to the Advisor, exceeded $45 million have been included below. Descriptions include details for the property such as a description of the tenant make-up and lease terms. Renewal options have been included for significant leases that expire prior to December 31, 2005.

NASA Buildings

On November 22, 2002, Wells REIT-Independence purchased two nine-story office buildings containing an aggregate of approximately 948,800 rentable square feet located in Washington, D.C. (the “NASA Buildings”) for a purchase price of $345 million. In order to finance the acquisition of the NASA Buildings, the Company obtained $85 million in loan proceeds by drawing down on an existing line of credit with Bank of America (“BOA”).

The NASA Buildings were built in 1991 and 1992 and are located on a 3.58-acre tract of land at One & Two Independence Square on E. Street in Washington, D.C. Approximately 590,689 of rentable square feet in the NASA Buildings (62.3%) is currently leased to the United States of America through the U.S. General Services Administration for occupancy by the National Aeronautics and Space Administration (“NASA”). Approximately 341,520 of rentable square feet in the NASA Buildings (36.0%) is currently leased to the Office of the Comptroller of the Currency (“OCC”), an agency of the United States Government. Approximately 14,920 of the remaining rentable square feet in the NASA Buildings (1.6%) is currently leased to four tenants, which account for current annual base rents payable of approximately $0.1 million. The OCC and NASA leases expire in May 2006 and July 2012, respectively.

Nestle Building

On December 20, 2002, Wells REIT Glendale, CA, LLC (“REIT Glendale”), a Georgia limited liability company wholly-owned by Wells OP, purchased a 20-story office building containing approximately 505,115 rentable square feet located in Glendale, California (“Nestle Building”) for a purchase price of $157 million. The Nestle Building was built in 1990 and is located on a 4.02-acre tract of land at 800 N. Brand Boulevard in Glendale, California. Approximately 502,994 rentable square feet of the Nestle Building (99.6%) is leased to Nestle USA, Inc. (“Nestle USA”), a wholly-owned subsidiary of Nestle S.A., a Swiss company. The Nestle USA lease commenced in August 1990 and expires in August 2010.

In connection with the acquisition of the Nestle Building, REIT Glendale assumed an existing $90 million loan in favor of Landesbank Schleswig-Holstein Girozentrale, Kiel (“Landesbank Loan”), a German chartered bank, secured by the property. The interest rate on the Landesbank Loan is equal to LIBOR plus 1.15%, and the current interest rate on the Landesbank Loan is fixed for the next six months at 2.53% per annum. The Landesbank Loan requires monthly payments of interest only and matures on December 27, 2006. REIT Glendale may prepay the Landesbank Loan any time after December 28, 2003 without incurring any penalty. REIT Glendale paid a $0.45 million loan assumption fee at closing in connection with the assumption of the Landesbank Loan.


8


Nokia Dallas Buildings

On August 15, 2002, Wells OP purchased the Nokia Dallas Buildings, three adjacent office buildings containing an aggregate of 604,234 rentable square feet located in Irving, Texas, for an aggregate purchase price of approximately $119.6 million. The Nokia Dallas Buildings are all leased entirely to Nokia, Inc (“Nokia”).

The Nokia I Building is a nine-story building containing 228,678 rentable square feet. The Nokia I Building lease commenced in July 1999 and expires in July 2009. The Nokia II Building is a seven-story building containing 223,470 rentable square feet. The Nokia II Building lease commenced in December 2000 and expires in December 2010. The Nokia III Building is a six-story building containing 152,086 rentable square feet. The Nokia III Building lease commenced in June 1999 and expires in July 2009.

KeyBank Parsippany Building

On September 27, 2002, Wells OP purchased the KeyBank Parsippany Building, a four-story office building containing 404,515 rentable square feet located in Parsippany, New Jersey, for a purchase price of approximately $101.4 million. The KeyBank Parsippany Building is leased to Key Bank U.S.A., N.A. (“KeyBank”) and Gemini Technology Services (“Gemini”).

The KeyBank lease covers 200,000 rentable square feet (49%) under a lease that commenced in March 2001 and expires in February 2016. The Gemini lease covers 204,515 rentable square feet (51%) under a lease that commenced in December 2000 and expires in December 2013.

IRS Long Island Buildings

On September 16, 2002, Wells REIT-Holtsville, NY, LLC (“REIT-Holtsville”), a Georgia limited liability company wholly-owned by Wells OP purchased a two-story office building (the “IRS Office Building”) and a one-story office daycare facility (the “IRS Daycare Facility”) containing an aggregate 259,700 rentable square feet located in Holtsville, New York, (“the IRS Long Island Buildings”) for a purchase price of approximately $51.0 million. Approximately 191,050 of the aggregate rentable square feet of the IRS Long Island Buildings (74%) is currently leased to the United States of America through the U.S. General Services Administration (“U.S.A.”) for occupancy by the IRS under three separate lease agreements for the processing & collection division of the IRS (“IRS Collection”), the compliance division of the IRS (“IRS Compliance”), and the IRS Daycare Facility.

The IRS Collection lease, which encompasses 128,000 rentable square feet of the IRS Office Building, commenced in August 2000 and expires in August 2005. The annual base rent payable under the IRS Collection lease for the last two years of the initial lease term will be approximately $2.8 million. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at annual rental rates of approximately $4.2 million and $5.0 million, respectively.

The IRS Compliance lease, which encompasses 50,949 rentable square feet of the IRS Office Building, commenced in December 2001 and expires in December 2011. The IRS Daycare Facility lease, which encompasses the entire 12,100 rentable square feet of the IRS Daycare Facility, commenced in October 1999 and expires in September 2004. The U.S.A., at its option, has the right to extend the initial term of its lease for two additional five-year periods at an annual rental rate of approximately $0.4 million.

REIT-Holtsville is negotiating for the remaining 26% of the IRS Long Island Buildings to be leased by the U.S.A. on behalf of the IRS or to another suitable tenant. If REIT-Holtsville should lease this space to the U.S.A. or another suitable tenant within 18 months, REIT-Holtsville would owe the seller an additional amount of up to $14.5 million as additional purchase consideration for the IRS Long Island Buildings pursuant to the terms of an earn-out agreement entered into between REIT-Holtsville and the seller at the closing.


9


Windy Point Buildings

Wells OP purchased the Windy Point Buildings on December 31, 2001 for a purchase price of approximately $89.3 million. The Windy Point Buildings, which were built in 1999 and 2001, respectively, consist of a seven-story office building containing 188,391 rentable square feet (“Windy Point I”) and an eleven-story office building containing 300,034 rentable square feet (“Windy Point II”) located in Schaumburg, Illinois.

The Windy Point Buildings are subject to a 20-year annexation agreement originally executed on December 12, 1995 with the Village of Schaumburg, Illinois (“Annexation Agreement”). The Annexation Agreement covers a 235-acre tract of land that includes a portion of the site of the Windy Point Buildings’ parking facilities relating to the potential construction of a new eastbound on-ramp interchange for I-90. Wells OP issued a $0.4 million letter of credit pursuant to the request of the Village of Schaumburg, Illinois, representing the estimated costs of demolition and restoration of constructed parking and landscaped areas and protecting pipelines in connection with the potential construction. The obligation to maintain the letter of credit will continue until the costs of demolition and restoration are paid if the project proceeds or until the Annexation Agreement expires in December 2015. If Wells OP is unable to restore the parking spaces due to structural issues related to the utilities underground, Wells OP would then be required to construct a new parking garage on the site to accommodate the parking needs of its tenants. The cost for this construction is currently estimated at approximately $3.6 million. In addition, if the interchange is constructed, Wells OP will be required to pay for its share of the costs for widening Meacham Road as part of the project, which potential obligation is currently estimated to be approximately $0.3 million.

TCI Great Lakes, Inc. (“TCI”) occupies 129,157 rentable square feet (69%) of the Windy Point I building. The TCI lease commenced in December 1999 and expires in November 2009. TCI may terminate certain portions of the TCI lease on the last day of the seventh lease year by providing 12 months prior written notice and paying Wells OP a termination fee of approximately $4.1 million. The Apollo Group, Inc. (“Apollo”) leases 28,322 rentable square feet (15%) of the Windy Point I building. The Apollo lease commenced in April 2002 and expires in June 2008. Global Knowledge Network, Inc. (“Global”) leases 22,028 rentable square feet (12%) of the Windy Point I building. The Global lease commenced in May 2000 and expires in April 2010. Wells OP has the right to terminate the Global lease on December 31, 2005 by giving Global written notice on or before April 30, 2005.

Zurich American Insurance Company, Inc. (“Zurich”) leases the entire 300,034 rentable square feet of the Windy Point II building. The Zurich lease commenced in September 2001 and expires in August 2011. Zurich has the right to terminate the Zurich lease for up to 25% of the rentable square feet leased by Zurich at the end of the fifth lease year. If Zurich terminates a portion of the Zurich lease, it will be required to pay a termination fee to Wells OP equal to three months of the current monthly rent for the terminated space plus additional costs related to the space leased by Zurich. In addition, Zurich may terminate the entire Zurich lease at the end of the seventh lease year by providing Wells OP 18 months prior written notice and paying Wells OP a termination fee of approximately $8.6 million.

State Street Building

Wells OP purchased the State Street Building on July 30, 2001 for a purchase price of $49.6 million. The State Street Building, which was built in 1990, is a seven-story office building with 234,668 rentable square feet located in Quincy, Massachusetts. The State Street Building is leased to SSB Realty, LLC (“SSB Realty”). The SSB Realty lease commenced in February 2001 and expires in March 2011. Pursuant to the SSB Realty lease, Wells OP is obligated to provide SSB Realty an allowance of up to approximately $2.1 million for tenant, building and architectural improvements.

Metris Minnesota Building

Wells OP purchased the Metris Minnesota Building on December 21, 2000 for a purchase price of $52.8 million. The Metris Minnesota Building, which was built in 2000, is a nine-story office building


10


containing 300,633 rentable square feet located in Minnetonka, Minnesota. The Metris Minnesota Building is Phase II of a two-phase office complex known as Crescent Ridge Corporate Center in Minnetonka, Minnesota, which is a western suburb of Minneapolis.

The Metris Minnesota Building is leased to Metris Direct, Inc. (“Metris”) as its corporate headquarters. The Metris Minnesota lease commenced in September 2000 and expires in December 2011. In addition, Metris is required to pay annual parking and storage fees of approximately $0.1 million payable on a monthly basis for the lease term.

Leasehold Interest Properties

The following properties are discussed as each property is owned as a leasehold interest.

ISS Atlanta Buildings

On July 1, 2002, Wells OP purchased two five-story buildings containing a total of 238,600 rentable square feet located in Atlanta, Georgia, for a purchase price of $40.5 million. The ISS Atlanta Buildings were acquired by assigning to Wells OP an existing ground lease with the Development Authority of Fulton County (“Development Authority”). Fee simple title to the land upon which the ISS Atlanta Buildings are located is held by the Development Authority, which issued Development Authority of Fulton County Taxable Revenue Bonds (“Bonds”) totaling $32.5 million in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either by prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.

The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (“ISS”). The ISS Atlanta lease commenced in November 2000 and expires in May 2013.

Ingram Micro Building

On September 27, 2001, Wells OP acquired a ground leasehold interest in a 701,819 square foot distribution facility located in Millington, Tennessee, pursuant to a Bond Real Property Lease dated as of December 20, 1995 (“Bond Lease”). The ground leasehold interest under the Bond Lease, along with the Bond and the Bond Deed of Trust, were purchased from Ingram Micro L.P. (“Ingram”) in a sale-lease back transaction for a purchase price of $21.1 million. The Bond Lease expires in December 2026. Construction of the Ingram Micro Building was completed in 1997.

Fee simple title to the land upon which the Ingram Micro Building is located is held by the Industrial Development Board of the City of Millington, Tennessee (“Industrial Development Board”), which originally entered into the Bond Lease with Lease Plan North America, Inc. (“Lease Plan”). The Industrial Development Board issued an Industrial Development Revenue Note Ingram Micro L.P. Series 1995 (“Bond”) in a principal amount of $22,000,000 to Lease Plan in order to finance the construction of the Ingram Micro Building. The Bond is secured by a Fee Construction Mortgage Deed of Trust and Assignment of Rents and Leases (“Bond Deed of Trust”) executed by the Industrial Development Board for the benefit of Lease Plan. Lease Plan assigned to Ingram its ground leasehold interest in the Ingram Micro Building under the Bond Lease. Lease Plan also assigned all of its rights and interest in the Bond and the Bond Deed of Trust to Ingram.

Wells OP also acquired the Bond and the Bond Deed of Trust from Ingram at closing. Beginning in 2006, Wells OP has the option under the Bond Lease to purchase the land underlying the Ingram Micro Building from the Industrial Development Board for $100 plus satisfaction of the indebtedness evidenced by the Bond which, as set forth above, was acquired and is currently held by Wells OP. The Ingram lease has a current term of 10 years.


11


Avnet Building

Wells OP purchased the Avnet Building on June 12, 2000 for a purchase price of approximately $13.3 million. The Avnet Building, which was built in 2000, is a two-story office building containing 132,070 rentable square feet located in Tempe, Arizona. The Avnet Building is subject to a first priority mortgage in favor of SouthTrust Bank, N.A. (“SouthTrust”) securing a SouthTrust Line of Credit.

The Avnet Building is leased to Avnet, Inc. (“Avnet”). The initial term of the Avnet lease is 10 years which commenced on May 1, 2000 and expires on April 30, 2010. Avnet has a right of first refusal to purchase the Avnet Building if Wells OP attempts to sell the Avnet Building. Avnet also has an expansion option. Wells OP has the option to undertake the expansion or allow Avnet to undertake the expansion at its own expense, subject to certain terms and conditions.

The Avnet Building is subject to a ground lease which commenced on April 5, 1999 and expires on September 30, 2083. Wells OP has the right to terminate the Avnet ground lease prior to the expiration of the 30th year. The current annual ground lease payment pursuant to the Avnet ground lease is approximately $0.2 million.

Motorola Tempe Building

Wells OP purchased the Motorola Tempe Building on March 29, 2000 for a purchase price of $16 million. The Motorola Tempe Building, which was built in 1998, is a two-story office building containing 133,225 rentable square feet in Tempe, Arizona. The Motorola Tempe Building is leased to Motorola, Inc. (“Motorola”). The initial term of the Motorola lease is seven years which commenced on August 17, 1998 and expires on August 31, 2005. Motorola has the right to extend the Motorola lease for four additional five-year periods at the then-prevailing market rental rate.

The Motorola Tempe Building is subject to a ground lease which commenced November 19, 1997 and expires on December 31, 2082. Wells OP has the right to terminate the Motorola ground lease prior to the expiration of the 30th year and prior to the expiration of each subsequent 10-year period thereafter. The current annual ground lease payment pursuant to the Motorola ground lease is approximately $0.2 million.

ASML Building

Wells OP purchased the ASML Building on March 29, 2000 for a purchase price of approximately $17.4 million. The ASML Building, which was built in 2000, is a two-story office and warehouse building containing 95,133 rentable square feet located in Tempe, Arizona. The ASML Building is leased to ASM Lithography, Inc. (“ASML”). The initial term of the ASML lease is 15 years, which commenced on June 4, 1998 and expires on June 30, 2013. ASML has an expansion option, which allows ASML the ability to expand the building into at least an additional 30,000 rentable square feet, to be constructed by Wells OP. If the expansion option exercised is for less than 30,000 square feet, Wells OP may reject the exercise at its sole discretion. In the event that ASML exercises its expansion option after the first five years of the initial lease term, such lease term will be extended to 10 years from the date of such expansion.

The ASML Building is subject to a ground lease, which commenced on August 22, 1997 and expires on December 31, 2082. Wells OP has the right to terminate the ASML ground lease prior to the expiration of the 30th year, and prior to the expiration of each subsequent 10-year period thereafter. The current annual ground lease payment pursuant to the ASML ground lease is approximately $0.2 million.

BellSouth Ft. Lauderdale Building

Wells OP purchased the BellSouth Ft. Lauderdale Building on April 18, 2002 for a purchase price of $6.85 million. The BellSouth Ft. Lauderdale Building, which was built in 2001, is a one-story office building containing 47,400 rentable square feet located in Ft. Lauderdale, Florida.


12


The entire BellSouth Ft. Lauderdale Building is leased to BellSouth Advertising and Publishing Corporation (“BellSouth Advertising”). The BellSouth Advertising lease commenced in July 2001 and expires in July 2008.

The BellSouth Ft. Lauderdale Building is subject to a ground lease, which commenced in March 1999 and expires in February 2049. The current annual lease payment pursuant to the BellSouth Ft. Lauderdale Building ground lease is approximately $0.1 million.

ITEM 3.          LEGAL PROCEEDINGS

There were no material pending legal proceedings or proceedings known to be contemplated by governmental authorities involving the Company during 2002 requiring disclosure under Item 103 of Regulation S-K.

ITEM 4.          SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS

No matters were submitted to a vote of the shareholders of the Company during the fourth quarter of 2002.

(THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK)


13


PART II

ITEM 5.          MARKET FOR COMPANY’S COMMON STOCK AND RELATED SECURITY HOLDER MATTERS

As of February 28, 2003, the Company had 238.8 million shares of common stock outstanding held by a total of approximately 65,000 shareholders. The number of shareholders is based on the records of the Advisor, who serves as registrar and transfer agent for the Company. The current offering price per share is $10. There is no established public trading market for the Company’s common stock. Under the Company’s Articles of Incorporation, restrictions are imposed on the ownership and transfer of shares.

In order for NASD members and their associated persons to participate in the offering and sale of shares of common stock of the Company pursuant to the fourth offering or any future offering of the Company’s shares, the Company is required pursuant to NASD Rule 2710(c)(6) to disclose in each annual report distributed to shareholders a per share estimated value of the shares, the method by which it was developed and the date of the data used to develop the estimated value. In addition, pursuant to the Company’s Prospectus, the Company indicated that the Advisor would prepare annual statements of estimated share values to assist fiduciaries of retirement plans subject to the annual reporting requirements of ERISA in the preparation of their reports relating to an investment in the Company. For these purposes, the estimated value of the shares shall be deemed to be $10 per share. The basis for this valuation is the fact that the Company is currently engaged in a public offering of its shares at the price of $10 per share. However, please note that there is no public trading market for the shares at this time and there can be no assurance that shareholders could receive $10 per share if such a market did exist and they sold their shares or that they will be able to receive such amount for their shares in the future. In addition, the Company has not performed an evaluation of the Company’s properties and, therefore, this valuation is not based upon the value of the Company’s properties, nor does it represent the amount shareholders would receive if the Company’s properties were sold and the proceeds distributed to shareholders in a liquidation of the Company, which amount would most likely be less than $10 per share as a result of the fact that, at the time the Company is purchasing its properties, the amount of funds available for investment in properties is reduced by the approximately 15% to 16% of offering proceeds raised by the Company, which are used to pay selling commissions and dealer manager fees, organization and offering expenses and acquisition and advisory fees, as described in more detail in this Annual Report and the Company’s Prospectus.

As the Company’s stock is currently not listed on a national exchange, there is no market for the Company’s stock. Consequently, there is the risk that a shareholder may not be able to sell the Company’s stock at a time or price acceptable to the shareholder. During 2000, the Company’s board of directors authorized a common stock redemption plan for investors who held the shares for more than one year, subject to the limitation that aggregate shares redeemed under the plan could not exceed the lesser of (i) the amount reinvested in the Company’s common shares through the Dividend Reinvestment Plan (“DRP”), less shares already redeemed, or (ii) 3% of the average common shares outstanding during the preceding year. The Company is under no obligation to redeem shares under its share redemption plan, and the Company’s board of directors may amend or terminate the share redemption plan at any time. Any shares redeemed under the plan are purchased by the Company at the amount contributed by the shareholder including any commissions paid at issuance.

Distributions

The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of its taxable income. The Company intends to make regular quarterly dividend distributions to shareholders. Dividends will be made to those shareholders who are


14


shareholders of record as of daily record dates selected by the Directors. Dividends will be paid on a quarterly basis.

Dividend distributions made to the shareholders during 2001 and 2002 were as follows:

Distribution for Quarter Ended

 

 

Total
Cash
Distributed

 

Per Share
Investment
Income

 

Per Share
Return of
Capital

 


 

 


 


 


 

 

 

(000s)

 

 

 

 

 

March 31, 2001

 

$

6,258

 

$

0.135

 

$

0.053

 

June 30, 2001

 

7,584

 

0.135

 

0.053

 

September 30, 2001

 

9,707

 

0.135

 

0.053

 

December 31, 2001

 

13,222

 

0.139

 

0.055

 

March 31, 2002

 

17,552

 

0.150

 

0.044

 

June 30, 2002

 

23,306

 

0.150

 

0.044

 

September 30, 2002

 

30,530

 

0.150

 

0.044

 

December 31, 2002

 

33,608

 

0.135

 

0.040

 


The fourth quarter of 2002 dividend distributions, declared through December 15th, were paid to shareholders in December 2002. Dividends at an annualized rate of 7%, as declared by the board of directors for the period from December 16, 2002 to December 31, 2002, will be paid to shareholders in March 2003.

ITEM 6.          SELECTED FINANCIAL DATA

The Company commenced active operations when it received and accepted subscriptions for a minimum of 125,000 shares on June 5, 1998.

The following sets forth a summary of the selected financial data for the fiscal years ended December 31, 2002, 2001, 2000, 1999, and 1998 in thousands, except for per share data.

 

 

2002

 

2001

 

2000

 

1999

 

1998

 

 

 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

Total assets

 

$

2,229,727

 

$

752,281

 

$

398,550

 

$

143,852

 

$

42,833

 

Outstanding debt

 

$

248,195

 

$

8,124

 

$

127,663

 

$

23,929

 

$

14,060

 

Obligations under capital leases

 

$

54,500

 

$

22,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total revenues

 

$

139,628

 

$

56,276

 

$

25,691

 

$

7,683

 

$

395

 

Net income

 

$

59,854

 

$

21,724

 

$

8,553

 

$

3,885

 

$

334

 

 

 

 

 

 

 

 

 

 

 

 

 

Earnings per share:

 

 

 

 

 

 

 

 

 

 

 

Basic and diluted

 

$

0.41

 

$

0.43

 

$

0.40

 

$

0.50

 

$

0.40

 

Dividends declared

 

$

0.76

 

$

0.76

 

$

0.73

 

$

0.70

 

$

0.31

 

 


15


ITEM 7.          MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

The following discussion and analysis should be read in conjunction with the Selected Financial Data and the accompanying consolidated financial statements of the Company and notes thereto.

Forward Looking Statements

This Report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of the financial condition of the Company, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to shareholders in the future and certain other matters. Readers of this Report should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in the Report, 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.

The Company has made an election under Section 856 of the Internal Revenue Code (the “Code”) to be taxed as a REIT under the Code beginning with its taxable year ended December 31, 1998. As a REIT for federal income tax purposes, the Company generally will not be subject to federal income tax on income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year in which its qualification is lost. Such an event could materially, adversely affect the Company’s financial position and results of operations. However, management believes that the Company is organized and operates in a manner, which has enabled the Company to qualify for treatment as a REIT for federal income tax purposes during the year ended December 31, 2002. In addition, management intends to continue to operate the Company 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, 2002, the Company received aggregate gross offering proceeds of $1,340.3 million from the sale of 134.0 million shares of its common stock. After payment of $46.4 million in acquisition and advisory fees and acquisition expenses, payment of $127.3 million in selling commissions, and payment of $20.5 million in organization and offering expenses, and common stock redemptions of $15.4 million pursuant to the Company’s share redemption program, the Company raised net offering proceeds available for investment in properties of $1,130.7 million during the year ended December 31, 2002.

During the fiscal year ended December 31, 2001, the Company received aggregate gross offering proceeds of $522.5 million from the sale of 52.3 million shares of its common stock. After payment of $18.1 million in acquisition and advisory fees and acquisition expenses, payment of $58.4 million in selling commissions and organization and offering expenses, and common stock redemptions of $4.1 million pursuant to the Company’s share redemption program, the Company raised net offering proceeds available for investment in properties of $441.8 million during the year ended December 31, 2001.

As of December 31, 2002, the Company had received aggregate gross offering proceeds from all of its offerings of approximately $2,177.9 million from the sale of 217.8 million shares of its common stock to


16


approximately 58,000 investors. After payment of $75.5 million in acquisition and advisory fees and acquisition expenses, payment of $206.4 million in selling commissions, payment of $40.0 million in organization and offering expenses, capital contributions to joint ventures and property acquisitions expenditures by the Company of $1,808.5 million, and common stock redemptions of $20.9 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $26.6 million available for investment in properties, as of December 31, 2002.

The net decrease in cash and cash equivalents of approximately $30.1 million during the year ended December 31, 2002 is primarily the result of the higher level of investment in real estate as compared to the level of fund raising and borrowing during the period. The increase in cash and cash equivalents of $71.3 million during 2001 is primarily the result of higher levels of fund raising and borrowings as compared to the levels of investment in real estate during those periods.

As of December 31, 2002, the Company owned interests in 72 real estate properties either directly or through its interests in joint ventures. These properties are currently generating operating cash flow sufficient to cover the Company’s operating expenses and pay dividends to shareholders. The Company pays dividends on a quarterly basis regardless of the frequency with which such distributions are declared. Dividends will be paid to investors who are shareholders as of the record dates selected by the Board of Directors. The Company currently calculates quarterly dividends based on the daily record and dividend declaration dates; thus, shareholders are entitled to receive dividends immediately upon the purchase of shares. Dividends declared during 2002 and 2001 totaled $0.76 per share in each year. Dividends declared for the fourth quarter of 2002 and the first quarter of 2003 were at an annualized rate of $0.70 per share.

Due primarily to the pace of the Company’s property acquisitions from late 2001 through 2002, as explained in more detail in the following paragraphs, dividends paid during 2002 in the aggregate amount of approximately $105.0 million exceeded Funds From Operations for the year by approximately $3.2 million. Dividends paid during 2002 exceeded taxable income of $80.5 million, therefore the Company exceeded the minimum distribution requirement to be taxed as a REIT for federal income tax purposes.

The Company continues to acquire properties that meet its standards and quality both in terms of the real estate and the creditworthiness of the tenants. Creditworthy tenants of the type the Company targets are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused the Advisor to add to its internal procedures for ensuring the creditworthiness of the Company’s tenants before any commitment to buy a property is made. The Company and its Advisor continue to remain steadfast in their commitment to invest in quality properties that will produce quality income for the Company’s shareholders. Accordingly, because of the additional time it now takes in the acquisition process for the Advisor to assess tenant credit – plus the Company’s commitment to adhere to purchasing properties with tenants that meet its investment criteria – the Company was required to lower the dividend yield to its shareholders.

As a result of the factors described in the preceding paragraph, the board of directors declared dividends for both the fourth quarter of 2002 and the first quarter of 2003 in an amount equal to a 7.0% annualized percentage rate return on an investment of $10 per share.

Dividends to be distributed to the shareholders are determined by the Board of Directors and are dependent on a number of factors related to the Company, including funds available for payment of dividends, financial condition, amounts paid for properties, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Internal Revenue Code.


17


Cash Flows From Operating Activities

The Company’s net cash provided by operating activities was $104.6 million, $42.3 million, and $7.3 million for the years ended December 31, 2002, 2001, and 2000, respectively. The increase in net cash provided by operating activities was due primarily to the additional net income generated by 32, 11, and 12 properties acquired during the years ended December 31, 2002, 2001, and 2000, respectively. The Company does not recognize in operations the full annual effect from the properties during the year of acquisition, as the operations of the properties are only included in operations from the date of acquisition. Operating cash flows are expected to increase as additional properties are acquired by the Company in future periods and as the Company obtains the benefit of a full year of operations for properties acquired during the year ended December 31, 2002.

Cash Flows Used In Investing Activities

Comparison of 2002 vs 2001

The Company’s net cash used in investing activities was $1,362.5 million for the year ended December 31, 2002 compared to $274.6 million for the year ended December 31, 2001. 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. Investments and related deferred project costs totaled $1,369.5 million and $278.8 million for the years ended December 31, 2002 and 2001, respectively. The increase in investments during the year ended December 31, 2002 was due to the ability of the Company to increase investor proceeds and identify property investments meeting the objectives of the Company. The investment in real estate assets and joint venture cash outflows were partially offset by distributions from joint ventures of $7.4 million and $4.2 million for the years ended December 31, 2002 and 2001, respectively. The increase in distributions from joint ventures is due to the additional investments in joint ventures during the year ended December 31, 2001 that the Company recognized a full year’s benefit during the year ended December 31, 2002.

Comparison of 2001 vs 2000

The Company’s net cash used in investing activities was $274.6 million and $249.3 million for the years ended December 31, 2001 and 2000, respectively. The increase in net cash used in investing activities was due primarily to investments in properties directly or through contributions to joint ventures, and the payment of related deferred project costs. Investments and related deferred project costs totaled $278.8 million and $252.8 million for the years ended December 31, 2001 and 2000, respectively. Investments in real estate assets and joint venture cash outflows were partially offset by distributions from joint ventures of $4.2 million and $3.5 million for the years ended December 31, 2001 and 2000, respectively.

Cash flows used in investment in real estate assets and joint ventures in future periods will be dependent upon the availability of funds either through capital contributions raised from the sale of stock or debt facilities and the availability of real estate assets or joint venture investments that meet the investment objectives of the Company.

The cash flows provided by joint ventures are expected to increase in 2003, when the Company recognizes a full year of benefit for the 2002 joint venture investments. Increases to cash flows provided by joint venture distributions will be dependent upon whether the Company invests in additional properties through joint ventures in the future as expected cash flows from existing joint ventures are expected to provide nominal increases based on scheduled rent increases.


18


Cash Flows From Financing Activities

Comparison of 2002 vs 2001

The Company’s net cash provided by financing activities was $1,227.8 million and $303.5 million for the years ended December 31, 2002 and 2001, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital of $1,340.3 million during the year ended December 31, 2002 compared to $522.5 million during the year ended December 31, 2001. The amounts raised were partially offset by the payment of commissions and offering costs totaling $140.5 million and $58.6 million for the years ended December 31, 2002 and 2001, respectively and repurchase of the Company’s stock of $15.4 million and $4.1 million for the years ended December 31, 2002, and 2001, respectively.

Additionally, the Company obtained funds from financing arrangements totaling $212.9 million and $110.2 million and made debt repayments of $62.8 million and $229.8 million for the years ended December 31, 2002 and 2001, respectively. As a result of the increased operations and activities of the Company during the years ended December 31, 2002 and 2001, the Company paid dividends of $105.0 million and $36.7 million, respectively.

Comparison of 2001 vs 2000

The Company’s net cash provided by financing activities was $303.5 million and $243.4 million for the years ended December 31, 2001 and 2000, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital of $522.5 million during the year ended December 31, 2001 compared to $180.4 million for the year ended December 31, 2000. The amounts raised were partially offset by the payment of commissions and offering costs totaling $58.6 million and $22.4 million for the years ended December 31, 2001 and 2000, respectively, and the repurchase of the Company’s stock of $4.1 million and $1.4 million for the years ended December 31, 2001 and 2000, respectively.

Additionally, the Company obtained funds from financing arrangements totaling $110.2 million and $187.6 million and made debt repayments of $229.8 million and $83.9 million for the years ended December 31, 2001 and 2000, respectively. As a result of the increased operations and activities of the Company during the years ended December 31, 2001 and 2000, the Company paid dividends of $36.7 million and $17.0 million, respectively.

The amounts of cash provided by and used in financing activities in the future will be dependent upon the Company’s ability to raise additional funds from investors and from the ability to secure debt facilities for the acquisition of real estate assets in future periods, and may not be comparable to the amounts of cash provided in past periods.

Results of Operations

As of December 31, 2002, the Company’s 72 real estate properties were 98.3% leased. The Company’s results of operations have changed significantly for the years ended December 31, 2002, 2001, and 2000, generally as a result of the 32, 11, and 12 property acquisitions during the years ended December 31, 2002, 2001, and 2000, respectively. Management expects that rental income, equity income of joint ventures, tenant reimbursements, operating expenses, management and leasing fees, and net income will each increase in future periods as a result of owning real estate assets acquired in 2002 for a full year and as a result of future acquisitions of real estate assets. Due to the average remaining terms of the long-term leases currently in place at the Company’s properties, management does not anticipate significant changes in near-term rental revenues from properties currently owned.


19


Comparison of 2002 vs 2001

Rental income was $107.5 million and $44.2 million for the years ended December 31, 2002 and 2001, respectively. Tenant reimbursements were $19.0 million and $6.8 million for the years ended December 31, 2002 and 2001, respectively. Tenant reimbursements were equivalent to 70% and 63% of the property operating costs for these respective years. The variance in the costs is dependent upon the terms of the lease agreements for the real estate assets in each year.

Equity in income of joint ventures was $4.7 million and $3.7 million for the years ended December 31, 2002 and 2001, respectively. The increase is primarily a result of recognizing a full year of operations in 2002 for the investments in joint ventures made during 2001. Equity in income of joint ventures is expected to increase in future periods as additional investments in joint ventures are made; however, returns from existing joint venture investments are not expected to change materially from the historical results.

Lease termination income was $1.4 million for the year ended December 31, 2002 compared to $0 for the year ended December 31, 2001. The 2002 activity relates to a single lease termination at the Vertex-Sarasota Building (formerly the Andersen Building), in which, in consideration for releasing Arthur Andersen from its obligations to pay rent under the lease, Arthur Andersen paid Wells OP a termination fee of approximately $1.0 million and conveyed to Wells OP an adjacent parcel of land which the Company valued at $0.4 million.

Interest and other income was $7.0 million and $1.5 million for the years ended December 31, 2002 and 2001, respectively. Of this amount $2.8 million and $0.5 million was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings, which is offset by the related interest expense associated with the bonds. The Company invests any funds received from shareholders in short-term investments until the funds are invested in real estate asset investments. At certain times during the years ended December 31, 2002 and 2001, the Company held a significant amount of cash on hand resulting in the relatively high interest income. The level of interest income is dependent upon the ability of the Company to find suitable real estate asset investments on a pace consistent with investor proceeds, therefore interest income amounts for the years ended December 31, 2002 and 2001, may or may not be indicative of interest income for future periods.

Depreciation expense was $38.8 million and $15.3 million for the years ended December 31, 2002 and 2001, representing 36% and 35%, of rental income for the respective year. The change between periods is generally due to a change in applicable cost of the real estate assets compared to the straight-line revenues generated by the real estate assets. Operating costs were $26.9 million and $10.9 million for the years ended December 31, 2002 and 2001, representing 21% of the sum of the rental income and tenant reimbursements revenue amounts for each year. Management and leasing fees were $5.2 million, and $2.5 million for the years ended December 31, 2002, and 2001, respectively, representing 4% and 5%, respectively, of the sum of the rental income and tenant reimbursements revenue amounts.

General and administrative costs were $3.2 million and $1.2 million for the years ended December 31, 2002 and 2001, respectively, and legal and accounting expenses were $1.0 million and $0.4 million, for the years ended December 31, 2002, and 2001, respectively. The increase in the expenses are attributable to the increased size of the Company over the years, but represent 3% of total revenues for each year ended December 31, 2002 and 2001. In the future, such costs as a percentage of total revenues are expected to be materially consistent with the historical periods, but may change as the Company continues to grow.

Interest expense and amortization of deferred financing costs was $4.6 million and $4.2 million for the years ended December 31, 2002 and 2001, respectively. Of this amount $2.8 million and $0.5 million was attributable to interest on the bonds related to the Ingram Micro and ISS Buildings for the years


20


ended December 31, 2002 and 2001, respectively, which is offset by the related interest income associated with the bonds as noted above. Interest expense is dependent upon the amount of borrowings outstanding during the period as well as the interest rate. Interest expense payable to third parties (excluding the interest on the bonds) for the year ended December 31, 2002 decreased as compared to the year ended December 31, 2001 due to lower average amounts of borrowings outstanding during the periods as well as lower interest rates.

Comparison of 2001 vs 2000

Rental income revenues were $44.2 million and $20.5 million for the years ended December 31, 2001 and 2000, respectively. Tenant reimbursements were $6.8 million and $2.3 million for the years ended December 31, 2001 and 2000, respectively. Tenant reimbursements were equivalent to 63% and 71% of the property operating costs for the respective years. The variance in the cost is dependent upon the terms of the lease agreements for the real estate assets in each year.

Equity in income of joint ventures was $3.7 million and $2.3 million for the years ended December 31, 2001 and 2000, respectively. The increase is due to the investments in joint ventures during 2001 and recognizing a full year of operations for investments in joint ventures during 2000.

Interest and other income was $1.5 million and $0.6 million for the years ended December 31, 2001 and 2000, respectively. Of this amount $0.5 million and $0 during the years ended December 31, 2001 and 2000, respectively was attributable to interest on the bonds related to the Ingram Micro Building, which is offset by the related interest expense associated with the bonds. The Company invests any funds received from shareholders in short-term investments until the funds are placed in real estate asset investments. At certain times during the years ended December 31, 2001 and 2000, the Company held varying amounts of cash on hand resulting in the increases in interest income between years.

Depreciation expense was $15.3 million and $7.7 million for the years ended December 31, 2001 and 2000, representing 35% and 38% of rental income for the respective year. The change between years is generally due to a change in applicable cost of the real estate assets compared to the straight-line revenues generated by the real estate assets. Operating costs were $10.9 million and $3.2 million for the years ended December 31, 2001 and 2000, respectively, representing 21% and 14%, respectively, of the sum of the rental income and tenant reimbursements revenue amounts. Management and leasing fees were $2.5 million and $1.3 million for the years ended December 31, 2001 and 2000, respectively, representing 5% and 6%, respectively, of the sum of the rental income and tenant reimbursements revenue amounts.

General and administrative costs were $1.2 million and $0.4 million for the years ended December 31, 2001 and 2000, respectively, and legal and accounting expenses were $0.4 million and $0.2 million for the years ended December 31, 2001 and 2000, respectively. The increase in the expenses are attributable to the increased size of the Company, but represent 3% of total revenues for each year ended December 31, 2001 and 2000.

Interest expense and amortization of deferred financing costs was $4.2 million for each of the years ended December 31, 2001 and 2000. Of this amount $0.5 million and $0.0 million was attributable to interest on the bonds related to the Ingram Micro Building for the years ended December 31, 2001 and 2000, respectively, which is offset by the related interest income associated with the bonds as noted above. Interest expense is dependent upon the amount of borrowings outstanding during the period as well as the interest rate. Interest expense payable to third parties (excluding the interest on the bonds) for the years ended December 31, 2001 compared to the year ended December 31, 2000 decreased due to a lower average amount of borrowings outstanding during the year as well as lower interest rates.


21


Subsequent Events

Sale of shares of the Company’s common stock

From January 1, 2003 through February 28, 2003, the Company has raised approximately $241.0 million through the issuance of 24.1 million shares of common stock in the Company.

Redemptions of the Company’s common stock

From January 1, 2003 through February 28, 2003, the Company has redeemed approximately 1.0 million shares of common stock in the Company at an aggregate cost of $10.4 million pursuant to its share redemption program. The Company’s current plan allows for redemptions totaling $40.0 million for the year ending December 31, 2003. See Item 5 of this report for a description of this plan and the limitations relating to the Company’s share redemption plan.

Property Acquisitions

On January 9, 2003, Wells OP purchased two three-story office buildings containing approximately 187,735 aggregate rentable square feet located in Mayfield Heights, Ohio, (the “East Point Buildings”) for a purchase price of $22.0 million, excluding closing costs and acquisition and advisory fees paid to the Advisor. The East Point Buildings, which were built in 2000, are located at 6085 Parkland Boulevard (“East Point I”) and 6095 Parkland Boulevard (“East Point II”) in Mayfield Heights, Cuyahoga County, Ohio. The entire 102,484 rentable square feet of East Point I is leased to Progressive Casualty Insurance Company. East Point II contains approximately 85,251 rentable square feet, of which 70,585 is currently leased to Austin, Danaher Power Solutions LLC and Moreland Management Co. Approximately 14,666 rentable square feet (17%) of East Point II is vacant.

In connection with the acquisition of the property, the Company has entered into an earn-out agreement, whereby, the Company is required to pay the seller for each new lease fully executed after the date of acquisition of the property but on or before March 31, 2004, or on or before July 31, 2004 if the tenant thereunder is a leasing prospect as defined by the agreement. Payments shall be in the amounts of the anticipated first year’s annual rent less operating expenses with the sum divided by 0.105 and the result reduced by tenant improvement costs related to the space.

Dividend Declaration

On March 12, 2003, the Board of Directors of the Company declared dividends for the second quarter of 2003 in the amount of a 7.0% annualized percentage return on an investment of $10 per share, payable to the shareholders of the Company on a daily record basis.

Commitments and Contingencies

Take Out Purchase and Escrow Agreement

The Company entered into a take out purchase and escrow agreement with an affiliate of the Advisor whereby the Company earns a fee in return for agreeing to purchase any unsold co-tenancy interests related to the Section 1031 exchange program established by an affiliate of the Advisor. See Note 8 to the Company’s consolidated financial statements included in this report for discussion of this potential obligation.


22


Letters of Credit

The Company has three unused letters of credit as required by other parties to ensure completion of the Company’s obligations under certain contracts. See Note 8 to the Company’s consolidated financial statements included in this report for further discussion of the letters of credit.

Property Under Contract

The Company entered into an agreement to purchase a third building at the ISS Atlanta Buildings development upon completion of construction for $10 million. See Note 8 to the Company’s consolidated financial statements included in this report for further discussion of the property under contract and related obligations.

Properties Under Construction

The Company entered into three agreements for the construction and development of certain properties. See Note 8 to the Company’s consolidated financial statements included in this report for a more detailed discussion of the properties under construction and the related obligation.

Commitments Under Existing Lease Agreements

The Company entered into lease agreements with tenants that may include provisions that, at the option of the tenants, the Company may require the Company to incur certain capital costs. See Note 8 to the Company’s consolidated financial statements included in this report for further discussion of these potential obligations.

Earn-out Agreements

The Company entered into a purchase agreement containing an earn-out clause that may result in the Company being obligated to pay $14.5 million to the seller of a property. See Note 8 to the Company’s consolidated financial statements included in this report for a more detailed discussion of this potential obligation.

Leasehold Property Obligations

The Company owns certain properties that are subject to ground leases and require the Company to pay rent in future years. See Note 8 to the Company’s consolidated financial statements included in this report for further discussion of the lease terms and required payments.

Pending Litigation

The Company has certain pending litigation related to a dispute over the right to a $750,000 escrow money deposit for a property that was not acquired. See Note 8 to the Company’s consolidated financial statements included in this report further discussion of the litigation.

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 accounting principles generally accepted in the United States (“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. Management believes that FFO is helpful to investors as a measure of the performance of an equity REIT. However, the Company’s calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to


23


similarly titled measures presented by other REITs. FFO does not represent cash generated from operating activities in accordance with GAAP and should not be considered as an alternative to net income as an indication of the Company’s performance or to cash flows as a measure of liquidity or ability to make distributions.

The following table reflects the calculation of FFO for the three years ended December 31, 2002, 2001, and 2000, respectively:

 

 

December 31,
2002

 

December 31,
2001

 

December 31,
2000

 

 

 


 


 


 

 

 

 

 

 

 

 

 

FUNDS FROM OPERATIONS:

 

 

 

 

 

 

 

Net income

 

$

59,854

 

$

21,724

 

$

8,553

 

Add:

 

 

 

 

 

 

 

Depreciation of real assets

 

38,780

 

15,345

 

7,743

 

Amortization of deferred leasing costs

 

303

 

303

 

351

 

Depreciation and amortization – unconsolidated partnerships

 

2,861

 

3,212

 

853

 

 

 


 


 


 

Funds from operations (FFO)

 

$

101,798

 

$

40,584

 

$

17,500

 

 

 



 



 



 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES:

 

 

 

 

 

 

 

BASIC AND DILUTED

 

145,633

 

51,082

 

21,616

 

 

 


 


 


 


In order to recognize revenues on a straight line basis over the terms of the respective leases, the Company recognized straight line revenue of $7.6 million, $2.8 million, and $1.7 million during the years ended December 31, 2002, 2001, and 2000 respectively.

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 the Company from the impact of inflation. These provisions include reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. However, due to the long-term nature of the leases, the leases may not re-set frequently enough to cover inflation.

Application of Critical Accounting Policies

The Company’s accounting policies have been established to conform with 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 management’s 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 the financial statements. Additionally, other companies may utilize different estimates that may impact comparability of the Company’s results of operations to those of companies in similar businesses.

The critical accounting policies outlined below have been discussed with members of the Company’s audit committee. There have been no significant changes in the critical accounting policies, methodology, or assumptions in the current period.

Below is a discussion of the accounting policies that management considers to be critical in that they may require complex judgment in their application or require estimates about matters that are inherently uncertain. Additional discussion of accounting policies that management considers to be significant,


24


including further discussion of the critical accounting policies described below, is presented in Note 2 to the Company’s consolidated financial statements included in this report.

Investment in Real Estate Assets

The Company’s management is required to make subjective assessments as to the useful lives of its depreciable assets. The Company considers the period of future benefit of the asset to determine the appropriate useful lives. These assessments have a direct impact on net income. The estimated useful lives of the Company’s assets by class are as follows:

Building

 

25 years

 

Building improvements

 

10-25 years

 

Land improvements

 

20-25 years

 

Tenant Improvements

 

Lease term

 


In the event that management uses inappropriate useful lives or methods for depreciation, the Company’s net income would be misstated.

Valuation of Real Estate Assets

Management continually monitors events and changes in circumstances that could indicate that the carrying amounts of the real estate assets, both operating properties and properties under construction, in which the Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When indicators of potential impairment are present which indicate that the carrying amounts of real estate assets may not be recoverable, management assesses the recoverability of the real estate assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future operating cash flows expected from the use of the asset and its eventual disposition. In the event that such expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Company and any unconsolidated joint ventures at December 31, 2002 and 2001.

Projections of expected future cash flows requires management to estimate future market rental income amounts subsequent to the expiration of current lease agreements, property operating expenses discount rates, the number of months it takes to re-lease the property, and the number of years the property is held for investment. The use of inappropriate assumptions in the future cash flow analysis, would result in an incorrect assessment of the property’s future cash flows and fair value and could result in the overstatement of the carrying value of real estate assets and net income of the Company.

Intangible Lease Asset/Liability

As part of the acquisition of real estate assets, the Company determines whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate. As a result of adopting the standards, amounts totaling $12.1 million have been recorded as intangible lease assets and $32.7 million have been recorded as intangible lease liabilities, relating to above and below market lease arrangements for properties acquired in 2002. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition, and are amortized over the remaining term of the respective lease to rental income.

The determination of the estimated fair values of the intangible lease asset or liability requires the use of significant assumptions with regard to the current market rental rates, rental growth rates, discount rates and other variables. If inappropriate estimates with regard to these variables are used, misclassification


25


of assets or liabilities and incorrect calculation of depreciation amounts would occur, which would misstate the net income of the Company.

Related Party Transactions and Agreements

The Company has entered into agreements with the Advisor and its affiliates, whereby the Company pays certain fees or reimbursements to the Advisor or its affiliates for acquisition and advisory fees, organization and offering costs, sales commissions, dealer manager fees, property management and leasing fees, and reimbursement of operating costs. See Note 12 to the Company’s consolidated financial statements included in this report for a discussion of the various related party transactions, agreements, and fees.

Conflict of Interest

The Advisor is also a general partner in and advisor to various Wells Real Estate Funds. As such, there are 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 Company in connection with property acquisitions or for tenants in similar geographic markets.

ITEM 7A.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISKS

The Company is exposed to interest rate changes primarily as a result of its debt facilities, which are generally short term in nature. These facilities are primarily used to fund investment of real estate assets at times when real estate asset investments are available at appropriate prices that meet the investment criteria of the Company, yet the Company has not raised sufficient investor proceeds to fund the acquisition. The Company’s interest rate risk management objectives are to limit the impact of interest rate changes on earnings and cash flow primarily through a low level of overall borrowings. To achieve its objectives, the Company generally borrows at variable rates with the lowest margins available, but also enters into fixed rate facilities in some cases. The Company may enter into interest rate swaps, caps or other arrangements in order to mitigate its interest rate risk on a related financial instrument. The Company does not enter into derivative or interest rate transactions for speculative purposes.

The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes as of December 31, 2002, in thousands.

 

 

2003

 

2004

 

2005

 

2006

 

Thereafter

 

 

 


 


 


 


 


 

Maturing debt:

 

 

 

 

 

 

 

 

 

 

 

Variable rate debt

 

$

84,548

 

$

62,038

 

 

$

90,000

 

 

Fixed rate debt

 

$

11,609

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Average interest rate on debt:

 

 

 

 

 

 

 

 

 

 

 

Variable rate debt

 

 

3.38

%

 

3.33

%

 

 

2.53

%

 

Fixed rate debt

 

 

8.12

%

 

 

 

 

 

 



26


The table below presents the principal amounts and weighted average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes as of December 31, 2001, in thousands.

 

 

2002

 

2003

 

Thereafter

 

 

 


 


 


 

Maturing debt:

 

 

 

 

 

 

 

Variable rate debt

 

$

7,655

 

$

469

 

 

 

 

 

 

 

 

 

 

Average interest rate on debt:

 

 

 

 

 

 

 

Variable rate debt

 

 

3.73

%

 

3.98

%

 

 

 

 

 

 

 

 

 


The fair value of the Company’s debt approximates its carrying amount.

Approximately $236.6 million or 95% and $8.1 million or 100% of the Company’s debt facilities at December 31, 2002 and 2001, respectively is subject to variable rates. The average interest rate on the variable rate debt at December 31, 2002 and 2001 was 3.04% and 3.74%, respectively. The variable rate debt is based on LIBOR plus a specified margin of 175 basis points or 200 basis points for each debt facility. An increase in the variable interest rate on the variable rate facilities constitutes a market risk.

The Company has entered into two interest rate swap agreements related to two construction loans. The construction loans incur interest at LIBOR plus 200 basis points and exchanges this obligation in return for the obligation to pay a fixed amount of 5.9% and 4.27% on the $27.2 million and $4.0 million outstanding, respectively, under the facilities at December 31, 2002. Such agreements limit the Company’s exposure to increases in interest rate risks, but also prohibit the Company from benefiting from any decreases in interest rates.

The Company does not believe that there is any exposure to increases in interest rate risk related to the obligations under capital leases of $54.5 million and $22.0 million at December 31, 2002 and 2001, respectively, as the obligations are at fixed interest rates and the Company owns the related bonds. These amounts have been excluded from the tables above.

The Company is currently working with lenders to obtain a new variable rate line of credit to provide the Company increased flexibility for funding acquisitions or repayment of existing debt obligations. However, such an arrangement would allow increased availability of debt, and therefore, increase the Company’s exposure to increases in interest rates, in the event the Company uses borrowings to fund acquisitions or operations. However, in the event that such a facility is not completed, the Company anticipates that it could satisfy the debt repayment requirements through additional investor proceeds.

ITEM 8.          FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

The financial statements and supplementary data are indexed in Item 15 of this report.

ITEM 9.          CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

There were no disagreements with the Company’s independent public accountants during the three years ended December 31, 2002, 2001, or 2000.


27


On May 8, 2002, the audit committee of the board of directors of the Company recommended to the board of directors the dismissal of Arthur Andersen LLP (“Andersen”) as the Company’s independent public accountants, and the board of directors approved the dismissal of Andersen as the Company’s independent public accountants, effective immediately.

Andersen’s reports on the consolidated financial statements of the Company for the years ended December 31, 2001 and 2000 did not contain an adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope or accounting principles.

During the years ended December 31, 2001 and 2000, and through the date of Andersen’s dismissal, there were no disagreements with Andersen on any matter of accounting principle or practice, financial statement disclosure, or auditing scope or procedure which, if not resolved to Andersen’s satisfaction, would have caused Andersen to make reference to the subject matter in connection with its report on the consolidated financial statements of the Company for such years and there were no reportable events as set forth in Item 304(a)(1)(v) of Regulation S-K.

On June 26, 2002, the Company’s board of directors approved the recommendation of the audit committee to engage Ernst & Young, LLP (“Ernst & Young”) to audit the financial statements of the Company, effective immediately. During the fiscal years ended December 31, 2001 and 2000, and through the date of appointment of Ernst & Young as the Company’s independent public accountants, the Company did not consult Ernst & Young with respect to the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the consolidated financial statements of the Company, or any other matters or reportable events as set forth in Items 304(a)(2)(i) and (ii) of Regulation S-K.


28


PART III

ITEM 10.       DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement to be filed with the Commission for its annual stockholders’ meeting to be held on July 15, 2003.

ITEM 11.       EXECUTIVE COMPENSATION

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement to be filed with the Commission for its annual stockholders’ meeting to be held on July 15, 2003.

ITEM 12.       SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED SHAREHOLDER MATTERS

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement to be filed with the Commission for its annual stockholders’ meeting to be held on July 15, 2003.

ITEM 13.       CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

The information required by this Item is incorporated by reference to the Company’s Definitive Proxy Statement to be filed with the Commission for its annual stockholders’ meeting to be held on July 15, 2003.

ITEM 14.       CONTROLS AND PROCEDURES

Within the 90 days prior to the date of this report, the Company carried out an evaluation, under the supervision and with the participation of management, including the Principal Executive Officer and Principal Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-14 under the Securities Exchange Act of 1934. Based upon that evaluation, the Principal Executive Officer and Principal Financial Officer concluded that the Company’s disclosure controls and procedures were effective.

There were no significant changes in the Company’s internal controls or other factors that could significantly affect such controls subsequent to the date of the evaluation.


29


ITEM 15.       EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K

(a)1.    The financial statements are contained on pages F-2 through F-38 of this Annual Report on Form 10-K, and the list of the financial statements contained herein is set forth on page F-1, which is hereby incorporated by reference.

(a)2.    Schedule III – Real Estate Assets and Accumulated Depreciation

Information with respect to this item begins on page S-1 of this Annual Report on Form 10-K.

(a)3.    The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto.

(b)       The Company filed the following Current Reports on Form 8-K during the fourth quarter of 2002:

(i)         On October 1, 2002, the Company filed a Current Report on Form 8-K dated September 16, 2002 reporting the acquisition of the IRS Long Island Buildings and the AmeriCredit Phoenix Property;

(ii)       On October 11, 2002, the Company filed a Current Report on Form 8-K dated September 27, 2002 reporting the acquisitions of the KeyBank Parsippany Building, the Allstate Indianapolis Building, the Federal Express Colorado Springs Building, the EDS Des Moines Building, the Intuit Dallas Building and the Daimler Chrysler Dallas Building;

(iii)      On October 25, 2002, the Company filed Amendment No. 1 to Current Report on Form 8-K/A dated August 14, 2002 providing the required financial statements relating to the acquisition of the Harcourt Austin Building;

(iv)      On December 5, 2002, the Company filed a Current Report on Form 8-K dated November 22, 2002 reporting the first quarter 2003 dividend declaration;

(v)        On December 6, 2002, the Company filed a Current Report on Form 8-K dated November 22, 2002 reporting the acquisitions of the NASA Buildings, the Capital One Richmond Buildings and the Caterpillar Nashville Building; and

(vi)      On January 3, 2003, the Company filed a Current Report on Form 8-K dated December 20, 2002 reporting the acquisition of the Nestle Building.

(c)       The exhibits filed in response to Item 601 of Regulation SK are listed on the Exhibit Index attached hereto.

(d)       See (a) 2 above.


30


SIGNATURES

Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 12th day of March 2003.

 

 

 

Wells Real Estate Investment Trust, Inc.
(Registrant)



 

By: 


/s/ LEO FWELLS, III

 

 

 


 

 

 

Leo F. Wells, III
President and Director

 

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity as and on the date indicated.

 

Signature


 

Title


 

Date


 

 

 

 

 

/s/ LEO FWELLS, III

 

President and Director
(Principal Executive Officer)

 

March 12, 2003


Leo F. Wells, III

 

 

 

 

 

/s/ WALTER W. SESSOMS

 

Director

 

March 12, 2003


Walter W. Sessoms

 

 

 

 

 

/s/ JOHN  L. BELL

 

Director

 

March 12, 2003


John L. Bell

 

 

 

 

 

/s/ MICHAEL R. BUCHANAN

 

Director

 

March 12, 2003


Michael R. Buchanan

 

 

 

 

 

/s/ RICHARD W. CARPENTER

 

Director

 

March 12, 2003


Richard W. Carpenter

 

 

 

 

 

/s/ BUD CARTER

 

Director

 

March 12, 2003


Bud Carter

 

 

 

 

 

/s/ DONALD S. MOSS

 

Director

 

March 12, 2003


Donald S. Moss

 

 

 

 

 

/s/ NEIL H. STRICKLAND

 

Director

 

March 12, 2003


Neil H. Strickland

 

 

 

 

 

/s/ WILLIAMS H. KEOGLER, JR.

 

Director

 

March 12, 2003


William H. Keogler, Jr.

 

 

 

 

 

/s/ DOUGLAS P. WILLIAMS

 

Executive Vice President
(Principal Financial and Accounting Officer)

 

March 12, 2003


Douglas P. Williams

 


31


CERTIFICATIONS

I, Leo F. Wells, III, certify that:

1.         I have reviewed this annual report on Form 10-K of the Company;

2.         Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.         Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.         The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)          designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared,

b)          evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)          presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.         The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)          all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.         The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

 

 


Dated: March 12, 2003

 

By: 


/s/ LEO F. WELLS, III

 

 

 


 

 

 

Leo F. Wells, III,
Principal Executive Officer


32


CERTIFICATIONS

I, Douglas P. Williams, certify that:

1.         I have reviewed this annual report on Form 10-K of the Company;

2.         Based on my knowledge, this annual report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this annual report;

3.         Based on my knowledge, the financial statements, and other financial information included in this annual report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this annual report;

4.         The registrant’s other certifying officers and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:

a)         designed such disclosure controls and procedures to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this annual report is being prepared,

b)         evaluated the effectiveness of the registrant’s disclosure controls and procedures as of a date within 90 days prior to the filing date of this annual report (the “Evaluation Date”); and

c)         presented in this annual report our conclusions about the effectiveness of the disclosure controls and procedures based on our evaluation as of the Evaluation Date;

5.         The registrant’s other certifying officers and I have disclosed, based on our most recent evaluation, to the registrant’s auditors and the audit committee of the registrant’s board of directors:

a)         all significant deficiencies in the design or operation of internal controls which could adversely affect the registrant’s ability to record, process, summarize and report financial data and have identified for the registrant’s auditors any material weaknesses in internal controls; and

b)         any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal controls; and

6.         The registrant’s other certifying officers and I have indicated in this annual report whether or not there were significant changes in internal controls or in other factors that could significantly affect internal controls subsequent to the date of our most recent evaluation, including any corrective actions with regard to significant deficiencies and material weaknesses.

 

 

 


Dated: March 12, 2003

 

By: 


/s/ DOUGLAS P. WILLIAMS

 

 

 


 

 

 

Douglas P. Williams
Principal Financial Officer

 

 


33


EXHIBIT INDEX
TO
2002 FORM 10-K
OF
WELLS REAL ESTATE INVESTMENT TRUST, INC.

The following documents are filed as exhibits to this report. Those exhibits previously filed and incorporated herein by reference are identified below by an asterisk. For each such asterisked exhibit, there is shown below the description of the previous filing. Exhibits which are not required for this report are omitted.

 

Exhibit
Number


Description of Document


 

 

  *3.1

Amended and Restated Articles of Incorporation of Wells Real Estate Investment Trust, Inc. (Exhibit 3.1 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

  *3.2

Bylaws of Wells Real Estate Investment Trust, Inc. (Exhibit 3.2 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

  *3.3

Amendment No. 1 to Bylaws of Wells Real Estate Investment Trust, Inc. (Exhibit 3.3 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.1

Agreement of Limited Partnership of Wells Operating Partnership, L.P. (Exhibit 10.1 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.2

Advisory Agreement dated January 30, 1999 (Exhibit 10.3 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.3

Management Agreement (Exhibit 10.4 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.4

Leasing and Tenant Coordinating Agreement (Exhibit 10.5 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.5

Amended and Restated Joint Venture Agreement of The Fund IX, Fund X, Fund XI and REIT Joint Venture dated June 11, 1998 (Exhibit 10.4 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.6

Lease Agreement for the ABB Building dated December 10, 1996 (Exhibit 10(kk) to Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., as amended to date, Commission File No. 33-83852)

34


 

 

*10.7

Agreement for the Purchase and Sale of Real Property relating to the Ohmeda Building dated November 14, 1997 (Exhibit 10.6 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.8

Agreement for the Purchase and Sale of Property relating to the 360 Interlocken Building dated February 11, 1998 (Exhibit 10.7 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.9

Agreement for the Purchase and Sale of Real Property relating to the Lucent Technologies Building dated May 30, 1997 (Exhibit 10(k) to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979)

 

 

*10.10

First Amendment to the Agreement for the Purchase and Sale of Real Property relating to the Lucent Technologies Building dated April 21, 1998 (Exhibit 10.8(a) to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.11

Development Agreement relating to the Lucent Technologies Building dated May 30, 1997 (Exhibit 10(m) to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979)

 

 

*10.12

Net Lease Agreement for the Lucent Technologies Building dated May 30, 1997 (Exhibit 10(l) to Form S-11 Registration Statement on Form S-11 of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979)

 

 

*10.13

First Amendment to Net Lease Agreement for the Lucent Technologies Building dated March 30, 1998 (Exhibit 10.10(a) to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.14

Purchase and Sale Agreement relating to the Iomega Building dated February 4, 1998 (Exhibit 10.11 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.15

Lease Agreement for the Iomega Building dated April 9, 1996 (Exhibit 10.12 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.16

Agreement for the Purchase and Sale of Property relating to the Fairchild Building dated June 8, 1998 (Exhibit 10.13 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.17

Restatement of and First Amendment to Agreement for the Purchase and Sale of Property relating to the Fairchild Building dated July 1, 1998 (Exhibit 10.14 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.18

Promissory Note for $5,960,000 from the Fremont Joint Venture to NationsBank, N.A. relating to the Fairchild Building dated July 16, 1998 (Exhibit 10.15 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 


35


 

 

*10.19

Deed of Trust securing the Fairchild Building dated July 16, 1998 between the Fremont Joint Venture and NationsBank, N.A. (Exhibit 10.16 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.20

Joint Venture Agreement of Wells/Fremont Associates (the “Fremont Joint Venture”) dated July 15, 1998 between Wells Development Corporation and Wells Operating Partnership, L.P. (Exhibit 10.17 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.21

Joint Venture Agreement of Fund X and Fund XI Associates (the “Fund X-XI Joint Venture”) dated July 15, 1998 (Exhibit 10.18 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.22

Agreement for the Purchase and Sale of Joint Venture Interest relating to the Fremont Joint Venture dated July 17, 1998 between Wells Development Corporation and the Fund X-XI Joint Venture (Exhibit 10.19 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.23

Lease Agreement for the Fairchild Building dated September 19, 1997 with Fairchild Technologies USA, Inc. (Exhibit 10.20 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.24

Purchase and Sale Agreement and Joint Escrow Instructions relating to the Cort Furniture Building dated June 12, 1998 (Exhibit 10.21 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.25

First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions relating to the Cort Furniture Building dated July 16, 1998 (Exhibit 10.22 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.26

Promissory Note for $4,875,000 from the Cort Joint Venture to NationsBank, N.A. relating to the Cort Furniture Building dated July 30, 1998 (Exhibit 10.23 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.27

Deed of Trust securing the Cort Furniture Building dated July 30, 1998 between the Fremont Joint Venture and NationsBank, N.A. (Exhibit 10.24 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.28

Joint Venture Agreement of Wells/Orange County Associates (the “Cort Joint Venture”) dated July 27, 1998 between Wells Development Corporation and Wells Operating Partnership, L.P. (Exhibit 10.25 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.29

Agreement for the Purchase and Sale of Joint Venture Interest relating to the Cort Joint Venture dated July 30, 1998 between Wells Development Corporation and the Fund X-XI Joint Venture (Exhibit 10.26 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 


36


 

 

*10.30

Temporary Lease Agreement for remainder of the ABB Building dated September 10, 1998 between the IX-X-XI-REIT Joint Venture and Associates Housing Finance, LLC (Exhibit 10.35 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.31

Amended and Restated Purchase Agreement relating to the PWC Building dated December 4, 1998 (Exhibit 10.37 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.32

Assignment and Assumption Agreement relating to the PWC Building dated December 4, 1998 (Exhibit 10.38 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.33

Amended and Restated Loan Agreement dated December 31, 1998 between Wells Operating Partnership, L.P. and SouthTrust Bank, National Association (Exhibit 10.39 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.34

Amended and Restated Promissory Note for $15,500,000 from Carter Sunforest, L.P. to SouthTrust Bank, National Association dated December 31, 1998 (Exhibit 10.40 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.35

Amendment No. 1 to Mortgage and Security Agreement and other Loan Documents securing the PWC Building dated December 31, 1998 between Carter Sunforest, L.P. and SouthTrust Bank, National Association (Exhibit 10.41 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.36

Lease for the PWC Building dated March 30, 1998 with Price Waterhouse LLP (Exhibit 10.42 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.37

Promissory Note for $6,425,000 to Bank of America, N.A. relating to the AT&T Building (formerly the Vanguard Cellular Building) (Exhibit 10.45 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.38

Open-End Mortgage, Assignment of Leases and Rents, Security Agreement and Financing Statement securing the AT&T Building (formerly the Vanguard Cellular Building) (Exhibit 10.46 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.39

Build-to-Suit Office Lease Agreement for the AT&T Building (formerly the Vanguard Cellular Building) (Exhibit 10.47 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 


37


 

 

*10.40

Amendment No. 1 to Built-To-Suite Office Lease Agreement for the AT&T Building (formerly the Vanguard Cellular Building) (Exhibit 10.47(a) to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.41

Amendment No. 2 to Build-To-Suit Office Lease Agreement for the AT&T Building (formerly the Vanguard Cellular Building) (Exhibit 10.47(b) to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.42

Build-To-Suit Office Lease Agreement Guaranty Payment and Performance for the AT&T Building (formerly the Vanguard Cellular Building) (Exhibit 10.48 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.43

Development Agreement for the Matsushita Project (Exhibit 10.50 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.44

Office Lease for the Matsushita Project (Exhibit 10.51 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.45

Guaranty of Lease for the Matsushita Project (Exhibit 10.52 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.46

Rental Income Guaranty Agreement from Wells Operating Partnership, L.P. to Fund VIII and Fund IX Associates relating to the Bake Parkway Building (Exhibit 10.53 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.47

Amended and Restated Joint Venture Partnership Agreement of The Wells Fund XI - Fund XII - REIT Joint Venture (Exhibit 10.28 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.48

Agreement of Sale and Purchase relating to the EYBL CarTex Building (Exhibit 10.54 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.49

Agreement of Purchase and Sale relating to the Sprint Building (Exhibit 10.5 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657)

 

 

*10.50

Agreement of Sale and Purchase relating to the Johnson Matthey Building (Exhibit 10.6 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657)

 

 

*10.51

Fifth Amendment to Lease for the Johnson Matthey Building (Exhibit 10.7 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657)

 


38


 

 

*10.52

Agreement of Purchase and Sale relating to the Gartner Building (Exhibit 10.63 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32009)

 

 

*10.53

Lease Agreement for the Gartner Building (Exhibit 10.64 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.54

Agreement for the Purchase and Sale of Real Property relating to the ABB Richmond Property (Exhibit 10.58 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.55

Development Agreement for the ABB Richmond Project (Exhibit 10.59 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.56

Owner-Contractor Agreement for the ABB Richmond Project (Exhibit 10.60 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.57

Lease Agreement for the ABB Richmond Project (Exhibit 10.61 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)

 

 

*10.58

Second Amendment to Lease Agreement for the ABB Richmond Project (Exhibit 10.34 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.59

Agreement for Purchase and Sale relating to the Marconi Building (formerly the Videojet Building) (Exhibit 10.62 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32009)

 

 

*10.60

Agreement for the Purchase and Sale of Property relating to the Cinemark Building (Exhibit 10.38 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.61

Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark Building (Exhibit 10.39 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.62

Lease Agreement with The Coca-Cola Company for a portion of the Cinemark Building (Exhibit 10.40 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.63

Amended and Restated Articles of Incorporation of Wells Real Estate Investment Trust, Inc. (Exhibit 3.1 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.64

Agreement of Limited Partnership of Wells Operating Partnership, L.P. as Amended and Restated as of January 1, 2000 (Exhibit 10.64 to Form 10-K of Wells Real Estate Investment Trust, Inc. for the fiscal year ended December 31, 2000, Commission File No. 0-25739)

 


39


 

 

*10.65

Advisory Agreement dated January 30, 2000 (Exhibit 10.37 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.66

Amended and Restated Property Management and Leasing Agreement (Exhibit 10.3 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.67

Lease Agreement for the Metris Building (Exhibit 10.43 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.68

Promissory Note for $26,725,000 for the Bank of America Loan (Exhibit 10.44 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.69

Mortgage, Assignment and Security Agreement for the Marconi Building and the AT&T Building securing the Bank of America Loan (Exhibit 10.45 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.70

Assumption and Modification Agreement for the Metris Loan (Exhibit 10.42 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.71

Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint Venture Partnership (Exhibit 10.11 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657)

 

 

*10.72

Office Lease for the Siemens Building (Exhibit 10.13 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657)

 

 

*10.73

Lease Agreement for the Dial Building (Exhibit 10.47 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.74

First Amendment to Lease Agreement for the Dial Building (Exhibit 10.48 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.75

Lease Agreement for the ASML Building (Exhibit 10.51 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.76

First Amendment to Lease Agreement for the ASML Building (Exhibit 10.52 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 


40


 

 

*10.77

Ground Lease Agreement for the ASML Building (Exhibit 10.53 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.78

First Amendment to Ground Lease Agreement for the ASML Building (Exhibit 10.54 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.79

Lease Agreement for the Motorola Tempe Building (Exhibit 10.56 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.80

First Amendment to Lease Agreement for the Motorola Tempe Building (Exhibit 10.57 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.81

Ground Lease Agreement for the Motorola Tempe Building (Exhibit 10.58 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.82

Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint Venture (Exhibit 10.47 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.83

Lease Agreement for the Quest Building (Exhibit 10.51 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.84

Lease Agreement for the Avnet Building (Exhibit 10.48 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.85

Ground Lease Agreement for the Avnet Building (Exhibit 10.49 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.86

Lease Agreement for the Delphi Building (Exhibit 10.50 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.87

Loan Agreement with SouthTrust Bank, N.A. for $35,000,000 revolving line of credit dated May 3, 2000 (Exhibit 10.70 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.88

Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (Exhibit 10.71 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.89

Deed of Trust and Security Agreement with SouthTrust, N.A. relating to the Cinemark Building (Exhibit 10.72 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 


41


 

 

*10.90

Deed of Trust and Security Agreement with SouthTrust, N.A. relating to the Dial Building (Exhibit 10.73 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.91

Leasehold Deed of Trust and Security Agreement with SouthTrust, N.A. relating to the ASML Building (Exhibit 10.74 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.92

Lease Agreement for the Motorola Building in Plainfield, New Jersey (Exhibit 10.56 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.93

First Amendment to Lease Agreement for the Motorola Building in Plainfield, New Jersey (Exhibit 10.57 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933)

 

 

*10.94

Ground Lease Agreement for the Motorola Building in Plainfield, New Jersey (Exhibit 10.58 to Form S-11 Registration Statement, as amended to date, Commission File No. 333-83933)

 

 

*10.95

Allonge to Revolving Note relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (Exhibit 10.55 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.96

First Amendment to Revolving Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $32,393,000 revolving line of credit (Exhibit 10.56 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.97

Second Note Modification Agreement relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (Exhibit 10.57 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.98

Second Amendment to Amended and Restated Loan Agreement and Other Loan Documents relating to the SouthTrust Bank N.A. $12,844,000 revolving line of credit (Exhibit 10.58 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.99

Revolving Note relating to the SouthTrust N.A. $19,003,000 revolving line of credit (Exhibit 10.59 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.100

Revolving Loan Agreement relating to the SouthTrust Bank N.A. $19,003,000 revolving line of credit (Exhibit 10.60 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.101

Leasehold Deed of Trust and Security Agreement with SouthTrust Bank N.A. relating to the Motorola Tempe Building and the Avnet Building (Exhibit 10.61 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 


42


 

 

*10.102

Amended and Restated Revolving Note relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (Exhibit 10.62 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.103

Amended and Restated Loan Agreement relating to the SouthTrust Bank N.A. $7,900,000 revolving line of credit (Exhibit 10.63 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.104

Credit Line Deed of Trust and Security Agreement to SouthTrust Bank N.A. relating to the Alstom Power Richmond Building (Exhibit 10.64 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.105

First Amendment to Credit Line Deed of Trust and Security Agreement to SouthTrust Bank N.A. relating to the Alstom Power Richmond Building (Exhibit 10.65 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.106

Agreement for Purchase and Sale of Property for the Stone & Webster Building (Exhibit 10.66 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.107

First Amendment to Agreement for Purchase and Sale of Property for the Stone & Webster Building (Exhibit 10.67 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.108

Promissory Note for $35,900,000 for the Guaranty Federal Bank Loan (Exhibit 10.68 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.109

Deed of Trust, Mortgage and Security Agreement with Guaranty Federal Bank, F.S.B., relating to the Stone & Webster Building (Exhibit 10.69 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.110

Promissory Note for $3,000,000 for the Cardinal Paragon Loan (Exhibit 10.70 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.111

Deed of Trust with Cardinal Paragon, Inc. relating to the Stone & Webster Building (Exhibit 10.71 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.112

Lease Agreement with Stone & Webster, Inc. for a portion of the Stone & Webster Building (Exhibit 10.72 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.113

Lease Agreement with Sysco Corporation for a portion of the Stone & Webster Building (Exhibit 10.73 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 


43


 

 

*10.114

Purchase Agreement for Metris Minnetonka Building (Exhibit 10.74 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.115

Lease Agreement for the Metris Minnetonka Building (Exhibit 10.75 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.116

Fourth Amendment to Lease Agreement for the Metris Minnetonka Building (Exhibit 10.76 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.117

Guaranty of Lease for the Metris Minnetonka Building (Exhibit 10.77 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.118

Agreement for the Purchase and Sale of Property for the AT&T Call Center Buildings in Oklahoma City, Oklahoma (Exhibit 10.14 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 333-66657)

 

 

*10.119

First Amendment to Agreement for the Purchase and Sale of Property for the AT&T Call Center Buildings in Oklahoma City, Oklahoma (Exhibit 10.15 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 333-66657)

 

 

*10.120

Lease Agreement with AT&T Corp. for a portion of the AT&T Call Center Buildings in Oklahoma City, Oklahoma (Exhibit 10.16 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 333-66657)

 

 

*10.121

Lease Agreement with Jordan Associates, Inc. for a portion of the AT&T Call Center Buildings in Oklahoma City, Oklahoma (Exhibit 10.17 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 333-66657)

 

 

*10.122

Advisory Agreement dated January 30, 2001 (Exhibit 10.2 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.123

Agreement for the Purchase and Sale of Property for the Comdata Building (Exhibit 10.82 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.124

Lease Agreement for the Comdata Building (Exhibit 10.83 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.125

First Amendment to Lease Agreement for the Comdata Building (Exhibit 10.84 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.126

Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint Venture Partnership (Exhibit 10.85 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 


44


 

 

*10.127

Agreement for the Purchase and Sale of Property for the AmeriCredit Building (Exhibit 10.86 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.128

Lease Agreement for the AmeriCredit Building (Exhibit 10.87 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.129

Agreement for the Purchase and Sale of Property for the State Street Building (Exhibit 10.88 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.130

Lease Agreement for the State Street Building (Exhibit 10.89 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.131

Agreement for the Purchase and Sale of Property for the IKON Buildings (Exhibit 10.90 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.132

Lease Agreement for the IKON Buildings (Exhibit 10.91 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.133

First Amendment to Lease Agreement for the IKON Buildings (Exhibit 10.92 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.134

Reinstatement of and Second Amendment to Lease Agreement for the IKON Buildings (Exhibit 10.93 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.135

Agreement of Sale for the Nissan Property (Exhibit 10.94 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.136

Lease Agreement for the Nissan Property (Exhibit 10.95 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.137

Guaranty of Lease for the Nissan Property (Exhibit 10.96 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.138

Development Agreement for the Nissan Property (Exhibit 10.97 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.139

Architect Agreement for the Nissan Property (Exhibit 10.98 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.140

Design and Build Construction Agreement for the Nissan Property (Exhibit 10.99 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.141

Agreement for the Purchase and Sale of Property for the Ingram Micro Distribution Facility (Exhibit 10.100 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 


45


 

 

*10.142

Indenture of Lease Agreement for Ingram Micro Distribution Facility (Exhibit 10.101 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.143

Guaranty of Lease Agreement for Ingram Micro Distribution Facility (Exhibit 10.102 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.144

Absolute Assignment of Lease and Assumption Agreement for Ingram Micro Distribution Facility (Exhibit 10.103 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.145

Bond Real Property Lease Agreement for the Ingram Micro Distribution Facility (Exhibit 10.104 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.146

Agreement for the Purchase and Sale of Property for the Lucent Building (Exhibit 10.105 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.147

Lease Agreement for the Lucent Building (Exhibit 10.106 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.148

Second Amendment to Lease Agreement for Matsushita Building (Exhibit 10.107 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.149

Agreement for the Purchase and Sale of Property for the Convergys Building (Exhibit 10.109 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.150

Lease Agreement for the Convergys Building (Exhibit 10.110 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.151

Purchase Agreement for the ADIC Buildings (Exhibit 10.6 to Form S-11 Registration Statement of Wells Real Estate Fund XIII, L.P., as amended to date, Commission File No. 333-48984)

 

 

*10.152

Purchase Agreement for the land immediately adjacent to the ADIC Buildings (Exhibit 10.7 to the Form S-11 Registration Statement of Wells Real Estate Fund XIII, L.P., as amended to date, Commission File No. 333-48984)

 

 

*10.153

Lease Agreement for the ADIC Buildings (Exhibit 10.8 to the Form S-11 Registration Statement of Wells Real Estate Fund XIII, L.P., as amended to date, Commission File No. 333-48984)

 

 

*10.154

Agreement for Purchase and Sale of the Windy Point Buildings (Exhibit 10.114 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.155

Lease Agreement with TCI Great Lakes, Inc. for a portion of the Windy Point I Building (Exhibit 10.115 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.156

First Amendment to Office Lease with TCI Great Lakes, Inc. (Exhibit 10.116 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 


46


 

 

*10.157

Lease Agreement with The Apollo Group, Inc. for a portion of the Windy Point I Building (Exhibit 10.117 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.158

Lease Agreement with Global Knowledge Network, Inc. for a portion of the Windy Point I Building (Exhibit 10.118 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.159

Lease Agreement with Zurich American Insurance Company for the Windy Point II Building (Exhibit 10.119 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.160

Third Amendment to Office Lease with Zurich American Insurance Company (Exhibit 10.120 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.161

Advisory Agreement dated January 30, 2002 (Exhibit 10.1 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.162

Lease Agreement with Transocean Deepwater Offshore Drilling, Inc. for a portion of the Transocean Houston Building (Exhibit 10.60 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.163

Lease Agreement with Newpark Drilling Fluids, Inc. for a portion of the Transocean Houston Building (Exhibit 10.61 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.164

Lease Agreement for the Dana Detroit Building (Exhibit 10.62 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.165

Second Amendment to Lease Agreement for the Dana Detroit Building (Exhibit 10.63 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.166

Lease Agreement for the Dana Kalamazoo Building (Exhibit 10.64 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.167

Second Amendment to Lease Agreement for the Dana Kalamazoo Building (Exhibit 10.65 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-44900)

 

 

*10.168

Purchase and Sale Agreement for the Experian/TRW Buildings (Exhibit 10.66 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.169

Lease Agreement for the Experian/TRW Buildings (Exhibit 10.67 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.170

Lease Amendment to Lease Agreement for the Experian/TRW Buildings (Exhibit 10.68 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 


47


 

 

*10.171

Purchase and Sale Agreement and Escrow Instructions for the Agilent Boston Building (Exhibit 10.69 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.172

Lease Agreement for the Agilent Boston Building (Exhibit 10.70 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.173

Purchase and Sale Agreement for the TRW Denver Building (Exhibit 10.71 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.174

Lease Agreement for the TRW Denver Building (Exhibit 10.72 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.175

Purchase and Sale Agreement for the MFS Phoenix Building (Exhibit 10.73 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.176

Lease Agreement for the MFS Phoenix Building (Exhibit 10.74 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.177

Purchase and Sale Agreement for the ISS Atlanta Buildings Exhibit 10.75 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.178

Lease Agreement for the ISS Atlanta Buildings (Exhibit 10.76 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.179

Amendment No. 5 to Lease Agreement for the ISS Atlanta Buildings (Exhibit 10.77 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.180

Ground Lease Agreement for ISS Atlanta Buildings (Exhibit 10.78 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.181

Purchase and Sale Agreement for the Nokia Dallas Buildings (Exhibit 10.79 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.182

Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (Exhibit 10.80 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.183

Amendment to Lease Agreement for Building No. 1 of the Nokia Dallas Buildings (Exhibit 10.81 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.184

Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (Exhibit 10.82 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.185

Amendment to Lease Agreement for Building No. 2 of the Nokia Dallas Buildings (Exhibit 10.83 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 


48


 

 

*10.186

Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (Exhibit 10.84 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.187

Amendment to Lease Agreement for Building No. 3 of the Nokia Dallas Buildings (Exhibit 10.85 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.188

Agreement of Sale for the KeyBank Parsippany Building Exhibit 10.86 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.189

Lease Agreement with KeyBank U.S.A., N.A. for a portion of the KeyBank Parsippany Building (Exhibit 10.87 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.190

Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (Exhibit 10.88 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.191

Amendment to Lease Agreement with Gemini Technology Services for a portion of the KeyBank Parsippany Building (Exhibit 10.89 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.192

Purchase and Sale Agreement for NASA Buildings (Exhibit 10.90 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.193

Lease Agreement with the Office of the Comptroller of the Currency and amendments thereto (Exhibit 10.91 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.194

Lease Agreement with the United States of America (NASA) and amendments thereto (Exhibit 10.92 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.195

Agreement of Purchase and Sale for Nestle Building (Exhibit 10.93 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.196

Loan Agreement for $90,000,000 loan assumed with Landesbank Schleswig-Holstein Gironzentrale, Kiel (Exhibit 10.94 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.197

Lease Agreement for Nestle Building (Exhibit 10.95 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

*10.198

Various amendments to Lease Agreement for Nestle Building (Exhibit 10.96 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-85848)

 

 

99.1

Certificate of Chief Executive Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002

 

 

99.2

Certificate of Chief Financial Officer pursuant to Section 906 of the Sarbanes- Oxley Act of 2002



49

 


 


INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

 

Financial Statements

 

Page


 


 

 

 

Report of Independent Auditors – Ernst & Young LLP

 

F-2

 

 

 

Report of Independent Public Accountants – Arthur Andersen LLP

 

F-3

 

 

 

Consolidated Balance Sheets as of December 31, 2002 and 2001

 

F-4

 

 

 

Consolidated Statements of Income for the Years ended December 31, 2002, 2001 and 2000

 

F-5

 

 

 

Consolidated Statements of Shareholders’ Equity for the Years Ended December 31, 2002, 2001 and 2000

 

F-6

 

 

 

Consolidated Statements of Cash Flows for the Years Ended December 31, 2002, 2001 and 2000

 

F-7

 

 

 

Notes to Consolidated Financial Statements for the Years Ended December 31, 2002, 2001, and 2000

 

F-8



F-1


REPORT OF INDEPENDENT AUDITORS

Board of Directors and Shareholders
Wells Real Estate Investment Trust, Inc.

We have audited the accompanying consolidated balance sheet of Wells Real Estate Investment Trust, Inc. and subsidiaries as of December 31, 2002 and the related consolidated statements of income, shareholders’ equity, and cash flows for the year then ended. Our audit also included the financial statement schedule listed in the index at Item 15(a) as of December 31, 2002. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audit. The financial statements and schedule of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001, and for the years ended December 31, 2001 and 2000 were audited by other auditors who have ceased operations and whose report dated January 25, 2002 expressed an unqualified opinion on those financial statements and schedule before the restatement adjustments and disclosures described in Note 2.

We conducted our audit in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the 2002 financial statements referred to above present fairly, in all material respects, the consolidated financial position of Wells Real Estate Investment Trust, Inc. and subsidiaries at December 31, 2002 and the consolidated results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States. Also, in our opinion, the related 2002 financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

As discussed above, the financial statements of Wells Real Estate Investment Trust, Inc. and subsidiary as of December 31, 2001 and for the years ended December 31, 2001 and 2000 were audited by other auditors who have ceased operations. As described in Note 2, these financial statements have been restated. We audited the adjustments described in Note 2 that were applied to restate the 2001 and 2000 financial statements. Our procedures included (a) agreeing the amounts in the restatement adjustments columns to the corresponding accounts maintained in the underlying records of the Company, and (b) testing the application of the adjustments to the historical amounts. In our opinion, such adjustments are appropriate and have been properly applied. Additionally, as described in Note 2, these financial statements have been revised to include disclosure of the number of weighted average shares outstanding for the years ended December 31, 2001 and 2000 on the consolidated statements of income. Our audit procedures with respect to this disclosure included recalculating the number of weighted average shares outstanding for the years ended December 31, 2001 and 2000 by dividing the net income amount previously reported on the consolidated statements of income in 2001 and 2000 by the earnings per share amount previously reported on the consolidated statements of income in 2001 and 2000. In our opinion, the disclosure of the number of weighted average shares outstanding on the consolidated statements of income for the years ended December 31, 2001 and 2000 is appropriate. However, we were not engaged to audit, review, or apply any procedures to the 2001 and 2000 financial statements of Wells Real Estate Investment Trust, Inc. and subsidiary other than with respect to such restatement adjustments and disclosures and, accordingly, we do not express an opinion or any other form of assurance on the 2001 and 2000 financial statements taken as a whole.

As discussed in Note 2, in 2002 the Company adopted Statement of Financial Accounting Standards No. 141, “Business Combinations” and No. 142, “Goodwill and Other Intangible Assets”.

 

 

 

 

   

 /s/ ERNST & YOUNG LLP

 

 

 

   

 

Atlanta, Georgia
January 24, 2003

 

 

   

 

 

 

 

F-2


(The following is a copy of the audit report previously issued by Arthur Andersen LLP in connection with the consolidated financial statements of Wells Real Estate Investment Trust, Inc. for the fiscal year ended December 31, 2001 included in the previous year’s Form 10-K. This audit report has not been reissued by Arthur Andersen in connection with the filing of this Form 10-K for the fiscal year ended December 31, 2002.)

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

 

 

 


 

 

F-3


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

DECEMBER 31, 2002 and 2001
(in thousands, except share amounts)

 

 

 

2002

 

2001

 

 

 

 


 


 

 

ASSETS

 

 

 

 

 

 

REAL ESTATE ASSETS, AT COST:

 

 

 

 

 

 

Land

 

$

    279,185

 

$

      86,247

 

 

Buildings and improvements, less accumulated depreciation of $63,594 and $24,814 at December 31, 2002 and 2001, respectively

 

1,683,036

 

472,383

 

 

Construction in progress

 

42,746

 

5,739

 

 

 

 


 


 

 

Total real estate assets

 

2,004,967

 

564,369

 

 
           

INVESTMENTS IN JOINT VENTURES

 

83,915

 

77,410

 

 

CASH AND CASH EQUIVALENTS

 

45,464

 

75,586

 

 

RENT RECEIVABLE

 

19,321

 

6,003

 

 

DEFERRED PROJECT COSTS

 

1,494

 

2,977

 

 

DUE FROM AFFILIATES

 

1,961

 

1,693

 

 

PREPAID EXPENSES AND OTHER ASSETS, NET

 

4,407

 

718

 

 

DEFERRED LEASE ACQUISITION COSTS, NET

 

1,638

 

1,525

 

 

INTANGIBLE LEASE ASSET

 

12,060

 

 

 

INVESTMENT IN BONDS

 

54,500

 

22,000

 

 

 

 


 


 

 

Total assets

 

$

2,229,727

 

$

   752,281

 

 

 

 



 



 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

 

 

 

 

 

LIABILITIES:

 

 

 

 

 

Notes payable

 

$

    248,195

 

$

        8,124

 

Obligations under capital leases

 

54,500

 

22,000

 

Intangible lease liability

 

32,697

 

 

Accounts payable and accrued expenses

 

24,580

 

8,727

 

Due to affiliate

 

15,975

 

2,166

 

Dividends payable

 

6,046

 

1,059

 

Deferred rental income

 

11,584

 

662

 

 

 


 


 

Total liabilities

 

393,577

 

42,738

 

 

 


 


 

 

 

 

 

 

 

COMMITMENTS AND CONTINGENCIES

 

 

 

 

 

 

 

 

 

 

 

MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP

 

200

 

200

 

 

 


 


 

 

 

 

 

 

 

SHAREHOLDERS' EQUITY:

 

 

 

 

 

Common shares, $.01 par value; 750,000,000 shares authorized, 217,790,874 shares issued, and 215,699,717 shares outstanding at December 31, 2002 and 125,000,000 shares authorized, 83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001

 

2,178

 

838

 

Additional paid-in capital

 

1,929,381

 

738,236

 

Cumulative distributions in excess of earnings

 

(74,310

)

(24,181

)

Treasury stock, at cost, 2,091,157 shares at December 31, 2002 and 555,040 shares at December 31, 2001

 

(20,912

)

(5,550

)

Other comprehensive loss

 

(387

)

 

 

 


 


 

Total shareholders’ equity

 

1,835,950

 

709,343

 

 

 


 


 

Total liabilities and shareholders’ equity

 

$

2,229,727

 

$

   752,281

 

 

 



 



 


See accompanying notes.


F-4


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands, except per share amounts)

 

 

 

2002

 

2001

 

2000

 

 

 


 


 


 

 

 

 

 

 

 

 

 

REVENUES:

 

 

 

 

 

 

 

Rental income

 

$

 107,526

 

$

44,204

 

$

 20,505

 

Tenant reimbursements

 

18,992

 

6,830

 

2,318

 

Equity in income of joint ventures

 

4,700

 

3,721

 

2,294

 

Lease termination income

 

1,409

 

 

 

Interest and other income

 

7,001

 

1,521

 

574

 

 

 


 


 


 

 

 

139,628

 

56,276

 

25,691

 

 

 


 


 


 

EXPENSES:

 

 

 

 

 

 

 

Depreciation

 

38,780

 

15,345

 

7,743

 

Interest expense

 

4,638

 

4,181

 

4,200

 

Property operating costs

 

26,949

 

10,901

 

3,206

 

Management and leasing fees

 

5,155

 

2,507

 

1,310

 

General and administrative

 

3,244

 

1,169

 

439

 

Legal and accounting

 

1,008

 

449

 

240

 

 

 


 


 


 

 

 

79,774

 

34,552

 

17,138

 

 

 


 


 


 

NET INCOME

 

$

   59,854

 

$

21,724

 

$

   8,553

 

 

 



 



 



 

 

 

 

 

 

 

 

 

EARNINGS PER SHARE:

 

 

 

 

 

 

 

Basic and diluted

 

$

       0.41

 

$

    0.43

 

$

     0.40

 

 

 



 



 



 

 

 

 

 

 

 

 

 

WEIGHTED AVERAGE SHARES OUTSTANDING:

 

 

 

 

 

 

 

Basic and diluted

 

 

145,633

 

 

51,082

 

 

21,616

 

 

 



 



 



 


See accompanying notes.


F-5


 

WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands, except per share amounts)

 

 

 

Common Stock

 

Additional
Paid-In 

Capital

 

Cumulative
Distributions

in Excess of

Earnings 

 

 

 

Treasury Stock

 

Other
Comprehensive
Income 

 

Total
Shareholders’
Equity 

 

 

 


 

 

 

 

 


 

 

 

 

 

Shares

 

Amount

 

 

 

Retained
Earnings

 

Shares

 

Amount

 

 

 

 

 


 


 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BALANCE, December 31, 1999

 

13,471

 

$

135

 

$

117,738

 

$

(1,857

)

$

 

 

$

 

$

 

$

116,016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

18,039

 

180

 

180,207

 

 

 

 

 

 

180,387

 

Treasury stock purchased

 

 

 

 

 

 

(141

)

(1,413

)

 

(1,413

)

Dividends ($0.73 per share)

 

 

 

 

(7,276

)

(8,553

)

 

 

 

(15,829

)

Sales commissions and dealer manager fees

 

 

 

(17,003

)

 

 

 

 

 

(17,003

)

Other offering costs

 

 

 

(5,369

)

 

 

 

 

 

(5,369

)

Net income

 

 

 

 

 

8,553

 

 

 

 

8,553

 

 

 


 


 


 


 


 


 


 


 


 

BALANCE, December 31, 2000

 

31,510

 

315

 

275,573

 

(9,133

)

 

(141

)

(1,413

)

 

265,342

 

 

 


 


 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

52,251

 

523

 

521,994

 

 

 

 

 

 

522,517

 

Treasury stock purchased

 

 

 

 

 

 

(414

)

(4,137

)

 

(4,137

)

Dividends ($0.76 per share)

 

 

 

 

(15,048

)

(21,724

)

 

 

 

(36,772

)

Sales commissions and dealer manager fees

 

 

 

(49,246

)

 

 

 

 

 

(49,246

)

Other offering costs

 

 

 

(10,085

)

 

 

 

 

 

(10,085

)

Net income

 

 

 

 

 

21,724

 

 

 

 

21,724

 

 

 


 


 


 


 


 


 


 


 


 

BALANCE, December 31, 2001

 

83,761

 

838

 

738,236

 

(24,181

)

 

(555

)

(5,550

)

 

709,343

 

 

 


 


 


 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Issuance of common stock

 

134,030

 

1,340

 

1,338,953

 

 

 

 

 

 

1,340,293

 

Treasury stock purchased

 

 

 

 

 

 

(1,536

)

(15,362

)

 

(15,362

)

Dividends ($0.76 per share)

 

 

 

 

(50,129

)

(59,854

)

 

 

 

(109,983

)

Sales commissions and dealer manager fees

 

 

 

(127,332

)

 

 

 

 

 

(127,332

)

Other offering costs

 

 

 

(20,476

)

 

 

 

 

 

(20,476

)

Components of comprehensive income:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Net income

 

 

 

 

 

59,854

 

 

 

 

59,854

 

Loss on interest rate swap

 

 

 

 

 

 

 

 

(387

)

(387

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Comprehensive income

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

59,467

 

 

 


 


 


 


 


 


 


 


 


 

BALANCE, December 31, 2002

 

217,791

 

$

2,178

 

$

1,929,381

 

$

(74,310

)

$

 

(2,091

)

$

(20,912

)

$

(387

)

$

1,835,950

 

 

 



 



 



 



 



 



 



 



 



 

 

See accompanying notes.

 

F-6


 

WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

FOR THE YEARS ENDED DECEMBER 31, 2002, 2001, AND 2000
(in thousands)

 

 

 

2002

 

2001

 

2000

 

 

 


 


 


 

CASH FLOWS FROM OPERATING ACTIVITIES:

 

 

 

 

 

 

 

Net income

 

$

59,854

 

$

21,724

 

$

8,553

 

 

 



 



 



 

Adjustments to reconcile net income to net cash provided by operating activities:

 

 

 

 

 

 

 

Equity in income of joint ventures

 

(4,700

)

(3,721

)

(2,294

)

Depreciation

 

38,780

 

15,345

 

7,743

 

Amortization of deferred financing costs

 

845

 

 

770

 

233

 

Amortization of deferred lease acquisition costs

 

303

 

303

 

351

 

Land received in lease termination

 

(430

)

 

 

Write-off of deferred lease acquisition costs

 

 

62

 

 

Changes in assets and liabilities:

 

 

 

 

 

 

 

Rent receivable

 

(13,318

)

(2,222

)

(2,458

)

Due from affiliates

 

(185

)

11

 

(436

)

Prepaid expenses and other assets, net

 

(3,248

)

3,246

 

(6,827

)

Accounts payable and accrued expenses

 

15,853

 

6,561

 

1,942

 

Deferred rental income

 

10,922

 

280

 

146

 

Due to affiliates

 

(104

)

(10

)

367

 

 

 


 


 


 

Total adjustments

 

44,718

 

20,625

 

(1,233

)

 

 


 


 


 

Net cash provided by operating activities

 

104,572

 

42,349

 

7,320

 

 

 


 


 


 

CASH FLOWS FROM INVESTING ACTIVITIES:

 

 

 

 

 

 

 

Investment in real estate assets

 

(1,308,759

)

(227,934

)

(231,518

)

Contributions to joint ventures

 

(8,910

)

(33,691

)

(15,064

)

Investment in intangible lease asset

 

(12,060

)

 

 

Deferred project costs paid

 

(39,797

)

(17,220

)

(6,264

)

Deferred lease acquisition costs paid

 

(400

)

 

 

Distributions received from joint ventures

 

7,388

 

4,239

 

3,529

 

 

 


 


 


 

Net cash used in investing activities

 

(1,362,538

)

(274,606

)

(249,317

)

 

 


 


 


 

CASH FLOWS FROM FINANCING ACTIVITIES:

 

 

 

 

 

 

 

Proceeds from notes payable

 

212,906

 

110,243

 

187,633

 

Repayments of notes payable

 

(62,835

)

(229,782

)

(83,899

)

Dividends paid to shareholders

 

(104,996

)

(36,737

)

(16,971

)

Issuance of common stock

 

1,340,293

 

522,517

 

180,387

 

Treasury stock purchased

 

(15,362

)

(4,137

)

(1,413

)

Sales commissions and dealer manager fees paid

 

(127,332

)

(49,246

)

(17,003

)

Other offering costs paid

 

(13,156

)

(9,313

)

(5,369

)

Deferred financing costs paid

 

(1,674

)

 

 

 

 


 


 


 

Net cash provided by financing activities

 

1,227,844

 

303,545

 

243,365

 

 

 


 


 


 

NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS

 

(30,122

)

71,288

 

1,368

 

 

 

 

 

 

 

 

 

CASH AND CASH EQUIVALENTS, beginning of year

 

75,586

 

4,298

 

2,930

 

 

 


 


 


 

CASH AND CASH EQUIVALENTS, end of year

 

$

45,464

 

$

75,586

 

$

4,298

 

 

 



 



 



 


See accompanying notes.


F-7


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

1.         ORGANIZATION

Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation that qualifies as a real estate investment trust (“REIT”). The Company was incorporated in 1997 and commenced operations on June 5, 1998.

The Company engages in the acquisition and ownership of commercial real estate properties, throughout the United States, including properties which are under construction, are newly constructed or have operating histories. At December 31, 2002, the Company has invested in commercial and industrial real estate assets, either directly or through joint ventures with 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., (“Wells OP”), a Delaware limited partnership, and its subsidiaries. Wells OP was formed to acquire, develop, own, lease, and operate real properties on behalf of the Company, either directly, through wholly-owned subsidiaries, or through joint ventures. The Company is the sole general partner in Wells OP and possesses full legal control and authority over the operations of Wells OP. In addition, the Company owns Wells REIT-Independence Square, LLC (“Wells REIT-Independence”), a single member Georgia limited liability company. Wells REIT-Independence was formed for the purpose of acquiring two office buildings located in Washington, D.C. (the “NASA Buildings”). Wells OP, and its subsidiaries, and Wells REIT-Independence comprise the Company’s subsidiaries.

The Company has initiated four offerings of the Company’s stock as follows:

 

Offering #

 

Date Commenced

 

Termination Date

 

Gross Proceeds

 

Shares Issued


 


 


 


 


1

 

January 30, 1998

 

December 19, 1999

 

$    132.2 million

 

13.2 million

2

 

December 20, 1999

 

December 19, 2000

 

$    175.2 million

 

17.5 million

3

 

December 20, 2000

 

July 26, 2002

 

$ 1,283.0 million

 

128.3 million

4

 

July 26, 2002

 

Offering will terminate on or before July 25, 2004

 

$    587.5 million

(through December 31, 2002)

 

58.8 million

(through December 31, 2002)

Total as of December 31, 2002

 

 

 

 

 

$ 2,177.9 million

 

217.8 million

 

 

 

 

After payment of $75.5 million in acquisition and advisory fees and acquisition expenses to the Advisor, payment of $206.4 million in selling commissions, payment of $40.0 million in organization and offering expenses to the Advisor, investment in real estate assets and joint ventures of $1,808.5 million, and common stock redemptions of $20.9 million pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of approximately $26.6 million available for investment in properties at December 31, 2002.

The Company’s stock is not listed on a national exchange. However, the Company’s Articles of Incorporation currently require that, in the event that the Company’s stock is not listed on a national exchange by January 30, 2008, the Company must begin liquidating its investments and distributing the resulting proceeds to the shareholders.


F-8


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

2.         SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Principles of Consolidation and Basis of Presentation

The consolidated financial statements include the accounts of the Company, Wells OP and its subsidiaries, and Wells REIT-Independence. The financial statements of the Company’s subsidiaries are prepared using accounting policies consistent with the Company. All significant inter-company balances and transactions have been eliminated in consolidation.

Use of Estimates

The preparation of the consolidated financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Investments in Joint Ventures

The Company and its subsidiaries do not consolidate investments in ventures in which the Company or a subsidiary does not control the venture, including joint ventures requiring consent of both partners for all major decisions, regardless of whether the Company or a subsidiary owns a majority interest in the venture. These investments are accounted for using the equity method of accounting, whereby original investments are recorded at cost, and subsequently adjusted for contributions, distributions, and the investor’s share of income or losses of the joint ventures. Allocations of income and loss and distributions 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, which approximates economic ownership. Generally, cash distributions are made from the joint ventures to the investor on a quarterly basis.

Real Estate Assets

Real estate assets are stated at cost, less accumulated depreciation. Amounts capitalized to real estate assets consist of the cost of acquisition or construction, and any tenant improvements or major improvements and betterments which extend the useful life of the related asset. All repairs and maintenance are expensed as incurred. Additionally, the Company capitalizes interest when development of a real estate asset is in progress. Approximately $0.8 million, $0.1 million, and $0.2 million of interest was capitalized for the years ended December 31, 2002, 2001, and 2000, respectively.

The estimated useful lives of the Company’s real estate assets by class are as follows:

 

Buildings

 

25 years      

Building improvements

 

10-25 years

Land improvements

 

20-25 years

Tenant Improvements

 

Lease term 


F-9


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

Management continually monitors events and changes in circumstances that could indicate that carrying amounts of real estate assets may not be recoverable. When indicators of potential impairment are present, management assesses the recoverability of the assets by determining whether the carrying value of the real estate assets will be recovered through the undiscounted future cash flows expected from the use and eventual disposition of the asset. In the event the expected undiscounted future cash flows do not exceed the carrying value, management adjusts the real estate assets to the fair value and recognizes an impairment loss. Management has determined that there has been no impairment in the carrying value of real estate assets held by the Company, its subsidiaries, and any unconsolidated joint ventures to date.

Effective January 1, 2002, the Company adopted the Statement of Financial Accounting Standards No. 144 “Accounting for the Impairment or Disposal of Long Lived Assets” (“SFAS 144”), which supersedes Statement of Financial Accounting Standards No. 121 “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of” (“SFAS 121”) and Accounting Principles Board No. 30 “Reporting the Results of Operations-Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual or Infrequently Occurring Events or Transactions,” with regard to impairment assessment and discontinued operations respectively. In the current year, adoption of this standard did not have a significant impact on the Company, as SFAS 144 did not significantly change the measurement criteria for impairment under SFAS 121 and no properties were disposed of in the current year resulting in discontinued operations.

Cash and Cash Equivalents

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 consists of investments in money market accounts. At December 31, 2002 and 2001, there are no restrictions on the use of the Company’s cash.

Rent Receivable

Receivables are recognized and carried at original amount earned less a provision for any uncollectible amounts, which approximates fair value. An allowance for uncollectible amounts is made when collection of the full amount is no longer probable. Bad debt expense was $0.1 million, $0.0 million, and $0.0 million for the years ended December 31, 2002, 2001, and 2000, respectively.

Deferred Project Costs

The Company pays certain fees to the Advisor with regard to the acquisition of properties which are capitalized to the cost of the properties and depreciated on the same basis and over the respective useful life of the related asset. Deferred project costs represent costs incurred for properties to be acquired.

Prepaid Expenses and Other Assets, net

Prepaid expenses and other assets include deferred financing costs, prepaid property operating expenses, earnest money amounts, and purchase price escrows. Deferred financing costs are capitalized and amortized to interest expense on a straight-line basis over the terms of the related financing arrangement. Accumulated amortization of deferred financing costs totaled $1.2 million and $1.0 million at December 31, 2002 and 2001, respectively.


F-10


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

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 lease. Accumulated amortization of deferred lease acquisition costs totaled $0.8 million and $0.5 million at December 31, 2002 and 2001, respectively. The related amortization expense for deferred lease acquisition costs was $0.3 million, $0.3 million and $0.4 million for the years ended December 31, 2002, 2001, and 2000, respectively, which is included in management and leasing fees in the consolidated statements of income.

Intangible Lease Asset/Liability

On January 1, 2002, the Company adopted Statement of Financial Accounting Standards No. 141 “Business Combinations,” and Statement of Financial Accounting Standards No. 142 “Goodwill and Intangibles”. These standards govern business combinations and asset acquisitions, and the accounting for acquired intangibles. As part of the acquisition of real estate assets, the Company determines whether an intangible asset or liability related to above or below market leases was acquired as part of the acquisition of the real estate. As a result of adopting the standards, amounts totaling $12.1 million have been recorded as intangible lease assets and $32.7 million have been recorded as intangible lease liabilities, relating to above and below market lease arrangements for properties acquired in 2002. The intangible assets and liabilities are recorded at their estimated fair market values at the date of acquisition, and are amortized over the remaining term of the respective lease to rental income. The weighted average amortization period for the intangible lease assets and liabilities was approximately 10 years and 9 years, respectively. These intangibles will be amortized as follows:

 

For the year ending December 31:

 

 

Intangible
Lease Asset
(000s)

 

Intangible
Lease Liability
(000s)


 

 


 


2003

 

$

1,909

 

$

4,144

2004

 

1,909

 

4,144

2005

 

1,807

 

4,144

2006

 

677

 

3,602

2007

 

677

 

2,842

Thereafter

 

5,081

 

13,821

 

 


 


 

 

$

12,060

 

$

32,697

 

 



 




Investments in Bonds and Obligations Under Capital Leases

As a result of certain purchase transactions, the Company has acquired investments in bonds and certain obligations under capital leases. The Company records the bonds and obligations under capital leases at the amounts the Company expects to pay and receive. Because the Company is obligated to pay the indebtedness evidenced by the bonds, the Company has recorded these obligations as liabilities; however, since the Company is also the owner of the bonds, the bonds are carried on the Company’s books as assets. The related offsetting interest amounts are recorded as interest income and interest expense in the period that the amounts accrue. See Note 5 for a more detailed discussion of the bonds and obligations under capital leases.


F-11


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

Notes Payable

All loans are measured at the stated principal amount, which approximates fair value. Interest is charged to interest expense as it accrues, except for interest qualifying for capitalization relating to properties under development.

Dividends Payable and Distribution Policy

The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of the Company’s taxable income. The Company intends to make regular quarterly distributions to shareholders. Currently, dividends are declared in advance of the quarter to which they relate based on a daily rate for the upcoming quarter. Thus, shareholders are entitled to receive dividends immediately upon purchase of shares.

Dividends to be distributed to the shareholders are determined by the board of directors of the Company and are dependent upon a number of factors relating to the Company, including funds available for payment of dividends, financial condition, the timing of property acquisitions, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Internal Revenue Code.

Offering and Related Costs

Offering costs are charged by the Advisor for costs incurred by the Advisor for raising capital for the Company. Such costs include legal and accounting fees, printing costs, sales, promotional, and other offering costs. Such costs, as well as sales commissions and dealer manager fees associated with the offering of shares, which are currently 7% and 2.5%, respectively, of gross offering proceeds, are accounted for as a reduction of equity.

Treasury Stock

The Company currently has a share redemption plan in place whereby the Company acquires shares from shareholders, subject to certain limitations. The Company accounts for these share repurchases using the treasury stock method.

Revenue Recognition

All leases on real estate assets held by the Company or its subsidiaries are classified as operating leases, and the related rental income is recognized on a straight-line basis over the terms of the respective leases. Tenant reimbursements are recognized as revenue in the period that the related operating cost is incurred and therefore contractually earned and billable pursuant to the terms of the underlying lease. Rents paid in advance, which do not qualify for revenue recognition, are deferred to future periods.

Revenues earned relating to lease termination agreements are recognized at the time the tenant loses the right to lease the space and when the Company has earned the right to receive such payments.


F-12


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

Stock-Based Compensation

The Company has adopted the disclosure provisions in Statement of Financial Accounting Standards No. 123 “Accounting and Disclosure for Stock-Based Compensation” (“SFAS 123”). As permitted by the provisions of SFAS 123, the Company applies Accounting Principles Board Opinion No. 25 “Accounting for Stock Issued to Employees” (“APB 25”) and the related interpretations in accounting for its stock option grants to members of the board of directors, and accordingly, does not recognize compensation cost in the consolidated statements of income but instead provides pro forma disclosure in the notes to the consolidated financial statements. For the years ended December 31, 2002, 2001, and 2000, stock option grants did not have any impact on the consolidated statements of income as the fair value at the date of issue for each grant is estimated at $0.

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. Outstanding stock options and warrants have been excluded from the diluted earnings per share calculation as their impact would be anti-dilutive using the treasury stock method, as the exercise price of the options and warrants exceed the stock offering price.

Financial Instruments

The Company considers its cash, accounts receivable, accounts payable, bonds, obligations under capital leases, notes payable, and interest rate swaps to meet the definition of financial instruments. At December 31, 2002 and 2001, the carrying value of the Company’s financial instruments approximated their fair value. Notes payable bear interest based on variable interest rates that periodically adjust to market or are fixed rate debt that is due within twelve months.

Interest Rate Swap Agreements

On January 1, 2001, the Company adopted Statement of Financial Accounting Standards No. 133 “Accounting for Derivative Instruments and Hedging Activities” (“SFAS 133”) as amended by Statement of Financial Accounting Standards No. 137 “Accounting for Derivative Instruments and Hedging Activities – Deferral of the Effective Date of SFAS 133” and Statement of Financial Accounting Standards No. 138 “Accounting for Certain Derivative Instruments and Certain Hedging Activities.” SFAS 133 requires recording all derivative instruments as assets or liabilities, measured at fair value in the consolidated balance sheet. The effect of adopting SFAS 133 did not have a material effect on the Company’s consolidated financial statements.


F-13


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

The Company has entered into certain interest rate swap agreements to minimize the Company’s exposure to increases in interest rates on certain variable interest rate agreements. At the time of entering into the agreement and on an ongoing basis, the Company considers effectiveness of the interest rate swap at hedging the Company’s exposure to interest rate fluctuations. The Company recognizes interest rate swap agreements at fair value at each balance sheet date. If the agreement is deemed to effectively hedge the risk, the corresponding change in value is recorded as an adjustment to other comprehensive income. In the event that the swap is not effective, the corresponding change in fair value of the swap is recorded in the consolidated statements of income. Currently, each interest rate swap agreement entered into by the Company has been deemed effective and therefore reflected as a component of other comprehensive income, with no impact on the consolidated statements of income. The fair value of the swap agreements are included in prepaid and other assets or accounts payable and accrued expenses in the consolidated balance sheets. Net receipts and payments are recognized as adjustments to interest expense.

Income Taxes

The Company has elected to be taxed as a REIT under the Internal Revenue Code of 1986, as amended (the “Code”), and has operated as such beginning with its taxable year ended December 31, 1998. To qualify as a REIT, the Company must meet certain organizational and operational requirements, including a requirement to currently distribute at least 90% (95% in 2000) of the REIT's ordinary taxable income to shareholders. As a REIT, the Company generally will not be subject to federal income tax on taxable income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income taxes on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost unless the Internal Revenue Service granted the Company relief under certain statutory provisions. Such an event could materially adversely affect the Company’s net income and net cash available for distribution to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes. No provision for federal income taxes has been made in the accompanying consolidated financial statements, as the Company made distributions in excess of its taxable income in the years ended December 31, 2002, 2001, and 2000.


F-14


WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARIES

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2002, 2001 AND 2000

Restatement Adjustments and Disclosures

The Company and its joint ventures have historically reported property operating costs net of reimbursements from tenants as an expense in its consolidated statements of income. These costs include property taxes, property insurance, utilities, repairs and maintenance, management fees and other expenses related to the ownership and operation of the Company’s properties that are required to be reimbursed by the properties’ tenants in accordance with the terms of their leases. In response to FASB Emerging Issues Task Force consensus reached in November 2001, the Company and its joint ventures will now present these reimbursements as revenue and the gross property operating costs as expenses. Consequently, the accompanying consolidated statements of income of the Company for the years ended December 31, 2001 and 2000 have been restated to reflect the effects of this revised presentation.

 

 

2001

 

2000

 

 

 


 


 

 

 

As
Previously
Reported
(000s)

 

Restatement
Adjustments
(000s)

 

As
Restated
(000s)

 

As
Previously
Reported
(000s)

 

Restatement
Adjustments
(000s)

 

As
Restated
(000s)

 

 

 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Revenues:

 

 

 

 

 

 

 

 

 

 

 

 

 

Rental income

 

$

44,204

 

$

 

$

44,204

 

$

20,505

 

$

 

$

20,505

 

Tenant reimbursements

 

 

6,830

 

6,830

 

 

2,318

 

2,318

 

Equity in income of joint ventures

 

3,721

 

 

3,721

 

2,294

 

 

2,294

 

Take out fee

 

138

 

(138

)

 

 

 

 

Interest and other income

 

1,246

 

275

 

1,521

 

574

 

 

574

 

 

 


 


 


 


 


 


 

 

 

49,309

 

6,967

 

56,276

 

23,373

 

2,318

 

25,691

 

 

 


 


 


 


 


 


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Expenses: