As filed with the Securities and Exchange Commission on June 10, 2002
Registration No. 333-85848
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_________________
AMENDMENT NO. 1 TO
FORM S-11
REGISTRATION STATEMENT
Under
The Securities Act of 1933
_________________
WELLS REAL ESTATE INVESTMENT TRUST, INC.
(Exact name of registrant as specified in governing instruments)
6200 The Corners Parkway, Suite 250
Norcross, Georgia 30092
(770) 449-7800
(Address, Including Zip Code, and Telephone Number, Including Area Code,
of Registrant's Principal Executive Offices)
Donald Kennicott, Esq.
Michael K. Rafter, Esq.
Holland & Knight LLP
One Atlantic Center, Suite 2000
1201 West Peachtree Street, N.W.
Atlanta, Georgia 30309-3400
(404) 817-8500
(Name, Address, Including Zip Code, and Telephone Number,
Including Area Code, of Registrant's Agent for Service)
_________________
Maryland 58-2328421
(State or other (I.R.S. Employer
Jurisdiction of Incorporation) Identification Number)
_________________
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. ________
If this form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ________
If this form is a post-effective amendment filed pursuant to Rule
462(d) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. ________
If delivery of the prospectus is expected to be made pursuant to Rule
434, check the following box. _________
Approximate date of commencement of proposed sale to the public: As
soon as practicable following effectiveness of this Registration Statement.
_________________
CALCULATION OF REGISTRATION FEE
--------------------------------------------------------------------------------------------
Proposed Proposed
Title of Amount Maximum Maximum Amount of
Securities Being Registered Being Offering Aggregate Registration
Registered Price Offering Price Fee (3)
Per Share
--------------------------------------------------------------------------------------------
Common Stock, $.01 par value 330,000,000 $ 10.00 $3,300,000,000
Common Stock, $.01 par value\\(1)\\ 6,600,000 $ 12.00 $ 79,200,000 $310,887
Soliciting Dealer Warrants\\(2)\\ 6,600,000 $0.0008 $ 5,280
--------------------------------------------------------------------------------------------
(1) Represents shares which are issuable upon exercise of warrants issuable to
Wells Investment Securities, Inc. (the Dealer Manager) or its assignees
pursuant to that certain Warrant Purchase Agreement between the Registrant
and the Dealer Manager.
(2) Represents warrants issuable to the Dealer Manager to purchase 6,600,000
shares pursuant to the Warrant Purchase Agreement.
(3) Registrant previously paid a registration fee of $318,174 upon its initial
filing of the Registration Statement which included an original
registration of 13,200,000 warrants, so the Registrant overpaid its filing
fee by $7,287 and no amounts need to be remitted with this filing.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
Up to 300,000,000 shares offered to the public
___________________________________________
Wells Real Estate Investment Trust, Inc. The most significant risks relating to your
(Wells REIT) is a real estate investment trust. We investment include the following:
invest in commercial real estate properties
primarily consisting of high grade office buildings . lack of a public trading market for
leased to large corporate tenants. We currently the shares;
own interests in ___ real estate properties located
in ____ states.
. reliance on Wells Capital, Inc., our
We are offering and selling to the public advisor, to select properties and
up to 300,000,000 shares for $10 per share and up conduct our operations;
to 30,000,000 shares to be issued pursuant to our
dividend reinvestment plan at a purchase price of . authorization of substantial fees to
$10 per share. We are registering an additional the advisor and its affiliates;
6,600,000 shares for issuance at $12 per share
to participating broker-dealers upon their exercise of . borrowing - which increases the risk of
warrants. loss of our investments; and
You must purchase at least 100 shares for
$1,000. . conflicts of interest facing the
advisor and its affiliates.
You should see the complete discussion of the
risk factors beginning on page ___.
The Offering:
.. The shares will be offered on a best . We will invest approximately 84%
efforts basis to investors at $10 per share. of the offering proceeds raised in
real estate properties, and the
.. We will pay selling commissions to balance will be used to pay fees and
broker-dealers of 7% and a dealer manager fee expenses.
for reimbursement of marketing expenses of 2.5%
out of the offering proceeds raised. . This offering will terminate on or
before _____________, 2004.
Neither the Securities and Exchange Commission, the Attorney General of
the State of New York nor any other state securities regulator has approved or
disapproved of these securities or determined if this prospectus is truthful or
complete. It is a criminal offense if someone tells you otherwise.
The use of projections or forecasts in this offering is prohibited. No
one is permitted to make any oral or written predictions about the cash benefits
or tax consequences you will receive from your investment.
WELLS INVESTMENT SECURITIES, INC.
__________________, 2002
TABLE OF CONTENTS
Questions and Answers About this Offering ............................................... 1
Prospectus Summary ...................................................................... 10
Risk Factors ............................................................................ 17
Investment Risks ...................................................................... 17
Real Estate Risks ..................................................................... 22
Section 1031 Exchange Program Risks ................................................... 25
Federal Income Tax Risks .............................................................. 27
Retirement Plan Risks ................................................................. 28
Suitability Standards ................................................................... 28
Estimated Use of Proceeds ............................................................... 30
Management .............................................................................. 31
General ............................................................................... 31
Committees of the Board of Directors .................................................. 33
Executive Officers and Directors ...................................................... 34
Compensation of Directors ............................................................. 38
Independent Director Stock Option Plan ................................................ 38
Independent Director Warrant Plan ..................................................... 39
2000 Employee Stock Option Plan ....................................................... 40
Limited Liability and Indemnification of Directors, Officers, Employees and Other
Agents ................................................................................ 41
The Advisor ........................................................................... 43
The Advisory Agreement ................................................................ 44
Shareholdings ......................................................................... 46
Affiliated Companies .................................................................. 47
Management Decisions .................................................................. 49
Management Compensation ................................................................. 49
Stock Ownership ......................................................................... 53
Conflicts of Interest ................................................................... 54
Interests in Other Real Estate Programs ............................................... 54
Other Activities of Wells Capital and its Affiliates .................................. 55
Competition ........................................................................... 55
Affiliated Dealer Manager ............................................................. 56
Affiliated Property Manager ........................................................... 56
Lack of Separate Representation ....................................................... 56
Joint Ventures with Affiliates of Wells Capital ....................................... 56
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates ............ 56
Certain Conflict Resolution Procedures ................................................ 57
Investment Objectives and Criteria ...................................................... 58
General ............................................................................... 58
Acquisition and Investment Policies ................................................... 59
Development and Construction of Properties ............................................ 61
Terms of Leases and Tenant Creditworthiness ........................................... 61
Joint Venture Investments ............................................................. 62
Section 1031 Exchange Program ......................................................... 63
Borrowing Policies .................................................................... 64
Disposition Policies .................................................................. 65
Investment Limitations ................................................................ 65
Change in Investment Objectives and Limitations ....................................... 67
i
Description of Real Estate Investments .................................................. 67
General ............................................................................... 67
Joint Ventures with Affiliates ........................................................ 71
Description of Properties ............................................................. 74
Property Management Fees .............................................................. 98
Real Estate Loans ..................................................................... 99
Selected Financial Data ................................................................. 100
Management's Discussion and Analysis of Financial Condition and Results of Operations ... 101
Liquidity and Capital Resources ....................................................... 101
Cash Flows From Operating Activities .................................................. 102
Cash Flow From Investing Activities ................................................... 102
Cash Flows From Financing Activities .................................................. 103
Results of Operations ................................................................. 103
Property Operations ................................................................... 104
Funds from Operations ................................................................. 104
Inflation ............................................................................. 106
Critical Accounting Policies .......................................................... 106
Straight-Lined Rental Revenues ........................................................ 106
Operating Cost Reimbursements ......................................................... 106
Real Estate ........................................................................... 106
Deferred Project Costs ................................................................ 107
Deferred Offering Costs ............................................................... 107
Prior Performance Summary ............................................................... 107
Publicly Offered Unspecified Real Estate Programs ..................................... 108
Federal Income Tax Considerations ....................................................... 117
General ............................................................................... 117
Requirements for Qualification as a REIT .............................................. 118
Failure to Qualify as a REIT .......................................................... 123
Sale-Leaseback Transactions ........................................................... 124
Taxation of U.S. Shareholders ......................................................... 124
Treatment of Tax-Exempt Shareholders .................................................. 126
Special Tax Considerations for Non-U.S. Shareholders .................................. 127
Statement of Stock Ownership .......................................................... 129
State and Local Taxation .............................................................. 129
Tax Aspects of Our Operating Partnership .............................................. 129
ERISA Considerations .................................................................... 132
Plan Asset Considerations ............................................................. 133
Other Prohibited Transactions ......................................................... 135
Annual Valuation ...................................................................... 135
Description of Shares ................................................................... 136
Common Stock .......................................................................... 137
Preferred Stock ....................................................................... 137
Meetings and Special Voting Requirements .............................................. 137
Restriction on Ownership of Shares .................................................... 138
Dividends ............................................................................. 139
Dividend Reinvestment Plan ............................................................ 140
Share Redemption Program .............................................................. 140
Restrictions on Roll-Up Transactions .................................................. 141
Business Combinations ................................................................. 142
Control Share Acquisitions ............................................................ 143
The Operating Partnership Agreement ..................................................... 143
ii
General ...................................................................... 143
Capital Contributions ........................................................ 143
Operations ................................................................... 144
Exchange Rights .............................................................. 145
Transferability of Interests ................................................. 145
Plan of Distribution ........................................................... 146
General ...................................................................... 146
Underwriting Compensation and Terms .......................................... 146
Subscription Procedures ...................................................... 150
Supplemental Sales Material .................................................... 151
Legal Opinions ................................................................. 151
Experts ........................................................................ 152
Audited Financial Statements ................................................. 152
Unaudited Financial Statements ............................................... 152
Additional Information ......................................................... 152
Glossary ....................................................................... 152
Financial Statements ........................................................... 153
Prior Performance Tables ....................................................... 203
Subscription Agreement ......................................................... Exhibit A
Amended and Restated Dividend Reinvestment Plan ................................ Exhibit B
iii
Questions and Answers About this Offering
Below we have provided some of the more frequently asked questions and
answers relating to an offering of this type. Please see the "Prospectus
Summary" and the remainder of this prospectus for more detailed information
about this offering.
Q: What is a REIT?
A: In general, a REIT is a company that:
. pays dividends to investors of at least 90% of its taxable income;
. avoids the "double taxation" treatment of income that generally
results from investments in a corporation because a REIT is not
generally subject to federal corporate income taxes on its net
income, provided certain income tax requirements are satisfied;
. combines the capital of many investors to acquire or provide
financing for real estate properties; and
. offers the benefit of a diversified real estate portfolio under
professional management.
Q: What is Wells Real Estate Investment Trust, Inc.?
A: Our REIT was formed in 1997 as a Maryland corporation to acquire
commercial real estate properties such as high grade office and
industrial buildings and lease them on a triple-net basis to companies
that typically have a net worth in excess of $100,000,000.
Q: Who will choose which real estate properties to invest in?
A: Wells Capital, Inc. (Wells Capital) is our advisor and, as such, manages
our daily affairs and makes recommendations on all property acquisitions
to our board of directors. Our board of directors must approve all of our
property acquisitions.
Q: Who is Wells Capital?
A: Wells Capital is a Georgia corporation formed in 1984. As of
________________, 2002, Wells Capital had sponsored public real estate
programs which have raised in excess of $________________ from
approximately _______________ investors and which own and operate a total
of ____ commercial real estate properties.
Q: Does Wells Capital use any specific criteria when selecting a potential
property acquisition?
A: Yes. Wells Capital generally seeks to acquire office and industrial
buildings located in densely populated suburban markets leased to large
corporations having a net worth in excess of $100,000,000 on a triple-net
basis. Current tenants of public real estate programs sponsored by
1
Wells Capital include The Coca-Cola Company, Motorola, AT&T, Siemens
Automotive, PricewaterhouseCoopers, IBM, and Dial Corporation.
Q. Do you currently own any real estate properties?
A. Yes. As of the date of this prospectus, our REIT has acquired and owns
interests in ____ real estate properties.
We own the following properties directly:
----------------------------------------------------------------------------------------------------------------------------
Property Tenant Building Type Location
Name
----------------------------------------------------------------------------------------------------------------------------
Agilent Boston Agilent Technologies, Inc. Office Building Boxborough, MA
----------------------------------------------------------------------------------------------------------------------------
Experian/TRW Experian Information Solutions, Inc. Office Building Allen, TX
----------------------------------------------------------------------------------------------------------------------------
BellSouth Ft. BellSouth Advertising and Publishing Office Building Ft. Lauderdale, FL
Lauderdale Corporation
----------------------------------------------------------------------------------------------------------------------------
Agilent Atlanta Agilent Technologies, Inc. Office Building Alpharetta, GA
Koninklijke Philips Electronics N.V.
----------------------------------------------------------------------------------------------------------------------------
Travelers Express Travelers Express Company, Inc. Office Building Lakewood, CO
Denver
----------------------------------------------------------------------------------------------------------------------------
Dana Kalamazoo Dana Corporation Office and Industrial Building Kalamazoo, MI
----------------------------------------------------------------------------------------------------------------------------
Dana Detroit Dana Corporation Office and Research and Farmington Hills, MI
Development Building
----------------------------------------------------------------------------------------------------------------------------
Novartis Atlanta Novartis Opthalmics, Inc. Office Building Duluth, GA
----------------------------------------------------------------------------------------------------------------------------
Transocean Houston Transocean Deepwater Offshore Office Building Houston, TX
Drilling, Inc. and Newpark Drilling
Fluids, Inc.
----------------------------------------------------------------------------------------------------------------------------
Arthur Andersen Arthur Andersen L.P. Office Building Sarasota, FL
----------------------------------------------------------------------------------------------------------------------------
Windy Point I TCI Great Lakes, Inc., The Apollo Office Building Schaumburg, IL
Group, Inc., and Global Knowledge
Network, Inc.
----------------------------------------------------------------------------------------------------------------------------
Windy Point II Zurich American Insurance Company, Inc. Office Building Schaumburg, IL
----------------------------------------------------------------------------------------------------------------------------
Convergys Convergys Customer Management Office Building Tamarac, FL
Group, Inc.
----------------------------------------------------------------------------------------------------------------------------
Lucent Lucent Technologies, Inc. Office Building Cary, NC
----------------------------------------------------------------------------------------------------------------------------
Ingram Micro Ingram Micro L.P. Office and Distribution Facility Millington, TN
----------------------------------------------------------------------------------------------------------------------------
Nissan Nissan Motor Acceptance Corporation Office Building Irving, TX
----------------------------------------------------------------------------------------------------------------------------
IKON IKON Office Solutions, Inc. Office Building Houston, TX
----------------------------------------------------------------------------------------------------------------------------
State Street SSB Realty LLC Office Building Quincy, MA
----------------------------------------------------------------------------------------------------------------------------
Metris Minnesota Metris Direct, Inc. Office Building Minnetonka, MN
----------------------------------------------------------------------------------------------------------------------------
Stone & Webster Stone & Webster, Inc. and SYSCO Office Building Houston, TX
Corporation
----------------------------------------------------------------------------------------------------------------------------
Motorola Plainfield Motorola, Inc. Office Building S. Plainfield, NJ
----------------------------------------------------------------------------------------------------------------------------
Delphi Delphi Automotive Systems, Inc. Office Building Troy, MI
----------------------------------------------------------------------------------------------------------------------------
Avnet Avnet, Inc. Office Building Tempe, AZ
----------------------------------------------------------------------------------------------------------------------------
Motorola Tempe Motorola, Inc. Office Building Tempe, AZ
----------------------------------------------------------------------------------------------------------------------------
ASML ASM Lithography, Inc. Office and Warehouse Building Tempe, AZ
----------------------------------------------------------------------------------------------------------------------------
Dial Dial Corporation Office Building Scottsdale, AZ
----------------------------------------------------------------------------------------------------------------------------
Metris Tulsa Metris Direct, Inc. Office Building Tulsa, OK
----------------------------------------------------------------------------------------------------------------------------
Cinemark Cinemark USA, Inc. and Office Building Plano, TX
The Coca-Cola Company
----------------------------------------------------------------------------------------------------------------------------
Videojet Technologies Videojet Technologies, Inc. Office, Assembly and Wood Dale, IL
Chicago Manufacturing Building
----------------------------------------------------------------------------------------------------------------------------
Alstom Power Richmond Alstom Power, Inc. Office Building Midlothian, VA
----------------------------------------------------------------------------------------------------------------------------
2
-----------------------------------------------------------------------------------------------------------
Matsushita Matsushita Avionics Systems Office Building Lake Forest, CA
Corporation
-----------------------------------------------------------------------------------------------------------
AT&T Pennsylvania Pennsylvania Cellular Telephone Office Building Harrisburg, PA
Corp.
-----------------------------------------------------------------------------------------------------------
PwC PricewaterhouseCoopers Office Building Tampa, FL
-----------------------------------------------------------------------------------------------------------
We own interests in the following real estate properties through joint
ventures with affiliates:
---------------------------------------------------------------------------------------------------------------
Property Tenant Building Type Location
Name
---------------------------------------------------------------------------------------------------------------
ADIC Advanced Digital Information Office Building Parker, CO
Corporation
---------------------------------------------------------------------------------------------------------------
AmeriCredit AmeriCredit Financial Services Office Building Orange Park, FL
Corporation
---------------------------------------------------------------------------------------------------------------
Comdata Comdata Network, Inc. Office Building Brentwood, TN
---------------------------------------------------------------------------------------------------------------
AT&T Oklahoma AT&T Corp. and Jordan Associates Office Building Oklahoma City, OK
---------------------------------------------------------------------------------------------------------------
Quest Quest Software, Inc. Office Building Irvine, CA
---------------------------------------------------------------------------------------------------------------
Siemens Siemens Automotive Corporation Office Building Troy, MI
---------------------------------------------------------------------------------------------------------------
Gartner Gartner Group, Inc. Office Building Fort Myers, FL
---------------------------------------------------------------------------------------------------------------
Johnson Matthey Johnson Matthey, Inc. Research and Development, Wayne, PA
Office and Warehouse
Building
---------------------------------------------------------------------------------------------------------------
Sprint Sprint Communications Office Building Leawood, KS
Company L.P.
---------------------------------------------------------------------------------------------------------------
EYBL CarTex EYBL CarTex, Inc. Manufacturing and Office Fountain Inn, SC
Building
---------------------------------------------------------------------------------------------------------------
Cort Furniture Cort Furniture Rental Corporation Office and Warehouse Fountain Valley, CA
Building
---------------------------------------------------------------------------------------------------------------
Fairchild Fairchild Technologies U.S.A., Inc. Manufacturing and Office Fremont, CA
Building
---------------------------------------------------------------------------------------------------------------
Avaya Avaya, Inc. Office Building Oklahoma City, OK
---------------------------------------------------------------------------------------------------------------
Iomega Iomega Corporation Office and Warehouse Ogden, UT
Building
---------------------------------------------------------------------------------------------------------------
Interlocken ODS Technologies, L.P. and GAIAM, Office Building Broomfield, CO
Inc.
---------------------------------------------------------------------------------------------------------------
Ohmeda Ohmeda, Inc. Office Building Louisville, CO
---------------------------------------------------------------------------------------------------------------
Alstom Power Alstom Power, Inc. Office Building Knoxville, TN
Knoxville
---------------------------------------------------------------------------------------------------------------
If you want to read more detailed information about each of these
properties, see the "Description of Real Estate Investments " section
of this prospectus.
--------------------------------------------------------------------------------
Q: Why do you acquire properties in joint ventures?
A: We acquire some of our properties in joint ventures in order to
diversify our portfolio of properties in terms of geographic region,
property type and industry group of our tenants.
--------------------------------------------------------------------------------
Q: What steps do you take to make sure you purchase environmentally
compliant property?
A: We always obtain a Phase I environmental assessment of each property
purchased. In addition, we generally obtain a representation from the
seller that, to its knowledge, the property is not contaminated with
hazardous materials.
3
Q: What are the terms of your leases?
A: Our leases are economically "triple-net" leases, generally having terms of
seven to ten years, many of which have renewal options for an additional
five years. "Triple-net" means that the tenant is responsible for the cost
of repairs, maintenance, property taxes, utilities, insurance and other
operating costs. In most of our leases, we are responsible for replacement
of specific structural components of a property such as the roof of the
building or the parking lot.
Q: How does the Wells REIT own its real estate properties?
A: We own all of our real estate properties through an "UPREIT" called Wells
Operating Partnership, L.P. (Wells OP). Wells OP was organized to own,
operate and manage real properties on our behalf. The Wells REIT is the
sole general partner of Wells OP.
Q: What is an "UPREIT"?
A: UPREIT stands for "Umbrella Partnership Real Estate Investment Trust." We
use this structure because a sale of property directly to the REIT is
generally a taxable transaction to the selling property owner. In an UPREIT
structure, a seller of a property who desires to defer taxable gain on the
sale of his property may transfer the property to the UPREIT in exchange
for limited partnership units in the UPREIT and defer taxation of gain
until the seller later exchanges his UPREIT units on a one-for-one basis
for REIT shares. If the REIT shares are publicly traded, the former
property owner will achieve liquidity for his investment. Using an UPREIT
structure gives us an advantage in acquiring desired properties from
persons who may not otherwise sell their properties because of unfavorable
tax results.
Q: If I buy shares, will I receive dividends and how often?
A: We have been making and intend to continue to make dividend distributions
on a quarterly basis to our stockholders. The amount of each dividend
distribution is determined by our board of directors and typically depends
on the amount of distributable funds, current and projected cash
requirements, tax considerations and other factors. However, in order to
remain qualified as a REIT, we must make distributions of at least 90% of
our REIT taxable income.
Q: How do you calculate the payment of dividends to stockholders?
A: We calculate our quarterly dividends using daily record and declaration
dates so your dividend benefits will begin to accrue immediately upon
becoming a stockholder.
4
Q: What have your dividend payments been since you began operations on June 5,
1998?
A: We have paid the following dividends since we began operations:
Annualized
Percentage Return
on an Investment
Quarter Approximate Amount (Rounded) of $10 per Share
------- ---------------------------- ----------------
3/rd/ Qtr. 1998 $0.150 per share 6.00%
4/th/ Qtr. 1998 $0.163 per share 6.50%
1/st/ Qtr. 1999 $0.175 per share 7.00%
2/nd/ Qtr. 1999 $0.175 per share 7.00%
3/rd/ Qtr. 1999 $0.175 per share 7.00%
4/th/ Qtr. 1999 $0.175 per share 7.00%
1/st/ Qtr. 2000 $0.175 per share 7.00%
2/nd/ Qtr. 2000 $0.181 per share 7.25%
3/rd/ Qtr. 2000 $0.188 per share 7.50%
4/th/ Qtr. 2000 $0.188 per share 7.50%
1/st/ Qtr. 2001 $0.188 per share 7.50%
2/nd/ Qtr. 2001 $0.188 per share 7.50%
3/rd/ Qtr. 2001 $0.188 per share 7.50%
4/th/ Qtr. 2001 $0.194 per share 7.75%
1/st/ Qtr. 2002 $0.194 per share 7.75%
2/nd/ Qtr. 2002 $0.194 per share 7.75%
Q: May I reinvest my dividends in shares of the Wells REIT?
A: Yes. You may participate in our dividend reinvestment plan by checking the
appropriate box on the Subscription Agreement or by filling out an
enrollment form we will provide to you at your request. The purchase price
for shares purchased under the dividend reinvestment plan is currently $10
per share.
Q: Will the dividends I receive be taxable as ordinary income?
A: Yes and No. Generally, dividends that you receive, including dividends that
are reinvested pursuant to our dividend reinvestment plan, will be taxed as
ordinary income to the extent they are from current or accumulated earnings
and profits. We expect that some portion of your dividends will not be
subject to tax in the year received due to the fact that depreciation
expenses reduce taxable income but do not reduce cash available for
distribution. Amounts not subject to tax immediately will reduce the tax
basis of your investment. This, in effect, defers a portion of your tax
until your investment is sold or the Wells REIT is liquidated, at which
time you will be
5
taxed at capital gains rates. However, because each investor's tax
considerations are different, we suggest that you consult with your tax
advisor. You should also review the section of the prospectus entitled
"Federal Income Tax Considerations."
Q: What will you do with the money raised in this offering?
A: We will use your investment proceeds to purchase commercial real estate
such as high grade office and industrial buildings. We intend to invest a
minimum of 84% of the proceeds from this offering to acquire real estate
properties, and the remaining proceeds will be used to pay fees and
expenses of this offering and acquisition-related expenses. The payment of
these fees and expenses will not reduce your invested capital. Your initial
invested capital amount will remain $10 per share, and your dividend yield
will be based on your $10 per share investment.
Until we invest the proceeds of this offering in real estate, we may invest
in short-term, highly liquid or other authorized investments. Such
short-term investments will not earn as high of a return as we expect to
earn on our real estate investments, and we cannot guarantee how long it
will take to fully invest the proceeds in real estate.
We received approximately $132,181,919 in gross offering proceeds from the
sale of 13,218,192 shares of common stock in our initial public offering,
which commenced on January 30, 1998 and was terminated on December 19,
1999. Of the $132,181,919 raised in the initial offering, we invested a
total of $111,032,812 in real estate properties. We received approximately
$175,229,193 in gross offering proceeds from the sale of 17,522,920 shares
of common stock in our second public offering, which commenced on December
20, 1999 and was terminated on December 19, 2000. Of the $175,229,193
raised in the second offering, we invested a total of $147,192,522 in real
estate properties. As of _________, 2002, we had received approximately
$______________ in gross offering proceeds from the sale of ____________
shares of common stock in our third offering, which commenced on December
20, 2000. Of this additional $_______________ raised in the third offering,
we invested or expect to invest approximately $________________ in real
estate properties.
Q: What kind of offering is this?
A: We are offering the public up to 300,000,000 shares of common stock on a
"best efforts" basis.
Q: How does a "best efforts" offering work?
A: When shares are offered to the public on a "best efforts" basis, the
brokers participating in the offering are only required to use their best
efforts to sell the shares and have no firm commitment or obligation to
purchase any of the shares.
Q: How long will this offering last?
A: The offering will not last beyond ________________, 2004.
6
Q: Who can buy shares?
A: You can buy shares pursuant to this prospectus provided that you have
either (1) a net worth of at least $45,000 and an annual gross income of at
least $45,000, or (2) a net worth of at least $150,000. For this purpose,
net worth does not include your home, home furnishings and personal
automobiles. These minimum levels may be higher in certain states, so you
should carefully read the more detailed description in the "Suitability
Standards" section of this prospectus.
Q: Is there any minimum investment required?
A: Yes. Generally, you must invest at least $1,000. Except in Maine,
Minnesota, Nebraska and Washington, investors who already own our shares or
who have purchased units from an affiliated Wells public real estate
program can make purchases for less than the minimum investment. These
minimum investment levels may be higher in certain states, so you should
carefully read the more detailed description of the minimum investment
requirements appearing later in the "Suitability Standards" section of this
prospectus.
Q: How do I subscribe for shares?
A: If you choose to purchase shares in this offering, you will need to fill
out a Subscription Agreement, like the one contained in this prospectus as
Exhibit A, for a specific number of shares and pay for the shares at the
time you subscribe.
Q: If I buy shares in this offering, how may I later sell them?
A: At the time you purchase the shares, they will not be listed for trading on
any national securities exchange or over-the-counter market. In fact, we
expect that there will not be any public market for the shares when you
purchase them, and we cannot be sure if one will ever develop. As a result,
you may find it difficult to find a buyer for your shares and realize a
return on your investment. You may sell your shares to any buyer unless
such sale would cause the buyer to own more than 9.8% of the outstanding
stock. See "Description of Shares - Restriction on Ownership of Shares."
In addition, after you have held your shares for at least one year, you may
be able to have your shares repurchased by the Wells REIT pursuant to our
share redemption program. See the "Description of Shares - Share Redemption
Program" section of the prospectus.
If we have not listed the shares on a national securities exchange or
over-the-counter market by January 30, 2008, our articles of incorporation
require us to begin selling our properties and other assets and return the
net proceeds from these sales to our stockholders through distributions.
7
Q: What is the experience of your officers and directors?
A: Our management team has extensive previous experience investing in and
managing commercial real estate. Below is a short description of the
background of each of our directors. See the "Management - Executive
Officers and Directors" section on page ___ of this prospectus for a more
detailed description of the background and experience of each of our
directors.
. Leo F. Wells, III - President of the Wells REIT and founder of Wells
Real Estate Funds in 1985 and has been involved in real estate sales,
management and brokerage services for over 28 years;
. Douglas P. Williams - Executive Vice President, Secretary and
Treasurer of the Wells REIT and former accounting executive at
OneSource, Inc., a supplier of janitorial and landscape services;
. John L. Bell - Former owner and Chairman of Bell-Mann, Inc., the
largest flooring contractor in the Southeast;
. Richard W. Carpenter - Former President and Chairman of the Board of
Southmark Properties, an Atlanta-based REIT which invested in
commercial properties;
. Bud Carter - Former broadcast news director and anchorman and current
Senior Vice President for The Executive Committee, an organization
established to aid corporate presidents and CEOs;
. William H. Keogler, Jr. - Founder and former executive officer and
director of Keogler, Morgan & Company, Inc., a full service brokerage
firm;
. Donald S. Moss - Former executive officer of Avon Products, Inc.;
. Walter W. Sessoms - Former executive officer of BellSouth
Telecommunications, Inc.; and
. Neil H. Strickland - Founder of Strickland General Agency, Inc., a
property and casualty general insurance agency concentrating on
commercial customers.
Q: Will I be notified of how my investment is doing?
A: Yes, you will receive periodic updates on the performance of your
investment with us, including:
. Four detailed quarterly dividend reports;
. Three quarterly financial reports;
. An annual report; and
. An annual IRS Form 1099.
8
Q: When will I get my detailed tax information?
A: Your Form 1099 tax information will be placed in the mail by January 31 of
each year.
Q: Who can help answer my questions?
A: If you have more questions about the offering or if you would like
additional copies of this prospectus, you should contact your registered
representative or contact:
Client Services Department
Wells Capital, Inc.
Suite 250
6200 The Corners Parkway
Atlanta, Georgia 30092
Calling from Outside State of Georgia (800) 557-4830
Calling from State of Georgia (770) 243-8282
www.wellsref.com
9
Prospectus Summary
This prospectus summary highlights selected information contained elsewhere
in this prospectus. It is not complete and does not contain all of the
information that is important to your decision whether to invest in the Wells
REIT. To understand this offering fully, you should read the entire prospectus
carefully, including the "Risk Factors" section and the financial statements.
Wells Real Estate Investment Trust, Inc.
Wells Real Estate Investment Trust, Inc. is a REIT that owns net leased
commercial real estate properties. We currently own interests in ___ commercial
real estate properties located in ___ states. Our office is located at 6200 The
Corners Parkway, Suite 250, Atlanta, Georgia 30092. Our telephone number outside
the State of Georgia is 800-557-4830 (770-243-8282 in Georgia). We refer to
Wells Real Estate Investment Trust, Inc. as the Wells REIT in this prospectus.
Our Advisor
Our advisor is Wells Capital, Inc., which is responsible for managing our
affairs on a day-to-day basis and for identifying and making acquisitions on our
behalf. We refer to Wells Capital, Inc. as Wells Capital in this prospectus.
Our Management
Our board of directors must approve each real property acquisition proposed
by Wells Capital, as well as certain other matters set forth in our articles of
incorporation. We have nine members on our board of directors. Seven of our
directors are independent of Wells Capital and have responsibility for reviewing
its performance. Our directors are elected annually by the stockholders.
Our REIT Status
As a REIT, we generally are not subject to federal income tax on income
that we distribute to our stockholders. Under the Internal Revenue Code, REITs
are subject to numerous organizational and operational requirements, including a
requirement that they distribute at least 90% of their taxable income to their
stockholders. If we fail to qualify for taxation as a REIT in any year, our
income will be taxed at regular corporate rates, and we may be precluded from
qualifying for treatment as a REIT for the four-year period following our
failure to qualify. Even if we qualify as a REIT for federal income tax
purposes, we may still be subject to state and local taxes on our income and
property and to federal income and excise taxes on our undistributed income.
Summary Risk Factors
Following are the most significant risks relating to your investment:
. There is no public trading market for the shares, and we cannot assure
you that one will ever develop. Until the shares are publicly traded,
you will have a difficult time trying to sell your shares.
. You must rely on Wells Capital, our advisor, for the day-to-day
management of our business and the selection of our real estate
properties.
10
. To ensure that we continue to qualify as a REIT, our articles of
incorporation prohibit any stockholder from owning more than 9.8% of
our outstanding shares.
. We may not remain qualified as a REIT for federal income tax purposes,
which would subject us to the payment of tax on our income at
corporate rates and reduce the amount of funds available for payment
of dividends to our stockholders.
. You will not have preemptive rights as a stockholder, so any shares we
issue in the future may dilute your interest in the Wells REIT.
. We will pay significant fees to Wells Capital and its affiliates.
. Real estate investments are subject to cyclical trends that are out of
our control.
. You will not have an opportunity to evaluate all of the properties
that will be in our portfolio prior to investing.
. Loans we obtain will be secured by some of our properties, which will
put those properties at risk of forfeiture if we are unable to pay our
debts.
. Our investment in vacant land to be developed may create risks
relating to the builder's ability to control construction costs,
failure to perform or failure to build in conformity with plans,
specifications and timetables.
. The vote of stockholders owning at least a majority of our shares will
bind all of the stockholders as to certain matters such as the
election of our directors and amendment of our articles of
incorporation.
. If we do not obtain listing of the shares on a national exchange by
January 30, 2008, our articles of incorporation provide that we must
begin to sell all of our properties and distribute the net proceeds to
our stockholders.
. Our advisor will face various conflicts of interest resulting from its
activities with affiliated entities.
Before you invest in the Wells REIT, you should see the complete discussion
of the "Risk Factors" beginning on page ___ of this prospectus.
Description of Real Estate Investments
Please refer to the "Description of Real Estate Investments" section of
this prospectus for a description of the real estate properties we have
purchased to date and the various real estate loans we have outstanding. Wells
Capital is currently evaluating additional potential property acquisitions. As
we acquire new properties, we will provide supplements to this prospectus to
describe these properties.
Estimated Use of Proceeds of Offering
We anticipate that we will invest at least 84% of the proceeds of this
offering in real estate properties. We will use the remainder of the offering
proceeds to pay selling commissions, fees and expenses relating to the selection
and acquisition of properties and the costs of the offering.
11
Investment Objectives
Our investment objectives are:
. to maximize cash dividends paid to you;
. to preserve, protect and return your capital contribution;
. to realize growth in the value of our properties upon our ultimate
sale of such properties; and
. to provide you with liquidity of your investment by listing the shares
on a national exchange or, if we do not obtain listing of the shares
by January 30, 2008, by selling our properties and distributing the
cash to you.
We may only change these investment objectives upon a majority vote of our
stockholders. See the "Investment Objectives and Criteria" section of this
prospectus for a more complete description of our business and objectives.
Conflicts of Interest
Wells Capital, as our advisor, will experience conflicts of interest in
connection with the management of our business affairs, including the
following:
. Wells Capital will have to allocate its time between the Wells REIT
and other real estate programs and activities in which it is involved;
. Wells Capital must determine which properties the Wells REIT or
another Wells program or joint venture should acquire and which Wells
program or other entity should enter into a joint venture with the
Wells REIT for the acquisition and operation of specific properties;
. Wells Capital may compete with other Wells programs for the same
tenants in negotiating leases or in selling similar properties at the
same time; and
. Wells Capital and its affiliates will receive fees in connection with
transactions involving the purchase, management and sale of our
properties regardless of the quality of the property acquired or the
services provided to us.
See the "Conflicts of Interest" section of this prospectus on page ___ for a
detailed discussion of the various conflicts of interest relating to your
investment, as well as the procedures that we have established to resolve a
number of these potential conflicts.
12
The following chart shows the ownership structure of the various Wells
entities that are affiliated with Wells Capital.
Leo F. Wells, III
President
Owns 100% of
Wells Real Estate Funds, Inc.
Owns 100% of Owns 100% of Owns 100% of
Wells Management Wells Investment
Company, Inc. Securities, Inc. Wells Capital, Inc.
(Property Manager) (Dealer Manager) (Advisor)
Owns 100% of Advisory Agreement
Wells Development Wells REIT
Corporation
Prior Offering Summary
Wells Capital and its affiliates have previously sponsored 14 publicly
offered real estate limited partnerships and the Wells REIT on an unspecified
property or "blind pool" basis. As of __________, 2002, they have raised
approximately $______________ from approximately __________ investors in these
15 public real estate programs. The "Prior Performance Summary" on page ____ of
this prospectus contains a discussion of the Wells programs sponsored to date.
Certain statistical data relating to the Wells programs with investment
objectives similar to ours is also provided in the "Prior Performance Tables"
included at the end of this prospectus.
The Offering
We are offering up to 300,000,000 shares to the public at $10 per share and
up to 30,000,000 shares pursuant to our dividend reinvestment plan at $10 per
share. We reserve the right in the future to reallocate additional dividend
reinvestment shares out of the shares we are offering to the public, if
necessary. We are also offering up to 6,600,000 shares to broker-dealers
pursuant to warrants whereby participating broker-dealers will have the right to
purchase one share for every 50 shares they sell in this offering. The exercise
price for shares purchased pursuant to the warrants is $12 per share.
13
Terms of the Offering
We will begin selling shares in this offering upon the effective date of
this prospectus, and this offering will terminate on or before _____________,
2004. However, we may terminate this offering at any time prior to such
termination date. We will hold your investment proceeds in our account until we
withdraw funds for the acquisition of real estate properties or the payment of
fees and expenses. We generally admit stockholders to the Wells REIT on a daily
basis.
Compensation to Wells Capital
Wells Capital and its affiliates will receive compensation and fees for
services relating to this offering and the investment and management of our
assets. The most significant items of compensation are included in the following
table:
------------------------------------------------------------------------------------------------
Estimated $$
Amount for
Maximum Offering
(330,000,000
Type of Compensation Form of Compensation shares)
------------------------------------------------------------------------------------------------
Offering Stage
------------------------------------------------------------------------------------------------
Sales Commissions 7.0% of gross offering proceeds $231,000,000
------------------------------------------------------------------------------------------------
Dealer Manager Fee 2.5% of gross offering proceeds $ 82,500,000
------------------------------------------------------------------------------------------------
Offering Expenses 3.0% of gross offering proceeds $ 49,500,000
(estimated)
------------------------------------------------------------------------------------------------
Acquisition and Development Stage
------------------------------------------------------------------------------------------------
Acquisition and 3.0% of gross offering proceeds $ 99,000,000
Advisory Fees
------------------------------------------------------------------------------------------------
Acquisition Expenses 0.5% of gross offering proceeds $ 16,500,000
------------------------------------------------------------------------------------------------
Operational Stage
------------------------------------------------------------------------------------------------
Property Management 4.5% of gross revenues N/A
and Leasing Fees
------------------------------------------------------------------------------------------------
Initial Lease-Up Fee for Competitive fee for geographic location N/A
Newly Constructed of property based on a survey of
Property brokers and agents (customarily equal
to the first month's rent)
------------------------------------------------------------------------------------------------
Real Estate Commission 3.0% of contract price for properties N/A
sold after investors receive a return of
capital plus an 8.0% return on capital
------------------------------------------------------------------------------------------------
Subordinated Participation 10.0% of remaining amounts of net sale N/A
in Net Sale Proceeds proceeds after return of capital plus
(Payable Only if the Wells payment to investors of an 8.0%
REIT is not Listed on an cumulative non-compounded return on
Exchange) the capital contributed by investors
------------------------------------------------------------------------------------------------
Subordinated Incentive 10.0% of the amount by which the
Listing Fee (Payable only adjusted market value of the Wells
if the Wells REIT is listed REIT exceeds the aggregate capital
on an exchange) contributions contributed by investors
------------------------------------------------------------------------------------------------
14
There are many additional conditions and restrictions on the amount of
compensation Wells Capital and its affiliates may receive. There are also some
smaller items of compensation and expense reimbursements that Wells Capital may
receive. For a more detailed explanation of these fees and expenses payable to
Wells Capital and its affiliates, please see the "Management Compensation"
section of this prospectus on page ____.
Dividend Policy
In order to remain qualified as a REIT, we are required to distribute 90%
of our annual taxable income to our stockholders. We have paid dividends to our
stockholders at least quarterly since the first quarter after we commenced
operations on June 5, 1998. We calculate our quarterly dividends based upon
daily record and dividend declaration dates so investors will be entitled to
dividends immediately upon purchasing our shares. We expect to pay dividends to
you on a quarterly basis.
Listing
Our articles of incorporation allow us to list our shares on a national
securities exchange on or before January 30, 2008. In the event we do not obtain
listing prior to that date, our articles of incorporation require us to begin
selling our properties and liquidating our assets.
Dividend Reinvestment Plan
You may participate in our dividend reinvestment plan pursuant to which you
may have the dividends you receive reinvested in shares of the Wells REIT. If
you participate, you will be taxed on your share of our taxable income even
though you will not receive the cash from your dividends. As a result, you may
have a tax liability without receiving cash dividends to pay such liability. We
may terminate the dividend reinvestment plan at our discretion at any time upon
10 days notice to you. (See "Description of Shares -- Dividend Reinvestment
Plan.")
Share Redemption Program
We may use proceeds received from the sale of shares pursuant to our
dividend reinvestment plan to redeem your shares. After you have held your
shares for a minimum of one year, our share redemption program provides an
opportunity for you to redeem your shares, subject to certain restrictions and
limitations, for the lesser of $10 per share or the price you actually paid for
your shares. Our board of directors reserves the right to amend or terminate the
share redemption program at any time. Our board of directors has delegated to
our officers the right to (1) waive the one-year holding period in the event of
the death or bankruptcy of a stockholder or other exigent circumstances, or (2)
reject any request for redemption at any time and for any reason. You will have
no right to request redemption of your shares should our shares become listed on
a national exchange. (See "Description of Shares -- Share Redemption Program.")
Wells Operating Partnership, L.P.
We own all of our real estate properties through Wells Operating
Partnership, L.P. (Wells OP), our operating partnership. We are the sole general
partner of Wells OP. Wells Capital is currently the only limited partner based
on its initial contribution of $200,000. Our ownership of properties in Wells OP
is referred to as an "UPREIT." The UPREIT structure allows us to acquire real
estate properties in exchange for limited partnership units in Wells OP. This
structure will also allow sellers of properties to transfer their properties to
Wells OP in exchange for units of Wells OP
15
and defer gain recognition for tax purposes with respect to such transfers of
properties. At present, we have no plans to acquire any specific properties in
exchange for units of Wells OP. The holders of units in Wells OP may have their
units redeemed for cash under certain circumstances. (See "The Operating
Partnership Agreement.")
ERISA Considerations
The section of this prospectus entitled "ERISA Considerations" describes
the effect the purchase of shares will have on individual retirement accounts
(IRAs) and retirement plans subject to the Employee Retirement Income Security
Act of 1974, as amended (ERISA), and/or the Internal Revenue Code. ERISA is a
federal law that regulates the operation of certain tax-advantaged retirement
plans. Any retirement plan trustee or individual considering purchasing shares
for a retirement plan or an IRA should read this section of the prospectus very
carefully.
Description of Shares
General
-------
Your investment will be recorded on our books only. We will not issue stock
certificates. If you wish to transfer your shares, you are required to send us
an executed transfer form. We will provide you the required form upon request.
Stockholder Voting Rights and Limitations
-----------------------------------------
We hold annual meetings of our stockholders for the purpose of electing our
directors or conducting other business matters that may be presented at such
meetings. We may also call a special meeting of stockholders from time to time
for the purpose of conducting certain matters. You are entitled to one vote for
each share you own at any of these meetings.
Restriction on Share Ownership
------------------------------
Our articles of incorporation contain restrictions on ownership of the
shares that prevents one person from owning more than 9.8% of the outstanding
shares. These restrictions are designed to enable us to comply with share
accumulation restrictions imposed on REITs by the Internal Revenue Code. (See
"Description of Shares - Restriction on Ownership of Shares.")
For a more complete description of the shares, including restrictions on
the ownership of shares, please see the "Description of Shares" section of this
prospectus on page ____.
16
Risk Factors
Your purchase of shares involves a number of risks. In addition to other
risks discussed in this prospectus, you should specifically consider the
following:
Investment Risks
Marketability Risk
There is no public trading market for your shares.
There is no current public market for the shares and, therefore, it will be
difficult for you to sell your shares promptly. In addition, the price received
for any shares sold is likely to be less than the proportionate value of the
real estate we own. Therefore, you should purchase the shares only as a
long-term investment. See "Description of Shares - Share Redemption Program" for
a description of our share redemption program.
Management Risks
You must rely on Wells Capital for selection of properties.
Our ability to achieve our investment objectives and to pay dividends is
dependent upon the performance of Wells Capital, our advisor, in the quality and
timeliness of our acquisitions of real estate properties, the selection of
tenants and the determination of any financing arrangements. Except for the
investments described in this prospectus, you will have no opportunity to
evaluate the terms of transactions or other economic or financial data
concerning our investments. You must rely entirely on the management ability of
Wells Capital and the oversight of our board of directors.
We depend on key personnel.
Our success depends to a significant degree upon the continued
contributions of certain key personnel, including Leo F. Wells, III, Douglas P.
Williams, M. Scott Meadows, David H. Steinwedell, and John G. Oliver, each of
whom would be difficult to replace. None of our key personnel are currently
subject to employment agreements, nor do we maintain any key person life
insurance on our key personnel. If any of our key personnel were to cease
employment with us, our operating results could suffer. We also believe that our
future success depends, in large part, upon our ability to hire and retain
highly skilled managerial, operational and marketing personnel. Competition for
such personnel is intense, and we cannot assure you that we will be successful
in attracting and retaining such skilled personnel.
Conflicts of Interest Risks
Wells Capital will face conflicts of interest relating to time management.
Wells Capital and its affiliates are general partners and sponsors of other
real estate programs having investment objectives and legal and financial
obligations similar to the Wells REIT. Because Wells Capital and its affiliates
have interests in other real estate programs and also engage in other business
activities, they may have conflicts of interest in allocating their time between
our business and these other activities. During times of intense activity in
other programs and ventures, they may devote less time and resources to our
business than is necessary or appropriate. (See "Conflicts of Interest.") If
Wells Capital, for any reason, is not able to provide investment opportunities
to us consistent with our investment objectives in a timely manner, we may have
lower returns on our investments.
17
Wells Capital will face conflicts of interest relating to the purchase and
leasing of properties.
We may be buying properties at the same time as one or more of the other
Wells programs are buying properties. There is a risk that Wells Capital will
choose a property that provides lower returns to us than a property purchased by
another Wells program. We may acquire properties in geographic areas where other
Wells programs own properties. If one of the Wells programs attracts a tenant
that we are competing for, we could suffer a loss of revenue due to delays in
locating another suitable tenant. (See "Conflicts of Interest.")
Certain of our officers and directors face conflicts of interest relating
to the positions they hold with other entities.
Certain of our executive officers and directors are also officers and
directors of Wells Capital, our advisor and the general partner of various other
Wells programs, Wells Management Company, Inc., our Property Manager, and Wells
Investment Securities, Inc., our Dealer Manager, and, as such, owe fiduciary
duties to these various entities and their stockholders and limited partners.
Such fiduciary duties may from time to time conflict with the fiduciary duties
owed to the Wells REIT and its stockholders. (See "Conflicts of Interest.")
We will be subject to additional risks as a result of our joint ventures
with affiliates.
We have entered in the past and are likely to continue in the future to
enter into joint ventures with other Wells programs for the acquisition,
development or improvement of properties. We may also purchase and develop
properties in joint ventures or in partnerships, co-tenancies or other
co-ownership arrangements with sellers of properties, affiliates of sellers,
developers or other persons. Such investments may involve risks not otherwise
present with an investment in real estate, including, for example:
. the possibility that our co-venturer, co-tenant or partner in an
investment might become bankrupt;
. that such co-venturer, co-tenant or partner may at any time have
economic or business interests or goals which are or which become
inconsistent with our business interests or goals; or
. that such co-venturer, co-tenant or partner may be in a position to
take action contrary to our instructions or requests or contrary to
our policies or objectives.
Actions by such a co-venturer, co-tenant or partner might have the result of
subjecting the property to liabilities in excess of those contemplated and may
have the effect of reducing your returns.
Wells Capital will face conflicts of interest relating to joint ventures
with affiliates.
Wells Capital, our advisor, is currently sponsoring a public offering on
behalf of Wells Real Estate Fund XIII, L.P. (Wells Fund XIII), which is an
unspecified property real estate program. (See "Prior Performance Summary.") In
the event that we enter into a joint venture with Wells Fund XIII or any other
Wells program or joint venture, we may face certain additional risks and
potential conflicts of interest. For example, securities issued by Wells Fund
XIII and the other Wells public limited partnerships will never have an active
trading market. Therefore, if we become listed on a national exchange, we may no
longer have similar goals and objectives with respect to the resale of
properties in the future. In addition, in the event that the Wells REIT is not
listed on a securities exchange by January
18
30, 2008, our organizational documents provide for an orderly liquidation of our
assets. In the event of such liquidation, any joint venture between the Wells
REIT and another Wells program may be required to sell its properties at such
time. Our joint venture partners may not desire to sell the properties at that
time. Although the terms of any joint venture agreement between the Wells REIT
and another Wells program would grant the other Wells program a right of first
refusal to buy such properties, it is unlikely that any such program would have
sufficient funds to exercise its right of first refusal under these
circumstances.
Agreements and transactions between the parties with respect to joint
ventures between the Wells REIT and other Wells programs will not have the
benefit of arm's length negotiation of the type normally conducted between
unrelated co-venturers. Under these joint venture agreements, none of the
co-venturers may have the power to control the venture, and an impasse could be
reached regarding matters pertaining to the joint venture, which might have a
negative impact on the joint venture and decrease potential returns to you. In
the event that a co-venturer has a right of first refusal to buy out the other
co-venturer, it may be unable to finance such buy-out at that time. It may also
be difficult for us to sell our interest in any such joint venture or
partnership or as a co-tenant in property. In addition, to the extent that our
co-venturer, partner or co-tenant is an affiliate of Wells Capital, certain
conflicts of interest will exist. (See "Conflicts of Interest - Joint Ventures
with Affiliates of Wells Capital.")
General Investment Risks
A limit on the number of shares a person may own may discourage a takeover.
Our articles of incorporation restrict ownership by one person to no more
than 9.8% of the outstanding shares. This restriction may discourage a change of
control of the Wells REIT and may deter individuals or entities from making
tender offers for shares, which offers might be financially attractive to
stockholders or which may cause a change in the management of the Wells REIT.
(See "Description of Shares - Restriction on Ownership of Shares.")
We will not be afforded the protection of Maryland Corporation Law relating
to business combinations.
Provisions of Maryland Corporation Law prohibit business combinations,
unless prior approval of the board of directors is obtained before the person
became an interested stockholder, with:
. any person who beneficially owns 10% or more of the voting power of
our outstanding shares;
. any of our affiliates who, at any time within the two year period
prior to the date in question, was the beneficial owner of 10% or more
of the voting power of our outstanding shares (interested
stockholder); or
. an affiliate of an interested stockholder.
These prohibitions are intended to prevent a change of control by
interested stockholders who do not have the support of our board of directors.
Since our articles of incorporation contain limitations on ownership of 9.8% or
more of our common stock, we opted out of the business combinations statute in
our articles of incorporation. Therefore, we will not be afforded the
protections of this statute and, accordingly, there is no guarantee that the
ownership limitations in our articles of incorporation would provide the same
measure of protection as the business combinations statute and prevent an
undesired change of control by an interested stockholder. (See "Description of
Shares - Restriction on Ownership of Shares" and "Description of Shares -
Business Combinations.")
19
You are bound by the majority vote on matters on which you are entitled to
vote.
You may vote on certain matters at any annual or special meeting of our
stockholders, including the election of our directors. However, you will be
bound by the majority vote on matters requiring approval of a majority of our
stockholders even if you do not vote with the majority on any such matter.
You are limited in your ability to sell your shares pursuant to our share
redemption program.
Even though our share redemption program provides you with the opportunity
to redeem your shares for $10 per share (or the price you paid for the shares,
if lower than $10) after you have held them for a period of one year, you should
be fully aware that our share redemption program contains certain restrictions
and limitations. Shares will be redeemed on a first-come, first-served basis and
will be limited to the lesser of (1) during any calendar year, three percent
(3%) of the weighted average number of shares outstanding during the prior
calendar year, or (2) the proceeds we receive from the sale of shares under our
dividend reinvestment plan such that in no event shall the aggregate amount of
redemptions under our share redemption program exceed aggregate proceeds
received from the sale of shares pursuant to our dividend reinvestment plan. Our
board of directors reserves the right to amend or terminate the share redemption
program at any time. In addition, the board of directors has delegated authority
to our officers to reject any request for redemption for any reason at any time.
Therefore, in making a decision to purchase shares of the Wells REIT, you should
not assume that you will be able to sell any of your shares back to us pursuant
to our share redemption program. (See "Description of Shares - Share Redemption
Program.")
We established the offering price on an arbitrary basis.
Our board of directors has arbitrarily determined the selling price of the
shares and such price bears no relationship to any established criteria for
valuing issued or outstanding shares.
Your interest in the Wells REIT may be diluted if we issue additional
shares.
Existing stockholders and potential investors in this offering do not have
preemptive rights to any shares issued by the Wells REIT in the future.
Therefore, existing stockholders and investors purchasing shares in this
offering may experience dilution of their equity investment in the Wells REIT in
the event that we:
. sell shares in this offering or sell additional shares in the future,
including those issued pursuant to the dividend reinvestment plan;
. sell securities that are convertible into shares;
. issue shares in a private offering of securities to institutional
investors;
. issue shares of common stock upon the exercise of the options granted
to our independent directors or employees of Wells Capital and Wells
Management Company, Inc. (Wells Management) or the warrants issued and
to be issued to participating broker-dealers or our independent
directors; or
. issue shares to sellers of properties acquired by us in connection
with an exchange of limited partnership units from Wells OP.
20
Payment of fees to Wells Capital and its affiliates will reduce cash
available for investment and distribution.
Wells Capital and its affiliates will perform services for us in connection
with the offer and sale of the shares, the selection and acquisition of our
properties, and the management and leasing of our properties. They will be paid
substantial fees for these services, which will reduce the amount of cash
available for investment in properties or distribution to our stockholders. (See
"Management Compensation.")
The availability and timing of cash dividends is uncertain.
We bear all expenses incurred in our operations, which are deducted from
cash funds generated by operations prior to computing the amount of cash
dividends to be distributed to our stockholders. In addition, our board of
directors, in its discretion, may retain any portion of such funds for working
capital. We cannot assure you that sufficient cash will be available to pay
dividends to you.
We are uncertain of our sources for funding of future capital needs.
Substantially all of the gross proceeds of the offering will be used for
investment in properties and for payment of various fees and expenses. (See
"Estimated Use of Proceeds.") In addition, we do not anticipate that we will
maintain any permanent working capital reserves. Accordingly, in the event that
we develop a need for additional capital in the future for the improvement of
our properties or for any other reason, we have not identified any sources for
such funding, and we cannot assure you that such sources of funding will be
available to us for potential capital needs in the future.
You will not have the benefit of independent due diligence review in
connection with this offering
Since Wells Investment Securities, our Dealer Manager, is an affiliate of
Wells Capital, you will not have the benefit of independent due diligence review
and investigation of the type normally performed by unaffiliated, independent
underwriters in connection with securities offerings.
The indictment of Arthur Andersen LLP and recent events related thereto may
adversely affect your ability to recover potential claims against Arthur
Andersen in connection with their audits of our financials statements.
In March, 2002, the Department of Justice indicted our former independent
auditor, Arthur Andersen LLP (Andersen), on federal obstruction of justice
charges arising from the government's investigation of Enron Corporation. Events
arising out of the indictment or other events relating to Andersen may adversely
affect the ability of Andersen to satisfy any potential claims that may arise
out of Andersen's audits of the financial statements contained in this
prospectus. In addition, Andersen has recently notified us that it will be
unable to provide us with the necessary consents related to including previously
audited financial statements in our prospectus. Our inability to obtain such
consents may also adversely affect your ability to pursue claims against
Andersen.
21
Real Estate Risks
General Real Estate Risks
Your investment will be affected by adverse economic and regulatory
changes.
We will be subject to risks generally incident to the ownership of real
estate, including:
. changes in general economic or local conditions;
. changes in supply of or demand for similar or competing properties in
an area;
. changes in interest rates and availability of permanent mortgage funds
which may render the sale of a property difficult or unattractive;
. changes in tax, real estate, environmental and zoning laws; and
. periods of high interest rates and tight money supply.
For these and other reasons, we cannot assure you that we will be profitable or
that we will realize growth in the value of our real estate properties.
A property that incurs a vacancy could be difficult to sell or re-lease.
A property may incur a vacancy either by the continued default of a tenant
under its lease or the expiration of one of our leases. Most of our properties
are specifically suited to the particular needs of our tenants. Therefore, we
may have difficulty obtaining a new tenant for any vacant space we have in our
properties. If the vacancy continues for a long period of time, we may suffer
reduced revenues resulting in less cash dividends to be distributed to
stockholders. In addition, the resale value of the property could be diminished
because the market value of a particular property will depend principally upon
the value of the leases of such property.
We are dependent on tenants for our revenue.
Most of our properties are occupied by a single tenant and, therefore, the
success of our investments are materially dependent on the financial stability
of our tenants. Lease payment defaults by tenants would most likely cause us to
reduce the amount of distributions to stockholders. A default of a tenant on its
lease payments to us would cause us to lose the revenue from the property and
cause us to have to find one or more additional tenants. If there are a
substantial number of tenants that are in default at any one time, we could have
difficulty making mortgage payments that could result in foreclosures of
properties subject to a mortgage. In the event of a default, we may experience
delays in enforcing our rights as landlord and may incur substantial costs in
protecting our investment and re-letting our property. If a lease is terminated,
we cannot assure you that we will be able to lease the property for the rent
previously received or sell the property without incurring a loss.
We rely on certain tenants.
Our most substantial tenants based on rental income are SSB Realty, LLC
(______%), Metris Direct, Inc. (_____%), Motorola, Inc. (______%), and Zurich
American Insurance Company, Inc. (_____%). The revenues generated by the
properties these tenants occupy are substantially reliant upon the financial
condition of these tenants and, accordingly, any event of bankruptcy, insolvency
or a general downturn in the business of any of these tenants may result in the
failure or delay of such tenant's rental payments which may have a substantial
adverse effect on our financial performance. (See "Description of
22
Real Estate Investments" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations.")
We may not have funding for future tenant improvements.
When a tenant at one of our properties does not renew its lease or
otherwise vacates its space in one of our buildings, it is likely that, in order
to attract one or more new tenants, we will be required to expend substantial
funds for tenant improvements and tenant refurbishments to the vacated space.
Substantially all of our net offering proceeds will be invested in real estate
properties, and we do not anticipate that we will maintain permanent working
capital reserves. We also have no identified funding source to provide funds
which may be required in the future for tenant improvements and tenant
refurbishments in order to attract new tenants. We cannot assure you that we
will have any sources of funding available to us for such purposes in the
future.
Uninsured losses relating to real property may adversely affect your
returns.
In the event that any of our properties incurs a casualty loss that is not
fully covered by insurance, the value of our assets will be reduced by any such
uninsured loss. In addition, we have no current source of funding to repair or
reconstruct the damaged property and cannot assure you that any such source of
funding will be available to us for such purposes in the future.
Development and construction of properties may result in delays and
increased costs and risks.
We may invest some or all of the proceeds available for investment in the
acquisition and development of properties upon which we will develop and
construct improvements at a fixed contract price. We will be subject to risks
relating to the builder's ability to control construction costs or to build in
conformity with plans, specifications and timetables. The builder's failure to
perform may necessitate legal action by us to rescind the purchase or the
construction contract or to compel performance. Performance may also be affected
or delayed by conditions beyond the builder's control. Delays in completion of
construction could also give tenants the right to terminate preconstruction
leases for space at a newly developed project. We may incur additional risks
when we make periodic progress payments or other advances to such builders prior
to completion of construction. Factors such as those discussed above can result
in increased costs of a project or loss of our investment. In addition, we will
be subject to normal lease-up risks relating to newly constructed projects.
Furthermore, we must rely upon projections of rental income and expenses and
estimates of the fair market value of property upon completion of construction
when agreeing upon a price to be paid for the property at the time of
acquisition of the property. If our projections are inaccurate, we may pay too
much for a property.
Competition for investments may increase costs and reduce returns.
We will experience competition for real property investments from
individuals, corporations and bank and insurance company investment accounts, as
well as other real estate investment trusts, real estate limited partnerships,
and other entities engaged in real estate investment activities. Competition for
investments may have the effect of increasing costs and reducing your returns.
Delays in acquisitions of properties may have adverse effects on your
investment.
Delays we encounter in the selection, acquisition and development of
properties could adversely affect your returns. Where we acquire properties
prior to the start of construction or during the early stages of construction,
it will typically take several months to complete construction and rent
available space. Therefore, you could suffer delays in the distribution of cash
dividends attributable to those
23
particular properties. In addition, if we are unable to invest our offering
proceeds in income producing real properties in a timely manner, we may not be
able to continue to pay the dividend rates we are currently paying to our
stockholders.
We may not be able to immediately invest proceeds in real estate
Until we invest the proceeds of this offering in real estate investments,
we may invest in short-term, highly liquid or other authorized investments. Such
short-term investments are not likely to earn as high a return as we expect to
earn on our real estate investments, and we cannot guarantee how long it will
take us to fully invest the proceeds of this offering in real estate
investments.
Uncertain market conditions and Wells Capital's broad discretion relating
to the future disposition of properties could adversely affect the return on
your investment.
We generally will hold the various real properties in which we invest until
such time as Wells Capital determines that a sale or other disposition appears
to be advantageous to achieve our investment objectives or until it appears that
such objectives will not be met. Otherwise, Wells Capital, subject to the
approval of our board of directors, may exercise its discretion as to whether
and when to sell a property, and we will have no obligation to sell properties
at any particular time, except upon a liquidation of the Wells REIT if we do not
list the shares by January 30, 2008. We cannot predict with any certainty the
various market conditions affecting real estate investments that will exist at
any particular time in the future. Due to the uncertainty of market conditions
that may affect the future disposition of our properties, we cannot assure you
that we will be able to sell our properties at a profit in the future.
Accordingly, the extent to which you will receive cash distributions and realize
potential appreciation on our real estate investments will be dependent upon
fluctuating market conditions.
Discovery of previously undetected environmentally hazardous conditions may
adversely affect our operating results.
Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real property may be
liable for the cost of removal or remediation of hazardous or toxic substances
on such property. Such laws often impose liability whether or not the owner or
operator knew of, or was responsible for, the presence of such hazardous or
toxic substances. Environmental laws also may impose restrictions on the manner
in which properties may be used or businesses may be operated, and these
restrictions may require expenditures. Environmental laws provide for sanctions
in the event of noncompliance and may be enforced by governmental agencies or,
in certain circumstances, by private parties. We may be potentially liable for
such costs in connection with the acquisition and ownership of our properties.
The cost of defending against claims of liability, of compliance with
environmental regulatory requirements or of remediating any contaminated
property could materially adversely affect the business, assets or results of
operations of the Wells REIT and, consequently, amounts available for
distribution to you.
Financing Risks
If we fail to make our debt payments, we could lose our investment in a
property.
We generally secure the loans we obtain to fund property acquisitions with
first priority mortgages on some of our properties. If we are unable to make our
debt payments as required, a lender could foreclose on the property or
properties securing its debt. This could cause us to lose part or all of our
investment which in turn could cause a reduction in the value of the shares and
the dividends payable to our stockholders. (See "Description of Real Estate
Investments - Real Estate Loans. ")
24
Lenders may require us to enter into restrictive covenants relating to our
operations.
In connection with obtaining certain financing, a lender could impose
restrictions on us that would affect our ability to incur additional debt and
our distribution and operating policies. Loan documents we enter into may
contain customary negative covenants which may limit our ability to further
mortgage the property, to discontinue insurance coverage, replace Wells Capital
as our advisor or impose other limitations.
If we enter into financing arrangements involving balloon payment
obligations, it may adversely affect our ability to pay dividends.
Some of our financing arrangements may require us to make a lump-sum or
"balloon" payment at maturity. We may finance more properties in this manner.
Our ability to make a balloon payment at maturity is uncertain and may depend
upon our ability to obtain additional financing or our ability to sell the
property. At the time the balloon payment is due, we may or may not be able to
refinance the balloon payment on terms as favorable as the original loan or sell
the property at a price sufficient to make the balloon payment. A refinancing or
sale under these circumstances could affect the rate of return to stockholders
and the projected time of disposition of our assets. In addition, payments of
principal and interest made to service our debts may leave us with insufficient
cash to pay the distributions that we are required to pay to maintain our
qualification as a REIT.
Section 1031 Exchange Program Risks
We may have increased exposure to liabilities from litigation as a result
of our participation in the Section 1031 Exchange Program.
Wells Development Corporation, an affiliate of Wells Capital, our advisor,
is forming a series of single member limited liability companies (each of which
is referred to in this prospectus as Wells Exchange) for the purpose of
facilitating the acquisition of real estate properties to be owned in co-tenancy
arrangements with persons (1031 Participants) who are looking to invest proceeds
from a sale of real estate to qualify for like-kind exchange treatment under
Section 1031 of the Internal Revenue Code (Section 1031 Exchange Program). There
will be significant tax and securities disclosure risks associated with the
private placement offerings of co-tenancy interests by Wells Exchange to 1031
Participants. For example, in the event that the Internal Revenue Service
conducts an audit of the purchasers of co-tenancy interests and successfully
challenges the qualification of the transaction as a like-kind exchange under
Section 1031 of the Internal Revenue Code, even though it is anticipated that
this tax risk will be fully disclosed to investors, purchasers of co-tenancy
interests may file a lawsuit against Wells Exchange and its sponsors. In such
event, even though Wells OP is not acting as a sponsor of the offering, is not
commonly controlled with Wells Exchange, and is not recommending that 1031
Participants buy co-tenancy interests from Wells Exchange, as a result of our
participation in the Section 1031 Exchange Program, and since Wells OP will be
receiving fees in connection with the Section 1031 Exchange Program, we may be
named in or otherwise required to defend against lawsuits brought by 1031
Participants. Any amounts we are required to expend for any such litigation
claims may reduce the amount of funds available for distribution to stockholders
of the Wells REIT. In addition, disclosure of any such litigation may adversely
affect our ability to raise additional capital in the future through the sale of
stock. (See "Investment Objectives and Criteria - Section 1031 Exchange
Program.")
25
We will be subject to risks associated with co-tenancy arrangements that
are not otherwise present in a real estate investment.
At the closing of each property Wells Exchange acquires pursuant to the
Section 1031 Exchange Program, we anticipate that Wells OP will enter into a
contractual arrangement providing that, in the event that Wells Exchange is
unable to sell all of the co-tenancy interests in that particular property by
the completion of its private placement offering, Wells OP will purchase, at
Wells Exchange's cost, any co-tenancy interests remaining unsold. Accordingly,
in the event that Wells Exchange is unable to sell all co-tenancy interests in
one or more of its properties, Wells OP will be required to purchase the unsold
co-tenancy interests in such property or properties and, thus, will be subject
to the risks of ownership of properties in a co-tenancy arrangement with
unrelated third parties. (See "Investment Objectives and Criteria - Section 1031
Exchange Program.")
Ownership of co-tenancy interests involves risks not otherwise present with
an investment in real estate such as the following:
. the risk that a co-tenant may at any time have economic or business
interests or goals which are or which become inconsistent with our
business interests or goals;
. the risk that a co-tenant may be in a position to take action contrary
to our instructions or requests or contrary to our policies or
objectives; or
. the possibility that a co-tenant might become insolvent or bankrupt,
which may be an event of default under mortgage loan financing
documents or allow the bankruptcy court to reject the tenants in
common agreement or management agreement entered into by the
co-tenants owning interests in the property.
Actions by a co-tenant may subject the property to liabilities in excess of
those contemplated and may have the effect of reducing your returns.
In the event that our interests become adverse to those of the other
co-tenants, we will not have the contractual right to purchase the co-tenancy
interests from the other co-tenants. Even if we are given the opportunity to
purchase such co-tenancy interests in the future, we cannot guarantee that we
will have sufficient funds available at the time to purchase co-tenancy
interests from the 1031 Participants.
We might want to sell our co-tenancy interests in a given property at a
time when the other co-tenants in such property do not desire to sell their
interests. Therefore, we may not be able to sell our interest in a property at
the time we would like to sell. In addition, we anticipate that it will be much
more difficult to find a willing buyer for our co-tenancy interests in a
property than it would be to find a buyer for a property we owned outright.
Our participation in the Section 1031 Exchange Program may limit our
ability to borrow funds in the future.
Institutional lenders may view our obligations under agreements to acquire
unsold co-tenancy interests in properties as a contingent liability against our
cash or other assets, which may limit our ability to borrow funds in the future.
Further, such obligations may be viewed by our lenders in such a manner as to
limit our ability to borrow funds based on regulatory restrictions on lenders
limiting the amount of loans they can make to any one borrower. (See "Investment
Objectives and Criteria - Section 1031 Exchange Program.")
26
Federal Income Tax Risks
Failure to qualify as a REIT could adversely affect our operations and our
ability to make distributions.
In order for us to qualify as a REIT, we are subject to the satisfaction of
requirements set forth in the Internal Revenue Code and Treasury Regulations and
various factual matters and circumstances which are not entirely within our
control. We have and will continue to structure our activities in a manner
designed to satisfy all of these requirements, however, if certain of our
operations were to be recharacterized by the Internal Revenue Service, such
recharacterization could jeopardize our ability to satisfy all of the
requirements for qualification as a REIT. In addition, new legislation,
regulations, administrative interpretations or court decisions could change the
tax laws relating to our qualification as a REIT or the federal income tax
consequences of our being a REIT.
If we fail to qualify as a REIT for any taxable year, we will be subject to
federal income tax on our taxable income at corporate rates with no offsetting
deductions for distributions made to stockholders. Further, in such event, we
would generally be disqualified from treatment as a REIT for the four taxable
years following the year in which we lose our REIT status. Accordingly, the loss
of our REIT status would reduce our net earnings available for investment or
distribution to stockholders because of the substantial tax liabilities that
would be imposed on us. We might also be required to borrow funds or liquidate
some investments in order to pay the applicable tax.
Certain fees paid to Wells OP may affect our REIT status.
In connection with the Section 1031 Exchange Program, Wells OP will enter
into a number of contractual arrangements with Wells Exchange that will, in
effect, guarantee the sale of the co-tenancy interests being offered by Wells
Exchange. (See "Investment Objectives and Criteria - Section 1031 Exchange
Program.") In consideration for entering into these agreements, Wells OP will be
paid fees which could be characterized by the IRS as non-qualifying income for
purposes of satisfying the "income tests" required for REIT qualification. (See
"Federal Income Tax Consequences - Operational Requirements - Gross Income
Tests.") If this fee income were, in fact, treated as non-qualifying, and if the
aggregate of such fee income and any other non-qualifying income in any taxable
year ever exceeded 5.0% of our gross revenues for such year, we could lose our
REIT status for that taxable year and the four ensuing taxable years. As set
forth above, we will use all reasonable efforts to structure our activities in a
manner intended to satisfy the requirements for our continued qualification as a
REIT.
Recharacterization of the Section 1031 Exchange Program may result in
taxation of income from a prohibited transaction.
In the event that the Internal Revenue Service were to recharacterize the
Section 1031 Exchange Program such that Wells OP, rather than Wells Exchange, is
treated as the bona fide owner, for tax purposes, of properties acquired and
resold by Wells Exchange in connection with the Section 1031 Exchange Program,
such characterization could result in the fees paid to Wells OP by Wells
Exchange as being deemed income from a prohibited transaction, in which event
all such fee income paid to us in connection with the Section 1031 Exchange
Program would be subject to a 100% tax. (See "Investment Objectives and Criteria
- Section 1031 Exchange Program.")
27
Legislative or regulatory action could adversely affect investors.
In recent years, numerous legislative, judicial and administrative changes
have been made in the provisions of the federal income tax laws applicable to
investments similar to an investment in shares of the Wells REIT. Additional
changes to tax laws are likely to continue to occur in the future, and we cannot
assure you that any such changes will not adversely affect the taxation of our
stockholders. Any such changes could have an adverse effect on an investment in
shares or on the market value or the resale potential of our properties. You are
urged to consult with your own tax advisor with respect to the impact of recent
legislation on your investment in shares and the status of legislative,
regulatory or administrative developments and proposals and their potential
effect on an investment in shares.
Retirement Plan Risks
There are special considerations that apply to pension or profit sharing
trusts or IRAs investing in shares.
If you are investing the assets of a pension, profit sharing, 401(k), Keogh
or other qualified retirement plan or the assets of an IRA in the Wells REIT,
you should satisfy yourself that:
. your investment is consistent with your fiduciary obligations under
ERISA and the Internal Revenue Code;
. your investment is made in accordance with the documents and
instruments governing your plan or IRA, including your plan's
investment policy;
. your investment satisfies the prudence and diversification
requirements of Sections 404(a)(1)(B) and 404(a)(1)(C) of ERISA;
. your investment will not impair the liquidity of the plan or IRA;
. your investment will not produce "unrelated business taxable income"
for the plan or IRA;
. you will be able to value the assets of the plan annually in
accordance with ERISA requirements; and
. your investment will not constitute a prohibited transaction under
Section 406 of ERISA or Section 4975 of the Internal Revenue Code.
For a more complete discussion of the foregoing issues and other risks
associated with an investment in shares by retirement plans, please see the
"ERISA Considerations" section of this prospectus on page ___.
Suitability Standards
The shares we are offering are suitable only as a long-term investment for
persons of adequate financial means. Initially, we do not expect to have a
public market for the shares, which means that you may have difficulty selling
your shares. You should not buy these shares if you need to sell them
immediately or will need to sell them quickly in the future.
In consideration of these factors, we have established suitability
standards for initial stockholders and subsequent transferees. These suitability
standards require that a purchaser of shares have either:
28
. a net worth of at least $150,000; or
. gross annual income of at least $45,000 and a net worth of at least
$45,000.
The minimum purchase is 100 shares ($1,000), except in certain states as
described below. You may not transfer fewer shares than the minimum purchase
requirement. In addition, you may not transfer, fractionalize or subdivide your
shares so as to retain less than the number of shares required for the minimum
purchase. In order to satisfy the minimum purchase requirements for retirement
plans, unless otherwise prohibited by state law, a husband and wife may jointly
contribute funds from their separate IRAs, provided that each such contribution
is made in increments of $100. You should note that an investment in shares of
the Wells REIT will not, in itself, create a retirement plan and that, in order
to create a retirement plan, you must comply with all applicable provisions of
the Internal Revenue Code.
The minimum purchase for Maine, New York and North Carolina residents is
250 shares ($2,500), except for IRAs which must purchase a minimum of 100 shares
($1,000). The minimum purchase for Minnesota residents is 250 shares ($2,500),
except for IRAs and other qualified retirement plans which must purchase a
minimum of 200 shares ($2,000).
Except in the states of Maine, Minnesota, Nebraska and Washington, if you
have satisfied the minimum purchase requirements and have purchased units in
other Wells programs or units or shares in other public real estate programs,
you may purchase less than the minimum number of shares set forth above, but in
no event less than 2.5 shares ($25). After you have purchased the minimum
investment, any additional purchase must be in increments of at least 2.5 shares
($25), except for (1) purchases made by residents of Maine and Minnesota, who
must still meet the minimum investment requirements set forth above, and (2)
purchases of shares pursuant to the dividend reinvestment plan of the Wells REIT
or reinvestment plans of other public real estate programs, which may be in
lesser amounts.
Several states have established suitability standards different from those
we have established. Shares will be sold only to investors in these states who
meet the special suitability standards set forth below.
Iowa, Massachusetts, Michigan, Missouri and Tennessee - Investors must have
either (1) a net worth of at least $225,000, or (2) gross annual income of
$60,000 and a net worth of at least $60,000.
Maine - Investors must have either (1) a net worth of at least $200,000, or
(2) gross annual income of $50,000 and a net worth of at least $50,000.
Missouri, Ohio and Pennsylvania - In addition to our suitability
requirements, investors must have a net worth of at least 10 times their
investment in the Wells REIT.
For purposes of determining suitability of an investor, net worth in all
cases shall be calculated excluding the value of an investor's home, furnishings
and automobiles.
In the case of sales to fiduciary accounts, these suitability standards
must be met by the fiduciary account, by the person who directly or indirectly
supplied the funds for the purchase of the shares or by the beneficiary of the
account. These suitability standards are intended to help ensure that, given the
long-term nature of an investment in our shares, our investment objectives and
the relative illiquidity of our shares, shares of the Wells REIT are an
appropriate investment for those of you desiring to become stockholders. Each
participating broker-dealer must make every reasonable effort to determine that
the purchase of shares is a suitable and appropriate investment for each
stockholder based on information provided by the stockholder in the Subscription
Agreement or otherwise. Each participating broker-dealer is required to maintain
records of the information used to determine that an investment in shares is
suitable and appropriate for each stockholder for a period of six years.
29
Estimated Use of Proceeds
The following tables set forth information about how we intend to use
the proceeds raised in this offering assuming that we sell 165,000,000 shares
and 330,000,000 shares, respectively, pursuant to this offering. Many of the
figures set forth below represent management's best estimate since they cannot
be precisely calculated at this time. We expect that at least 84.0% of the money
you invest will be used to buy real estate, while the remaining up to 16.0% will
be used for working capital and to pay expenses and fees, including the payment
of fees to Wells Capital, our advisor, and Wells Investment Securities, our
Dealer Manager.
165,000,000 Shares 330,000,000 Shares
------------------ ------------------
Amount(1) Percent Amount(2) Percent
-------- ------- --------- -------
Gross Offering Proceeds $1,650,000,000 100% $3,300,000,000 100.0%
Less Public Offering Expenses:
Selling Commissions and Dealer Manager Fee (3) 156,750,000 9.5% 313,500,000 9.5%
Organization and Offering Expenses (4) 49,500,000 3.0% 49,500,000 1.5%
-------------- ----- -------------- -----
Amount Available for Investment (5) $1,443,750,000 87.5% $2,937,000,000 89.0%
Acquisition and Development:
Acquisition and Advisory Fees (6) 49,500,000 3.0% 99,000,000 3.0%
Acquisition Expenses (7) 8,250,000 0.5% 16,500,000 0.5%
Initial Working Capital Reserve (8) (8) -- (8) --
-------------- ----- -------------- -----
Amount Invested in Properties (5)(9) $1,386,000,000 84.0% $2,821,500,000 85.5%
============== ===== ============== =====
_________________________
(Footnotes to "Estimated Use of Proceeds")
1. Assumes that an aggregate of $1,650,000,000 will be raised in this offering
for purposes of illustrating the percentage of estimated organization and
offering expenses at two different sales levels. See Note 4 below.
2. Assumes the maximum offering is sold which includes 300,000,000 shares
offered to the public at $10 per share and 30,000,000 shares offered
pursuant to our dividend reinvestment plan at $10 per share. Excludes
6,600,000 shares to be issued upon exercise of the soliciting dealer
warrants.
3. Includes selling commissions equal to 7.0% of aggregate gross offering
proceeds which commissions may be reduced under certain circumstances and a
dealer manager fee equal to 2.5% of aggregate gross offering proceeds, both
of which are payable to the Dealer Manager, an affiliate of our advisor.
The Dealer Manager, in its sole discretion, may reallow selling commissions
of up to 7.0% of gross offering proceeds to other broker-dealers
participating in this offering attributable to the amount of shares sold by
them. In addition, the Dealer Manager may reallow a portion of its dealer
manager fee to Participating Dealers in the aggregate amount of up to 1.5%
of gross offering proceeds to be paid to such Participating Dealers as
marketing fees, based upon such factors as the volume of sales of such
Participating Dealer, the level of marketing support provided by such
Participating Dealer and the assistance of such Participating Dealer in
marketing the offering, or to reimburse representatives of such
Participating Dealers the costs and expenses of attending our educational
conferences and seminars. The amount of selling commissions may often be
reduced under certain circumstances for volume discounts. See the "Plan of
Distribution" section of this prospectus for a description of such
provisions.
4. Organization and offering expenses consist of reimbursement of actual
legal, accounting, printing and other accountable offering expenses, other
than selling commissions and the dealer manager fee, including amounts to
reimburse Wells Capital, our advisor, for all marketing related costs and
expenses, including, but not limited to, salaries and direct expenses of
our advisor's employees
30
while engaged in registering and marketing the shares and other marketing
and organization costs, technology costs and expenses attributable to the
offering, costs and expenses of conducting our educational conferences and
seminars, payment or reimbursement of bona fide due diligence expenses, and
costs and expenses we incur for attending retail seminars conducted by
broker-dealers. Wells Capital and its affiliates will be responsible for
the payment of organization and offering expenses, other than selling
commissions and the dealer manager fee, to the extent they exceed 3.0% of
aggregate gross offering proceeds from all of our offerings without
recourse against or reimbursement by the Wells REIT. We currently estimate
that approximately $49,500,000 of organization and offering costs will be
incurred if the maximum offering of 330,000,000 shares is sold.
Notwithstanding the above, in no event shall organization and offering
expenses, including selling commissions, the dealer manager fee and all
other underwriting compensation, exceed 15% of the gross offering proceeds.
5. Until required in connection with the acquisition and development of
properties, substantially all of the net proceeds of the offering and,
thereafter, the working capital reserves of the Wells REIT, may be invested
in short-term, highly-liquid investments including government obligations,
bank certificates of deposit, short-term debt obligations and
interest-bearing accounts or other authorized investments as determined by
our board of directors.
6. Acquisition and advisory fees are defined generally as fees and commissions
paid by any party to any person in connection with the purchase,
development or construction of properties. We will pay Wells Capital, as
our advisor, acquisition and advisory fees up to a maximum amount of 3.0%
of gross offering proceeds in connection with the acquisition of the real
estate properties. Acquisition and advisory fees do not include acquisition
expenses.
7. Acquisition expenses include legal fees and expenses, travel expenses,
costs of appraisals, nonrefundable option payments on property not
acquired, accounting fees and expenses, title insurance premiums and other
closing costs and miscellaneous expenses relating to the selection,
acquisition and development of real estate properties. We will pay Wells
Capital, our advisor, acquisition expenses up to a maximum of 0.5% of gross
offering proceeds as reimbursement for the payment of such expenses.
8. Because the vast majority of leases for the properties acquired by the
Wells REIT will provide for tenant reimbursement of operating expenses, we
do not anticipate that a permanent reserve for maintenance and repairs of
real estate properties will be established. However, to the extent that we
have insufficient funds for such purposes, we may apply an amount of up to
1.0% of gross offering proceeds for maintenance and repairs of real estate
properties. We also may, but are not required to, establish reserves from
gross offering proceeds, out of cash flow generated by operating properties
or out of nonliquidating net sale proceeds, defined generally to mean the
net cash proceeds received by the Wells REIT from any sale or exchange of
properties.
9. Includes amounts anticipated to be invested in properties net of fees and
expenses. We estimate that at least 84.0% of the proceeds received from the
sale of shares will be used to acquire properties.
Management
General
We operate under the direction of our board of directors, the members of
which are accountable to us and our stockholders as fiduciaries. The board is
responsible for the management and control of our affairs. The board has
retained Wells Capital to manage our day-to-day affairs and the acquisition and
disposition of our investments, subject to the board's supervision. Our articles
of incorporation were
31
reviewed and ratified by our board of directors, including the independent
directors, at their initial meeting. This ratification by our board of directors
was required by the NASAA Guidelines.
Our articles of incorporation and bylaws provide that the number of
directors of the Wells REIT may be established by a majority of the entire board
of directors but may not be fewer than three nor more than 15. We currently have
a total of nine directors. Our articles of incorporation also provide that a
majority of the directors must be independent directors. An "independent
director" is a person who is not an officer or employee of the Wells REIT, Wells
Capital or their affiliates and has not otherwise been affiliated with such
entities for the previous two years. Of the nine current directors, seven of our
directors are considered independent directors.
Proposed transactions are often discussed before being brought to a
final board vote. During these discussions, independent directors often offer
ideas for ways in which deals can be changed to make them acceptable and these
suggestions are taken into consideration when structuring transactions. Each
director will serve until the next annual meeting of stockholders or until his
successor has been duly elected and qualified. Although the number of directors
may be increased or decreased, a decrease shall not have the effect of
shortening the term of any incumbent director.
Any director may resign at any time and may be removed with or without
cause by the stockholders upon the affirmative vote of at least a majority of
all the votes entitled to be cast at a meeting called for the purpose of the
proposed removal. The notice of the meeting shall indicate that the purpose, or
one of the purposes, of the meeting is to determine if the director shall be
removed.
Unless filled by a vote of the stockholders as permitted by Maryland
Corporation Law, a vacancy created by an increase in the number of directors or
the death, resignation, removal, adjudicated incompetence or other incapacity of
a director shall be filled by a vote of a majority of the remaining directors
and,
. in the case of a director who is not an independent director
(affiliated director), by a vote of a majority of the
remaining affiliated directors, or
. in the case of an independent director, by a vote of a majority
of the remaining independent directors,
unless there are no remaining affiliated directors or independent directors, as
the case may be. In such case a majority vote of the remaining directors shall
be sufficient. If at any time there are no independent or affiliated directors
in office, successor directors shall be elected by the stockholders. Each
director will be bound by our articles of incorporation and bylaws.
Our directors are not required to devote all of their time to our
business and are only required to devote the time to our affairs as their duties
may require. Our directors will meet quarterly or more frequently if necessary
in order to discharge their duties as directors. We do not expect that our
directors will be required to devote a substantial portion of their time in
discharging such duties. Consequently, in the exercise of their fiduciary
responsibilities, our directors will be relying heavily on Wells Capital. Our
board is empowered to fix the compensation of all officers that it selects and
may pay compensation to directors for services rendered to us in any other
capacity.
Our general investment and borrowing policies are set forth in this
prospectus. Our directors may establish further written policies on investments
and borrowings and shall monitor our administrative procedures, investment
operations and performance to ensure that the policies are fulfilled and are in
the best interest of the stockholders. We will follow the policies on
investments and borrowings set forth in this prospectus unless and until they
are modified by our directors.
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Our board is responsible for reviewing our fees and expenses on at
least an annual basis and with sufficient frequency to determine that the
expenses incurred are in the best interest of the stockholders. In addition, a
majority of the independent directors, and a majority of directors not otherwise
interested in the transaction, must approve all transactions with Wells Capital
or its affiliates. The independent directors will also be responsible for
reviewing the performance of Wells Capital and Wells Management and determining
that the compensation to be paid to Wells Capital and Wells Management is
reasonable in relation to the nature and quality of services to be performed and
that the provisions of the advisory agreement and the property management
agreement are being carried out. Specifically, the independent directors will
consider factors such as:
. the amount of the fee paid to Wells Capital and Wells Management in
relation to the size, composition and performance of our
investments;
. the success of Wells Capital in generating appropriate investment
opportunities;
. rates charged to other REITs and other investors by advisors
performing similar services;
. additional revenues realized by Wells Capital and Wells Management
through their relationship with us, whether we pay them or they are
paid by others with whom we do business;
. the quality and extent of service and advice furnished by Wells
Capital and Wells Management and the performance of our investment
portfolio; and
. the quality of our portfolio relative to the investments generated
by Wells Capital and managed by Wells Management for their other
clients.
Neither our directors nor their affiliates will vote or consent to the
voting of shares they now own or hereafter acquire on matters submitted to the
stockholders regarding either (1) the removal of Wells Capital, any director or
any affiliate, or (2) any transaction between us and Wells Capital, any director
or any affiliate.
Committees of the Board of Directors
Our entire board of directors considers all major decisions concerning
our business, including all property acquisitions. However, our board has
established an Audit Committee, a Compensation Committee and various advisory
committees so that important items within the purview of these committees can be
addressed in more depth than may be possible at a full board meeting.
Audit Committee
Under our Audit Committee Charter, our Audit Committee's primary
function is to assist the board of directors in fulfilling its oversight
responsibilities by reviewing the financial information to be provided to the
stockholders and others, the system of internal controls which management has
established, and the audit and financial reporting process. The members of our
Audit Committee are Messrs. Bell, Carpenter, Carter, Keogler, Moss, Sessoms and
Strickland.
Compensation Committee
Our board of directors has established a Compensation Committee to
administer the 2000 Employee Stock Option Plan, as described below, which was
approved by the stockholders at our annual stockholders meeting held June 28,
2000. The Compensation Committee is comprised of Messrs. Bell,
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Carpenter, Carter, Keogler, Moss, Sessoms and Strickland. The primary function
of the Compensation Committee is to administer the granting of stock options to
selected employees of Wells Capital and Wells Management based upon
recommendations from Wells Capital, and to set the terms and conditions of such
options in accordance with the 2000 Employee Stock Option Plan. To date, we have
not issued any stock options under our 2000 Employee Stock Option Plan.
Advisory Committees
The board of directors has established various advisory committees in
which certain members of the board sit on these advisory committees to assist
Wells Capital and its affiliates in the following areas which have a direct
impact on the operations of the Wells REIT: asset management; new business
development; personnel supervision; and budgeting.
Executive Officers and Directors
We have provided below certain information about our executive officers
and directors.
Name Position(s) Age
Leo F. Wells, III President and Director 58
Douglas P. Williams Executive Vice President, Secretary, 51
Treasurer and Director
John L. Bell Director 61
Richard W. Carpenter Director 65
Bud Carter Director 63
William H. Keogler, Jr. Director 56
Donald S. Moss Director 66
Walter W. Sessoms Director 68
Neil H. Strickland Director 66
Leo F. Wells, III is the President and a director of the Wells REIT and
the President, Treasurer and sole director of Wells Capital, our advisor. He is
also the sole stockholder and sole director of Wells Real Estate Funds, Inc.,
the parent corporation of Wells Capital. Mr. Wells is President of Wells &
Associates, Inc., a real estate brokerage and investment company formed in 1976
and incorporated in 1978, for which he serves as principal broker. He is also
the President, Treasurer and sole director of:
. Wells Management Company, Inc., our Property Manager;
. Wells Investment Securities, Inc., our Dealer Manager;
. Wells Advisors, Inc., a company he organized in 1991 to act as a
non-bank custodian for IRAs; and
. Wells Development Corporation, a company he organized in 1997 to
develop real properties. (See "Conflicts of Interest.")
Mr. Wells was a real estate salesman and property manager from 1970 to
1973 for Roy D. Warren & Company, an Atlanta-based real estate company, and he
was associated from 1973 to 1976 with Sax Gaskin Real Estate Company, during
which time he became a Life Member of the Atlanta Board of Realtors Million
Dollar Club. From 1980 to February 1985 he served as Vice President of
Hill-Johnson, Inc., a Georgia corporation engaged in the construction business.
Mr. Wells holds a Bachelor of Business Administration degree in economics from
the University of Georgia. Mr. Wells is a member of the International
Association for Financial Planning (IAFP) and a registered NASD principal.
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Mr. Wells has over 28 years of experience in real estate sales,
management and brokerage services. In addition to being the President and a
director of the Wells REIT, he is currently a co-general partner in a total of
27 real estate limited partnerships formed for the purpose of acquiring,
developing and operating office buildings and other commercial properties. As of
_________, 2002, these 27 real estate limited partnerships represented
investments totaling approximately $______________ from approximately
_____________ investors.
Douglas P. Williams is the Executive Vice President, Secretary, Treasurer
and a director of the Wells REIT. He is also a Senior Vice President of Wells
Capital, our advisor, and is also a Vice President of:
. Wells Investment Securities, Inc., our Dealer Manager;
. Wells Real Estate Funds, Inc.; and
. Wells Advisors, Inc. (See "Conflicts of Interest.")
Mr. Williams previously served as Vice President, Controller of
OneSource, Inc., a leading supplier of janitorial and landscape services, from
1996 to 1999 where he was responsible for corporate-wide accounting activities
and financial analysis. Mr. Williams was employed by ECC International Inc.
(ECC), a supplier to the paper industry and to the paint, rubber and plastic
industries, from 1982 to 1995. While at ECC, Mr. Williams served in a number of
key accounting positions, including: Corporate Accounting Manager, U.S.
Operations; Division Controller, Americas Region; and Corporate Controller,
America/Pacific Division. Prior to joining ECC and for one year after leaving
ECC, Mr. Williams was employed by Lithonia Lighting, a manufacturer of lighting
fixtures, as a Cost and General Accounting Manager and Director of Planning and
Control. Mr. Williams started his professional career as an auditor for KPMG
Peat Marwick LLP.
Mr. Williams is a member of the American Institute of Certified Public
Accountants and the Georgia Society of Certified Public Accountants and is
licensed with the NASD as a financial and operations principal. Mr. Williams
received a Bachelor of Arts degree from Dartmouth College and a Masters of
Business Administration degree from the Amos Tuck School of Graduate Business
Administration at Dartmouth College.
John L. Bell was the owner and Chairman of Bell-Mann, Inc., the largest
commercial flooring contractor in the Southeast from February 1971 to February
1996. Mr. Bell also served on the board of directors of Realty South Investors,
a REIT traded on the American Stock Exchange, and was the founder and served as
a director of both the Chattahoochee Bank and the Buckhead Bank. In 1997, Mr.
Bell initiated and implemented a "Dealer Acquisition Plan" for Shaw Industries,
Inc., a floor covering manufacturer and distributor, which plan included the
acquisition of Bell-Mann.
Mr. Bell currently serves on the Board of Directors of Electronic
Commerce Systems, Inc. and the Cullasaja Club of Highlands, North Carolina. Mr.
Bell is also extensively involved in buying and selling real estate both
individually and in partnership with others. Mr. Bell graduated from Florida
State University majoring in accounting and marketing.
Richard W. Carpenter served as General Vice President of Real Estate
Finance of The Citizens and Southern National Bank from 1975 to 1979, during
which time his duties included the establishment and supervision of the United
Kingdom Pension Fund, U.K.-American Properties, Inc. which was established
primarily for investment in commercial real estate within the United States.
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Mr. Carpenter is a managing partner of Carpenter Properties, L.P., a real
estate limited partnership. He is also President and director of Commonwealth
Oil Refining Company, Inc., a position he has held since 1984.
Mr. Carpenter previously served as Vice Chairman of the board of
directors of both First Liberty Financial Corp. and Liberty Savings Bank, F.S.B.
and Chairman of the Audit Committee of First Liberty Financial Corp. He has been
a member of The National Association of Real Estate Investment Trusts and
formerly served as President and Chairman of the Board of Southmark Properties,
an Atlanta-based REIT which invested in commercial properties. Mr. Carpenter is
a past Chairman of the American Bankers Association Housing and Real Estate
Finance Division Executive Committee. Mr. Carpenter holds a Bachelor of Science
degree from Florida State University, where he was named the outstanding alumnus
of the School of Business in 1973.
Bud Carter was an award-winning broadcast news director and anchorman for
several radio and television stations in the Midwest for over 20 years. From
1975 to 1980, Mr. Carter served as General Manager of WTAZ-FM, a radio station
in Peoria, Illinois and served as editor and publisher of The Peoria Press, a
weekly business and political journal in Peoria, Illinois. From 1981 until 1989,
Mr. Carter was also an owner and General Manager of Transitions, Inc., a
corporate outplacement company in Atlanta, Georgia.
Mr. Carter currently serves as Senior Vice President for The Executive
Committee, an international organization established to aid presidents and CEOs
to share ideas on ways to improve the management and profitability of their
respective companies. The Executive Committee operates in numerous large cities
throughout the United States, Canada, Australia, France, Italy, Malaysia,
Brazil, the United Kingdom and Japan. The Executive Committee has more than
7,000 presidents and CEOs who are members. In addition, Mr. Carter was the first
Chairman of the organization recruited in Atlanta and still serves as Chairman
of the first two groups formed in Atlanta, each comprised of 16 noncompeting
CEOs and presidents. Mr. Carter serves on the board of directors of Creative
Storage Systems, Inc., DiversiTech Coporation and Wavebase9. He is a graduate of
the University of Missouri where he earned degrees in journalism and social
psychology.
William H. Keogler, Jr. was employed by Brooke Bond Foods, Inc. as a
Sales Manager from June 1965 to September 1968. From July 1968 to December 1974,
Mr. Keogler was employed by Kidder Peabody & Company, Inc. and Dupont, Glore,
Forgan as a corporate bond salesman responsible for managing the industrial
corporate bond desk and the utility bond area. From December 1974 to July 1982,
Mr. Keogler was employed by Robinson-Humphrey, Inc. as the Director of Fixed
Income Trading Departments responsible for all municipal bond trading and
municipal research, corporate and government bond trading, unit trusts and
SBA/FHA loans, as well as the oversight of the publishing of the
Robinson-Humphrey Southeast Unit Trust, a quarterly newsletter. Mr. Keogler was
elected to the Board of Directors of Robinson-Humphrey, Inc. in 1982. From July
1982 to October 1984, Mr. Keogler was Executive Vice President, Chief Operating
Officer, Chairman of the Executive Investment Committee and member of the board
of directors and Chairman of the MFA Advisory Board for the Financial Service
Corporation. He was responsible for the creation of a full service trading
department specializing in general securities with emphasis on municipal bonds
and municipal trusts. Under his leadership, Financial Service Corporation grew
to over 1,000 registered representatives and over 650 branch offices. In March
1985, Mr. Keogler founded Keogler, Morgan & Company, Inc., a full service
brokerage firm, and Keogler Investment Advisory, Inc., in which he served as
Chairman of the Board, President and Chief Executive Officer. In January 1997,
both companies were sold to SunAmerica, Inc., a publicly traded New York Stock
Exchange company. Mr. Keogler continued to serve as President and Chief
Executive Officer of these companies until his retirement in January 1998.
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Mr. Keogler serves on the Board of Trustees of Senior Citizens Services
of Atlanta. He graduated from Adelphi University in New York where he earned a
degree in psychology.
Donald S. Moss was employed by Avon Products, Inc. from 1957 until his
retirement in 1986. While at Avon, Mr. Moss served in a number of key positions,
including Vice President and Controller from 1973 to 1976, Group Vice President
of Operations-Worldwide from 1976 to 1979, Group Vice President of
Sales-Worldwide from 1979 to 1980, Senior Vice President-International from 1980
to 1983 and Group Vice President-Human Resources and Administration from 1983
until his retirement in 1986. Mr. Moss was also a member of the board of
directors of Avon Canada, Avon Japan, Avon Thailand, and Avon Malaysia from
1980-1983.
Mr. Moss is currently a director of The Atlanta Athletic Club. He
formerly was the National Treasurer and a director of the Girls Clubs of America
from 1973 to 1976. Mr. Moss graduated from the University of Illinois where he
received a degree in business.
Walter W. Sessoms was employed by Southern Bell and its successor
company, BellSouth, from 1956 until his retirement in June 1997. While at
BellSouth, Mr. Sessoms served in a number of key positions, including Vice
President-Residence for the State of Georgia from June 1979 to July 1981, Vice
President-Transitional Planning Officer from July 1981 to February 1982, Vice
President-Georgia from February 1982 to June 1989, Senior Vice
President-Regulatory and External Affairs from June 1989 to November 1991, and
Group President-Services from December 1991 until his retirement on June 30,
1997.
Mr. Sessoms currently serves as a director of the Georgia Chamber of
Commerce for which he is a past Chairman of the Board, the Atlanta Civic
Enterprises and the Salvation Army's Board of Visitors of the Southeast Region.
Mr. Sessoms is also a past executive advisory council member for the University
of Georgia College of Business Administration and past member of the executive
committee of the Atlanta Chamber of Commerce. Mr. Sessoms is a graduate of
Wofford College where he earned a degree in economics and business
administration, and is currently a member of the Wofford College Board of
Trustees. He is a member of the Governor's Education Reform Commission. In
addition, Mr. Sessoms is a member of the Board of Trustees of the Southern
Center for International Studies and is currently President of the Atlanta
Rotary Club.
Neil H. Strickland was employed by Loyalty Group Insurance (which
subsequently merged with America Fore Loyalty Group and is now known as The
Continental Group) as an automobile insurance underwriter. From 1957 to 1961,
Mr. Strickland served as Assistant Supervisor of the Casualty Large Lines
Retrospective Rating Department. From 1961 to 1964, Mr. Strickland served as
Branch Manager of Wolverine Insurance Company, a full service property and
casualty service company, where he had full responsibility for underwriting of
insurance and office administration in the State of Georgia. In 1964, Mr.
Strickland and a non-active partner started Superior Insurance Service, Inc., a
property and casualty wholesale general insurance agency. Mr. Strickland served
as President and was responsible for the underwriting and all other operations
of the agency. In 1967, Mr. Strickland sold his interest in Superior Insurance
Service, Inc. and started Strickland General Agency, Inc., a property and
casualty general insurance agency concentrating on commercial customers. Mr.
Strickland is currently the Senior Operation Executive of Strickland General
Agency, Inc. and devotes most of his time to long-term planning, policy
development and senior administration.
Mr. Strickland is a past President of the Norcross Kiwanis Club and
served as both Vice President and President of the Georgia Surplus Lines
Association. He also served as President and a director of the National
Association of Professional Surplus Lines Offices. Mr. Strickland currently
serves as a director of First Capital Bank, a community bank located in the
State of Georgia. Mr. Strickland attended Georgia
37
State University where he majored in business administration. He received his
L.L.B. degree from Atlanta Law School.
Compensation of Directors
We pay each of our independent directors $3,000 per regularly scheduled
quarterly board meeting attended, $1,000 per regularly scheduled advisory
committee meeting attended and $250 per special board meeting attended whether
held in person or by telephone conference. In addition, we have reserved 100,000
shares of common stock for future issuance upon the exercise of stock options
granted to the independent directors pursuant to our Independent Director Stock
Option Plan and 500,000 shares for future issuance upon the exercise of warrants
to be granted to the independent directors pursuant to our Independent Director
Warrant Plan. All directors receive reimbursement of reasonable out-of-pocket
expenses incurred in connection with attendance at meetings of the board of
directors. If a director also is an officer of the Wells REIT, we do not pay
separate compensation for services rendered as a director.
Independent Director Stock Option Plan
Our Independent Director Stock Option Plan (Director Option Plan) was
approved by our stockholders at the annual stockholders meeting held June 16,
1999. We issued non-qualified stock options to purchase 2,500 shares (Initial
Options) to each independent director pursuant to our Director Option Plan. In
addition, we issued options to purchase 1,000 shares to each independent
director in connection with both the 2000 and 2001 annual meeting of
stockholders and will continue to issue options to purchase 1,000 shares
(Subsequent Options) to each independent director then in office on the date of
each annual stockholder's meeting. The Initial Options and the Subsequent
Options are collectively referred to as the "Director Options." Director Options
may not be granted at any time when the grant, along with grants to other
independent directors, would exceed 10% of our issued and outstanding shares. As
of December 31, 2001, each independent director had been granted options to
purchase a total of 4,500 shares under the Director Option Plan, of which 1,500
of those options were exercisable.
The exercise price for the Initial Options is $12.00 per share. The
exercise price for the Subsequent Options is the greater of (1) $12.00 per share
or (2) the fair market value of the shares on the date they are granted. Fair
market value is defined generally to mean:
. the average closing price for the five consecutive trading days
ending on such date if the shares are traded on a national exchange;
. the average of the high bid and low asked prices if the shares are
quoted on NASDAQ;
. the average of the last 10 sales made pursuant to a public offering
if there is a current public offering and no market maker for the
shares;
. the average of the last 10 purchases (or fewer if less than 10
purchases) under our share redemption program if there is no current
public offering; or
. the price per share under the dividend reinvestment plan if there are
no purchases under the share redemption program.
One-fifth of the Initial Options were exercisable beginning on the date
we granted them, one-fifth of the Initial Options became exercisable beginning
in July 2000, one-fifth of the Initial Options became exercisable beginning in
July 2001 and an additional one-fifth of the Initial Options will become
exercisable on each anniversary of the date we granted them for a period of two
years until 100% of the
38
shares become exercisable. The Subsequent Options granted under the Director
Option Plan will become exercisable on the second anniversary of the date we
grant them.
A total of 100,000 shares have been authorized and reserved for issuance
under the Director Option Plan. If the number of outstanding shares is changed
into a different number or kind of shares or securities through a reorganization
or merger in which the Wells REIT is the surviving entity, or through a
combination, recapitalization or otherwise, an appropriate adjustment will be
made in the number and kind of shares that may be issued pursuant to exercise of
the Director Options. A corresponding adjustment to the exercise price of the
Director Options granted prior to any change will also be made. Any such
adjustment, however, will not change the total payment, if any, applicable to
the portion of the Director Options not exercised, but will change only the
exercise price for each share.
Options granted under the Director Option Plan shall lapse on the first
to occur of (1) the tenth anniversary of the date we grant them, (2) the removal
for cause of the independent director as a member of the board of directors, or
(3) three months following the date the independent director ceases to be a
director for any reason other than death or disability, and may be exercised by
payment of cash or through the delivery of common stock. Director Options
granted under the Director Option Plan are generally exercisable in the case of
death or disability for a period of one year after death or the disabling event.
No Director Option issued may be exercised if such exercise would jeopardize our
status as a REIT under the Internal Revenue Code.
The independent directors may not sell pledge, assign or transfer their
options other than by will or the laws of descent or distribution.
Upon the dissolution or liquidation of the Wells REIT, upon our
reorganization, merger or consolidation with one or more corporations as a
result of which we are not the surviving corporation or upon sale of all or
substantially all of our properties, the Director Option Plan will terminate,
and any outstanding Director Options will terminate and be forfeited. The board
of directors may provide in writing in connection with any such transaction for
any or all of the following alternatives:
. for the assumption by the successor corporation of the Director
Options granted or the replacement of the Director Options with
options covering the stock of the successor corporation, or a parent
or subsidiary of such corporation, with appropriate adjustments as to
the number and kind of shares and exercise prices;
. for the continuance of the Director Option Plan and the Director
Options by such successor corporation under the original terms; or
. for the payment in cash or shares of common stock in lieu of and in
complete satisfaction of such options.
Independent Director Warrant Plan
Our Independent Director Warrant Plan (Director Warrant Plan) was
approved by our stockholders at the annual stockholders meeting held June 28,
2000. Our Director Warrant Plan provides for the issuance of warrants to
purchase shares of our common stock (Warrants) to independent directors based on
the number of shares of common stock that they purchase. The purpose of the
Director Warrant Plan is to encourage our independent directors to purchase
shares of our common stock. Beginning on the effective date of the Director
Warrant Plan and continuing until the earlier to occur of (1) the termination of
the Director Warrant Plan by action of the board of directors or otherwise, or
(2) 5:00 p.m. EST on the date of listing of our shares on a national securities
exchange, each independent director will receive one
39
Warrant for every 25 shares of common stock he purchases. The exercise price of
the Warrants will be $12.00 per share.
A total of 500,000 Warrants have been authorized and reserved for issuance
under the Director Warrant Plan, each of which will be redeemable for one share
of our common stock. Upon our dissolution or liquidation, or upon a
reorganization, merger or consolidation, where we are not the surviving
corporation, or upon our sale of all or substantially all of our properties, the
Director Warrant Plan shall terminate, and any outstanding Warrants shall
terminate and be forfeited; provided, however, that holders of Warrants may
exercise any Warrants that are otherwise exercisable immediately prior to the
effective date of the dissolution, liquidation, consolidation or merger.
Notwithstanding the above, our board of directors may provide in writing in
connection with any such transaction for any or all of the following
alternatives: (1) for the assumption by the successor corporation of the
Warrants theretofore granted or the substitution by such corporation for such
Warrants of awards covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (2) for the continuance of the Director Warrant Plan by such
successor corporation in which event the Director Warrant Plan and the Warrants
shall continue in the manner and under the terms so provided; or (3) for the
payment in cash or shares in lieu of and in complete satisfaction of such
Warrants.
No Warrant may be sold, pledged, assigned or transferred by an independent
director in any manner other than by will or the laws of descent or
distribution. All Warrants exercised during the independent director's lifetime
shall be exercised only by the independent director or his legal representative.
Any transfer contrary to the Director Warrant Plan will nullify and render void
the Warrant. Notwithstanding any other provisions of the Director Warrant Plan,
Warrants granted under the Director Warrant Plan shall continue to be
exercisable in the case of death or disability of the independent director for a
period of one year after the death or disabling event, provided that the death
or disabling event occurs while the person is an independent director. No
Warrant issued may be exercised if such exercise would jeopardize our status as
a REIT under the Internal Revenue Code.
Employee Stock Option Plan
Our 2000 Employee Stock Option Plan (Employee Option Plan) was approved by
our stockholders at the annual stockholders meeting held June 28, 2000. Our
Employee Option Plan is designed to enable Wells Capital and Wells Management to
obtain or retain the services of employees considered essential to our long
range success and the success of Wells Capital and Wells Management by offering
such employees an opportunity to participate in the growth of the Wells REIT
through ownership of our common stock.
Our Employee Option Plan provides for the formation of a Compensation
Committee consisting of two or more of our independent directors. (See
"Committees of the Board of Directors. ") The Compensation Committee shall
conduct the general administration of the Employee Option Plan. The Compensation
Committee is authorized to grant "non-qualified" stock options (Employee
Options) to selected employees of Wells Capital and Wells Management based upon
the recommendation of Wells Capital and subject to the absolute discretion of
the Compensation Committee and applicable limitations of the Employee Option
Plan. The exercise price for the Employee Options shall be the greater of (1)
$11.00 per share, or (2) the fair market value of the shares on the date the
option is granted. A total of 750,000 shares have been authorized and reserved
for issuance under our Employee Option Plan. To date, we have not issued any
stock options under our Employee Option Plan.
The Compensation Committee shall set the term of the Employee Options in
its discretion, although no Employee Option shall have a term greater than five
years from the later of (1) the date our
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shares become listed on a national securities exchange, or (2) the date the
Employee Option is granted. The employee receiving Employee Options shall agree
to remain in employment with his employer for a period of one year after the
Employee Option is granted. The Compensation Committee shall set the period
during which the right to exercise an option vests in the holder of the option.
No Employee Option issued may be exercised, however, if such exercise would
jeopardize our status as a REIT under the Internal Revenue Code. In addition, no
option may be sold, pledged, assigned or transferred by an employee in any
manner other than by will or the laws of descent or distribution.
In the event that the Compensation Committee determines that any dividend
or other distribution, recapitalization, stock split, reorganization, merger,
liquidation, dissolution, or sale, transfer, exchange or other disposition of
all or substantially all of our assets, or other similar corporate transaction
or event, affects the shares such that an adjustment is determined by the
Compensation Committee to be appropriate in order to prevent dilution or
enlargement of the benefits or potential benefits intended to be made available
under the Employee Option Plan or with respect to an Employee Option, then the
Compensation Committee shall, in such manner as it may deem equitable, adjust
the number and kind of shares or the exercise price with respect to any option.
Limited Liability and Indemnification of Directors, Officers, Employees and
Other Agents
Our organizational documents limit the personal liability of our
stockholders, directors and officers for monetary damages to the fullest extent
permitted under current Maryland Corporation Law. We also maintain a directors
and officers liability insurance policy. Maryland Corporation Law allows
directors and officers to be indemnified against judgments, penalties, fines,
settlements and expenses actually incurred in a proceeding unless the following
can be established:
. an act or omission of the director or officer was material to the
cause of action adjudicated in the proceeding, and was committed in
bad faith or was the result of active and deliberate dishonesty;
. the director or officer actually received an improper personal benefit
in money, property or services; or
. with respect to any criminal proceeding, the director or officer had
reasonable cause to believe his act or omission was unlawful.
Any indemnification or any agreement to hold harmless is recoverable only out of
our assets and not from our stockholders. Indemnification could reduce the legal
remedies available to us and our stockholders against the indemnified
individuals, however.
This provision does not reduce the exposure of our directors and officers
to liability under federal or state securities laws, nor does it limit our
stockholder's ability to obtain injunctive relief or other equitable remedies
for a violation of a director's or an officer's duties to us or our
stockholders, although the equitable remedies may not be an effective remedy in
some circumstances.
In spite of the above provisions of Maryland Corporation Law, our articles
of incorporation provide that our directors, Wells Capital and its affiliates
will be indemnified by us for losses arising from our operation only if all of
the following conditions are met:
. our directors, Wells Capital or its affiliates have determined, in
good faith, that the course of conduct which caused the loss or
liability was in our best interests;
. our directors, Wells Capital or its affiliates were acting on our
behalf or performing services for us;
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. in the case of affiliated directors, Wells Capital or its affiliates,
the liability or loss was not the result of negligence or misconduct
by the party seeking indemnification;
. in the case of independent directors, the liability or loss was not
the result of gross negligence or willful misconduct by the party
seeking indemnification; and
. the indemnification or agreement to hold harmless is recoverable only
out of our net assets and not from the stockholders.
We have agreed to indemnify and hold harmless Wells Capital and its
affiliates performing services for us from specific claims and liabilities
arising out of the performance of its obligations under the advisory agreement.
As a result, we and our stockholders may be entitled to a more limited right of
action than they would otherwise have if these indemnification rights were not
included in the advisory agreement.
The general effect to investors of any arrangement under which any of our
controlling persons, directors or officers are insured or indemnified against
liability is a potential reduction in distributions resulting from our payment
of premiums associated with insurance. In addition, indemnification could reduce
the legal remedies available to the Wells REIT and our stockholders against the
officers and directors.
The Securities and Exchange Commission takes the position that
indemnification against liabilities arising under the Securities Act of 1933 is
against public policy and unenforceable. Indemnification of our directors,
officers, Wells Capital or its affiliates will not be allowed for liabilities
arising from or out of a violation of state or federal securities laws, unless
one or more of the following conditions are met:
. there has been a successful adjudication on the merits of each count
involving alleged securities law violations;
. such claims have been dismissed with prejudice on the merits by a
court of competent jurisdiction; or
. a court of competent jurisdiction approves a settlement of the claims
against the indemnitee and finds that indemnification of the
settlement and the related costs should be made, and the court
considering the request for indemnification has been advised of the
position of the Securities and Exchange Commission and of the
published position of any state securities regulatory authority in
which the securities were offered as to indemnification for violations
of securities laws.
Indemnification will be allowed for settlements and related expenses of
lawsuits alleging securities laws violations and for expenses incurred in
successfully defending any lawsuits, provided that a court either:
. approves the settlement and finds that indemnification of the
settlement and related costs should be made; or
. dismisses with prejudice or there is a successful adjudication on the
merits of each count involving alleged securities law violations as to
the particular indemnitee and a court approves the indemnification.
42
The Advisor
The advisor of the Wells REIT is Wells Capital. Wells Capital has
contractual responsibilities to the Wells REIT and its stockholders pursuant to
the advisory agreement. Some of our officers and directors are also officers and
directors of Wells Capital. (See "Conflicts of Interest.")
The directors and executive officers of Wells Capital are as follows:
------------------------------------------------------------------------------
Name Age Position
------------------------------------------------------------------------------
Leo F. Wells, III 58 President, Treasurer and sole director
------------------------------------------------------------------------------
Douglas P. Williams 51 Senior Vice President and Assistant Secretary
------------------------------------------------------------------------------
Stephen G. Franklin 54 Senior Vice President
------------------------------------------------------------------------------
Kim R. Comer 48 Vice President
------------------------------------------------------------------------------
Claire C. Janssen 39 Vice President
------------------------------------------------------------------------------
David H. Steinwedell 42 Vice President
------------------------------------------------------------------------------
The backgrounds of Messrs. Wells and Williams are described in the
"Management - Executive Officers and Directors" section of this prospectus.
Below is a brief description of the other executive officers of Wells Capital.
Stephen G. Franklin, Ph.D. is a Senior Vice President of Wells Capital. Mr.
Franklin is responsible for marketing, sales and coordination of broker-dealer
relations. Mr. Franklin also serves as Vice President of Wells Real Estate
Funds, Inc. Prior to joining Wells Capital in 1999, Mr. Franklin served as
President of Global Access Learning, an international executive education and
management development firm. From 1997 to 1999, Mr. Franklin served as
President, Chief Academic Officer and Director of EduTrek International, a
publicly traded provider of international post-secondary education that owns the
American InterContinental University, with campuses in Atlanta, Ft. Lauderdale,
Los Angeles, Washington, D.C., London and Dubai. While at EduTrek, he was
instrumental in developing the Masters and Bachelors of Information Technology,
International MBA and Adult Evening BBA programs. Prior to joining EduTrek, Mr.
Franklin was Associate Dean of the Goizueta Business School at Emory University
and a former tenured Associate Professor of Business Administration. He served
on the founding Executive MBA faculty, and has taught graduate, undergraduate
and executive courses in Management and Organizational Behavior, Human Resources
Management and Entrepreneurship. He is also co-founder and Director of the
Center for Healthcare Leadership in the Emory University School of Medicine. Mr.
Franklin was a frequent guest lecturer at universities throughout North America,
Europe and South Africa.
In 1984, Mr. Franklin took a sabbatical from Emory University and became
Executive Vice President and a principal stockholder of Financial Service
Corporation (FSC), an independent financial planning broker-dealer. Mr. Franklin
and the other stockholders of FSC later sold their interests in FSC to Mutual of
New York Life Insurance Company.
Kim R. Comer is a Vice President of Wells Capital. He is primarily
responsible for developing, implementing and monitoring initiatives furthering
the strategic objectives of Wells Capital. He rejoined Wells Capital as National
Vice President of Marketing in April 1997 after working for Wells Capital in
similar capacities from January 1992 through September 1995. In prior positions
with Wells Capital, he served as both Vice President and Director of Customer
Care Services and Vice President of Marketing for the southeast and northeast
regions. Mr. Comer has over 10 years experience in the securities industry and
is a registered representative and financial principal with the NASD.
Additionally, he has substantial financial experience including experience as
controller and chief financial officer of two regional broker-
43
dealers. In 1976, Mr. Comer graduated with honors from Georgia State University
with a BBA degree in accounting.
Claire C. Janssen is a Vice President of Wells Capital. She is primarily
responsible for managing the corporate, real estate, investment and investor
accounting areas of the company. Ms. Janssen also serves as a Vice President of
Wells Management Company, Inc., our Property Manager. Prior to joining Wells
Capital in 2001, Ms. Janssen served as a Vice President of Lend Lease Real
Estate (formerly, Equitable Real Estate). From 1990 to 2000, she held various
management positions, including Vice President of Institutional Accounting, Vice
President of Business/Credit Analysis and Director of Tax/Corporate Accounting.
From 1985 to 1990, Ms. Janssen served in management positions for Beers and
Cutler, a Washington, D.C. based accounting firm, where she provided both audit
and tax services for clients.
Ms. Janssen received a B.S. in business administration with a major in
accounting from George Mason University. She is a Certified Public Accountant
and a member of American Institute of Certified Public Accountants, Georgia
Society of Certified Public Accountants and National Association of Real Estate
Companies.
David H. Steinwedell is a Vice President of Wells Capital. He is primarily
responsible for the acquisition of real estate properties. Prior to joining
Wells Capital in 2001, Mr. Steinwedell served as a principal in Steinwedell and
Associates, a capital markets advisory firm specializing in transactions and
strategic planning for commercial real estate firms. His background also
includes experience as the Executive Vice President of Investment Banking at
Jones Lang LaSalle and as Managing Director for Real Estate Investments at Aetna
Life and Casualty. He graduated from Hamilton College with a B.S. in Economics.
Mr. Steinwedell is a licensed real estate broker in Georgia and is a member of
the Urban Land Institute and NAIOP.
Wells Capital employs personnel, in addition to the directors and executive
officers listed above, who have extensive experience in selecting and managing
commercial properties similar to the properties sought to be acquired by the
Wells REIT.
The Advisory Agreement
Many of the services to be performed by Wells Capital in managing our
day-to-day activities are summarized below. This summary is provided to
illustrate the material functions which Wells Capital will perform for us as our
advisor, and it is not intended to include all of the services which may be
provided to us by Wells Capital or by third parties. Under the terms of the
advisory agreement, Wells Capital undertakes to use its best efforts to present
to us investment opportunities consistent with our investment policies and
objectives as adopted by our board of directors. In its performance of this
undertaking, Wells Capital, either directly or indirectly by engaging an
affiliate, shall, subject to the authority of the board:
. find, present and recommend to us real estate investment opportunities
consistent with our investment policies and objectives;
. structure the terms and conditions of transactions pursuant to which
acquisitions of properties will be made;
. acquire properties on our behalf in compliance with our investment
objectives and policies;
. arrange for financing and refinancing of properties; and
44
. enter into leases and service contracts for the properties acquired.
The term of the current advisory agreement ends on January 30, 2003 and
may be renewed for an unlimited number of successive one-year periods.
Additionally, the advisory agreement may be terminated:
. immediately by us for "cause" or upon the bankruptcy of Wells Capital
or a material breach of the advisory agreement by Wells Capital;
. without cause by a majority of the independent directors of the Wells
REIT or a majority of the directors of Wells Capital upon 60 days'
written notice; or
. immediately with "good reason" by Wells Capital.
"Good reason" is defined in the advisory agreement to mean either:
. any failure by us to obtain a satisfactory agreement from our
successor to assume and agree to perform our obligations under the
advisory agreement; or
. any material breach of the advisory agreement of any nature
whatsoever by us.
"Cause" is defined in the advisory agreement to mean fraud, criminal
conduct, willful misconduct or willful or negligent breach of fiduciary duty by
Wells Capital or a breach of the advisory agreement by Wells Capital.
Wells Capital and its affiliates expect to engage in other business
ventures and, as a result, their resources will not be dedicated exclusively to
our business. However, pursuant to the advisory agreement, Wells Capital must
devote sufficient resources to the administration of the Wells REIT to discharge
its obligations. Wells Capital may assign the advisory agreement to an affiliate
upon approval of a majority of the independent directors. We may assign or
transfer the advisory agreement to a successor entity.
Wells Capital may not make any acquisition of property or financing of
such acquisition on our behalf without the prior approval of a majority of our
board of directors. The actual terms and conditions of transactions involving
investments in properties shall be determined in the sole discretion of Wells
Capital, subject at all times to such board approval.
We will reimburse Wells Capital for all of the costs it incurs in
connection with the services it provides to us, including, but not limited to:
. organization and offering expenses in an amount up to 3.0% of gross
offering proceeds, which include actual legal, accounting, printing
and expenses attributable to preparing the SEC registration
statement, qualification of the shares for sale in the states and
filing fees incurred by Wells Capital, as well as reimbursements for
marketing, salaries and direct expenses of its employees while
engaged in registering and marketing the shares and other marketing
and organization costs, other than selling commissions and the dealer
manager fee;
. the annual cost of goods and materials used by us and obtained from
entities not affiliated with Wells Capital, including brokerage fees
paid in connection with the purchase and sale of securities;
45
. administrative services including personnel costs, provided, however,
that no reimbursement shall be made for costs of personnel to the
extent that personnel are used in transactions for which Wells
Capital receives a separate fee; and
. acquisition expenses, which are defined to include expenses related
to the selection and acquisition of properties.
Wells Capital must reimburse us at least annually for amounts paid to
Wells Capital in any year to the extent that such payments cause our operating
expenses to exceed the greater of (1) 2% of our average invested assets, which
consists of the average book value of our real estate properties, both equity
interests in and loans secured by real estate, before reserves for depreciation
or bad debts or other similar non-cash reserves, or (2) 25% of our net income,
which is defined as our total revenues less total operating expenses for any
given period. Operating expenses includes all expenses paid or incurred by the
Wells REIT as determined by generally accepted accounting principles, such as
(1) real estate operating costs, net of reimbursements, (2) management and
leasing fees, (3) general and administrative expenses, and (4) legal and
accounting expenses, but excludes (1) expenses of raising capital such as
organizational and offering expenses, (2) interest payments, (3) taxes, (4)
non-cash expenditures such as depreciation, amortization and bad debt reserves,
and (5) amounts payable out of capital contributions which are not treated as
operating expenses under generally accepted accounting principles such as the
acquisition and advisory fees payable to Wells Capital. To the extent that
operating expenses payable or reimbursable by us exceed this limit and the
independent directors determine that the excess expenses were justified based on
unusual and nonrecurring factors which they deem sufficient, Wells Capital may
be reimbursed in future years for the full amount of the excess expenses, or any
portion thereof, but only to the extent the reimbursement would not cause our
operating expenses to exceed the limitation in any year. Within 60 days after
the end of any of our fiscal quarters for which total operating expenses for the
12 months then ended exceed the limitation, there shall be sent to the
stockholders a written disclosure, together with an explanation of the factors
the independent directors considered in arriving at the conclusion that the
excess expenses were justified.
Wells Capital and its affiliates will be paid fees in connection with
services provided to us. (See "Management Compensation.") In the event the
advisory agreement is terminated, Wells Capital will be paid all accrued and
unpaid fees and expense reimbursements, and any subordinated acquisition fees
earned prior to the termination. We will not reimburse Wells Capital or its
affiliates for services for which Wells Capital or its affiliates are entitled
to compensation in the form of a separate fee.
Shareholdings
Wells Capital currently owns 20,000 limited partnership units of Wells
OP, our operating partnership, for which it contributed $200,000 and which
constitutes 100% of the limited partner units outstanding at this time. Wells
Capital may not sell any of these units during the period it serves as our
advisor. Any resale of shares that Wells Capital or its affiliates may acquire
in the future will be subject to the provisions of Rule 144 promulgated under
the Securities Act of 1933, which rule limits the number of shares that may be
sold at any one time and the manner of such resale. Although Wells Capital and
its affiliates are not prohibited from acquiring shares of the Wells REIT, Wells
Capital currently has no options or warrants to acquire any shares and has no
current plans to acquire shares. Wells Capital has agreed to abstain from voting
any shares it acquires in any vote for the election of directors or any vote
regarding the approval or termination of any contract with Wells Capital or any
of its affiliates.
46
Affiliated Companies
Property Manager
Our properties will be managed and leased initially by Wells Management
Company, Inc. (Wells Management), our Property Manager. Wells Management is a
wholly owned subsidiary of Wells Real Estate Funds, Inc., and Mr. Wells is the
sole director of Wells Management. (See "Conflicts of Interest.") The principal
officers of Wells Management are as follows:
-----------------------------------------------------------------
Name Age Positions
-----------------------------------------------------------------
Leo F. Wells, III 58 President and Treasurer
-----------------------------------------------------------------
M. Scott Meadows 38 Senior Vice President and Secretary
-----------------------------------------------------------------
John Oliver 58 Vice President
-----------------------------------------------------------------
Michael L. Watson 59 Vice President
-----------------------------------------------------------------
The background of Mr. Wells is described in the "Management - Executive
Officers and Directors" section of this prospectus. Below is a brief description
of the other executive officers of Wells Management.
M. Scott Meadows is a Senior Vice President and Secretary of Wells
Management. He is primarily responsible for the acquisition, operation,
management and disposition of real estate investments. Prior to joining Wells
Management in 1996, Mr. Meadows served as Senior Property Manager for The
Griffin Company, a full-service commercial real estate firm in Atlanta, where he
was responsible for managing a 500,000 square foot office and retail portfolio.
Mr. Meadows previously managed real estate as a Property Manager for Sea Pines
Plantation Company. He graduated from University of Georgia with a B.B.A. in
management. Mr. Meadows is a Georgia real estate broker and holds a Real
Property Administrator (RPA) designation from the Building Owners and Managers
Institute International and a Certified Property Manager (CPM) designation from
the Institute of Real Estate Management.
John G. Oliver is a Vice President of Wells Management. He is primarily
responsible for operation and management of real estate properties. Prior to
joining Wells Management in July 2000, Mr. Oliver served as Vice President with
C.B. Richard Ellis where he was responsible for the management of properties
occupied by Delta Airlines. Mr. Oliver previously was the Vice President of
Property Management for Grubb and Ellis for their southeast region and served on
their Executive Property Management Council. He graduated from Georgia State
University with a B.S. in real estate. Mr. Oliver is a past President of the
Atlanta chapter of BOMA (Building Owners and Managers Association) and holds a
Certified Property Manager (CPM) designation from the Institute of Real Estate
Management.
Michael L. Watson is a Vice President of Wells Management. He is
primarily responsible for performing due diligence investigations on our
properties and overseeing construction and tenant improvement projects including
design, engineering, and progress-monitoring functions. Prior to joining Wells
Management in 1995, Mr. Watson was Senior Project Manager with Abrams
Construction in Atlanta from 1982 to 1995. His primary responsibilities included
supervising a variety of projects consisting of high-rise office buildings,
military bases, state projects and neighborhood shopping centers. He graduated
from the University of Miami with a B.S. in civil engineering.
Wells Management is engaged in the business of real estate management. It
was organized and commenced active operations in 1983 to lease and manage real
estate projects that Wells Capital and its affiliates operate or in which they
own an interest. As of _________, 2002, Wells Management was managing in excess
of ______________ square feet of office buildings and shopping centers. We will
47
pay Wells Management property management and leasing fees not exceeding the
lesser of: (A) 4.5% of gross revenues, or (B) 0.6% of the net asset value of the
properties (excluding vacant properties) owned by the Wells REIT, calculated on
an annual basis. For purposes of this calculation, net asset value shall be
defined as the excess of (1) the aggregate of the fair market value of all
properties owned by the Wells REIT (excluding vacant properties), over (2) the
aggregate outstanding debt of the Wells REIT (excluding debts having maturities
of one year or less). In addition, we may pay Wells Management a separate fee
for the one-time initial rent-up or leasing-up of newly constructed properties
in an amount not to exceed the fee customarily charged in arm's length
transactions by others rendering similar services in the same geographic area
for similar properties as determined by a survey of brokers and agents in such
area (customarily equal to the first month's rent). Wells Management will also
retain third-party property managers or subcontract manager services to
third-party property managers as it deems appropriate for certain of our
properties.
In the event that Wells Management assists a tenant with tenant
improvements, a separate fee may be charged to the tenant and paid by the
tenant. This fee will not exceed 5.0% of the cost of the tenant improvements.
Wells Management will hire, direct and establish policies for employees
who will have direct responsibility for each property's operations, including
resident managers and assistant managers, as well as building and maintenance
personnel. Some or all of the other employees may be employed on a part-time
basis and may also be employed by one or more of the following:
. Wells Capital;
. Wells Management;
. partnerships organized by Wells Management and its affiliates; and
. other persons or entities owning properties managed by Wells
Management.
Wells Management will direct the purchase of equipment and supplies and will
supervise all maintenance activity.
The management fees to be paid to Wells Management will cover, without
additional expense to the Wells REIT, the property manager's general overhead
costs such as its expenses for rent and utilities.
The principal office of Wells Management is located at 6200 The Corners
Parkway, Suite 250, Atlanta, Georgia 30092.
Dealer Manager
Wells Investment Securities, Inc. (Wells Investment Securities), our
Dealer Manager, is a member firm of the National Association of Securities
Dealers, Inc. (NASD). Wells Investment Securities was organized in May 1984 for
the purpose of participating in and facilitating the distribution of securities
of Wells programs.
Wells Investment Securities will provide certain wholesaling, sales
promotional and marketing assistance services to the Wells REIT in connection
with the distribution of the shares offered pursuant to this prospectus. It may
also sell shares at the retail level. (See "Plan of Distribution" and
"Management Compensation.")
Wells Real Estate Funds, Inc. is the sole stockholder and Mr. Wells is
the President, Treasurer and sole director of Wells Investment Securities. (See
"Conflicts of Interest.")
48
IRA Custodian
Wells Advisors, Inc. (Wells Advisors) was organized in 1991 for the
purpose of acting as a non-bank custodian for IRAs investing in the securities
of Wells real estate programs. Wells Advisors currently charges no fees for such
services. Wells Advisors was approved by the Internal Revenue Service to act as
a qualified non-bank custodian for IRAs on March 20, 1992. In circumstances
where Wells Advisors acts as an IRA custodian, the authority of Wells Advisors
is limited to holding limited partnership units or REIT shares on behalf of the
beneficiary of the IRA and making distributions or reinvestments in such units
or shares solely at the direction of the beneficiary of the IRA. Well Advisors
is not authorized to vote any of such units or shares held in any IRA except in
accordance with the written instructions of the beneficiary of the IRA. Mr.
Wells is the President and sole director and owns 50% of the common stock and
all of the preferred stock of Wells Advisors. As of ___________, 2002, Wells
Advisors was acting as the IRA custodian for in excess of $_______________ in
Wells real estate program investments.
Management Decisions
The primary responsibility for the management decisions of Wells Capital
and its affiliates, including the selection of investment properties to be
recommended to our board of directors, the negotiation for these investments,
and the property management and leasing of these investment properties will
reside in Leo F. Wells, III, Douglas P. Williams, M. Scott Meadows, David H.
Steinwedell and John G. Oliver. Wells Capital seeks to invest in commercial
properties that satisfy our investment objectives, typically office buildings
located in densely populated suburban markets in which the major tenant is a
company with a net worth of in excess of $100,000,000. Our board of directors
must approve all acquisitions of real estate properties.
Management Compensation
The following table summarizes and discloses all of the compensation and
fees, including reimbursement of expenses, to be paid by the Wells REIT to Wells
Capital and its affiliates.
Form of Estimated
Compensation and Determination Maximum
Entity Receiving of Amount Dollar Amount(1)
---------------- --------- ----------------
Organizational and Offering Stage
Selling Commissions Up to 7.0% of gross offering proceeds before reallowance of $231,000,000
-Wells Investment commissions earned by participating broker-dealers. Wells
Securities Investment Securities, our Dealer Manager, intends to reallow
100% of commissions earned for those transactions that involve
participating broker-dealers.
Dealer Manager Fee Up to 2.5% of gross offering proceeds before reallowance to $82,500,000
- Wells Investment participating broker-dealers. Wells Investment Securities, in
Securities its sole discretion, may reallow a portion of its dealer manager
fee of up to 1.5% of the gross offering proceeds to be paid to
such participating broker-dealers.
49
Form of Estimated
Compensation and Determination Maximum
Entity Receiving of Amount Dollar Amount(1)
---------------- --------- ----------------
Reimbursement of Up to 3.0% of gross offering proceeds. All organization and $49,500,000
Organization and offering expenses (excluding selling commissions and the dealer (estimated)
Offering Expenses - manager fee) will be advanced by Wells Capital or its affiliates
Wells Capital or its and reimbursed by the Wells REIT up to 3.0% of aggregate gross
Affiliates (2) offering proceeds. We currently estimate that approximately
$49,500,000 of organization and offering costs will be incurred if
the maximum offering of 330,000,000 shares is sold.
Acquisition and Development Stage
Acquisition and Up to 3.0% of gross offering proceeds for the review and $99,000,000
Advisory evaluation of potential real property acquisitions.
Fees - Wells Capital
or its Affiliates (3)
Reimbursement of Up to 0.5% of gross offering proceeds for reimbursement of $16,500,000
Acquisition Expenses expenses related to real property acquisitions, such as legal fees,
- Wells Capital or its travel expenses, property appraisals, title insurance premium
Affiliates (3) expenses and other closing costs.
Operational Stage
Property For the management and leasing of our properties, we will pay Actual amounts are
Management and Wells Management, our Property Manager, property dependent upon
Leasing Fees - Wells management and leasing fees equal to 4.5% of gross revenues; results of operations
Management provided, however, that aggregate property management and and therefore cannot
leasing fees payable to Wells Management may not exceed the be determined at the
lesser of: (A) 4.5% of gross revenues; or (B) 0.6% of the net present time.
asset value of the properties (excluding vacant properties) owned
by the Wells REIT, calculated on an annual basis. For purposes
of this calculation, net asset value shall be defined as the excess
of (1) the aggregate of the fair market value of all properties
owned by the Wells REIT (excluding vacant properties), over (2)
the aggregate outstanding debt of the Wells REIT (excluding
debts having maturities of one year or less). In addition, we may
pay Wells Management a separate fee for the one-time initial
rent-up or leasing-up of newly constructed properties in an
amount not to exceed the fee customarily charged in arm's length
transactions by others rendering similar services in the same
geographic area for similar properties as determined by a survey
of brokers and agents in such area (customarily equal to the first
month's rent).
50
Form of Estimated
Compensation and Determination Maximum
Entity Receiving of Amount Dollar Amount(1)
---------------- --------- ----------------
Real Estate In connection with the sale of properties, an amount not Actual amounts are
Commissions - exceeding the lesser of: (A) 50% of the reasonable, customary dependent upon
Wells Capital or and competitive real estate brokerage commissions customarily results of operations
its Affiliates paid for the sale of a comparable property in light of the size, and therefore cannot
type and location of the property; or (B) 3.0% of the contract be determined at the
price of each property sold, subordinated to distributions to present time.
investors from sale proceeds of an amount which, together with
prior distributions to the investors, will equal (1) 100% of
their capital contributions, plus (2) an 8.0% annual cumulative,
noncompounded return on their net capital contributions;
provided however, in no event will the amounts paid under (A) or
(B) exceed an amount equal to 6.0% of the contract sales price
when combined with real estate commissions paid to unaffiliated
third parties.
Subordinated After investors have received a return of their net capital Actual amounts are
Participation in Net contributions and an 8.0% per year cumulative, noncompounded dependent upon
Sale Proceeds - return, then Wells Capital is entitled to receive 10.0% of results of operations
Wells Capital (4) remaining net sale proceeds. and therefore cannot
be determined at the
present time.
Subordinated Upon listing, a fee equal to 10.0% of the amount by which (1) Actual amounts are
Incentive the market value of the outstanding stock of the Wells REIT plus dependent upon
Listing Fee - distributions paid by the Wells REIT prior to listing, exceeds (2) results of operations
Wells Capital (5)(6) the sum of the total amount of capital raised from investors and and therefore cannot
the amount of cash flow necessary to generate an 8.0% per year be determined at the
cumulative, noncompounded return to investors. present time.
The Wells REIT may not reimburse any entity for operating
expenses in excess of the greater of 2% of our average invested
assets or 25% of our net income for the year.
___________________________
(Footnotes to "Management Compensation")
(1) The estimated maximum dollar amounts are based on the sale of a maximum of
300,000,000 shares to the public at $10 per share and the sale of
30,000,000 shares at $10 per share pursuant to our dividend reinvestment
plan.
(2) These reimbursements will include organization and offering expenses
previously advanced by Wells Capital with regards to prior offerings of
our shares, to the extent not reimbursed out of proceeds from prior
offerings, and subject for the 3.0% of gross offering proceeds overall
limitation.
(3) Notwithstanding the method by which we calculate the payment of
acquisition fees and expenses, as described in the table, the total of all
such acquisition fees and acquisition expenses shall not exceed, in the
aggregate, an amount equal to 6.0% of the contract price of all of the
properties which we will purchase, as required by the NASAA Guidelines.
(4) The subordinated participation in net sale proceeds and the subordinated
incentive listing fee to be received by Wells Capital are mutually
exclusive of each other. In the event that the Wells REIT becomes listed
and Wells Capital receives the subordinated incentive listing fee prior to
its
51
receipt of the subordinated participation in net sale proceeds, Wells
Capital shall not be entitled to any such participation in net sale
proceeds.
(5) If at any time the shares become listed on a national securities exchange
or included for quotation on Nasdaq, we will negotiate in good faith with
Wells Capital a fee structure appropriate for an entity with a perpetual
life. A majority of the independent directors must approve the new fee
structure negotiated with Wells Capital. In negotiating a new fee
structure, the independent directors shall consider all of the factors
they deem relevant, including but not limited to:
. the size of the advisory fee in relation to the size, composition and
profitability of our portfolio;
. the success of Wells Capital in generating opportunities that meet our
investment objectives;
. the rates charged to other REITs and to investors other than REITs by
advisors performing similar services;
. additional revenues realized by Wells Capital through their
relationship with us;
. the quality and extent of service and advice furnished by Wells
Capital;
. the performance of our investment portfolio, including income,
conservation or appreciation of capital, frequency of problem
investments and competence in dealing with distress situations; and
. the quality of our portfolio in relationship to the investments
generated by Wells Capital for the account of other clients.
Our board of directors, including a majority of the independent directors,
may not approve a new fee structure that is, in its judgment, more
favorable to Wells Capital than the current fee structure.
(6) The market value of the outstanding stock of the Wells REIT will be
calculated based on the average market value of the shares issued and
outstanding at listing over the 30 trading days beginning 180 days after
the shares are first listed on a stock exchange.
We have the option to pay the listing fee in the form of stock, cash, a
promissory note or any combination thereof. In the event the subordinated
incentive listing fee is paid to Wells Capital as a result of the listing
of the shares, we will not be required to pay Wells Capital any further
subordinated participation in net sale proceeds.
In addition, Wells Capital and its affiliates will be reimbursed only for
the actual cost of goods, services and materials used for or by the Wells REIT.
Wells Capital may be reimbursed for the administrative services necessary to the
prudent operation of the Wells REIT provided that the reimbursement shall not be
for services for which it is entitled to compensation by way of a separate fee.
Since Wells Capital and its affiliates are entitled to differing levels of
compensation for undertaking different transactions on behalf of the Wells REIT
such as the property management fees for operating the properties and the
subordinated participation in net sale proceeds, Wells Capital has the ability
to affect the nature of the compensation it receives by undertaking different
transactions. However, Wells Capital is obligated to exercise good faith and
integrity in all its dealings with respect to our affairs pursuant to the
advisory agreement. (See "Management - The Advisory Agreement.")
52
Because these fees or expenses are payable only with respect to certain
transactions or services, they may not be recovered by Wells Capital or its
affiliates by reclassifying them under a different category.
Stock Ownership
The following table shows, as of March 31, 2002, the amount of our common
stock beneficially owned (unless otherwise indicated) by (1) any person who is
known by us to be the beneficial owner of more than 5% of the outstanding shares
of our common stock, (2) our directors, (3) our executive officers, and (4) all
of our directors and executive officers as a group.
--------------------------------------------------------------------------------
Shares Beneficially Owned
--------------------------------------------------------------------------------
Shares Percentage
--------------------------------------------------------------------------------
Name and Address of Beneficial Owner
--------------------------------------------------------------------------------
Leo F. Wells, III 698 *
6200 The Corners Parkway, Suite 250
Atlanta, GA 30092
--------------------------------------------------------------------------------
Douglas P. Williams None N/A
6200 The Corners Parkway, Suite 250
Atlanta, GA 30092
--------------------------------------------------------------------------------
John L. Bell (1) 1,500 *
800 Mt. Vernon Highway, Suite 230
Atlanta, GA 30328
--------------------------------------------------------------------------------
Richard W. Carpenter (1) 1,500 *
Realmark Holdings Corporation
P.O. Box 421669 (30342)
5570 Glenridge Drive
Atlanta, GA 30342
--------------------------------------------------------------------------------
Bud Carter (1) 6,873 *
The Executive Committee
100 Mount Shasta Lane
Alpharetta, GA 30022-5440
--------------------------------------------------------------------------------
William H. Keogler, Jr. (1) 1,500 *
469 Atlanta Country Club Drive
Marietta, GA 30067
--------------------------------------------------------------------------------
Donald S. Moss (1) 79,217 *
114 Summerour Vale
Duluth, GA 30097
--------------------------------------------------------------------------------
Walter W. Sessoms (1) 38,743 *
5995 River Chase Circle NW
Atlanta, GA 30328
--------------------------------------------------------------------------------
Neil H. Strickland (1) 1,785 *
Strickland General Agency, Inc.
3109 Crossing Park
P.O. Box 129
Norcross, GA 30091
--------------------------------------------------------------------------------
All directors and executive officers 131,816 *
as a group/(2)/
--------------------------------------------------------------------------------
* Less than 1% of the outstanding common stock.
(1) Includes options to purchase up to 1,500 shares of common stock, which are
exercisable within 60 days of March 31, 2002.
(2) Includes options to purchase an aggregate of up to 10,500 shares of common
stock, which are exercisable within 60 days of March 31, 2002.
53
Conflicts of Interest
We are subject to various conflicts of interest arising out of our
relationship with Wells Capital, our advisor, and its affiliates, including
conflicts related to the arrangements pursuant to which Wells Capital and its
affiliates will be compensated by the Wells REIT. (See "Management
Compensation.")
The independent directors have an obligation to function on our behalf in
all situations in which a conflict of interest may arise and have a statutory
obligation to act in the best interest of the stockholders. (See "Management -
Limited Liability and Indemnification of Directors, Officers, Employees and
Other Agents. ") These conflicts include, but are not limited to, the following:
Interests in Other Real Estate Programs
Wells Capital and its affiliates are general partners of other Wells
programs, including partnerships which have investment objectives similar to
those of the Wells REIT, and we expect that they will organize other such
partnerships and programs in the future. Wells Capital and such affiliates have
legal and financial obligations with respect to these partnerships that are
similar to their obligations to the Wells REIT. As general partners, they may
have contingent liability for the obligations of such partnerships as well as
those of the Wells REIT that, if such obligations were enforced against them,
could result in substantial reduction of their net worth.
Wells Capital and its affiliates are currently sponsoring a real estate
program known as Wells Real Estate Fund XIII, L.P. (Wells Fund XIII). The
registration statement of Wells Fund XIII was declared effective by the
Securities and Exchange Commission (SEC) on March 29, 2001 for the offer and
sale to the public of up to 4,500,000 units of limited partnership interest at a
price of $10.00 per unit.
As described in the "Prior Performance Summary," Wells Capital and its
affiliates have sponsored the following 14 public real estate programs with
substantially identical investment objectives as those of the Wells REIT:
1. Wells Real Estate Fund I (Wells Fund I),
2. Wells Real Estate Fund II (Wells Fund II),
3. Wells Real Estate Fund II-OW (Wells Fund II-OW),
4. Wells Real Estate Fund III, L.P. (Wells Fund III),
5. Wells Real Estate Fund IV, L.P. (Wells Fund IV),
6. Wells Real Estate Fund V, L.P. (Wells Fund V),
7. Wells Real Estate Fund VI, L.P. (Wells Fund VI),
8. Wells Real Estate Fund VII, L.P. (Wells Fund VII),
9. Wells Real Estate Fund VIII, L.P. (Wells Fund VIII),
10. Wells Real Estate Fund IX, L.P. (Wells Fund IX),
11. Wells Real Estate Fund X, L.P. (Wells Fund X),
12. Wells Real Estate Fund XI, L.P. (Wells Fund XI),
13. Wells Real Estate Fund XII, L.P. (Wells Fund XII), and
14. Wells Real Estate Fund XIII, L.P. (Wells Fund XIII).
In the event that the Wells REIT, or any other Wells program or other
entity formed or managed by Wells Capital or its affiliates is in the market for
similar properties, Wells Capital will review the investment portfolio of each
such affiliated entity prior to making a decision as to which Wells program will
purchase such properties. (See "Certain Conflict Resolution Procedures.")
54
Wells Capital may acquire, for its own account or for private placement,
properties which it deems not suitable for purchase by the Wells REIT, whether
because of the greater degree of risk, the complexity of structuring inherent in
such transactions, financing considerations or for other reasons, including
properties with potential for attractive investment returns.
Other Activities of Wells Capital and its Affiliates
We rely on Wells Capital for the day-to-day operation of our business. As a
result of its interests in other Wells programs and the fact that it has also
engaged and will continue to engage in other business activities, Wells Capital
and its affiliates will have conflicts of interest in allocating their time
between the Wells REIT and other Wells programs and activities in which they are
involved. (See "Risk Factors - Investment Risks.") However, Wells Capital
believes that it and its affiliates have sufficient personnel to discharge fully
their responsibilities to all of the Wells programs and ventures in which they
are involved.
In addition, certain of our executive officers and directors are also
officers and directors of Wells Capital, our advisor and the general partner of
the various real estate programs sponsored by Wells Capital and its affiliates
described above, Wells Management Company, our Property Manager, and Wells
Investment Securities, our Dealer Manager, and as such, owe fiduciary duties to
these various entities and their stockholders and limited partners. Such
fiduciary duties may from time to time conflict with the fiduciary duties owed
to the Wells REIT and its stockholders. (See "Risk Factors - Investment Risks.")
In addition to the real estate programs sponsored by Wells Capital and its
affiliates described above, Wells Capital and its affiliates are also sponsoring
an index mutual fund that invests in various REIT stocks known as the Wells S&P
REIT Index Fund (REIT Index Fund). The REIT Index Fund is a mutual fund which
seeks to provide investment results corresponding to the performance of the S&P
REIT Index by investing in the REIT stocks included in the S&P REIT Index.
We may purchase or lease a property from Wells Capital or its affiliates
upon a finding by a majority of our board of directors, including a majority of
the independent directors, not otherwise interested in the transaction, that
such transaction is competitive and commercially reasonable to the Wells REIT
and at a price no greater than the cost of the property; provided, however, if
the price is in excess of the cost of such property, that substantial
justification for such excess exists and such excess is reasonable and the
acquisition is disclosed. In no event may the Wells REIT:
. loan funds to Wells Capital or any of its affiliates; or
. enter into agreements with Wells Capital or its affiliates for the
provision of insurance covering the Wells REIT or any of our
properties.
Competition
Conflicts of interest will exist to the extent that we may acquire
properties in the same geographic areas where other Wells programs own
properties. In such a case, a conflict could arise in the leasing of properties
in the event that the Wells REIT and another Wells program were to compete for
the same tenants in negotiating leases, or a conflict could arise in connection
with the resale of properties in the event that the Wells REIT and another Wells
program were to attempt to sell similar properties at the same time. (See "Risk
Factors - Investment Risks"). Conflicts of interest may also exist at such time
as the Wells REIT or our affiliates managing property on our behalf seek to
employ developers, contractors or building managers as well as under other
circumstances. Wells Capital will seek to reduce conflicts relating to the
employment of developers, contractors or building managers by making prospective
employees aware of all such properties seeking to employ such persons. In
addition, Wells Capital will seek to reduce conflicts which may arise with
respect to properties available for sale or rent by making
55
prospective purchasers or tenants aware of all such properties. However, these
conflicts cannot be fully avoided in that Wells Capital may establish differing
compensation arrangements for employees at different properties or differing
terms for resales or leasing of the various properties.
Affiliated Dealer Manager
Since Wells Investment Securities, our Dealer Manager, is an affiliate of
Wells Capital, we will not have the benefit of an independent due diligence
review and investigation of the type normally performed by an unaffiliated,
independent underwriter in connection with the offering of securities. (See
"Plan of Distribution.")
Affiliated Property Manager
Since we anticipate that properties we acquire will be managed and leased
by Wells Management, our Property Manager, we will not have the benefit of
independent property management. (See "Management - Affiliated Companies.")
Lack of Separate Representation
Holland & Knight LLP is counsel to the Wells REIT, Wells Capital, Wells
Investment Securities and their affiliates in connection with this offering and
may in the future act as counsel to the Wells REIT, Wells Capital, Wells
Investment Securities and their various affiliates. There is a possibility that
in the future the interests of the various parties may become adverse. In the
event that a dispute were to arise between the Wells REIT and Wells Capital,
Wells Investment Securities or any of their affiliates, separate counsel for
such matters will be retained as and when appropriate.
Joint Ventures with Affiliates of Wells Capital
We have entered into joint ventures with other Wells programs to acquire
and own properties and are likely to enter into one or more joint venture
agreements with other Wells programs for the acquisition, development or
improvement of properties. (See "Investment Objectives and Criteria - Joint
Venture Investments.") Wells Capital and its affiliates may have conflicts of
interest in determining which Wells program should enter into any particular
joint venture agreement. The co-venturer may have economic or business interests
or goals which are or which may become inconsistent with our business interests
or goals. In addition, should any such joint venture be consummated, Wells
Capital may face a conflict in structuring the terms of the relationship between
our interests and the interest of the affiliated co-venturer and in managing the
joint venture. Since Wells Capital and its affiliates will control both the
affiliated co-venturer and, to a certain extent, the Wells REIT, agreements and
transactions between the co-venturers with respect to any such joint venture
will not have the benefit of arm's-length negotiation of the type normally
conducted between unrelated co-venturers. (See "Risk Factors - Investment
Risks.")
Receipt of Fees and Other Compensation by Wells Capital and its Affiliates
A transaction involving the purchase and sale of properties may result in
the receipt of commissions, fees and other compensation by Wells Capital and its
affiliates, including acquisition and advisory fees, the dealer manager fee,
property management and leasing fees, real estate brokerage commissions, and
participation in nonliquidating net sale proceeds. However, the fees and
compensation payable to Wells Capital and its affiliates relating to the sale of
properties are subordinated to the return to the stockholders of their capital
contributions plus cumulative returns on such capital. Subject to oversight by
our board of directors, Wells Capital has considerable discretion with respect
to all decisions relating to the terms and timing of all transactions.
Therefore, Wells Capital may have conflicts of
56
interest concerning certain actions taken on our behalf, particularly due to the
fact that such fees will generally be payable to Wells Capital and its
affiliates regardless of the quality of the properties acquired or the services
provided to the Wells REIT. (See "Management Compensation.")
Every transaction we enter into with Wells Capital or its affiliates is
subject to an inherent conflict of interest. The board may encounter conflicts
of interest in enforcing our rights against any affiliate in the event of a
default by or disagreement with an affiliate or in invoking powers, rights or
options pursuant to any agreement between us and any affiliate. A majority of
the independent directors who are otherwise disinterested in the transaction
must approve each transaction between us and Wells Capital or any of its
affiliates as being fair and reasonable to us and on terms and conditions no
less favorable to us than those available from unaffiliated third parties.
Certain Conflict Resolution Procedures
In order to reduce or eliminate certain potential conflicts of interest,
our articles of incorporation contain a number of restrictions relating to (1)
transactions we enter into with Wells Capital and its affiliates, (2) certain
future offerings, and (3) allocation of properties among affiliated entities.
These restrictions include, among others, the following:
. Except as otherwise described in this prospectus, we will not
accept goods or services from Wells Capital or its affiliates
unless a majority of our directors, including a majority of the
independent directors, not otherwise interested in the
transactions, approve such transactions as fair and reasonable to
the Wells REIT and on terms and conditions not less favorable to
the Wells REIT than those available from unaffiliated third
parties.
. We will not purchase or lease properties in which Wells Capital
or its affiliates has an interest without a determination by a
majority of our directors, including a majority of the
independent directors, not otherwise interested in such
transaction, that such transaction is competitive and
commercially reasonable to the Wells REIT and at a price to the
Wells REIT no greater than the cost of the property to Wells
Capital or its affiliates, unless there is substantial
justification for any amount that exceeds such cost and such
excess amount is determined to be reasonable. In no event will we
acquire any such property at an amount in excess of its appraised
value. We will not sell or lease properties to Wells Capital or
its affiliates or to our directors unless a majority of our
directors, including a majority of the independent directors, not
otherwise interested in the transaction, determine the
transaction is fair and reasonable to the Wells REIT.
. We will not make any loans to Wells Capital or its affiliates or
to our directors. In addition, Wells Capital and its affiliates
will not make loans to us or to joint ventures in which we are a
joint venture partner for the purpose of acquiring properties.
Any loans made to us by Wells Capital or its affiliates or our
directors for other purposes must be approved by a majority of
our directors, including a majority of the independent directors,
not otherwise interested in the transaction, as fair, competitive
and commercially reasonable, and no less favorable to the Wells
REIT than comparable loans between unaffiliated parties. Wells
Capital and its affiliates shall be entitled to reimbursement, at
cost, for actual expenses incurred by them on behalf of the Wells
REIT or joint ventures in which we are a joint venture partner,
subject to the limitation on reimbursement of operating expenses
to the extent that they exceed the greater of 2% of our average
invested assets or 25% of our net income, as described in the
"Management - The Advisory Agreement" section of this prospectus.
57
. In the event that an investment opportunity becomes available
which is suitable, under all of the factors considered by
Wells Capital, for the Wells REIT and one or more other public
or private entities affiliated with Wells Capital and its
affiliates, then the entity which has had the longest period
of time elapse since it was offered an investment opportunity
will first be offered such investment opportunity. In
determining whether or not an investment opportunity is
suitable for more than one program, Wells Capital, subject to
approval by our board of directors, shall examine, among
others, the following factors:
. the cash requirements of each program;
. the effect of the acquisition both on diversification of
each program's investments by type of commercial property
and geographic area, and on diversification of the
tenants of its properties;
. the policy of each program relating to leverage of
properties;
. the anticipated cash flow of each program;
. the income tax effects of the purchase of each program;
. the size of the investment; and
. the amount of funds available to each program and the
length of time such funds have been available for
investment.
If a subsequent event or development, such as a delay in the closing of
a property or a delay in the construction of a property, causes any such
investment, in the opinion of our board of directors and Wells Capital, to be
more appropriate for a program other than the program that committed to make the
investment, Wells Capital may determine that another program affiliated with
Wells Capital or its affiliates will make the investment. Our board of directors
has a duty to ensure that the method used by Wells Capital for the allocation of
the acquisition of properties by two or more affiliated programs seeking to
acquire similar types of properties shall be reasonable.
Investment Objectives and Criteria
General
We invest in commercial real estate properties, including properties that
are under development or construction, are newly constructed or have been
constructed and have operating histories. Our investment objectives are:
. to maximize cash dividends paid to you;
. to preserve, protect and return your capital contributions;
. to realize growth in the value of our properties upon our
ultimate sale of such properties; and
. to provide you with liquidity of your investment by listing
the shares on a national exchange or, if we do not obtain
listing of the shares by January 30, 2008, our articles of
incorporation require us to begin the process of selling our
properties and distributing the net proceeds from such sales
to you.
58
We cannot assure you that we will attain these objectives or that our capital
will not decrease. We may not change our investment objectives, except upon
approval of stockholders holding a majority of our outstanding shares. (See
"Description of Shares.")
Decisions relating to the purchase or sale of properties will be made by
Wells Capital, as our advisor, subject to approval by our board of directors.
See "Management" for a description of the background and experience of our
directors and executive officers.
Acquisition and Investment Policies
We will seek to invest substantially all of the offering proceeds
available for investment after the payment of fees and expenses in the
acquisition of high grade commercial office and industrial buildings, which are
newly constructed, under construction, or which have been previously constructed
and have operating histories. We are not limited to such investments, however.
We may invest in other real estate investments, including, but not limited to,
warehouse and distribution facilities, shopping centers, business and industrial
parks, manufacturing facilities and other types of real estate properties. We
will primarily attempt to acquire commercial properties that are less than five
years old, the space in which has been leased or preleased to one or more large
corporate tenants who satisfy our standards of creditworthiness. (See "Terms of
Leases and Tenant Creditworthiness.") The trend of Wells Capital and its
affiliates in the most recently sponsored Wells programs, including the Wells
REIT, has been to invest primarily in office buildings located in densely
populated suburban markets. (See "Description of Real Estate Investments " and
"Prior Performance Summary.")
We will seek to invest in properties that will satisfy the primary
objective of providing cash dividends to our stockholders. However, because a
significant factor in the valuation of income-producing real properties is their
potential for future income, we anticipate that the majority of properties we
acquire will have both the potential for growth in value and providing cash
dividends to our stockholders. To the extent feasible, we will strive to invest
in a diversified portfolio of properties in terms of geography, type of property
and industry group of our tenants, that will satisfy our investment objectives
of maximizing cash available for payment of dividends, preserving our capital
and realizing growth in value upon the ultimate sale of our properties.
We anticipate that a minimum of 84% of the proceeds from the sale of
shares will be used to acquire real estate properties and the balance will be
used to pay various fees and expenses. (See "Estimated Use of Proceeds.")
We anticipate purchasing land for the purpose of developing the types of
commercial buildings described above. We will not invest more than 10% of the
net offering proceeds available for investment in properties in unimproved or
non-income producing properties. A property: (1) not acquired for the purpose of
producing rental or other operating income, or (2) with no development or
construction in process or planned in good faith to commence within one year
will be considered unimproved property for purposes of this limitation.
Although we are not limited as to the form our investments may take, our
investments in real estate will generally take the form of holding fee title or
a long-term leasehold estate in the properties we acquire. We will acquire such
interests either directly in Wells OP (See "The Operating Partnership
Agreement") or indirectly by acquiring membership interests in or acquisitions
of property through limited liability companies or through investments in joint
ventures, partnerships, co-tenancies or other co-ownership arrangements with
developers of properties, affiliates of Wells Capital or other persons. (See
"Joint Venture Investments" below.) We may invest in or make mortgage loans,
junior debt or subordinated mortgage loans or combinations of debt and equity,
subject to the limitations contained in
59
our articles of incorporation. In addition, we may purchase properties and lease
them back to the sellers of such properties. While we will use our best efforts
to structure any such sale-leaseback transaction such that the lease will be
characterized as a "true lease" so that we will be treated as the owner of the
property for federal income tax purposes, we cannot assure you that the IRS will
not challenge such characterization. In the event that any such sale-leaseback
transaction is recharacterized as a financing transaction for federal income tax
purposes, deductions for depreciation and cost recovery relating to such
property would be disallowed. (See "Federal Income Tax Considerations -
Sale-Leaseback Transactions.")
Although we are not limited as to the geographic area where we may
conduct our operations, we currently intend to invest in properties located in
the United States.
We are not specifically limited in the number or size of properties we
may acquire or on the percentage of net proceeds of this offering that we may
invest in a single property. The number and mix of properties we acquire will
depend upon real estate and market conditions and other circumstances existing
at the time we are acquiring our properties and the amount of proceeds we raise
in this offering.
In making investment decisions for us, Wells Capital will consider
relevant real estate property and financial factors, including the
creditworthiness of major tenants, the location of the property, its suitability
for any development contemplated or in progress, its income-producing capacity,
the prospects for long-range appreciation, its liquidity and income tax
considerations. In this regard, Wells Capital will have substantial discretion
with respect to the selection of specific investments.
Our obligation to close the purchase of any investment will generally be
conditioned upon the delivery and verification of certain documents from the
seller or developer, including, where appropriate:
. plans and specifications;
. environmental reports;
. surveys;
. evidence of marketable title subject to such liens and encumbrances
as are acceptable to Wells Capital;
. title and liability insurance policies; and
. audited financial statements covering recent operations of
properties having operating histories unless such statements
are not required to be filed with the Securities and Exchange
Commission.
We will not close the purchase of any property unless and until we obtain
an environmental assessment, a minimum of a Phase I review, for each property
purchased and are generally satisfied with the environmental status of the
property.
We may also enter into arrangements with the seller or developer of a
property whereby the seller or developer agrees that if during a stated period
the property does not generate a specified cash flow, the seller or developer
will pay in cash to the Wells REIT a sum necessary to reach the specified cash
flow level, subject in some cases to negotiated dollar limitations.
In determining whether to purchase a particular property, we may, in
accordance with customary practices, obtain an option on such property. The
amount paid for an option, if any, is normally
60
surrendered if the property is not purchased and is normally credited against
the purchase price if the property is purchased.
In purchasing, leasing and developing real estate properties, we will be
subject to risks generally incident to the ownership of real estate, including:
. changes in general economic or local conditions;
. changes in supply of or demand for similar or competing properties
in an area;
. changes in interest rates and availability of permanent mortgage
funds which may render the sale of a property difficult or
unattractive;
. changes in tax, real estate, environmental and zoning laws;
. periods of high interest rates and tight money supply which may
make the sale of properties more difficult;
. tenant turnover; and
. general overbuilding or excess supply in the market area.
Development and Construction of Properties
We may invest substantially all of the proceeds available for investment
in properties on which improvements are to be constructed or completed although
we may not invest in excess of 10% of the offering proceeds available for
investment in properties that are not expected to produce income within one year
from the date of their acquisition. To help ensure performance by the builders
of properties that are under construction, completion of properties under
construction may be guaranteed at the price contracted either by an adequate
completion bond or performance bond. We may rely, however, upon the substantial
net worth of the contractor or developer or a personal guarantee accompanied by
financial statements showing a substantial net worth provided by an affiliate of
the person entering into the construction or development contract as an
alternative to a completion bond or performance bond. Development of real estate
properties is subject to risks relating to a builder's ability to control
construction costs or to build in conformity with plans, specifications and
timetables. (See "Risk Factors - Real Estate Risks.")
We may directly employ one or more project managers to plan, supervise
and implement the development of any unimproved properties that we may acquire.
In such event, such persons would be compensated directly by the Wells REIT.
Terms of Leases and Tenant Creditworthiness
The terms and conditions of any lease we enter into with our tenants may
vary substantially from those we describe in this prospectus. However, we expect
that a majority of our leases will be what is generally referred to as "triple
net" leases. A "triple net" lease provides that in addition to making its lease
payments, the tenant will be required to pay or reimburse the Wells REIT for all
real estate taxes, sales and use taxes, special assessments, utilities,
insurance and building repairs, and other building operation and management
costs.
Wells Capital has developed specific standards for determining the
creditworthiness of potential tenants of our properties. While authorized to
enter into leases with any type of tenant, we anticipate that a majority of our
tenants will be large corporations or other entities which have a net worth in
excess of
61
$100,000,000 or whose lease obligations are guaranteed by another corporation or
entity with a net worth in excess of $100,000,000. As of ____________, 2002,
approximately ___% of the aggregate gross rental income of the Wells REIT was
derived from tenants which are corporations, each of which at the time of lease
execution had a net worth of at least $100,000,000 or whose lease obligations
were guaranteed by another corporation having a net worth of at least
$100,000,000.
In an attempt to limit or avoid speculative purchases, to the extent
possible, Wells Capital will seek to secure, on our behalf, leases with tenants
at or prior to the closing of our acquisitions of properties.
We anticipate that tenant improvements required to be funded by the
landlord in connection with newly acquired properties will be funded from our
offering proceeds. However, at such time as a tenant at one of our properties
does not renew its lease or otherwise vacates its space in one of our buildings,
it is likely that, in order to attract new tenants, we will be required to
expend substantial funds for tenant improvements and tenant refurbishments to
the vacated space. Since we do not anticipate maintaining permanent working
capital reserves, we may not have access to funds required in the future for
tenant improvements and tenant refurbishments in order to attract new tenants to
lease vacated space. (See "Risk Factors - Real Estate Risks.")
Joint Venture Investments
We have entered into joint ventures in the past, and are likely to enter
into joint ventures in the future, with affiliated entities for the acquisition,
development or improvement of properties for the purpose of diversifying our
portfolio of assets. (See "Description of Real Estate Investments - Joint
Ventures with Affiliates.") In this connection, we will likely enter into joint
ventures with Wells Fund XIII or other Wells programs. We may also enter into
joint ventures, partnerships, co-tenancies and other co-ownership arrangements
or participations with real estate developers, owners and other affiliated
third-parties for the purpose of developing, owning and operating real
properties. (See "Conflicts of Interest.") In determining whether to invest in a
particular joint venture, Wells Capital will evaluate the real property that
such joint venture owns or is being formed to own under the same criteria
described elsewhere in this prospectus for the selection of real estate property
investments of the Wells REIT. (See generally "Investment Objectives and
Criteria.")
At such time as Wells Capital enters into a joint venture with another
Wells program for the acquisition or development of a specific property, this
prospectus will be supplemented to disclose the terms of such investment
transaction. We may only enter into joint ventures with other Wells programs for
the acquisition of properties if:
. a majority of our directors, including a majority of the independent
directors, approve the transaction as being fair and reasonable to the
Wells REIT;
. the investment by the Wells REIT and such affiliate are on
substantially the same terms and conditions; and
. we will have a right of first refusal to buy if such co-venturer
elects to sell its interest in the property held by the joint venture.
In the event that the co-venturer were to elect to sell property held in any
such joint venture, however, we may not have sufficient funds to exercise our
right of first refusal to buy the other co-venturer's interest in the property
held by the joint venture. In the event that any joint venture with an
affiliated entity holds interests in more than one property, the interest in
each such property may be specially allocated based upon the respective
proportion of funds invested by each co-venturer in each such property. Our
entering
62
into joint ventures with other Wells programs will result in certain conflicts
of interest. (See "Conflicts of Interest - Joint Ventures with Affiliates of
Wells Capital.")
Section 1031 Exchange Program
Wells Development Corporation (Wells Development), an affiliate of Wells
Capital, our advisor, intends to form a series of single member limited
liability companies (each of which is referred to in this prospectus as Wells
Exchange) for the purpose of facilitating the acquisition of real estate
properties to be owned in co-tenancy arrangements with persons (1031
Participants) who are looking to invest the proceeds from a sale of real estate
held for investment in another real estate investment for purposes of qualifying
for like-kind exchange treatment under Section 1031 of the Internal Revenue
Code. We anticipate that Wells Development will sponsor a series of private
placement offerings of interests in limited liability companies owning
co-tenancy interests in various properties to 1031 Participants.
Wells Development anticipates that properties acquired in connection with
the Section 1031 Exchange Program will be financed by obtaining a new first
mortgage secured by the property acquired. In order to finance the remainder of
the purchase price for properties to be acquired by Wells Exchange, it is
anticipated that Wells Exchange will obtain a short-term loan from an
institutional lender for each property. Following its acquisition of a property,
Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants,
the proceeds of which will be used to pay off the short-term loan. At the
closing of each property to be acquired by Wells Exchange, we anticipate that
Wells OP, our operating partnership, will enter into a contractual arrangement,
providing that, in the event that Wells Exchange is unable to sell all of the
co-tenancy interests in that particular property to 1031 Participants, Wells OP
will purchase, at Wells Exchange's cost, any co-tenancy interests remaining
unsold. (See "Risk Factors - Section 1031 Exchange Program.") In addition, Wells
OP may enter into one or more additional contractual arrangements obligating it
to purchase co-tenancy interests in a particular property directly from the 1031
Participants. In consideration for such obligations, Wells Exchange will pay
Wells OP a fee (Take Out Fee) in an amount currently anticipated to range
between 1.0% and 1.5% of the amount of the short-term loan being obtained by
Wells Exchange. (See "Risk Factors - Federal Income Tax Risks.")
Our board of directors, including a majority of our independent directors,
will be required to approve each property acquired pursuant to the Section 1031
Exchange Program in the event that Wells OP has any obligation to potentially
acquire any interest in the property. Accordingly, Wells Exchange intends to
purchase only real estate properties which otherwise meet the investment
objectives of the Wells REIT. Wells OP may execute an agreement providing for
the potential purchase of the unsold co-tenancy interests from Wells Exchange or
directly from the 1031 Participants only after a majority of our directors,
including a majority of our independent directors, not otherwise interested in
the transaction, approve of the transaction as being fair, competitive and
commercially reasonable to Wells OP and at a price to Wells OP no greater than
the cost of the co-tenancy interests to Wells Exchange. If the price to Wells OP
is in excess of such cost, our directors must find substantial justification for
such excess and that such excess is reasonable. In addition, a fair market value
appraisal for each property must be obtained from an independent expert selected
by our independent directors, and in no event may Wells OP purchase co-tenancy
interests at a price that exceeds the current appraised value for the property
interests.
As set forth above, pursuant to the terms of these contractual
arrangements, Wells OP will be obligated to purchase co-tenancy interests in
certain properties offered to 1031 Participants to the extent co-tenancy
interests remain unsold at the end of the offering. All purchasers of co-tenancy
interests, including Wells OP in the event that it is required to purchase
co-tenancy interests, will be required to execute a tenants in common agreement
with the other purchasers of co-tenancy interests in that particular property
and a property management agreement providing for the property management and
leasing of the
63
property by Wells Management and the payment of property management and leasing
fees to Wells Management equal to 4.5% of gross revenues. Accordingly, in the
event that Wells OP is required to purchase co-tenancy interests pursuant to one
or more of these contractual arrangements, we will be subject to various risks
associated with co-tenancy arrangements which are not otherwise present in real
estate investments such as the risk that the interests of the 1031 Participants
will become adverse to our interests. (See "Risk Factors - Section 1031 Exchange
Program.")
Borrowing Policies
While we strive for diversification, the number of different properties we
can acquire will be affected by the amount of funds available to us. See
"Description of Real Estate Investments - Real Estate Loans" for a description
of our existing loans and the outstanding loan balances.
Our ability to increase our diversification through borrowing could be
adversely impacted by banks and other lending institutions reducing the amount
of funds available for loans secured by real estate. When interest rates on
mortgage loans are high or financing is otherwise unavailable on a timely basis,
we may purchase certain properties for cash with the intention of obtaining a
mortgage loan for a portion of the purchase price at a later time.
There is no limitation on the amount we may invest in any single improved
property or on the amount we can borrow for the purchase of any property. The
NASAA Guidelines only limit our borrowing to 75% of the value of all properties
unless any excess borrowing is approved by a majority of the independent
directors and is disclosed to stockholders in our next quarterly report.
However, under our articles of incorporation, we have a self-imposed limitation
on borrowing which precludes us from borrowing in the aggregate in excess of 50%
of the value of all of our properties. As of _____________, 2002, we had an
aggregate debt leverage ratio of _____% of the value of our properties.
By operating on a leveraged basis, we will have more funds available for
investment in properties. This will allow us to make more investments than would
otherwise be possible, resulting in a more diversified portfolio. Although our
liability for the repayment of indebtedness is expected to be limited to the
value of the property securing the liability and the rents or profits derived
therefrom, our use of leveraging increases the risk of default on the mortgage
payments and a resulting foreclosure of a particular property. (See "Risk
Factors - Real Estate Risks.") To the extent that we do not obtain mortgage
loans on our properties, our ability to acquire additional properties will be
restricted. Wells Capital will use its best efforts to obtain financing on our
behalf on the most favorable terms available. Lenders may have recourse to
assets not securing the repayment of the indebtedness.
Wells Capital will refinance properties during the term of a loan only in
limited circumstances, such as when a decline in interest rates makes it
beneficial to prepay an existing mortgage, when an existing mortgage matures or
if an attractive investment becomes available and the proceeds from the
refinancing can be used to purchase such investment. The benefits of the
refinancing may include an increased cash flow resulting from reduced debt
service requirements, an increase in dividend distributions from proceeds of the
refinancing, if any, and/or an increase in property ownership if some
refinancing proceeds are reinvested in real estate.
We may not borrow money from any of our directors or from Wells Capital and
its affiliates for the purpose of acquiring real properties. Any loans by such
parties for other purposes must be approved by a majority of our directors,
including a majority of the independent directors, not otherwise interested in
the transaction, as fair, competitive and commercially reasonable and no less
favorable to the Wells REIT than comparable loans between unaffiliated parties.
64
Disposition Policies
We intend to hold each property we acquire for an extended period. However,
circumstances might arise which could result in the early sale of some
properties. We may sell a property before the end of the expected holding period
if, among other reasons:
. the tenant has involuntarily liquidated;
. in the judgment of Wells Capital, the value of a property might
decline substantially;
. an opportunity has arisen to improve other properties;
. we can increase cash flow through the disposition of the property;
. the tenant is in default under the lease; or
. in our judgment, the sale of the property is in our best interests.
The determination of whether a particular property should be sold or
otherwise disposed of will be made after consideration of relevant factors,
including prevailing economic conditions, with a view to achieving maximum
capital appreciation. We cannot assure you that this objective will be realized.
The selling price of a property that is net leased will be determined in large
part by the amount of rent payable under the lease. If a tenant has a repurchase
option at a formula price, we may be limited in realizing any appreciation. In
connection with our sales of properties we may lend the purchaser all or a
portion of the purchase price. In these instances, our taxable income may exceed
the cash received in the sale. (See "Federal Income Tax Considerations - Failure
to Qualify as a REIT.") The terms of payment will be affected by custom in the
area in which the property being sold is located and the then-prevailing
economic conditions.
If our shares are not listed for trading on a national securities exchange
or included for quotation on Nasdaq by January 30, 2008, our articles of
incorporation require us to begin the process of selling our properties and
distributing the net sale proceeds to you in liquidation of the Wells REIT. In
making the decision to apply for listing of our shares, our directors will try
to determine whether listing our shares or liquidating our assets will result in
greater value for the stockholders. We cannot determine at this time the
circumstances, if any, under which our directors will agree to list our shares.
Even if our shares are not listed or included for quotation, we are under no
obligation to actually sell our portfolio within this time period since the
precise timing will depend on real estate and financial markets, economic
conditions of the areas in which the properties are located and federal income
tax effects on stockholders which may prevail in the future. Furthermore, we
cannot assure you that we will be able to liquidate our assets, and it should be
noted that we will continue in existence until all properties are sold and our
other assets are liquidated. In addition, we may consider other business
strategies such as reorganizations or mergers with other entities if our board
of directors determines such strategies would be in the best interest of our
stockholders.
Investment Limitations
Our articles of incorporation place numerous limitations on us with respect
to the manner in which we may invest our funds, most of which are required by
various provisions of the NASAA Guidelines. These limitations cannot be changed
unless our articles of incorporation are amended, which requires approval of our
stockholders. Unless our articles are amended, we will not:
. borrow in excess of 50% of the aggregate value of all properties owned
by us, provided that we may borrow in excess of 50% of the value of an
individual property;
65
. make or invest in mortgage loans, including construction loans, on any
one property if the aggregate amount of all mortgage loans on such
property would exceed an amount equal to 85% of the appraised value of
such property as determined by appraisal unless substantial
justification exists for exceeding such limit because of the presence
of other underwriting criteria;
. invest in equity securities unless a majority of Directors (including
a majority of Independent Directors) not otherwise interested in the
transaction approve such investment as being fair, competitive and
commercially reasonable;
. invest in commodities or commodity futures contracts, except for
futures contracts when used solely for the purpose of hedging in
connection with our ordinary business of investing in real estate
assets and mortgages;
. invest in real estate contracts of sale, otherwise known as land sale
contracts, unless the contract is in recordable form and is
appropriately recorded in the chain of title;
. make or invest in mortgage loans unless an appraisal is obtained
concerning the underlying property except for those mortgage loans
insured or guaranteed by a government or government agency. Mortgage
debt on any property shall not exceed such property's appraised value.
In cases where our board of directors determines, and in all cases in
which the transaction is with any of our directors or Wells Capital
and its affiliates, such appraisal shall be obtained from an
independent appraiser. We will maintain such appraisal in our records
for at least five years and it will be available for your inspection
and duplication. We will also obtain a mortgagee's or owner's title
insurance policy as to the priority of the mortgage;
. make or invest in mortgage loans that are subordinate to any mortgage
or equity interest of any of our directors, Wells Capital or its
affiliates;
. invest in junior debt secured by a mortgage on real property which is
subordinate to the lien or other senior debt except where the amount
of such junior debt plus any senior debt exceeds 90% of the appraised
value of such property, if after giving effect thereto, the value of
all such mortgage loans of the Wells REIT would not then exceed 25% of
our net assets, which shall mean our total assets less our total
liabilities;
. engage in any short sale or borrow on an unsecured basis, if the
borrowing will result in asset coverage of less than 300%. "Asset
coverage," for the purpose of this clause, means the ratio which the
value of our total assets, less all liabilities and indebtedness for
unsecured borrowings, bears to the aggregate amount of all of our
unsecured borrowings;
. make investments in unimproved property or indebtedness secured by a
deed of trust or mortgage loans on unimproved property in excess of
10% of our total assets;
. issue equity securities on a deferred payment basis or other similar
arrangement;
. issue debt securities in the absence of adequate cash flow to cover
debt service;
. issue equity securities which are non-voting or assessable;
. issue "redeemable securities," as defined in Section 2(a)(32) of the
Investment Company Act of 1940, except oursuant to our share
redemption program;
66
. grant warrants or options to purchase shares to Wells Capital or its
affiliates or to officers or directors affiliated with Wells Capital
except on the same terms as the options or warrants are sold to the
general public and the amount of the options or warrants does not
exceed an amount equal to 10% of the outstanding shares on the date of
grant of the warrants and options;
. engage in trading, as compared with investment activities, or engage
in the business of underwriting or the agency distribution of
securities issued by other persons;
. invest more than 5% of the value of our assets in the securities of
any one issuer if the investment would cause us to fail to qualify as
a REIT;
. invest in securities representing more than 10% of the outstanding
voting securities of any one issuer if the investment would cause us
to fail to qualify as a REIT; or
. lend money to our directors or to Wells Capital or its affiliates.
Wells Capital will continually review our investment activity to attempt to
ensure that we do not come within the application of the Investment Company Act
of 1940. Among other things, Wells Capital will attempt to monitor the
proportion of our portfolio that is placed in various investments so that we do
not come within the definition of an "investment company" under the Act. If at
any time the character of our investments could cause us to be deemed an
investment company for purposes of the Investment Company Act of 1940, we will
take the necessary action to attempt to ensure that we are not deemed to be an
"investment company."
Change in Investment Objectives and Limitations
Our articles of incorporation require that the independent directors review
our investment policies at least annually to determine that the policies we are
following are in the best interest of our stockholders. Each determination and
the basis therefore is required to be set forth in our minutes. The methods of
implementing our investment policies also may vary as new investment techniques
are developed. The methods of implementing our investment objectives and
policies, except as otherwise provided in the organizational documents, may be
altered by a majority of our directors, including a majority of the independent
directors, without the approval of the stockholders.
Description of Real Estate Investments
General
As of _________, 2002, we had purchased interests in ___ real estate
properties located in ____ states, all of which are leased to tenants on a
triple-net basis. The cost of each of the properties will be depreciated for tax
purposes over a 40-year period on a straight-line basis. We believe all of the
properties are adequately covered by insurance and are suitable for their
intended purposes. The following table provides certain additional information
about these properties.
----------------------------------------------------------------------------------------------------------------------------
Property Property % Purchase Square Annual
Name Tenant Location Owned Price Feet Rent
----------------------------------------------------------------------------------------------------------------------------
Agilent Boston Agilent Technologies, Inc. Boxborough, MA 100% $31,742,274 174,585 $3,578,993
----------------------------------------------------------------------------------------------------------------------------
Experian/TRW Experian Information Allen, TX 100% $35,150,000 292,700 $3,438,277
Solutions, Inc.
----------------------------------------------------------------------------------------------------------------------------
BellSouth Ft. BellSouth Advertising and Ft. Lauderdale, FL 100% $ 6,850,000 47,400 $ 747,033
Lauderdale Publishing Corporation
----------------------------------------------------------------------------------------------------------------------------
67
-----------------------------------------------------------------------------------------------------------------------------
Property Property % Purchase Square Annual
Name Tenant Location Owned Price Feet Rent
-----------------------------------------------------------------------------------------------------------------------------
Agilent Atlanta Agilent Technologies, Alpharetta, GA 100% $ 15,100,000 101,207 $1,344,905
Inc. Koninklijke Philips $ 692,391
Electronics N.V.
-----------------------------------------------------------------------------------------------------------------------------
Travelers Express Travelers Express Lakewood, CO 100% $ 10,395,845 68,165 $1,012,250
Denver Company, Inc.
-----------------------------------------------------------------------------------------------------------------------------
Dana Kalamazoo Dana Corporation Kalamazoo, MI 100% $ 41,950,000 147,004 $1,842,800
-----------------------------------------------------------------------------------------------------------------------------
Dana Detroit Dana Corporation Farmington 100% (see above)(1) 112,480 $2,330,600
Hills, MI
-----------------------------------------------------------------------------------------------------------------------------
Novartis Atlanta Novartis Opthalmics, Inc. Duluth, GA 100% $ 15,000,000 100,087 $1,426,240
-----------------------------------------------------------------------------------------------------------------------------
Transocean Houston Transocean Deepwater Houston, TX 100% $ 22,000,000 103,260 $2,110,035
Offshore Drilling, Inc. 52,731 $1,153,227
Newpark Drilling Fluids,
Inc.
-----------------------------------------------------------------------------------------------------------------------------
Arthur Andersen Arthur Andersen LLP Sarasota, FL 100% $ 21,400,000 157,700 $1,988,454
-----------------------------------------------------------------------------------------------------------------------------
Windy Point I TCI Great Lakes, Inc. Schaumburg, IL 100% $ 32,225,000 129,157 $2,067,204
The Apollo Group, Inc. (2) 28,322 $ 477,226
Global Knowledge Network 22,028 $ 382,307
Various other tenants 8,884 $ 160,000
-----------------------------------------------------------------------------------------------------------------------------
Windy Point II Zurich American Insurance Schaumburg, IL 100% $ 57,050,000 300,034 $5,091,577
(2)
-----------------------------------------------------------------------------------------------------------------------------
Convergys Convergys Customer Tamarac, FL 100% $ 13,255,000 100,000 $1,248,192
Management Group, Inc.
-----------------------------------------------------------------------------------------------------------------------------
ADIC Advanced Digital Parker, CO 68.2% $ 12,954,213 148,204 $1,222,683
Information Corporation
-----------------------------------------------------------------------------------------------------------------------------
Lucent Lucent Technologies, Inc. Cary, NC 100% $ 17,650,000 120,000 $1,800,000
-----------------------------------------------------------------------------------------------------------------------------
Ingram Micro Ingram Micro, L.P. Millington, TN 100% $ 21,050,000 701,819 $2,035,275
-----------------------------------------------------------------------------------------------------------------------------
Nissan (3) Nissan Motor Acceptance Irving, TX 100% $ 5,545,700 268,290 $4,225,860(4)
Corporation
-----------------------------------------------------------------------------------------------------------------------------
IKON IKON Office Solutions, Inc. Houston, TX 100% $ 20,650,000 157,790 $2,015,767
-----------------------------------------------------------------------------------------------------------------------------
State Street SSB Realty, LLC Quincy, MA 100% $ 49,563,000 234,668 $6,922,706
-----------------------------------------------------------------------------------------------------------------------------
AmeriCredit AmeriCredit Financial Orange Park, FL 68.2% $ 12,500,000 85,000 $1,303,050
Services Corporation
-----------------------------------------------------------------------------------------------------------------------------
Comdata Comdata Network, Inc. Brentwood, TN 55.0% $ 24,950,000 201,237 $2,458,638
-----------------------------------------------------------------------------------------------------------------------------
AT&T Oklahoma AT&T Corp. Oklahoma City, OK 55.0% $ 15,300,000 103,500 $1,242,000
Jordan Associates, Inc. 25,000 $ 294,500
-----------------------------------------------------------------------------------------------------------------------------
Metris Minnesota Metris Direct, Inc. Minnetonka, MN 100% $ 52,800,000 300,633 $4,960,445
-----------------------------------------------------------------------------------------------------------------------------
Stone & Webster Stone & Webster, Inc. Houston, TX 100% $ 44,970,000 206,048 $4,533,056
SYSCO Corporation 106,516 $2,130,320
-----------------------------------------------------------------------------------------------------------------------------
Motorola Motorola, Inc. S. Plainfield, NJ 100% $ 33,648,156 236,710 $3,324,428
Plainfield
-----------------------------------------------------------------------------------------------------------------------------
Quest Quest Software, Inc. Irvine, CA 15.8% $ 7,193,000 65,006 $1,287,119
-----------------------------------------------------------------------------------------------------------------------------
Delphi Delphi Automotive Troy, MI 100% $ 19,800,000 107,193 $1,901,952
Systems, LLC
-----------------------------------------------------------------------------------------------------------------------------
Avnet Avnet, Inc. Tempe, AZ 100% $ 13,250,000 132,070 $1,516,164
-----------------------------------------------------------------------------------------------------------------------------
Siemens Siemens Automotive Corp. Troy, MI 56.8% $ 14,265,000 77,054 $1,374,643
-----------------------------------------------------------------------------------------------------------------------------
Motorola Tempe Motorola, Inc. Tempe, AZ 100% $ 16,000,000 133,225 $1,843,834
-----------------------------------------------------------------------------------------------------------------------------
ASML ASM Lithography, Inc. Tempe, AZ 100% $ 17,355,000 95,133 $1,927,788
-----------------------------------------------------------------------------------------------------------------------------
Dial Dial Corporation Scottsdale, AZ 100% $ 14,250,000 129,689 $1,387,672
-----------------------------------------------------------------------------------------------------------------------------
Metris Tulsa Metris Direct, Inc. Tulsa, OK 100% $ 12,700,000 101,100 $1,187,925
-----------------------------------------------------------------------------------------------------------------------------
Cinemark Cinemark USA, Inc. Plano, TX 100% $ 21,800,000 65,521 $1,366,491
The Coca-Cola Company 52,587 $1,354,184
-----------------------------------------------------------------------------------------------------------------------------
Gartner The Gartner Group, Inc. Ft. Myers, FL 56.8% $ 8,320,000 62,400 $ 830,656
-----------------------------------------------------------------------------------------------------------------------------
68
--------------------------------------------------------------------------------------------------------------------------------
Property Property % Purchase Square Annual
Name Tenant Location Owned Price Feet Rent
--------------------------------------------------------------------------------------------------------------------------------
Videojet Videojet Technologies, Wood Dale, IL 100% $ 32,630,940 250,354 $ 3,376,746
Technologies Inc.
Chicago
--------------------------------------------------------------------------------------------------------------------------------
Johnson Matthey Johnson Matthey, Inc. Wayne, PA 56.8% $ 8,000,000 130,000 $ 828,750
--------------------------------------------------------------------------------------------------------------------------------
Alstom Power Alstom Power, Inc. Midlothian, VA 100% $ 11,400,000 99,057 $ 1,213,324
Richmond (3)
--------------------------------------------------------------------------------------------------------------------------------
Sprint Sprint Communications Leawood, KS 56.8% $ 9,500,000 68,900 $ 999,048
Company, L.P.
--------------------------------------------------------------------------------------------------------------------------------
EYBL CarTex EYBL CarTex, Inc. Fountain Inn, SC 56.8% $ 5,085,000 169,510 $ 550,908
--------------------------------------------------------------------------------------------------------------------------------
Matsushita (3) Matsushita Avionics Lake Forest, CA 100% $ 18,431,206 144,906 $ 2,005,464
Systems Corporation
--------------------------------------------------------------------------------------------------------------------------------
AT&T Pennsylvania Pennsylvania Cellular Harrisburg, PA 100% $ 12,291,200 81,859 $ 1,442,116
Telephone Corp.
--------------------------------------------------------------------------------------------------------------------------------
PwC PricewaterhouseCoopers, Tampa, FL 100% $ 21,127,854 130,091 $ 2,093,382
LLP
--------------------------------------------------------------------------------------------------------------------------------
Cort Furniture Cort Furniture Rental Fountain 44.0% $ 6,400,000 52,000 $ 834,888
Corporation Valley, CA
--------------------------------------------------------------------------------------------------------------------------------
Fairchild Fairchild Technologies Fremont, CA 77.5% $ 8,900,000 50,756 $ 849,744
U.S.A., Inc.
--------------------------------------------------------------------------------------------------------------------------------
Avaya Avaya, Inc. Oklahoma 3.7% $ 5,504,276 57,186 $ 536,977
City, OK
--------------------------------------------------------------------------------------------------------------------------------
Iomega Iomega Corporation Ogden, UT 3.7% $ 5,025,000 108,250 $ 659,868
--------------------------------------------------------------------------------------------------------------------------------
Interlocken ODS Technologies, L.P. Broomfield, CO 3.7% $ 8,275,000 51,975 $ 849,744
and GAIAM, Inc.
--------------------------------------------------------------------------------------------------------------------------------
Ohmeda Ohmeda, Inc. Louisville, CO 3.7% $ 10,325,000 106,750 $ 1,004,520
--------------------------------------------------------------------------------------------------------------------------------
Alstom Power Alstom Power, Inc. Knoxville, TN 3.7% $ 7,900,000 84,404 $ 1,106,520
Knoxville
--------------------------------------------------------------------------------------------------------------------------------
TOTALS $929,427,664 7,448,095 $99,665,006(4)
--------------------------------------------------------------------------------------------------------------------------------
(1) Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase
price of $41,950,000.
(2) Windy Point I and Windy Point II were purchased for an aggregate purchase
price of $89,275,000.
(3) Includes the actual costs incurred or estimated to be incurred by Wells OP
to develop and construct the building in addition to the purchase price of the
land.
(4) Total annual rent does not include $4,225,860 annual rent for Nissan
Property, which does not take effect until construction of the building is
completed and the tenant is occupying the building.
As of ____________, 2002, no tenant leasing our properties accounted for
more than 10% of our aggregate annual rental income. As of _______, 2002, our
most substantial tenants, based on annual rental income, were SSB Realty, LLC
(approximately ___%), Metris Direct, Inc. (approximately ___%), Motorola, Inc.
(approximately ____%) and Zurich American Insurance Company, Inc. (approximately
___%).
69
Geographic Diversification Table
The following table shows a list of 49 real estate investments we owned as
of May 25, 2002, grouped by the state where each of our investments are located.
-----------------------------------------------------------------------------------------------------------
No. of Aggregate Approx. Aggregate Approx. Aggregate Approx.
State Properties Purchase Price % Square Feet % Annual Rent %
-----------------------------------------------------------------------------------------------------------
Arizona 4 $60,855,000 6.5% 490,117 6.6% $6,675,458 6.7%
-----------------------------------------------------------------------------------------------------------
California 4 $40,924,206 4.4% 312,668 4.2% $4,977,215 5.0%
-----------------------------------------------------------------------------------------------------------
Colorado 4 $41,950,058 4.5% 375,094 5.0% $4,089,197 4.1%
-----------------------------------------------------------------------------------------------------------
Florida 6 $83,452,854 9.0% 582,591 7.8% $8,210,767 8.2%
-----------------------------------------------------------------------------------------------------------
Georgia 2 $30,100,000 3.2% 201,294 2.7% $3,403,536 3.4%
-----------------------------------------------------------------------------------------------------------
Illinois 2 $121,905,940 13.1% 738,779 9.9% $11,555,060 11.6%
-----------------------------------------------------------------------------------------------------------
Kansas 1 $9,500,000 1.0% 68,900 0.9% $999,048 1.0%
-----------------------------------------------------------------------------------------------------------
Massachusetts 2 $81,305,274 8.7% 409,213 5.5% $10,501,699 10.5%
-----------------------------------------------------------------------------------------------------------
Michigan 4 $76,015,000 8.2% 443,731 6.0% $7,449,995 7.5%
-----------------------------------------------------------------------------------------------------------
Minnesota 1 $52,800,000 5.7% 300,633 4.0% $4,960,445 5.0%
-----------------------------------------------------------------------------------------------------------
New Jersey 1 $33,648,156 3.6% 236,710 3.2% $3,324,428 3.3%
-----------------------------------------------------------------------------------------------------------
North Carolina 1 $17,650,000 1.9% 120,000 1.6% $1,800,000 1.8%
-----------------------------------------------------------------------------------------------------------
Oklahoma 3 $33,504,276 3.6% 286,786 3.9% $3,261,402 3.3%
-----------------------------------------------------------------------------------------------------------
Pennsylvania 2 $20,291,200 2.2% 211,859 2.8% $2,270,866 2.3%
-----------------------------------------------------------------------------------------------------------
South Carolina 1 $5,085,000 0.5% 169,510 2.3% $550,908 0.6%
-----------------------------------------------------------------------------------------------------------
Tennessee 3 $53,900,000 5.8% 987,460 13.3% $5,600,433 5.6%
-----------------------------------------------------------------------------------------------------------
Texas 6 $150,115,700 16.2% 1,305,443 17.5% *$18,101,357 18.2%
-----------------------------------------------------------------------------------------------------------
Utah 1 $5,025,000 0.5% 108,250 1.5% $659,868 0.7%
-----------------------------------------------------------------------------------------------------------
Virginia 1 $11,400,000 1.2% 99,057 1.3% $1,213,324 1.2%
-----------------------------------------------------------------------------------------------------------
Total 49 $929,427,664 100% 7,448,095 100% $99,665,006 100%
-----------------------------------------------------------------------------------------------------------
-----------------------
* - Does not include $4,225,860 annual rent from the Nissan Project, located in
Irving, Texas, which is not yet completed.
Lease Expiration Table
The following table shows lease expirations during each of the next ten
years for all our leases as of December 31, 2001, assuming no exercise of
renewal options or termination rights:
-------------------------------------------------------------------------------------------------
Wells REIT Percentage Percentage
Number Share of of Total of Total
Year of of Square Annualized Annualized Square Annualized
Lease Leases Feet Gross Base Gross Base Feet Gross Base
Expiration Expiring Expiring Rent (1) Rent (1) Expiring Rent
---------- -------- -------- ---------- ---------- ---------- ----------
-------------------------------------------------------------------------------------------------
2002 5 33,610 $ 563,072 $ 20,898 0.6% 0.7%
-------------------------------------------------------------------------------------------------
2003 2 69,146 1,123,570 375,310 1.3 1.5
-------------------------------------------------------------------------------------------------
2004 2 123,430 2,235,143 937,964 2.2 2.9
-------------------------------------------------------------------------------------------------
2005 6 248,859 3,172,944 2,156,713 4.5 4.1
-------------------------------------------------------------------------------------------------
2006 2 197,493 3,522,375 3,522,375 4.0 4.6
-------------------------------------------------------------------------------------------------
2007 5 489,554 6,449,078 4,470,526 8.9 8.4
-------------------------------------------------------------------------------------------------
2008 8 762,251 9,584,884 8,271,448 13.4 12.5
-------------------------------------------------------------------------------------------------
2009 4 331,250 4,006,172 3,486,255 5.5 5.2
-------------------------------------------------------------------------------------------------
2010 8 1,036,300 16,415,964 15,152,732 18.8 21.4
-------------------------------------------------------------------------------------------------
2011 9 2,240,712 29,802,675 28,912,536 40.7 38.8
-------------------------------------------------------------------------------------------------
51 5,502,810 $76,875,877 $67,306,758 100.0% 100.0%
==== ========= =========== =========== ===== =====
-------------------------------------------------------------------------------------------------
(1) Average monthly gross rent over the life of the lease, annualized.
70
Joint Ventures with Affiliates
Wells OP owns some of its properties through ownership interests in the
seven joint ventures listed below. The Company does not have control over the
operations of the joint ventures; however, it does exercise significant
influence. Accordingly, investment in joint ventures are recorded for accounting
purposes using the equity method.
----------------------------------------------------------------------------------------------------------------
Joint Venture Joint Venture Partners Properties Held by Joint Venture
----------------------------------------------------------------------------------------------------------------
Fund XIII-REIT Joint Venture Wells Operating Partnership, L.P. AmeriCredit Building
Wells Real Estate Fund XIII, L.P. ADIC Buildings
----------------------------------------------------------------------------------------------------------------
Fund XII-REIT Joint Venture Wells Operating Partnership, L.P. Siemens Building
Wells Real Estate Fund XII, L.P. AT&T Oklahoma Buildings
Comdata Building
----------------------------------------------------------------------------------------------------------------
Fund XI-XII-REIT Joint Wells Operating Partnership, L.P. EYBL CarTex Building
Venture Wells Real Estate Fund XI, L.P. Sprint Building
Wells Real Estate Fund XII, L.P. Johnson Matthey Building
Gartner Building
----------------------------------------------------------------------------------------------------------------
Fund IX-X-XI-REIT Joint Wells Operating Partnership, L.P. Alstom Power Knoxville Building
Venture Wells Real Estate Fund IX, L.P. Ohmeda Building
Wells Real Estate Fund X, L.P. Interlocken Building
Wells Real Estate Fund XI, L.P. Avaya Building
Iomega Building
----------------------------------------------------------------------------------------------------------------
Wells/Freemont Associates Wells Operating Partnership, L.P. Fairchild Building
Joint Venture (Freemont Fund X-XI Joint Venture
Joint Venture)
----------------------------------------------------------------------------------------------------------------
Wells/Orange County Wells Operating Partnership, L.P. Cort Furniture Building
Associates Joint Venture Fund X-XI Joint Venture
(Orange County Joint Venture)
----------------------------------------------------------------------------------------------------------------
Fund VIII-IX-REIT Joint Wells Operating Partnership, L.P. Quest Building
Venture Fund VIII-IX Joint Venture
----------------------------------------------------------------------------------------------------------------
The Wells Fund XIII - REIT Joint Venture
Wells OP and Wells Fund XIII entered into a joint venture partnership
known as the Wells Fund XIII-REIT Joint Venture Partnership (XIII-REIT Joint
Venture). The investment objectives of Wells Fund XIII are substantially
identical to our investment objectives. As of December 31, 2001, the joint
venture partners of the XIII-REIT Joint Venture had made the following
contributions and held the following equity percentage interests:
-------------------------------------------------------------------
Joint Venture Partner Capital Contributions Equity Interest
-------------------------------------------------------------------
Wells OP $17,359,875 68.2%
-------------------------------------------------------------------
Wells Fund XIII $ 8,491,069 31.8%
-------------------------------------------------------------------
The Wells Fund XII-REIT Joint Venture
Wells OP and Wells Fund XII entered into a joint venture partnership
known as the Wells Fund XII-REIT Joint Venture Partnership (XII-REIT Joint
Venture). The investment objectives of Wells Fund XII are substantially
identical to our investment objectives. As of December 31, 2001, the joint
venture partners of the XII-REIT Joint Venture had made the following
contributions and held the following equity percentage interests:
71
---------------------------------------------------------------------
Joint Venture Partner Capital Contributions Equity Interest
---------------------------------------------------------------------
Wells OP $29,950,668 55.0%
---------------------------------------------------------------------
Wells Fund XII $24,613,401 45.0%
---------------------------------------------------------------------
The Wells Fund XI-Fund XII-REIT Joint Venture
Wells OP entered into a joint venture partnership with Wells Fund XI
and Wells Fund XII known as The Wells Fund XI-Fund XII-REIT Joint Venture
(XI-XII-REIT Joint Venture). The XI-XII-REIT Joint Venture was originally formed
on May 1, 1999 between Wells OP and Wells Fund XI. On June 21, 1999, Wells Fund
XII was admitted to the XI-XII-REIT Joint Venture as a joint venture partner.
The investment objectives of Wells Fund XI and Wells Fund XII are substantially
identical to our investment objectives. As of December 31, 2001, the joint
venture partners of the XI-XII-REIT Joint Venture had made the following
contributions and held the following equity percentage interests:
-------------------------------------------------------------------
Joint Venture Partner Capital Contributions Equity Interest
-------------------------------------------------------------------
Wells OP $17,641,211 56.8%
-------------------------------------------------------------------
Wells Fund XI $ 8,131,351 26.1%
-------------------------------------------------------------------
Wells Fund XII $ 5,300,000 17.1%
-------------------------------------------------------------------
The Fund IX, Fund X, Fund XI and REIT Joint Venture
Wells OP entered into a joint venture partnership with Wells Fund IX,
Wells Fund X and Wells Fund XI, known as The Fund IX, Fund X, Fund XI and REIT
Joint Venture (IX-X-XI-REIT Joint Venture). The IX-X-XI-REIT Joint Venture was
originally formed on March 20, 1997 between Wells Fund IX and Wells Fund X. On
June 11, 1998, Wells OP and Wells Fund XI were admitted as joint venture
partners to the IX-X-XI-REIT Joint Venture. The investment objectives of Wells
Fund IX, Wells Fund X and Wells Fund XI are substantially identical to our
investment objectives. As of December 31, 2001, the joint venture partners of
the IX-X-XI-REIT Joint Venture had made the following contributions and held the
following equity percentage interests:
---------------------------------------------------------------------
Joint Venture Partner Capital Contributions Equity Interest
---------------------------------------------------------------------
Wells OP $ 1,421,466 3.7%
---------------------------------------------------------------------
Wells Fund IX $14,982,435 39.1%
---------------------------------------------------------------------
Wells Fund X $18,501,185 48.3%
---------------------------------------------------------------------
Wells Fund XI $ 3,357,436 8.9%
---------------------------------------------------------------------
The Fremont Joint Venture
Wells OP entered into a joint venture partnership known as
Wells/Fremont Associates (Fremont Joint Venture) with Fund X and Fund XI
Associates (X-XI Joint Venture), a joint venture between Wells Fund X and Wells
Fund XI. The purpose of the Fremont Joint Venture is the acquisition, ownership,
leasing, operation, sale and management of the Fairchild Building. As of
December 31, 2001, the joint venture partners of the Fremont Joint Venture had
made the following contributions and held the following equity percentage
interests:
---------------------------------------------------------------------
Joint Venture Partner Capital Contributions Equity Interest
---------------------------------------------------------------------
Wells OP $6,983,111 78.0%
---------------------------------------------------------------------
X-XI Joint Venture $2,000,000 22.0%
---------------------------------------------------------------------
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The Cort Joint Venture
Wells OP entered into a joint venture partnership with the X-XI Joint
Venture known as Wells/Orange County Associates (Cort Joint Venture) for the
purpose of the acquisition, ownership, leasing, operation, sale and management
of the Cort Furniture Building. As of December 31, 2001, the joint venture
partners of the Cort Joint Venture had made the following contributions and held
the following equity percentage interests:
-----------------------------------------------------------------------
Joint Venture Partner Capital Contributions Equity Interest
-----------------------------------------------------------------------
Wells OP $2,871,430 44.0%
-----------------------------------------------------------------------
X-XI Joint Venture $3,695,000 56.0%
-----------------------------------------------------------------------
The Wells Fund VIII-Fund IX-REIT Joint Venture
Wells OP entered into a joint venture partnership with the Fund VIII-IX
Joint Venture known as the Wells Fund VIII-Fund IX-REIT Joint Venture
(VIII-IX-REIT Joint Venture) for the purpose of the ownership, leasing,
operation, sale and management of the Quest Building. The investment objectives
of Wells Fund VIII and Wells Fund IX are substantially identical to our
investment objectives. As of December 31, 2001, the joint venture partners of
the VIII-IX-REIT Joint Venture had made the following contributions and held the
following equity percentage interests:
----------------------------------------------------------------------
Joint Venture Partner Capital Contributions Equity Interest
----------------------------------------------------------------------
Wells OP $1,282,111 15.1%
----------------------------------------------------------------------
Wells Fund VIII $3,608,109 42.4%
----------------------------------------------------------------------
Wells Fund IX $3,620,316 42.5%
----------------------------------------------------------------------
General Provisions of Joint Venture Agreements
Wells OP is acting as the initial Administrative Venturer of each of
the joint ventures described 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 venture
partners will be required for any major decision or any action that materially
affects these joint ventures or their real property investments.
The XIII-REIT Joint Venture Agreement, the XII-REIT Joint Venture
Agreement, the XI-XII-REIT Joint Venture Agreement and the IX-X-XI-REIT Joint
Venture Agreement each allow any joint venture partner to make a buy/sell
election upon receipt by any other joint venture partner of a bona fide
third-party offer to purchase all or substantially all of the properties or the
last remaining property of the respective joint venture. Upon receipt of notice
of such third-party offer, each joint venture partner must elect within 30 days
after receipt of the notice to either (1) purchase the entire interest of each
venture partner that wishes to accept the offer on the same terms and conditions
as the third-party offer to purchase, or (2) consent to the sale of the
properties or last remaining property pursuant to such third-party offer.
73
Description of Properties
Agilent Boston Building
Wells OP purchased the Agilent Boston Building on May 3, 2002 for a
purchase price of $31,742,274. The Agilent Boston Building, which was built in
2002, is a three-story office building containing 174,585 rentable square feet
located in Boxborough, Middlesex County, Massachusetts. Wells OP assumed the
obligation, as the landlord, to provide Agilent $3,407,496 for tenant
improvements.
The entire Agilent Boston Building is leased to Agilent Technologies,
Inc. (Agilent). Agilent is a major producer of measuring and monitoring devices,
semiconductor products and chemical analysis tools for communications and life
sciences companies, such as Internet service providers and biopharmaceutical
companies. Agilent reported a net worth, as of January 31, 2002, of
approximately $5.4 billion.
The Agilent Boston lease is a net lease that commenced in May 2001 and
expires in May 2011. The current annual base rent payable under the Agilent
Boston lease is $3,578,993. Agilent, at its option, has the right to extend the
initial term of its lease for one additional five-year period at a rate equal to
the greater of (1) the then-current market rental rate, or (2) 75% of the annual
base rent in the final year of the initial term of the Agilent Boston lease. In
addition, Agilent may terminate the lease at the end of the seventh lease year
by paying a $4,190,000 termination fee.
Experian/TRW Buildings
Wells OP purchased the Experian/TRW Buildings on May 1, 2002 for a
purchase price of $35,150,000. The Experian/TRW Buildings, which were built in
1982 and 1993 respectively, are two two-story office buildings containing
292,700 rentable square feet located in Allen, Texas.
The Experian/TRW Buildings are both leased to Experian Information
Solutions, Inc. (Experian). Experian is an information services company that
uses decision-making software and comprehensive databases of information on
consumers, businesses, motor vehicles and property to provide companies with
information about their customers. TRW, Inc. (TRW), who remains an obligor on
the Experian lease, is a global technology, manufacturing and service company
that provides advanced technology, systems, and services to customers worldwide.
TRW reported a net worth, as of March 31, 2002, of approximately $2.24 billion.
The Experian lease is a net lease that commenced in April 1993 and
expires in October 2010. The current annual base rent payable under the Experian
lease is $3,438,277. Experian, at its option, has the right to extend the
initial term of its lease for four additional five-year periods at 95% of the
then-current market rental rate. TRW, Inc., the original tenant on the Experian
lease, assigned its interest in the Experian lease to Experian in 1996 but
remains as an obligor of the Experian lease.
BellSouth Ft. Lauderdale Building
Wells OP purchased the BellSouth Ft. Lauderdale Building on April 18,
2002 for a purchase price of $6,850,000. The BellSouth Ft. Lauderdale Building,
which was built in 2001, is a one-story office building containing 47,400
rentable square feet located in Ft. Lauderdale, Florida.
The entire BellSouth Ft. Lauderdale Building is leased to BellSouth
Advertising and Publishing Corporation (BellSouth). BellSouth is a major
provider of print directories throughout the southeastern states and markets
served by BellSouth Corporation, which is BellSouth's parent.
74
The BellSouth lease is a net lease that commenced in July 2001 and
expires in July 2008. The current annual base rent payable under the BellSouth
lease is $747,033. BellSouth, at its option, has the right to extend the initial
term of its lease for three additional five-year periods at 95% of the
then-current market rental rate.
Agilent Atlanta Building
Wells OP purchased the Agilent Atlanta Building on April 18, 2002 for a
purchase price of $15,100,000. The Agilent Atlanta Building, which was built in
2001, is a two-story office building containing 101,207 rentable square feet
located in Alpharetta, Georgia.
Agilent Technologies, Inc. (Agilent) leases 66,811 rentable square feet
of the Agilent Atlanta Building (66%). Agilent is a major producer of measuring
and monitoring devices, semiconductor products and chemical analysis tools for
communications and life sciences companies, such as Internet service providers
and biopharmaceutical companies. Agilent reported a net worth, as of January 31,
2002, of approximately $5.4 billion.
The Agilent Atlanta lease commenced in September 2001 and expires in
September 2011. The initial annual base rent payable under the Agilent Atlanta
lease is $1,344,905. Agilent, at its option, has the right to extend the initial
term of its lease for either (1) one additional three-year period, or (2) one
additional five-year period, at the then-current market rental rate. In
addition, Agilent may terminate the lease at the end of the seventh lease year
by paying a $763,650 termination fee.
Koninklijke Philips Electronics N.V. (Philips) leases 34,396 rentable
square feet of the Agilent Atlanta Building (34%). Philips is one of the world's
largest electronics companies and is a global leader in color television sets,
lighting, electric shavers, medical diagnostic imaging, patient monitoring and
one-chip TV products. Philips reported a net worth, as of March 31, 2002, of
approximately $16.47 billion.
The Philips lease commenced in September 2001 and expires in September
2011. The current annual base rent payable under the Philips lease is $692,391.
Philips, at its option, has the right to extend the initial term of its lease
for either (1) one additional three-year period, or (2) one additional five-year
period, at the then-current market rental rate. In addition, Philips may
terminate the lease at the end of the seventh lease year by paying a $393,146
termination fee.
Travelers Express Denver Buildings
Wells OP purchased the Travelers Express Denver Buildings on April 10,
2002 for a purchase price of $10,395,845. The Travelers Express Buildings, which
were built in 2002, are two connected one-story office buildings containing
68,165 rentable square feet located in Lakewood, Metropolitan Denver, Colorado.
The Travelers Express Denver Buildings are leased to Travelers Express
Company, Inc. (Travelers). Travelers is the largest money order processor and
second largest money-wire transfer company in the nation, processing more than
775 million transactions per year, including official checks and share drafts
for financial institutions. Travelers is a wholly owned subsidiary of Viad
Corporation, a public company whose shares are traded on the NYSE.
The Travelers lease commenced in April 2002 and expires in March 2012.
The current annual base rent payable under the Travelers lease is $1,012,250.
Travelers, at its option, has the right to extend the initial term of its lease
for two additional five-year periods. The annual base rent for the first three
years of the first renewal term shall be $19 per rentable square foot and the
annual base rent for the last
75
two years shall be $20.50 per rentable square foot. The annual base rent for the
second renewal term shall be at the then-current market rental rate for each
year of the renewal term. In addition, Travelers may terminate the Travelers
lease at the end of the seventh lease year by paying a termination fee of
$1,040,880. Travelers also has the right to expand the Travelers Express Denver
Buildings between 10% and 20% by providing notice on or before May 1, 2004,
subject to certain limitations and potential acceleration.
Dana Corporation Buildings
Wells OP purchased the Dana Corporation Buildings on March 29, 2001 for
a purchase price of $41,950,000. The Dana Kalamazoo Building, which was built in
1999, is a two-story office and industrial building containing 147,004 rentable
square feet located in Kalamazoo, Michigan. The Dana Detroit Building, which was
built in 1999, is a three-story office and research and development building
containing 112,480 rentable square feet located in Farmington Hills, Michigan.
Wells OP purchased the Dana Corporation Buildings by purchasing all of the
membership interests in two Delaware limited liability companies each of which
owned one of the buildings.
The Dana Corporation Buildings are leased to Dana Corporation (Dana).
Dana is one of the world's largest suppliers of components, modules and complete
systems to global vehicle manufacturers and their related aftermarkets. Dana
operates approximately 300 major facilities in 34 countries and employs
approximately 70,000 people. Dana reported a net worth, as of December 31, 2001,
of approximately $1.9 billion.
The Dana Kalamazoo lease commenced in October 2001 and expires in
October 2021. The current annual base rent payable under the Dana Kalamazoo
lease is $1,842,800. Dana, at its option, has the right to extend the initial
term of its lease for six additional five-year periods at the then-current
market rental rate. Dana may terminate the lease at any time during the initial
lease term after the sixth lease year and before the 19th lease year, subject to
certain conditions.
The Dana Detroit lease commenced in October 2001 and expires in October
2021. The current annual base rent payable under the Dana Detroit lease is
$2,330,600. Dana, at its option, has the right to extend the initial term of its
lease for six additional five-year periods at the then-current market rental
rate. Dana may terminate the lease at any time during the initial lease term
after the 11th lease year, subject to certain conditions.
Novartis Atlanta Building
Wells OP purchased the Novartis Atlanta Building on March 28, 2002 for
a purchase price of $15,000,000. The Novartis Atlanta Building, which was built
in 2001, is a four-story office building containing 100,087 rentable square feet
located in Duluth, Metropolitan Atlanta, Georgia.
The Novartis Atlanta Building is leased to Novartis Opthalmics, Inc.
(Novartis). The Novartis lease is guaranteed by Novartis' parent company,
Novartis Corporation. Novartis Corporation, a public company whose shares are
traded on the NYSE, is a world leader in healthcare with core businesses in
pharmaceuticals, consumer health, generics, eye-care and animal health. Novartis
Corporation reported a net worth, as of December 31, 2001, of approximately
$28.1 billion.
The Novartis lease commenced in August 2001 and expires in July 2011.
The current annual base rent payable under the Novartis lease is $1,426,240.
Novartis, at its option, has the right to extend the initial term of its lease
for three additional five-year periods at the then-current market rental rate.
In
76
addition, Novartis may terminate the lease at the end of the fifth lease year by
paying a $1,500,000 termination fee.
Transocean Houston Building
Wells OP purchased the Transocean Houston Building on March 15, 2002
for a purchase price of $22,000,000. The Transocean Houston Building, which was
built in 1999, is a six-story office building containing 155,991 rentable square
feet located in Houston, Texas.
Transocean Deepwater Offshore Drilling, Inc. (Transocean) leases
103,260 rentable square feet (67%) of the Transocean Houston Building.
Transocean is an offshore drilling company specializing in technically demanding
segments of the offshore drilling industry. The Transocean lease is guaranteed
by Transocean Sedco Forex, Inc., one of the world's largest offshore drilling
companies whose shares are traded on the NASDAQ. Transocean Sedco Forex, Inc.
reported a net worth, as of September 30, 2001, of approximately $10.86 billion.
The Transocean lease commenced in December 2001 and expires in March
2011. Transocean, at its option, has the right to extend the initial term of its
lease for either (1) two additional five-year periods, or (2) one additional
ten-year period, at the then-current market rental rate. In addition, Transocean
has an expansion option and a right of first refusal for up to an additional
52,731 rentable square feet. The current annual base rent payable under the
Transocean lease is $2,110,035.
Newpark Drilling Fluids, Inc. (Newpark) leases the remaining 52,731
rentable square feet (33%) of the Transocean Houston Building. Newpark is a full
service drilling fluids processing, management and waste disposal company. The
Newpark lease is guaranteed by Newpark Resources, Inc., which provides drilling
fluids services to the oil and gas production industry, primarily in North
America. Newpark Resources, Inc. reported a net worth, as of December 31, 2001,
of approximately $294 million.
The Newpark lease commenced in August 1999 and expires in October 2009.
The current annual base rent payable for the Newpark lease is $1,153,227.
The average effective annual rental per square foot at the Transocean
Houston Building is $20.82 for 2002, our first year of ownership.
Arthur Andersen Building
Wells OP purchased the Arthur Andersen Building on January 11, 2002 for
a purchase price of $21,400,000. The Arthur Andersen Building, which was built
in 1999, is a three-story office building containing 157,700 rentable square
feet located in Sarasota, Florida. Wells OP purchased the Arthur Andersen
Building from Sarasota Haskell, LLC, which is not in any way affiliated with the
Wells REIT, our Advisor or Arthur Andersen, LLP, the tenant at the property.
The Arthur Andersen Building is leased to Arthur Andersen LLP
(Andersen). In March, 2002, the Department of Justice indicted Andersen on
federal obstruction of justice charges arising from the government's
investigation of Enron Corporation. It is possible that events arising out of
the indictment or other events relating to Andersen may adversely affect the
ability of Andersen to fulfill its obligations as tenant under the Andersen
lease. The Andersen lease commenced in November 1998 and expires in October
2009. Andersen has the right to extend the initial 10-year term of this lease
for two additional five-year periods at 90% of the then-current market rental
rate. The current annual base rent payable under the Andersen lease is
$1,988,454. The average effective annual rental per square foot at the Arthur
Andersen Building is $12.72 for 2002, our first year of ownership.
77
Andersen has the option to purchase the Arthur Andersen Building for a
purchase price of $23,250,000 prior to the end of the fifth lease year. In
addition, Andersen has the option to purchase the Arthur Andersen Building for a
purchase price of $25,148,000 after the fifth lease year and prior to the
expiration of the current lease term.
Windy Point Buildings
Wells OP purchased the Windy Point Buildings on December 31, 2001 for a
purchase price of $89,275,000. 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 $382,556 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 $3,581,000.
In addition, if the interchange is constructed, Wells OP will be required to pay
for its share of the costs for widening Meacham Road as part of the project,
which potential obligation is currently estimated to be approximately $288,300.
The Windy Point Buildings are currently leased as follows:
-------------------------------------------------------------------------------------------------------
Tenant Building Rentable Sq. Ft. Percentage of Building
-------------------------------------------------------------------------------------------------------
TCI Great Lakes, Inc. Windy Point I 129,157 69%
-------------------------------------------------------------------------------------------------------
The Apollo Group, Inc. Windy Point I 28,322 15%
-------------------------------------------------------------------------------------------------------
Global Knowledge Network, Inc. Windy Point I 22,028 12%
-------------------------------------------------------------------------------------------------------
Multiple Tenants Windy Point I 8,884 4%
-------------------------------------------------------------------------------------------------------
Zurich American Insurance Windy Point II 300,034 100%
Company, Inc.
-------------------------------------------------------------------------------------------------------
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 has the right to extend the initial 10-year term
of its lease for two additional five-year periods at 95% of the then-current
market rental rate. TCI 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 $4,119,500. The current
annual base rent payable under the TCI lease is $2,067,204.
TCI is a wholly-owned subsidiary of AT&T Broadband. AT&T Broadband
provides basic cable and digital television services, as well as high-speed
Internet access and cable telephony, with video-on-demand and other advanced
services.
78
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. Apollo has the right to extend the initial term of its
lease for one additional five-year period at 95% of the then-current market
rental rate. The current annual base rent payable under the Apollo lease is
$477,226.
Apollo is an Arizona corporation having its corporate headquarters in
Phoenix, Arizona. Apollo provides higher education programs to working adults
through its subsidiaries, the University of Phoenix, Inc., the Institute for
Professional Development, the College for Financial Planning Institutes
Corporation and Western International University, Inc. Apollo offers educational
programs and services at 58 campuses and 102 learning centers in 36 states,
Puerto Rico, and Vancouver, British Columbia. Apollo reported a net worth as of
February 28, 2002, of approximately $559 million.
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. Global has the right to extend the initial 10-year
term of its lease for one additional five-year period at the then-current market
rental rate. Wells OP has the right to terminate the Global lease on December
31, 2005 by giving Global written notice on or before April 30, 2005. The
current annual base rent payable under the Global lease is $382,307.
Global is a privately held corporation with its corporate headquarters
in Cary, North Carolina and international headquarters in Tokyo, London and
Singapore. Global is owned by New York-based investment firm Welsh, Carson,
Anderson and Stowe, a New York limited partnership which acts as a private
equity investor in information services, telecommunications and healthcare.
Global provides information technology education solutions and certification
programs, offering more than 700 courses in more than 60 international locations
and in 15 languages. Global has posted a $100,000 letter of credit as security
for the Global lease.
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
extend the initial 10-year term of its lease for two additional five-year
periods at 95% of the then-current market rental rate. The current annual base
rent payable under the Zurich lease is $5,091,577.
Zurich is headquartered in Schaumburg, Illinois and is a wholly-owned
subsidiary of Zurich Financial Services Group (ZFSG). ZFSG, which has its
corporate headquarters in Zurich, Switzerland, is a leading provider of
financial protection and wealth accumulation solutions for some 35 million
customers in over 60 countries. Zurich provides commercial property-casualty
insurance and serves the multinational, middle market and small business sectors
in the United States and Canada.
Zurich has the right to terminate the Zurich lease for up to 25% of the
rentable square feet leased by Zurich at the end of the fifth lease year. If
Zurich terminates a portion of the Zurich lease, it will be required to pay a
termination fee to Wells OP equal to three months of the current monthly rent
for the terminated space plus additional costs related to the space leased by
Zurich. In addition, Zurich may terminate the entire Zurich lease at the end of
the seventh lease year by providing Wells OP 18 months prior written notice and
paying Wells OP a termination fee of approximately $8,625,000.
Convergys Building
Wells OP purchased the Convergys Building on December 21, 2001 for a
purchase price of $13,255,000. The Convergys Building, which was built in 2001,
is a two-story office building containing 100,000 rentable square feet located
in Tamarac, Florida.
79
The Convergys Building is leased to Convergys Customer Management
Group, Inc. (Convergys) The Convergys lease is guaranteed by Convergys' parent
company, Convergys Corporation, which is an Ohio corporation traded on the NYSE
having its corporate headquarters in Cincinnati, Ohio. Convergys Corporation
provides outsourced billing and customer care services in the United States,
Canada, Latin America, Israel and Europe. Convergys Corporation reported a net
worth, as of December 31, 2001, of approximately $1.23 billion.
The Convergys lease commenced in September 2001 and expires in
September 2011. Convergys has the right to extend the initial 10-year term of
this lease for three additional five-year periods at 95% of the then-current
market rental rate. Convergys may terminate the Convergys lease at the end of
the seventh lease year (September 30, 2008) by providing 12 months prior written
notice and paying Wells OP a termination fee of approximately $1,341,000. The
current annual base rent payable under the Convergys lease is $1,248,192.
ADIC Buildings
Wells Fund XIII-REIT Joint Venture purchased the ADIC Buildings and an
undeveloped 3.43 acre tract of land adjacent to the ADIC Buildings (Additional
ADIC Land) on December 21, 2001 for a purchase price of $12,954,213. The ADIC
Buildings, which were built in 2001, consist of two connected one-story office
and assembly buildings containing 148,204 rentable square feet located in
Parker, Colorado.
The ADIC Buildings are currently leased to Advanced Digital Information
Corporation (ADIC), which lease does not include the Additional ADIC Land. ADIC
is a Washington corporation traded on NASDAQ having its corporate headquarters
in Redmond, Washington and regional management centers in Englewood, Colorado;
Bohmenkirch, Germany; and Paris, France. ADIC manufactures data storage systems
and specialized storage management software and distributes these products
through its relationships with original equipment manufacturers such as IBM,
Sony, Fujitsu, Siemens and Hewlett-Packard. ADIC reported a net worth, as of
January 31, 2002, of approximately $335 million.
The ADIC lease commenced in December 2001 and expires in December 2011.
ADIC has the right to extend the term of its lease for two additional five-year
periods at the then-current fair market rental rate for the first year of each
five-year extension. The annual base rent will increase 2.5% for each subsequent
year of each five-year extension. The current annual base rent payable under the
ADIC lease is $1,222,683.
Lucent Building
Wells OP purchased the Lucent Building from Lucent Technologies, Inc.
(Lucent Technologies) in a sale-lease back transaction on September 28, 2001 for
a purchase price of $17,650,000. The Lucent Building, which was built in 1999,
is a four-story office building with 120,000 rentable square feet, which
includes a 17.34 acre undeveloped tract of land, located in Cary, North
Carolina.
The Lucent Building is leased to Lucent Technologies, whose shares are
traded on the NYSE and has its corporate headquarters in Murray Hill, New
Jersey. Lucent Technologies designs, develops and manufactures communications
systems, software and other products. Lucent Technologies reported a net worth,
as of December 31, 2001, of approximately $10.6 billion.
The Lucent lease commenced in September 2001 and expires in September
2011. Lucent Technologies has the right to extend the term of this lease for
three additional five-year periods at the then-current fair market rental rate.
The current annual base rent payable under the Lucent lease is $1,800,000. The
average effective annual rental per square foot at the Lucent Building was
$16.53 for 2001, the first year of ownership.
80
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 $21,050,000. 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.
Ingram Micro, Inc. (Micro) is the general partner of Ingram and a
guarantor on the Ingram lease. Micro, whose shares are traded on the NYSE, has
its corporate headquarters in Santa Ana, California. Micro provides technology
products and supply chain management services through wholesale distribution. It
targets three different market segments, including corporate resellers, direct
and consumer marketers, and value-added resellers. Micro's worldwide business
consists of approximately 14,000 associates and operations in 36 countries.
Micro reported a net worth, as of December 29, 2001, of approximately $1.87
billion.
The Ingram lease has a current term of 10 years with two successive
options to extend for 10 years each at an annual rate equal to the greater of
(1) 95% of the then-current fair market rental rate, or (2) the annual rental
payment effective for the final year of the term immediately prior to such
extension. Annual rent, as determined for each extended term, is also increased
by 15% beginning in the 61st month of each extended term. The current annual
base rent payable for the Ingram lease is $2,035,275. The average effective
annual rental rate per square foot at the Ingram Micro Building was $2.96 for
2001, the first year of ownership.
Nissan Property
Purchase of the Nissan Property. The Nissan Property is a build-to-suit
property located in Irving Texas which we purchased on September 19, 2001 for a
purchase price of $5,545,700. We commenced construction on a three-story office
building containing approximately 268,000 rentable square feet (Nissan Project)
in January 2002. Wells OP obtained a construction loan in the amount of
$32,400,000 from Bank of America, N.A. (BOA), to fund the construction of a
building on the Nissan Project.
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Wells OP entered into a development agreement, an architect agreement and a
design and build agreement to construct the Nissan Project on the Nissan
Property.
Development Agreement. Wells OP entered into a development agreement
(Development Agreement) with Champion Partners, Ltd., a Texas limited
partnership (Developer), as the exclusive development manager to supervise,
manage and coordinate the planning, design, construction and completion of the
Nissan Project. As compensation for the services to be rendered by the Developer
under the Development Agreement, Wells OP is paying a development fee of
$1,250,000. The fee is due and payable ratably as the construction and
development of the Nissan Project is completed.
We anticipate that the aggregate of all costs and expenses to be incurred
by Wells OP with respect to the acquisition of the Nissan Property and the
planning, design, development, construction and completion of the Nissan Project
will total approximately $42,259,000. Under the terms of the Development
Agreement, the Developer has agreed that in the event that the total of all such
costs and expenses exceeds $42,258,600, subject to certain adjustments, the
amount of fees payable to the Developer shall be reduced by the amount of any
such excess.
Construction Agreement. Wells OP entered into a design and build
construction agreement (Construction Agreement) with Thos. S. Byrne, Inc.
(Contractor) for the construction of the Nissan Project. The Contractor is based
in Ft. Worth, Texas and specializes in commercial, industrial and high-end
residential buildings. The Contractor commenced operations in 1923 and has
completed over 200 projects for a total of approximately 60 clients. The
Contractor is presently engaged in the construction of over 20 projects with a
total construction value of in excess of $235 million.
The Construction Agreement provides that Wells OP will pay the Contractor a
maximum of $25,326,017 for the construction of the Nissan Project that includes
all estimated fees and costs including the architect fees. The Contractor will
be responsible for all costs of labor, materials, construction equipment and
machinery necessary for completion of the Nissan Project. In addition, the
Contractor will be required to secure and pay for any additional business
licenses, tap fees and building permits which may be necessary for construction
of the Nissan Project.
Nissan Lease. The Nissan Property is leased to Nissan Motor Acceptance
Corporation (Nissan), a California corporation with its corporate headquarters
in Torrance, California. Nissan is a wholly-owned subsidiary of Nissan North
America, Inc. (NNA), a guarantor of Nissan's lease. NNA is a California
corporation, with headquarters in Gardenia, California. NNA handles the North
American business sector of its Japanese parent, Nissan Motor Company, Ltd.
NNA's business activities include design, development, manufacturing and
marketing of Nissan vehicles in North America. As a subsidiary of NNA, Nissan
purchases retail and lease contracts from, and provides wholesale inventory and
mortgage loan financing to, Nissan and Infiniti retailers. Nissan Motor Company,
Ltd. reported a net worth, as of September 30, 2001, of approximately $8.9
billion.
The Nissan lease will extend 10 years beyond the rent commencement date.
Construction on the building began in January 2002 and is expected to be
completed by December 2003. The rent commencement date will occur shortly after
completion. Nissan has the right to extend the initial 10-year term of this
lease for an additional two years, upon written notice. Nissan also has the
right to extend the lease for two additional five-year periods at 95% of the
then-current market rental rate, upon written notice. The annual base rent
payable for the Nissan lease beginning on the rent commencement date is expected
to be $4,225,860.
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IKON Buildings
Wells OP purchased the IKON Buildings on September 7, 2001 for a purchase
price of $20,650,000. The IKON Buildings, which were built in 2000, consist of
two one-story office buildings aggregating 157,790 rentable square feet located
in Houston, Texas.
The IKON Buildings are leased to IKON Office Solutions, Inc. (IKON). IKON
provides business communication products such as copiers and printers, as well
as services such as distributed printing, facilities management, network design,
e-business development and technology training. IKON's customers include various
sized businesses, professional firms and government agencies. IKON distributes
products manufactured by companies such as Microsoft, IBM, Canon, Novell and
Hewlett-Packard. IKON reported a net worth, as of December 31, 2001, of
approximately $1.43 billion.
The IKON lease commenced in May 2000 and expires in April 2010. IKON has
the right to extend the term of this lease for two additional five-year periods
at the then-current fair market rental rate. The current annual base rent
payable for the IKON lease is $2,015,767. The average effective annual rental
rate per square foot at the IKON Buildings was $13.40 for 2001, the first year
of ownership.
State Street Building
Wells OP purchased the State Street Building on July 30, 2001 for a
purchase price of $49,563,000. 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). SSB
Realty is a wholly-owned subsidiary of State Street Corporation, a Massachusetts
corporation (State Street). State Street, a guarantor of the SSB Realty lease,
is a world leader in providing financial services to investment managers,
corporations, public pension funds, unions, not-for-profit organizations and
individuals. State Street's services range from investment research and
professional investment management to trading and brokerage services to fund
accounting and administration. State Street reported a net worth, as of December
31, 2001, of approximately $3.8 billion.
The SSB Realty lease commenced in February 2001 and expires in March 2011.
SSB has the right to extend the term of this lease for one additional five-year
period at the then-current fair market rental rate. Pursuant to the SSB Realty
lease, Wells OP is obligated to provide SSB Realty an allowance of up to
approximately $2,112,000 for tenant, building and architectural improvements.
The current annual base rent payable for the SSB Realty lease is $6,922,706. The
average effective annual rental rate per square foot at the State Street
Building was $31.24 for 2001, the first year of ownership.
AmeriCredit Building
The XIII-REIT Joint Venture purchased the AmeriCredit Building on July 16,
2001 for a purchase price of $12,500,000. The AmeriCredit Building, which was
built in 2001, is a two-story office building containing 85,000 rentable square
feet located in Orange Park, Florida.
The AmeriCredit Building is leased to AmeriCredit Financial Services
Corporation (AmeriCredit). AmeriCredit is wholly-owned by, and serves as the
primary operating subsidiary for, AmeriCredit Corp., a Texas corporation whose
common stock is publicly traded on the NYSE. AmeriCredit Corp. is the guarantor
of the lease. AmeriCredit is the world's largest independent middle-market
automobile finance company. AmeriCredit purchases loans made by franchised and
select
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independent dealers to consumers buying late model used and, to a lesser extent,
new automobiles. AmeriCredit reported a net worth, as of December 31, 2001, of
approximately $1.2 billion.
The AmeriCredit lease commenced in June 2001 and expires in May 2011.
AmeriCredit has the right to extend the AmeriCredit lease for two additional
five-year periods of time. Each extension option must be exercised by giving
written notice to the landlord at least 12 months prior to the expiration date
of the then-current lease term. The monthly base rent payable for each extended
term of the AmeriCredit lease will be equal to 95% of the then-current market
rate. The AmeriCredit lease contains a termination option that may be exercised
by AmeriCredit effective as of the end of the seventh lease year and requires
AmeriCredit to pay the joint venture a termination payment estimated at
approximately $1.9 million. AmeriCredit also has an expansion option for an
additional 15,000 square feet of office space and 120 parking spaces.
AmeriCredit may exercise this expansion option at any time during the first
seven lease years. The current annual base rent payable under the AmeriCredit
lease is $1,303,050. The average effective annual rental rate per square foot at
the AmeriCredit Building was $17.03 for 2001, the first year of ownership.
Comdata Building
The XII-REIT Joint Venture purchased the Comdata Building on May 15, 2001
for a purchase price of $24,950,000. The Comdata Building, which was built in
1989 and expanded in 1997, is a three-story office building containing 201,237
rentable square feet located in Brentwood, Tennessee.
The Comdata Building is leased to Comdata Network, Inc. (Comdata). Comdata
is a leading provider of transaction processing and information services to the
transportation and other industries. Comdata provides trucking companies with
fuel cards, electronic cash access, permit and licensing services, routing
software, driver relationship services and vehicle escorts, among other
services. Comdata provides these services to over 400,000 drivers, 7,000 truck
stop service centers and 500 terminal fueling locations. Ceridian Corporation,
the lease guarantor, is one of North America's leading information services
companies that serves the human resources and transportation markets. Ceridian
and its subsidiaries generate, process and distribute data for customers and
help customers develop systems plans and software to perform these functions
internally. Ceridian Corporation reported a net worth, as of September 30, 2001,
of approximately $1.1 billion.
The Comdata lease commenced in April 1997 and expires in May 2016. Comdata
has the right to extend the Comdata lease for one additional five-year period of
time at a rate equal to the greater of the base rent of the final year of the
initial term or 90% of the then-current fair market rental rate. The current
annual base rent payable for the Comdata lease is $2,458,638. The average
effective annual rental per square foot at the Comdata Building was $12.47 for
2001, the first year of ownership.
AT&T Oklahoma Buildings
The XII-REIT Joint Venture purchased the AT&T Oklahoma Buildings on
December 28, 2000 for a purchase price of $15,300,000. The AT&T Oklahoma
Buildings, which were built in 1998 and 2000, respectively, consist of a
one-story office building and a two-story office building, connected by a mutual
hallway, containing an aggregate of 128,500 rentable square feet located in
Oklahoma City, Oklahoma.
AT&T Corp. (AT&T) leases the entire 78,500 rentable square feet of the
two-story office building and 25,000 rentable square feet of the one-story
office building. AT&T is among the world's leading voice and data communications
companies, serving consumers, businesses and governments worldwide. AT&T has one
of the largest digital wireless networks in North America and is one of the
leading suppliers of data and Internet services for businesses. In addition,
AT&T offers outsourcing,
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consulting and networking-integration to large businesses and is one of the
largest direct internet access service providers for consumers in the United
States. AT&T reported a net worth, as of December 31, 2001, of approximately
$51.7 billion.
The AT&T lease commenced in April 2000 and expires in August 2010. AT&T has
the right to extend the AT&T lease for two additional five-year periods of time
at the then-current fair market rental rate. AT&T has a right of first offer to
lease the remainder of the space in the one-story office building currently
occupied by Jordan Associates, Inc. (Jordan), if Jordan vacates the premises.
The current annual base rent payable for the AT&T lease is $1,242,000.
Jordan leases the remaining 25,000 rentable square feet contained in the
one-story office building. Jordan provides businesses with advertising and
related services including public relations, research, direct marketing and
sales promotion. Through this corporate office and other offices in Tulsa, St.
Louis, Indianapolis and Wausau, Wisconsin, Jordan provides services to major
clients such as Bank One, Oklahoma, N.A., BlueCross & BlueShield of Oklahoma,
Kraft Food Services, Inc., Logix Communications and the American Dental
Association.
The Jordan lease commenced in December 1998 and expires in December 2008.
Jordan has the right to extend the Jordan lease for one additional five-year
period of time at the then-current fair market rental rate. The current annual
base rent payable for the Jordan lease is $294,500. The average effective annual
rental rate per square foot at the AT&T Oklahoma Buildings was $15.86 for 2001,
the first year of ownership.
Metris Minnesota Building
Wells OP purchased the Metris Minnesota Building on December 21, 2000 for a
purchase price of $52,800,000. The Metris Minnesota Building, which was built in
2000, is a nine-story office building 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. Phase I of Crescent Ridge Corporate Center is an
eight-story multi-tenant building which is connected to the Metris Minnesota
Building by a single-story restaurant link building. Neither Phase I of Crescent
Ridge Corporate Center nor the connecting restaurant are owned by Wells OP.
The Metris Minnesota Building is leased to Metris Direct, Inc. (Metris) as
its corporate headquarters. Metris is a principal subsidiary of Metris
Companies, Inc. (Metris Companies), a publicly traded company whose shares are
listed on the NYSE (symbol MXT) which has guaranteed the Metris lease. Metris
Companies is an information-based direct marketer of consumer credit products
and fee-based services primarily to moderate income consumers. Metris Companies'
consumer credit products are primarily unsecured credit cards issued by its
subsidiary, Direct Merchants Credit Card Bank. Metris Companies reported a net
worth, as of December 31, 2001, of approximately $1.14 billion.
The Metris lease commenced in September 2000 and expires in December 2011.
Metris has the right to renew the Metris lease for an additional five-year term
at fair market rent, but in no event less than the basic rent payable in the
immediately preceding period. In addition, Metris is required to pay annual
parking and storage fees of $87,948 through December 2006 and $114,062 payable
on a monthly basis for the remainder of the lease term. The current annual base
rent payable for the Metris lease is $4,960,445. The average effective annual
rental rate per square foot at the Metris Minnesota Building was $18.17 for 2001
and $17.89 for 2000, the first two years of ownership.
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Stone & Webster Building
Wells OP purchased the Stone & Webster Building on December 21, 2000 for a
purchase price of $44,970,000. The Stone & Webster Building, which was built in
1994, is a six-story office building with 312,564 rentable square feet located
in Houston, Texas. In addition, the site includes 4.34 acres of unencumbered
land available for expansion.
Stone & Webster is a full-service global engineering and construction
company offering managerial and technical resources for solving complex energy,
environmental, infrastructure and industrial challenges. The Stone & Webster
lease is guaranteed by The Shaw Group, Inc., the parent company of Stone &
Webster. Shaw Group is the largest supplier of fabricated piping systems and
services in the world. The Shaw Group reported a net worth, as of February 28,
2002, of approximately $612 million.
The Stone & Webster lease commenced in December 2000 and expires in
December 2010. Stone & Webster has the right to extend the Stone & Webster lease
for two additional five-year periods of time for a base rent equal the greater
of (1) the last year's rent, or (2) the then-current market rental rate. The
current annual base rent payable for the Stone & Webster lease is $4,533,056.
SYSCO is the largest marketer and distributor of foodservice products in
North America. SYSCO operates from approximately 100 distribution facilities and
provides its products and services to about 356,000 restaurants and other users
across the United States and portions of Canada. SYSCO reported a net worth, as
of December 29, 2001, of approximately $2.2 billion.
The SYSCO lease commenced in October 1998 and expires in September 2008.
The current annual base rent payable for the SYSCO lease is $2,130,320.
The average effective annual rental rate per square foot at the Stone &
Webster Building was $22.41 for 2001 and $22.56 for 2000, the first two years of
ownership.
Motorola Plainfield Building
Wells OP purchased the Motorola Plainfield Building on November 1, 2000 for
a purchase price of $33,648,156. The Motorola Plainfield Building, which was
built in 1976, is a three-story office building containing 236,710 rentable
square feet located in South Plainfield, New Jersey.
The Motorola Plainfield Building is leased to Motorola, Inc. (Motorola).
Motorola is a global leader in providing integrated communications solutions and
embedded electronic solutions, including software-enhanced wireless telephones,
two-way radios and digital and analog systems and set-top terminals for
broadband cable television operators. Motorola reported a net worth, as of
December 31, 2001, of approximately $13.7 billion.
The Motorola lease commenced in November 2000 and expires in October 2010.
Motorola has the right to extend the Motorola lease for two additional five-year
periods of time for a base rent equal to the greater of (1) base rent for the
immediately preceding lease year, or (2) 95% of the then-current fair market
rental rate. The current annual base rent payable for the Motorola lease is
$3,324,428. The average effective annual rental rate per square foot at the
Motorola Plainfield Building was $14.54 for 2001 and 2000, the first two years
of ownership.
The Motorola lease grants Motorola a right of first refusal to purchase the
Motorola Plainfield Building if Wells OP attempts to sell the property during
the term of the lease. Additionally, Motorola has an expansion right for an
additional 143,000 rentable square feet. If Motorola exercises its expansion
option, upon completion of the expansion, the term of the Motorola lease shall
be extended an additional 10
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years after Motorola occupies the expansion space. The base rent for the
expansion space shall be determined by the construction costs and fees for the
expansion. The base rent for the original building for the extended 10-year
period shall be the greater of (1) the then-current base rent, or (2) 95% of the
then-current fair market rental rate.
Quest Building
The VIII-IX Joint Venture purchased the Quest Building on January 10, 1997
for a purchase price of $7,193,000. On July 1, 2000, the VIII-IX Joint Venture
contributed the Quest Building to the VIII-IX-REIT Joint Venture. The Quest
Building, which was built in 1984 and refurbished in 1996, is a two-story office
building containing 65,006 rentable square feet located in Irvine, California.
The Quest Building is currently leased to Quest Software, Inc. (Quest).
Quest is a publicly traded corporation that provides software database
management and disaster recovery services for its clients. Quest was established
in April 1987 to develop and market software products to help insure
uninterrupted, high performance access to enterprise and custom computing
applications and databases. Quest reported a net worth, as of December 31, 2001,
of approximately $441 million.
The Quest lease commenced in June 2000 and expires in January 2004. The
annual base rent payable for the remaining portion of the initial lease term is
$1,287,119. Quest has the right to extend the lease for two additional one-year
periods of time at an annual base rent of $1,365,126. The average effective
rental rate per square foot at the Quest Building was $18.58 for 2001, $13.72
for 2000, and $10.11 for 1999, the first three years of ownership.
Delphi Building
Wells OP purchased the Delphi Building on June 29, 2000 for a purchase
price of $19,800,000. The Delphi Building, which was built in 2000, is a
three-story office building containing 107,193 rentable square feet located in
Troy, Michigan.
The Delphi Building is leased to Delphi Automotive Systems LLC (Delphi
LLC). Delphi LLC is a wholly-owned subsidiary of Delphi Automotive Systems
Corporation (Delphi), formally the Automotive Components Group of General
Motors, which was spun off from General Motors in May 1999. Delphi is the
world's largest automotive components supplier and sells its products to almost
every major manufacturer of light vehicles in the world. Delphi reported a net
worth, as of December 31, 2001, of approximately $2.22 billion.
The Delphi lease commenced in May 2000 and expires in April 2007. Delphi
LLC has the right to extend the Delphi lease for two additional five-year
periods of time at 95% of the then-current fair market rental rate. The current
annual base rent payable for the Delphi lease is $1,901,952. The average
effective annual rental rate per square foot at the Delphi Building was $17.58
for 2001 and $17.11 for 2000, the first two years of ownership.
Avnet Building
Wells OP purchased the Avnet Building on June 12, 2000 for a purchase price
of $13,250,000. 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, which
is more particularly described in the "Real Estate Loans" section of this
prospectus.
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The Avnet Building is leased to Avnet, Inc. (Avnet). Avnet is a Fortune 300
company and one of the world's largest industrial distributors of electronic
components and computer products, including microprocessors, semi-conductors and
electromechanical devices, serving customers in 60 countries. Additionally,
Avnet sells products of more than 100 of the world's leading component
manufacturers to customers around the world. Avnet reported a net worth, as of
December 28, 2001, of approximately $1.77 billion.
The Avnet lease commenced in May 2000 and expires in April 2010. Avnet has
the right to extend the Avnet lease for two additional five-year periods of
time. The yearly rent payable for the first three years of each extension period
will be at the current fair market rental rate at the end of the preceding term.
The yearly rent payable for the fourth and fifth years of each extension period
will be the then-current fair market rental rate at the end of the preceding
term multiplied by a factor of 1.093. The current annual base rent payable for
the Avnet lease is $1,516,164.
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 ground lease commenced in April 1999 and expires in September
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 $230,777. The average effective annual rental rate per
square foot at the Avenet Building was $11.48 for 2001 and $11.41 for 2000, the
first two years of ownership.
Siemens Building
The XII-REIT Joint Venture purchased the Siemens Building on May 10, 2000
for a purchase price of $14,265,000. The Siemens Building, which was built in
2000, is a three-story office building containing 77,054 rentable square feet
located in Troy, Michigan.
The Siemens Building is leased to Siemens Automotive Corporation (Siemens).
Siemens is a subsidiary of Siemens Corporation USA, a domestic corporation which
conducts the American operations of Siemens AG, the world's second largest
manufacturer of electronic capital goods. Siemens, part of the worldwide
Automotive Systems Group of Siemens AG, is a supplier of advanced electronic and
electrical products and systems to automobile manufacturers.
The Siemens lease commenced in January 2000 and expires in August 2010.
Siemens has the right to extend the Siemens lease for two additional five-year
periods of time at 95% of the then-current fair market rental rate. The current
annual base rent payable for the Siemens lease is $1,374,643. The average
effective annual rental rate per square foot at the Siemens Building was $19.01
for 2001 and 2000, the first two years of ownership.
Siemens has a one-time right to cancel the Siemens lease effective after
the 90th month of the lease term if Siemens pays a cancellation fee to the
XII-REIT Joint Venture currently calculated to be approximately $1,234,160.
Motorola Tempe Building
Wells OP purchased the Motorola Tempe Building on March 29, 2000 for a
purchase price of $16,000,000. 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 subject to a
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first priority mortgage in favor of SouthTrust securing a SouthTrust line of
credit, which is more particularly described in the "Real Estate Loans" section
of this prospectus.
The Motorola Tempe Building is leased to Motorola, Inc. (Motorola). The
Motorola Tempe Building is occupied by Motorola's Satellite Communications
Division (SATCOM). SATCOM is a worldwide developer and manufacturer of space and
ground communications equipment and systems. SATCOM is the prime contractor for
the Iridium System and is primarily engaged in computer design and development
functions.
The Motorola lease commenced in August 1998 and expires in August 2005.
Motorola has the right to extend the Motorola lease for four additional
five-year periods of time at the then-prevailing market rental rate. The current
annual rent payable under the Motorola lease is $1,843,834. The average
effective annual rental rate per square foot at the Motorola Building was $13.84
for 2001 and $13.77 for 2000, the first two years of ownership.
The Motorola Tempe Building is subject to a ground lease that commenced in
November 1997 and expires in December 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 $243,825.
ASML Building
Wells OP purchased the ASML Building on March 29, 2000 for a purchase price
of $17,355,000. 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 subject to a first priority mortgage in
favor of SouthTrust securing a SouthTrust line of credit, which is more
particularly described in the "Real Estate Loans" section of this prospectus.
The ASML Building is leased to ASM Lithography, Inc. (ASML). ASML is a
wholly-owned subsidiary of ASM Lithography Holdings NV (ASML Holdings), a Dutch
multi-national corporation that supplies lithography systems used for printing
integrated circuit designs onto very thin disks of silicon, commonly referred to
as wafers. These systems are supplied to integrated circuit manufacturers
throughout the United States, Asia and Western Europe. ASML Holdings, a
guarantor of the ASML lease, reported a net worth, as of December 31, 2002, of
approximately $1.1 billion.
The ASML lease commenced in June 1998 and expires in June 2013. The current
annual base rent payable under the ASML lease is $1,927,788. 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
average effective annual rental rate per square foot at the ASML Building was
$20.26 for 2001 and $20.17 for 2000, the first two years of ownership.
The ASML Building is subject to a ground lease that commenced in August
1997 and expires in December 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 $186,368.
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Dial Building
Wells OP purchased the Dial Building on March 29, 2000 for a purchase price
of $14,250,000. The Dial Building, which was built in 1997, is a two-story
office building containing 129,689 rentable square feet located in Scottsdale,
Arizona. The Dial Building is subject to a first priority mortgage in favor of
SouthTrust securing a SouthTrust line of credit, which is more particularly
described in the "Real Estate Loans" section of this prospectus.
The Dial Building is leased to Dial Corporation (Dial). Dial currently has
its headquarters in the Dial Building and is one of the leading consumer product
manufacturers in the United States. Dial's brands include Dial soap, Purex
detergents, Renuzit air fresheners, Armour canned meats, and a variety of other
leading consumer products. Dial reported a net worth, as of December 31, 2001,
of approximately $74.5 million.
The Dial lease commenced in August 1997 and expires in August 2008. Dial
has the right to extend the Dial lease for two additional five-year periods of
time at 95% of the then-current fair market rental rate. The annual rent payable
for the initial term of the Dial lease is $1,387,672. The average effective
annual rental rate per square foot at the Dial Building was $10.70 for 2001 and
$10.65 for 2000, the first two years of ownership.
Metris Tulsa Building
Wells OP purchased the Metris Tulsa Building on February 11, 2000 for a
purchase price of $12,700,000. The Metris Tulsa Building, which was built in
2000, is a three-story office building containing 101,100 rentable square feet
located in Tulsa, Oklahoma.
The Metris Tulsa Building is leased to Metris Direct, Inc. (Metris). Metris
Companies, Inc., the parent company of Metris, has guaranteed the Metris lease.
See the property description for the Metris Minnesota Building above for a
detailed description of Metris and Metris Companies, Inc.
The Metris lease commenced in February 2000 and expires in January 2010.
Metris has the right to extend the Metris lease for two additional five-year
periods of time. The monthly base rent payable for the renewal terms of the
Metris lease shall be equal to the then-current market rate. The current annual
base rent payable for the Metris lease is $1,187,925. The average effective
annual rental rate per square foot at the Metris Tulsa Building was $11.75 for
2001 and 2000, the first two years of ownership.
Cinemark Building
Wells OP purchased the Cinemark Building on December 21, 1999 for a
purchase price of $21,800,000. The Cinemark Building, which was built in 1999,
is a five-story office building containing 118,108 rentable square feet located
in Plano, Texas. The Cinemark Building is subject to a first priority mortgage
in favor of SouthTrust securing a SouthTrust line of credit, which is more
particularly described in the "Real Estate Loans" section of this prospectus.
The entire 118,108 rentable square feet of the Cinemark Building is
currently leased to two tenants. Cinemark USA, Inc. (Cinemark) occupies 65,521
rentable square feet (56%) of the Cinemark Building, and The Coca-Cola Company
(Coca-Cola) occupies the remaining 52,587 (44%) rentable square feet of the
Cinemark Building.
Cinemark, a privately owned company, is one of the largest motion picture
exhibitors in North and South America. Cinemark currently operates in excess of
2,575 screens in 32 states within the United States and internationally in
countries such as Argentina, Brazil, Canada, Chile, Costa Rica, Ecuador, El
Salvador,
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Honduras, Nicaragua, Mexico and Peru. Cinemark reported a net worth, as of
December 31, 2001, of approximately $25.3 million.
The Cinemark lease commenced in December 1999 and expires in December 2009.
Cinemark has the right to extend the Cinemark lease for one additional five-year
period of time and a subsequent additional ten-year period of time. The monthly
base rent payable for the second renewal term of the Cinemark lease shall be
equal to 95% of the then-current market rate. Cinemark has a right of first
refusal to lease any of the remaining rentable area of the Cinemark Building
that subsequently becomes vacant. The current annual base rent payable for the
Cinemark lease is $1,366,491.
Coca-Cola is the global soft-drink industry leader with world headquarters
in Atlanta, Georgia. Coca-Cola manufactures and sells syrups, concentrates and
beverage bases for Coca-Cola, the company's flagship brand, and over 160 other
soft drink brands in nearly 200 countries around the world. Coca-Cola reported a
net worth, as of December 31, 2001, of approximately $11.4 billion.
The Coca-Cola lease commenced in December 1999 and expires in November
2006. Coca-Cola has the right to extend the lease for two additional five-year
periods of time. The current annual base rent payable for the Coca-Cola lease is
$1,354,184. The average effective annual rental rate per square foot at the
Cinemark Building was $22.67 for 2001 and $22.16 for 2000, the first two years
of ownership.
Gartner Building
The XI-XII-REIT Joint Venture purchased the Gartner Building on September
20, 1999 for a purchase price of $8,320,000. The Gartner Building, which was
built in 1998, is a two-story office building containing 62,400 rentable square
feet located in Fort Myers, Florida.
The Gartner Building is currently leased to The Gartner Group, Inc.
(Gartner). The Gartner Building will be occupied by Gartner's Financial Services
Division. Gartner is one of the world's leading independent providers of
research and analysis related to information and technology solutions. Gartner
has over 80 locations worldwide and over 12,000 clients.
The Gartner lease commenced in February 1998 and expires in January 2008.
Gartner has the right to extend the lease for two additional five-year periods
of time at a rate equal to the lesser of (1) the prior rate increased by 2.5%,
or (2) 95% of the then-current market rate. The current annual base rent payable
for the Gartner lease is $830,656. The average effective annual rental rate per
square foot at the Gartner Building was $13.68 for 2001, 2000, and 1999, the
first three years of ownership.
Videojet Technologies Chicago Building
Wells OP purchased the Videojet Technologies Chicago Building on September
10, 1999 for a purchase price of $32,630,940. The Videojet Technologies Chicago
Building, which was built in 1991, is a two-story office, assembly and
manufacturing building containing 250,354 rentable square located in Wood Dale,
Illinois. The Videojet Technologies Chicago Building is subject to a first
priority mortgage in favor of Bank of America, N.A. (BOA) securing the BOA loan,
which is more particularly described in the "Real Estate Loans" section of this
prospectus.
The Videojet Technologies Chicago Building is leased to Videojet
Technologies, Inc. (Videojet). Videojet is one of the largest manufacturers of
digital imaging, process control, and asset management systems worldwide. In
February 2002, Videojet was acquired by Danaher Corporation (Danaher), a
publicly traded company on the New York Stock Exchange. Danaher is a leading
manufacturer of process and environmental controls and tools and components.
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The Videojet lease commenced in November 1991 and expires in November 2011.
Videojet has the right to extend the Videojet lease for one additional five-year
period of time. The current annual base rent payable for the Videojet lease is
$3,376,746. The average effective annual rental rate per square foot at the
Videojet Technologies Chicago Building was $13.23 for 2001 and $13.18 for 2000
and 1999, the first three years of ownership.
Johnson Matthey Building
The XI-XII-REIT Joint Venture purchased the Johnson Matthey Building on
August 17, 1999 for a purchase price of $8,000,000. The Johnson Matthey
Building, which was built in 1973 and refurbished in 1998, is a 130,000 square
foot research and development, office and warehouse building located in Wayne,
Pennsylvania.
The Johnson Matthey Building is currently leased to Johnson Matthey, Inc.
(Johnson Matthey). Johnson Matthey is a wholly-owned subsidiary of Johnson
Matthey, PLC of the United Kingdom, a world leader in advanced materials
technology. Johnson Matthey, PLC is a publicly traded company that is over 175
years old, has operations in 38 countries and employs 12,000 people. Johnson
Matthey reported a net worth, as of September 30, 2001, of approximately $1.16
billion.
The Johnson Matthey lease commenced in July 1998 and expires in June 2007.
Johnson Matthey has the right to extend the lease for two additional three-year
periods of time at the then-current fair market rent. Johnson Matthey has a
right of first refusal to purchase the Johnson Matthey Building in the event
that the XI-XII-REIT Joint Venture desires to sell the building to an unrelated
third-party. The current annual base rent payable under the Johnson Matthey
lease is $828,750. The average effective annual rental rate per square foot at
the Johnson Matthey Building was $6.67 for 2001, 2000, and 1999, the first three
years of ownership.
Alstom Power Richmond Building
Wells REIT, LLC - VA I (Wells LLC - VA), a limited liability company
wholly-owned by Wells OP, purchased a 7.49 acre tract of land on July 22, 1999
for a purchase price of $936,250 and completed construction of the Alstom Power
Richmond Building at an aggregate cost of approximately $11,400,000, including
the cost of the land. The Alstom Power Richmond Building, which was built in
2000, is a four-story brick office building containing 99,057 gross square feet
located in Midlothian, Virginia.
Wells OP originally obtained a construction loan from SouthTrust in the
maximum principal amount of $9,280,000 to fund the development and construction
of the Alstom Power Richmond Building. This loan, which is more specifically
detailed in the "Real Estate Loans" section of this prospectus, was converted to
a line of credit and is secured by a first priority mortgage against the Alstom
Power Richmond Building, an assignment of the landlord's interest in the Alstom
Power Richmond lease and a $4,000,000 letter of credit issued by Unibank.
The Alstom Power Richmond Building is leased to Alstom Power, Inc. (Alstom
Power). Alstom Power is the result of the December 30, 1999, merger between ABB
Power Generation, Inc. and ABB Alstom Power, Inc. Alstom Power reported a net
worth, as of September 30, 2001, of approximately $1.8 billion.
The Alstom Power Richmond lease commenced in July 2000 and expires in July
2007. Alstom Power has the right to extend the lease for two additional
five-year periods of time at the then-current market rental rate. The current
annual base rent payable for the Alstom Power lease is $1,213,324. The
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average effective annual rental rate per square foot at the Alstom
Power-Richmond Building was $12.92 for 2001 and $13.53 for 2000, the first two
years of ownership.
Alstom Power has a one-time option to terminate the Alstom Power lease as
to a portion of the premises containing between 24,500 and 25,500 rentable
square feet as of the fifth anniversary of the rental commencement date and
Alstom Power will be required to pay a termination fee equal to six times the
sum of the next due installments of rent plus the unamortized portions of the
base improvement allowance, additional allowance and broker commission, each
being amortized in equal monthly installments of principal and interest over the
initial term of the lease at an annual rate of 10%.
Sprint Building
The XI-XII-REIT Joint Venture purchased the Sprint Building on July 2, 1999
for a purchase price of $9,500,000. The Sprint Building, which was built in
1992, is a three-story office building containing 68,900 rentable square feet.
The Sprint Building is leased to Sprint Communications Company L.P.
(Sprint). Sprint is the nation's third largest long distance phone company,
which operates on an all-digital long distance telecommunications network using
state-of-the-art fiber optic and electronic technology. Sprint reported a net
worth, as of December 31, 2001, of approximately $12.6 billion.
The Sprint lease commenced in May 1997 and expires in May 2007, subject to
Sprint's right to extend the lease for two additional five-year periods of time.
The annual base rent payable under the Sprint lease is $1,102,404 for the
remainder of the lease term. The monthly base rent payable for each extended
term of the Sprint lease will be equal to 95% of the then-current market rental
rate. The average effective annual rental rate per square foot at the Sprint
Building was $15.45 for 2001, $15.44 for 2000 and 1999, the first three years of
ownership.
The Sprint lease contains a termination option which may be exercised by
Sprint effective as of May 18, 2004 provided that Sprint has not exercised
either expansion option, as described below. Sprint must provide notice to the
XI-XII-REIT Joint Venture of its intent to exercise its termination option on or
before August 21, 2003. If Sprint exercises its termination option, it will be
required to pay the joint venture a termination payment equal to $6.53 per
square foot, or $450,199.
Sprint also has an expansion option for an additional 20,000 square feet of
office space. If Sprint exercises an expansion option, the XI-XII-REIT Joint
Venture will be required to construct the expansion improvements in accordance
with the specific drawings and plans attached as an exhibit to the Sprint lease.
The joint venture will be required to fund the expansion improvements and to
fund to Sprint a tenant finish allowance of $10 per square foot for the
expansion space.
EYBL CarTex Building
The XI-XII-REIT Joint Venture purchased the EYBL CarTex Building on May 18,
1999 for a purchase price of $5,085,000. The EYBL CarTex Building, which was
built in the 1980's, is a manufacturing and office building consisting of a
total of 169,510 square feet located in Fountain Inn, South Carolina.
The EYBL CarTex Building is leased to EYBL CarTex, Inc. (EYBL CarTex). EYBL
CarTex produces automotive textiles for BMW, Mercedes, GM Bali, VW Mexico and
Golf A4. EYBL CarTex is a wholly-owned subsidiary of EYBL International, AG,
Krems/Austria. EYBL International is the
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world's largest producer of circular knit textile products and loop pile plushes
for the automotive industry. EYBL International reported a net worth, as of
September 30, 2001, of approximately $41.5 billion.
The EYBL CarTex lease commenced in March 1998 and expires in February 2008,
subject to EYBL CarTex's right to extend the lease for two additional five-year
periods of time. The monthly base rent payable for each extended term of the
lease will be equal to the fair market rent. In addition, EYBL CarTex has an
option to purchase the EYBL CarTex Building at the expiration of the initial
lease term by giving notice to the landlord by March 1, 2007. The current annual
base rent payable under the EYBL CarTex lease is $550,908. The average effective
annual rental rate per square foot at the EYBL CarTex Building was $3.31 for
2001, 2000 and 1999, the first three years of ownership.
Matsushita Building
Wells OP purchased an 8.8 acre tract of land on March 15, 1999, for a
purchase price of $4,450,230. Wells OP completed construction of the Matsushita
Building in 2000 at an aggregate cost of $18,431,206, including the cost of the
land. The Matsushita Building is a two-story office building containing 144,906
rentable square feet.
The Matsushita Building is leased to Matsushita Avionics Systems
Corporation (Matsushita Avionics). Matsushita Avionics is a wholly-owned
subsidiary of Matsushita Electric Corporation of America (Matsushita Electric).
Matsushita Electric, a guarantor of the Matsushita lease, is a wholly-owned
subsidiary of Matsushita Electric Industrial Co., Ltd. (Matsushita Industrial),
a Japanese company which is the world's largest consumer electronics
manufacturer.
The Matsushita lease commenced in January 2000 and expires in January 2007.
Matsushita Avionics has the option to extend the initial term of the Matsushita
lease for two successive five-year periods at a rate of 95% of the stated rental
rate. The monthly base rent during the option term shall be adjusted upward at
the beginning of the 24th and 48th month of each option term by an amount equal
to 6% of the monthly base rent payable immediately preceding such period. The
current annual base rent payable for the Matsushita lease is $2,005,464. The
average effective annual rental rate per square foot at the Matsushita Building
was $13.23 for 2001 and $12.80 for 2000, the first two years of ownership.
AT&T Pennsylvania Building
Wells OP purchased the AT&T Pennsylvania Building on February 4, 1999 for a
purchase price of $12,291,200. The AT&T Pennsylvania Building, which was built
in 1998, is a four-story office building containing 81,859 rentable square feet
located in Harrisburg, Pennsylvania.
The AT&T Pennsylvania Building is leased to Pennsylvania Cellular Telephone
Corp. (Pennsylvania Telephone), a subsidiary of AT&T Corp. (AT&T), and the
obligations of Pennsylvania Telephone under the Pennsylvania Telephone lease are
guaranteed by AT&T. AT&T is among the world's leading voice and data
communications companies, serving consumers, businesses and governments
worldwide. AT&T has one of the largest digital wireless networks in North
America and is one of the leading suppliers of data and Internet services for
businesses. In addition, AT&T offers outsourcing, consulting and
networking-integration to large businesses and is one of the largest direct
Internet access service providers for consumers in the United States. AT&T
reported a net worth, as of December 31, 2001, of approximately $51.7 billion.
The Pennsylvania Telephone lease commenced in November 1998 and expires in
November 2008. Pennsylvania Telephone has the option to extend the initial term
of the Pennsylvania Telephone lease for three additional five-year periods and
one additional four year and 11-month period. The annual base rent for each
extended term under the lease will be equal to 93% of the fair market rent. The
fair
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market rent shall be multiplied by the fair market escalator (which represents
the yearly rate of increases in the fair market rent for the entire renewal
term), if any. The current annual base rent payable for the Pennsylvania
Telephone lease is $1,442,116. The average effective annual rental rate per
square foot at the AT&T Pennsylvania Building was $16.65 for 2001, and $16.69
for 2000 and 1999, the first three years of ownership.
In addition, the Pennsylvania Telephone lease contains an option to expand
the premises to create additional office space of not less than 40,000 gross
square feet and not more than 90,000 gross square feet, as well as additional
parking to accommodate such office space. If Pennsylvania Telephone exercises
its option for the expansion improvements, Wells OP will be obligated to expend
the funds necessary to construct the expansion improvements. Pennsylvania
Telephone may exercise its expansion option by delivering written notice to
Wells OP at any time before the last business day of the 96th month of the
initial term of the Pennsylvania Telephone lease.
PwC Building
Wells OP purchased the PwC Building on December 31, 1998 for a purchase
price of $21,127,854. The PwC Building, which was built in 1998, is a four-story
office building containing 130,091 rentable square feet located in Tampa,
Florida. Wells OP purchased the PwC Building subject to a loan from SouthTrust.
The SouthTrust loan, which is more particularly described in the "Real Estate
Loans" section of this prospectus, is secured by a first priority mortgage
against the PwC Building.
The PwC Building is leased to PricewaterhouseCoopers (PwC). PwC provides a
full range of business advisory services to leading global, national and local
companies and to public institutions.
The PwC lease commenced in December 1998 and expires in December 2008,
subject to PwC's right to extend the lease for two additional five-year periods
of time. The current annual base rent payable under the PwC lease is $2,093,382.
The base rent escalates at the rate of 3% per year throughout the 10-year lease
term. In addition, PwC is required to pay a "reserve" of $13,009 ($0.10 per
square foot) as additional rent. The average effective annual rental rate per
square foot at the PwC Building was $16.98 for 2001, 2000, and 1999, the first
three years of ownership.
The annual base rent for each renewal term under the lease will be equal to
the greater of (1) 90% of the then-current market rent rate for such space
multiplied by the rentable area of the leased premises, or (2) 100% of the base
rent paid during the last lease year of the initial term, or the then-current
renewal term.
In addition, the PwC lease contains an option to expand the premises to
include a second three or four-story building with an amount of square feet up
to a total of 132,000 square feet which, if exercised by PwC, will require Wells
OP to expend funds necessary to construct the expansion building. PwC may
exercise its expansion option at any time prior to the expiration of the initial
term of the PwC lease.
If PwC elects to exercise its expansion option, Wells OP will be required
to expand the parking garage such that a sufficient number of parking spaces, at
least equal to four parking spaces per 1,000 square feet of rentable area, is
maintained. In the event that PwC elects to exercise its expansion option and
Wells OP determines not to proceed with the construction of the expansion
building as described above, or if Wells OP is otherwise required to construct
the expansion building and fails to do so in a timely basis pursuant to the PwC
lease, PwC may exercise its purchase option by giving Wells OP written notice of
such exercise within 30 days after either such event. If PwC properly exercises
its purchase option, PwC must simultaneously deliver a deposit in the amount of
$50,000.
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Cort Furniture Building
The Cort Joint Venture purchased the Cort Furniture Building on July 31,
1998 for a purchase price of $6,400,000. The Cort Furniture Building, which was
built in 1975, is a one-story office, showroom and warehouse building containing
52,000 rentable square feet located in Fountain Valley, California.
The Cort Furniture Building is leased to Cort Furniture Rental Corporation
(Cort). Cort uses the Cort Furniture Building as its regional corporate
headquarters with an attached clearance showroom and warehouse storage areas.
Cort is a wholly-owned subsidiary of Cort Business Services Corporation, the
largest and only national provider of high-quality office and residential rental
furniture and related accessories. The obligations of Cort under the Cort
Furniture lease are guaranteed by Cort Business Services.
The Cort lease commenced in November 1988 and expires in October 2003. Cort
has an option to extend the Cort lease for an additional five-year period of
time at 90% of the then-fair market rental value, but will be no less than the
rent in the 15th year of the Cort lease. The current annual base rent payable
under the Cort lease is $834,888 for the remainder of the lease term. The
average effective annual rental rate per square foot at the Cort Building was
$15.30 for 2001, 2000, and 1999, the first three years of ownership.
Fairchild Building
The Fremont Joint Venture purchased the Fairchild Building on July 21, 1998
for a purchase price of $8,900,000. The Fairchild Building, which was built in
1985, is a two-story manufacturing and office building containing 50,756
rentable square feet located in Fremont, Alameda County, California.
The Fairchild Building is leased to Fairchild Technologies U.S.A., Inc.
(Fairchild). Fairchild is a global leader in the design and manufacture of
production equipment for semiconductor and compact disk manufacturing. Fairchild
is a wholly-owned subsidiary of the Fairchild Corporation (Fairchild Corp), the
largest aerospace fastener and fastening system manufacturer and one of the
largest independent aerospace parts distributors in the world. The obligations
of Fairchild under the Fairchild lease are guaranteed by Fairchild Corp.
Fairchild Corp. reported a net worth, as of December 30, 2001, of approximately
$403 million.
The Fairchild lease commenced in December 1997 and expires in November
2004, subject to Fairchild's right to extend the Fairchild lease for an
additional five-year period. The base rent during the first year of the extended
term of the Fairchild lease, if exercised by Fairchild, shall be 95% of the
then-fair market rental value of the Fairchild Building subject to the annual 3%
increase adjustments. The current annual base rent payable under the Fairchild
lease is $920,144. The average effective annual rental rate per square foot at
the Fairchild Building was $15.46 for 2001, 2000, and 1999, the first three
years of ownership.
Avaya Building
The Avaya Building was purchased by the IX-X-XI-REIT Joint Venture on June
24, 1998 for a purchase price of $5,504,276. The Avaya Building, which was built
in 1998, is a one-story office building containing 57,186 rentable square feet
located in Oklahoma City, Oklahoma.
The Avaya Building is leased to Avaya, Inc. (Avaya), the former Enterprise
Networks Group of Lucent Technologies Inc. (Lucent Technologies). Lucent
Technologies, the former tenant, assigned the
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lease to Avaya on September 30, 2000. Lucent Technologies, which has not been
released from its obligations as tenant to pay rent under the lease, is a
telecommunications company which was spun off by AT&T in April 1996. Avaya
reported a net worth, as of December 31, 2001, of approximately $452 million.
Lucent Technologies reported a net worth, as of December 31, 2001, of
approximately $10.63 billion.
The Avaya lease commenced in January 1998 and expires in January 2008. The
current annual base rent payable under the Avaya lease is $536,977. The average
effective annual rental rate per square foot at the Avaya Building was $10.19
for 2001, 2000, 1999 and 1998, the first four years of ownership. Under the
Avaya lease, Avaya also has an option to terminate the Avaya lease on the
seventh anniversary of the rental commencement date. If Avaya elects to exercise
its option to terminate the Avaya lease, Avaya would be required to pay a
termination payment anticipated to be approximately $1,339,000.
Iomega Building
Wells Fund X originally purchased the Iomega Building on April 1, 1998 for
a purchase price of $5,025,000 and on July 1, 1998, contributed the Iomega
Building to the IX-X-XI-REIT Joint Venture. The Iomega Building is a warehouse
and office building with 108,250 rentable square feet located in Ogden, Utah.
The Iomega Building is leased to Iomega Corporation (Iomega). Iomega, a
company whose shares are traded on the NYSE, is a manufacturer of computer
storage devices used by individuals, businesses, government and educational
institutions, including "Zip" drives and disks, "Jaz" one gigabyte drives and
disks, and tape backup drives and cartridges. Iomega reported a net worth, as of
December 31, 2001, of approximately $378.9 million.
The Iomega lease commenced in August 1996 and expires in April 2009. On
March 1, 2003 and July 1, 2006, the monthly base rent payable under the Iomega
lease will be increased to reflect an amount equal to 100% of the increase in
the Consumer Price Index during the preceding 40 months; provided however, that
in no event shall the base rent be increased with respect to any one year by
more than 6% or by less than 3% per year, compounded annually, on a cumulative
basis from the beginning of the lease term. The current annual base rent payable
under the Iomega lease is $659,868. The average effective annual rental rate per
square foot at the Iomega Building was $6.22 for 2001 and 2000, and $5.18 for
1999, the first three years of ownership.
Interlocken Building
The IX-X-XI-REIT Joint Venture purchased the Interlocken Building on March
20, 1998 for a purchase price of $8,275,000. The Interlocken Building, which was
built in 1996, is a three-story multi-tenant office building containing 51,975
rentable square feet located in Broomfield, Colorado. The aggregate current
annual base rent payable for all tenants of the Interlocken Building is
$849,744. The average effective annual rental rate per square foot at the
Interlocken Building was $16.12 for 2001, $16.23 for 2000, and $15.97 for 1999,
the first three years of ownership.
Ohmeda Building
The IX-X-XI-REIT Joint Venture purchased the Ohmeda Building on February
13, 1998 for a purchase price of $10,325,000. The Ohmeda Building, which was
built in 1988, is a two-story office building containing 106,750 rentable square
feet located in Louisville, Colorado.
The Ohmeda Building is leased to Ohmeda, Inc. (Ohmeda). Ohmeda is a medical
supply firm based in Boulder, Colorado and is a worldwide leader in vascular
access and hemodynamic monitoring
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for hospital patients. On April 13, 1998, Instrumentarium Corporation
(Instrumentarium), a Finnish company, acquired the division of Ohmeda that
occupies the Ohmeda Building. Instrumentarium, a guarantor on the Ohmeda lease,
is an international health care company concentrating on selected fields of
medical technology manufacturing, marketing and distribution. Instrumentarium
reported a net worth, as of December 31, 2001, of approximately $480 million.
The Ohmeda lease expires in January 2005, subject to Ohmeda's right to
extend the Ohmeda lease for two additional five-year periods of time. The
current annual base rent payable under the Ohmeda lease is $1,004,520. The
average effective annual rental rate per square foot at the Ohmeda Building was
$9.62 for 2001, 2000, and 1999, the first three years of ownership.
The Ohmeda lease contains an option to expand the premises by an amount of
square feet up to a total of 200,000 square feet which, if exercised by Ohmeda,
will require the IX-X-XI-REIT Joint Venture to expend funds necessary to acquire
additional land, if necessary, and to construct the expansion space.
Alstom Power Knoxville Building
Wells Fund IX purchased the land and constructed the Alstom Power Knoxville
Building. The Alstom Power Knoxville Building, which was built in 1997, is a
three-story multi-tenant steel-framed office building containing 84,404 square
feet located in Knoxville, Tennessee. Wells Fund IX contributed the Alstom Power
Knoxville Building to the IX-X-XI-REIT Joint Venture on March 26, 1997 and was
credited with making a $7,900,000 capital contribution.
The Alstom Power Knoxville Building is currently leased to Alstom Power,
Inc. (Alstom Power). Alstom Power is the result of the December 30, 1999 merger
between ABB Power Generation, Inc. and ABB Alstom Power, Inc. Alstom Power
reported a net worth, as of September 30, 2001, of approximately $1.8 billion.
As security for Alstom Power's obligations under its lease, Alstom Power
has provided to the IX-X-XI-REIT Joint Venture an irrevocable standby letter of
credit in accordance with the terms and conditions set forth in the Alstom Power
Knoxville lease. The letter of credit maintained by Alstom Power is required to
be in the amount of $4,000,000 until the seventh anniversary of the rental
commencement date, at which time it will be reduced by $1,000,000 each year
until the end of the lease term.
The Alstom Power Knoxville lease commenced in January 1998 and expires in
November 2007. The current annual base rent for the Alstom Power Knoxville lease
is $1,106,520. The average effective annual rental rate per square foot at the
Alstom Power Building was $13.83 for 2001, $14.05 for 2000, and $11.82 for 1999,
the first year of ownership.
Alstom Power has an option to terminate the Alstom Power Knoxville lease as
of the seventh anniversary of the rental commencement date. If Alstom Power
elects to exercise this termination option, Alstom Power is required to pay to
the IX-X-XI-REIT Joint Venture a termination payment currently estimated to be
approximately $1,800,000 based upon certain assumptions.
Property Management Fees
Wells Management, our Property Manager, has been retained to manage and
lease all of our properties. Except as set forth below, we pay management and
leasing fees to Wells Management in an amount equal to the lesser of: (A) 4.5%
of gross revenues, or (B) 0.6% of the net asset value of the properties
(excluding vacant properties) owned by the Wells REIT, calculated on an annual
basis. For purposes of this calculation, net asset value shall be defined as the
excess of (1) the aggregate of the fair
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market value of all properties owned by the Wells REIT (excluding vacant
properties), over (2) the aggregate outstanding debt of the Wells REIT
(excluding debts having maturities of one year or less). In addition, we may pay
Wells Management a separate fee for the one-time initial rent-up or leasing-up
of newly constructed properties in an amount not to exceed the fee customarily
charged in arm's length transactions by others rendering similar services in the
same geographic area for similar properties as determined by a survey of brokers
and agents in such area (customarily equal to the first month's rent).
Wells Management has also been retained to manage and lease all of the
properties currently owned by the IX-X-XI-REIT Joint Venture and the
VIII-IX-REIT Joint Venture. While both Wells Fund XI and the Wells REIT are
authorized to pay management and leasing fees to Wells Management in the amount
of 4.5% of gross revenues, Wells Fund VIII, Wells Fund IX and Wells Fund X are
authorized to pay aggregate management and leasing fees to Wells Management in
the amount of 6% of gross revenues. Accordingly, a portion of the gross revenues
of these joint ventures will be subject to a 6% management and leasing fee and a
portion of gross revenues will be subject to a 4.5% management and leasing fee
based upon the respective ownership percentages of the joint venture partners in
each of these two joint ventures.
Wells Management also received or will receive a one-time initial lease-up
fee equal to the first month's rent for the leasing of the Alstom Power
Knoxville Building, the Avaya Building, the Matsushita Building, the Alstom
Power Richmond Building and the Nissan Project.
Real Estate Loans
SouthTrust Loans
Wells OP has established various secured lines of credit with SouthTrust
Bank, N.A. (SouthTrust) whereby SouthTrust has agreed to lend an aggregate
amount of up to $72,140,000 in connection with its purchase of real properties.
The interest rate on each of these separate lines of credit is an annual
variable rate equal to the London InterBank Offered Rate (LIBOR) for a 30-day
period plus 175 basis points. Wells OP will be charged an advance fee of 0.125%
of the amount of each advance. As of ____________, 2002, the interest rate on
each of the SouthTrust lines of credit was _____% per annum.
The $32,393,000 SouthTrust Line of Credit
The $32,393,000 SouthTrust line of credit requires monthly payments of
interest only and matures on June 10, 2002. This SouthTrust line of credit is
secured by first priority mortgages against the Cinemark Building, the Dial
Building and the ASML Building. As of ____________, 2002, the outstanding
principal balance on the $32,393,000 SouthTrust line of credit was
_____________.
The $12,844,000 SouthTrust Line of Credit
The $12,844,000 SouthTrust line of credit requires monthly payments of
interest only and matures on June 10, 2002. This SouthTrust line of credit is
secured by a first priority mortgage against the PwC Building. As of
_____________, 2002, the outstanding principal balance on the $12,844,000
SouthTrust line of credit was __________________.
The $19,003,000 SouthTrust Line of Credit
The $19,003,000 SouthTrust line of credit requires monthly payments of
interest only and matures on June 10, 2002. This SouthTrust line of credit is
secured by first priority mortgages against the Avnet
99
Building and the Motorola Tempe Building. As of ____________, 2002, the
outstanding principal balance on the $19,003,000 SouthTrust line of credit was
_____________.
The $7,900,000 SouthTrust Line of Credit
Wells LLC - VA originally obtained a loan from SouthTrust Bank, N.A. in
connection with the acquisition, development and construction of the Alstom
Power Richmond Building. After completion of construction, SouthTrust converted
the construction loan into a separate line of credit in the maximum principal
amount of up to $7,900,000. This SouthTrust line of credit requires payments of
interest only and matures on June 10, 2002. The $7,900,000 SouthTrust line of
credit is secured by a first priority mortgage against the Alstom Power Richmond
Building, the Alstom Power Richmond lease and a $4,000,000 letter of credit
issued by Unibank. As of _____________, 2002, the outstanding principal balance
on the $7,900,000 SouthTrust line of credit was $_______________.
BOA Line of Credit
Wells OP established a secured line of credit in the amount of $85,000,000
with Bank of America, N.A. (BOA Line of Credit) in connection with its purchase
of real properties. In addition, Wells OP may increase the BOA Line of Credit up
to an amount of $110,000,000 with the lender's approval. The interest rate on
the BOA Line of Credit is an annual variable rate equal to LIBOR for a 30-day
period plus 180 basis points. The BOA Line of Credit requires monthly payments
of interest only and matures on May 11, 2004. As of ____________, 2002, the
interest rate on the BOA Line of Credit was ___% per annum. The BOA Line of
Credit is secured by first priority mortgages against the Videojet Technologies
Chicago Building, the AT&T Pennsylvania Building, the Motorola Tempe Building,
the Matsushita Building, the Metris Tulsa Building and the Delphi Building. As
of _________________, 2002, the outstanding principal balance on the BOA Line of
Credit was ______________.
BOA Construction Loan
Wells OP obtained a construction loan in the amount of $34,200,000 from
Bank of America, N.A. (BOA Loan), to fund the construction of a building on the
Nissan Property located in Irving, Texas. The loan requires monthly payments of
interest only and matures on July 30, 2003. The interest rate on the loan is
fixed at 5.91%. As of ______________, 2002, the outstanding principal balance on
the BOA Loan was $___________. The BOA Loan is secured by a first priority
mortgage on the Nissan Property.
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 year ended
December 31, 2001, 2000 and 1999:
2001 2000 1999
--------------- --------------- ---------------
Total assets $753,224,519 $398,550,346 $143,852,290
Total revenues 49,308,802 23,373,206 6,495,395
Net income 21,723,967 8,552,967 3,884,649
Net income allocated to Stockholders 21,723,967 8,552,967 3,884,649
Earning per share:
Basic and diluted $ 0.43 $ 0.40 $ 0.50
Cash distributions 0.76 0.73 0.70
100
Management's Discussion and Analysis of Financial Condition and Results of
Operations
The following discussion and analysis should be read in conjunction with
our accompanying financial statements and the notes thereto.
Forward Looking Statements
This section and other sections in the prospectus contain forward-looking
statements, within the meaning of Section 27A of the Securities Act of 1933 and
21E of the Securities Exchange Act of 1934, including discussion and analysis of
the financial condition of the Wells REIT, anticipated capital expenditures
required to complete certain projects, amounts of anticipated cash distributions
to stockholders in the future and certain other matters. Readers of this
prospectus should be aware that there are various factors that could cause
actual results to differ materially from any forward-looking statements made in
this prospectus, which include changes in general economic conditions, changes
in real estate conditions, construction costs which may exceed estimates,
construction delays, increases in interest rates, lease-up risks, inability to
obtain new tenants upon the expiration of existing leases, and the potential
need to fund tenant improvements or other capital expenditures out of operating
cash flow. (See generally "Risk Factors.")
We have made an election under Section 856 (c) of the Internal Revenue Code
(Code) to be taxed as a REIT under the Code beginning with its taxable year
ended December 31, 1999. As a REIT for federal income tax purposes, we generally
will not be subject to Federal income tax on income that we distribute to our
stockholders. If we fail to qualify as a REIT in any taxable year, we will be
subject to federal income tax on our taxable income at regular corporate rates
and will not be permitted to qualify for treatment as a REIT for federal income
tax purposes for four years following the year in which our qualification is
lost. Such an event could materially, adversely affect our net income. However,
we believe that we are organized and operate in a manner, which has enabled us
to qualify for treatment as a REIT for federal income tax purposes during the
year ended December 31, 2001. In addition, we intend to continue to operate the
Wells REIT so as to remain qualified as a REIT for federal income tax purposes.
Liquidity and Capital Resources
General
During the fiscal year ended December 31, 2001, we received aggregate gross
offering proceeds of $522,516,620 from the sale of 52,251,662 shares of our
common stock. After payment of $18,143,307 in acquisition and advisory fees and
acquisition expenses, payment of $58,387,809 in selling commissions and
organization and offering expenses, and common stock redemptions of $4,137,427
pursuant to our share redemption program, we raised net offering proceeds
available for investment in properties of $441,848,077 during the fiscal year
ended December 31, 2001.
During the three months ended March 31, 2002, we received aggregate gross
offering proceeds of $255,702,943 from the sale of 25,570,294 shares of our
common stock. After payment of $8,843,134 in acquisition and advisory fees and
acquisition expenses, payment of $27,106,265 in selling commissions and
organization and offering expenses, and common stock redemptions of $3,041,981
pursuant to our share redemption program, we raised net offering proceeds of
$216,711,563 during the first quarter of 2002, of which $185,291,196 remained
available for investment in properties at quarter end.
101
During the three months ended March 31, 2001, we received aggregate gross
offering proceeds of $66,174,704 from the sale of 6,617,470 shares of our common
stock. After payment of $2,288,933 in acquisition and advisory fees and
acquisition expenses, payment of $8,175,768 in selling commissions and
organizational and offering expenses, and common stock redemptions of $776,555
pursuant to our share redemption program, we raised net offering proceeds of
$54,933,448, of which $5,952,930 was available for investment in properties at
quarter end.
The net increase in cash and cash equivalents during the fiscal year ended
December 31, 2001, as compared to the fiscal year ended December 31, 2000, and
for the three months ended March 31, 2002, as compared to the three months ended
March 31, 2001, is primarily the result of raising increased amounts of capital
from the sale of shares of common stock, offset by the acquisition of properties
during 2001 and the first quarter of 2002, and the payment of acquisition and
advisory fees and acquisition expenses, commissions and, organization and
offering costs.
As of March 31, 2002, we owned interests in 44 real estate properties
either directly or through interests in joint ventures. These properties are
generating operating cash flow sufficient to cover our operating expenses and
pay dividends to our stockholders. We pay dividends on a quarterly basis
regardless of the frequency with which such distributions are declared.
Dividends will be paid to investors who are stockholders as of the record dates
selected by our board of directors. We currently calculate quarterly dividends
based on the daily record and dividend declaration dates; thus, stockholders are
entitled to receive dividends immediately upon the purchase of shares. Dividends
declared during 2001 and 2000 totaled $0.76 per share and $0.73 per share,
respectively. Dividends declared for the first quarter of 2002 and the first
quarter of 2001 were approximately $0.194 and $0.188 per share, respectively.
Dividends to be distributed to the stockholders are determined by our board
of directors and are dependent on a number of factors, including funds available
for payment of dividends, financial condition, capital expenditure requirements
and annual distribution requirements in order to maintain our status as a REIT
under the Internal Revenue Code. Operating cash flows are expected to increase
as additional properties are added to our investment portfolio.
Cash Flows From Operating Activities
Our net cash provided by operating activities was $42,349,342 for the
fiscal year ended December 31, 2001, $7,319,639 for the fiscal year ended
December 31, 2000 and $4,008,275 for the fiscal year ended December 31, 1999.
The increase in net cash provided by operating activities was due primarily to
the net income generated by properties acquired during 2000 and 2001.
Our net cash provided by operating activities was $13,117,293 and
$8,235,314 for the three months ended March 31, 2002 and 2001, respectively. The
increase in net cash provided by operating activities was due primarily to the
net income generated by additional properties acquired during 2002 and 2001.
Cash Flows From Investing Activities
Our net cash used in investing activities was $274,605,735 for the fiscal
year ended December 31, 2001, $249,316,460 for the fiscal year ended December
31, 2000 and $105,394,956 for the fiscal year ended December 31, 1999. The
increase in net cash used in investing activities was due primarily to
investments in properties, directly and through contributions to joint ventures,
and the payment of related deferred project costs.
102
Our net cash used in investing activities was $111,821,692 and $4,264,257
for the three months ended March 31, 2002 and 2001, respectively. The increase
in net cash used in investing activities was due primarily to investments in
properties and the payment of related deferred project costs, partially offset
by distributions received from joint ventures.
Cash Flows From Financing Activities
Our net cash provided by financing activities was $303,544,260 for the
fiscal year ended December 31, 2001, $243,365,318 for the fiscal year ended
December 31, 2000, and $96,337,082 for the fiscal year ended December 31, 1999.
The increase in net cash provided by financing activities was due primarily to
the raising of additional capital offset by the repayment of notes payable. We
raised $522,516,620 in offering proceeds for fiscal year ended December 31,
2001, as compared to $180,387,220 for fiscal year ended December 31, 2000, and
$103,169,490 for fiscal year ended December 31, 1999. In addition, we received
loan proceeds from financing secured by properties of $110,243,145 and repaid
notes payable in the amount of $229,781,888 for fiscal year ended December 31,
2001.
Our net cash provided by financing activities was $210,144,548 for the
three months ended March 31, 2002 and net cash used in financing activities for
the three months ended March 31, 2001 was $113,042. The increase in net cash
provided by financing activities was due primarily to the raising of additional
capital and the related repayment of notes payable. We raised $255,702,943 in
offering proceeds for the three months ended March 31, 2002, as compared to
$66,174,705 for the same period in 2001.
Results of Operations
Comparison of Fiscal Years Ended December 31, 2001, 2000 and 1999
Gross revenues were $49,308,802 for the fiscal year ended December 31,
2001, $23,373,206 for fiscal year ended December 31, 2000 and $6,495,395 for
fiscal year ended December 31, 1999. Gross revenues for the year ended December
31, 2001, 2000 and 1999 were attributable to rental income, interest income
earned on funds we held prior to the investment in properties, and income earned
from joint ventures. The increase in revenues for the fiscal year ended December
31, 2001 was primarily attributable to the purchase of additional properties
during 2000 and 2001. The purchase of additional properties also resulted in an
increase in expenses which totaled $27,584,835 for the fiscal year ended
December 31, 2001, $14,820,239 for the fiscal year ended December 31, 2000 and
$2,610,746 for the fiscal year ended December 31, 1999. Expenses in 2001, 2000
and 1999 consisted primarily of depreciation, interest expense and management
and leasing fees. Our net income also increased from $3,884,649 for fiscal year
ended December 31, 1999 to $8,552,967 for fiscal year ended December 31, 2000 to
$21,723,967 for the year ended December 31, 2001.
Comparison of First Quarter 2002 and 2001
As of March 31, 2002, our real estate properties were 100% leased to
tenants. Gross revenues were $19,192,803 and $10,669,713 for the three months
ended March 31, 2002 and 2001, respectively. Gross revenues for the three months
ended March 31, 2002 and 2001 were attributable to rental income, interest
income earned on funds we held prior to the investment in properties, and income
earned from joint ventures. The increase in revenues in 2002 was primarily
attributable to the purchase of additional properties for $104,051,998 during
2002 and the purchase of additional properties for $227,933,858 in the last
three quarters of 2001. The purchase of additional properties also resulted in
an increase in expenses which totaled $8,413,139 for the three months ended
March 31, 2002, as compared to $7,394,368 for the three months ended March 31,
2001. Expenses in 2002 and 2001 consisted primarily of depreciation,
103
interest expense, management and leasing fees and general and administrative
costs. As a result, our net income also increased from $3,275,345 for the three
months ended March 31, 2001 to $10,779,664 for the three months ended March 31,
2002.
Property Operations
The following table summarizes the operations of the joint ventures in which we
owned an interest as of December 31, 2001, 2000 and 1999:
Total Revenue Net Income Well REIT's Share of Net Income
For Years Ended December 31 For Years Ended December 31 For Years Ended December 31
---------------------------------------- ------------------------------------- ----------------------------------
2001 2000 1999 2001 2000 1999 2001 2000 1999
------------ ------------ ----------- ---------- ----------- ----------- ---------- ---------- ---------
Fund
IX-X-XI-REIT $ 4,344,209 $ 4,388,193 $ 4,053,042 $2,684,837 $ 2,669,143 $ 2,172,244 $ 99,649 $ 99,177 $ 81,501
Joint
Venture
Orange 797,937 795,545 795,545 546,171 568,961 550,952 238,542 248,449 240,585
County
Joint
Venture
Fremont 907,673 902,946 902,946 562,893 563,133 559,174 436,265 436,452 433,383
Joint
Venture
Fund
XI-XII-REIT 3,371,067 3,349,186 1,443,503 2,064,911 2,078,556 853,073 1,172,103 1,179,848 488,500
Joint
Venture
Fund
XII-REIT 4,708,467 976,865 N/A 2,611,522 614,250 N/A 1,386,877 305,060 N/A
Joint
Venture
Fund
VIII-IX-REIT 1,208,724 563,049 N/A 566,840 309,893 N/A 89,779 24,887 N/A
Joint Venture
Fund XIII-REIT 706,373 N/A N/A 356,355 N/A N/A 297,745 N/A N/A
Joint Venture
--------------------------------------------------------------------------------------------------------------------
$ 16,044,450 $ 10,975,784 $ 7,195,036 $8,977,529 $ 6,803,936 $ 4,135,443 $3,720,960 $2,293,873 $1,243,969
============ ============ =========== ========== ========== =========== ========== ========== ==========
Funds from Operations
Funds from Operations (FFO), as defined by the National Association of Real
Estate Investment Trusts (NAREIT), generally means net income, computed in
accordance with GAAP excluding extraordinary items (as defined by GAAP) and
gains (or losses) from sales of property, plus depreciation and amortization on
real estate assets, and after adjustments for unconsolidated partnerships, joint
ventures and subsidiaries. We believe that FFO is helpful to investors as a
measure of the performance of an equity REIT. However, our calculation of FFO,
while consistent with NAREIT's definition, may not be comparable to similarly
titled measures presented by other REITs. Adjusted Funds from Operations (AFFO)
is defined as FFO adjusted to exclude the effects of straight-line rent
adjustments, deferred loan cost amortization and other non-cash and/or unusual
items. Neither FFO nor AFFO represent cash generated from operating activities
in accordance with GAAP and should not be considered as alternatives to net
income as an indication of our performance or to cash flows as a measure of
liquidity or ability to make distributions.
104
The following table reflects the calculation of FFO and AFFO for the three years
ended December 31, 2001, 2000, and 1999, respectively:
December 31, 2001 December 31, 2000 December 31, 1999
----------------- ----------------- -----------------
FUNDS FROM OPERATIONS:
Net income $21,723,967 $ 8,552,967 $3,884,649
Add:
Depreciation of real assets 15,344,801 7,743,550 1,726,103
Amortization of deferred leasing
costs 303,347 350,991 0
Depreciation and amortization -
unconsolidated partnerships 3,211,828 852,968 652,167
----------------- ----------------- -----------------
Funds from operations (FFO) 40,583,943 17,500,476 6,262,919
Adjustments:
Loan cost amortization 770,192 232,559 8,921
Straight line rent (2,754,877) (1,650,791) (847,814)
Straight line rent - unconsolidated
partnerships (543,039) (245,288) (140,076)
Lease acquisition fees paid 0 (152,500) 0
Lease acquisition fees paid-
Unconsolidated partnerships 0 (8,002) (512)
----------------- ----------------- -----------------
Adjusted funds from operations $38,056,219 $15,676,454 $5,283,438
================= ================= =================
WEIGHTED AVERAGE SHARES:
BASIC AND DILUTED 51,081,867 21,616,051 7,769,298
================= ================= =================
The following table reflects the calculation of FFO and AFFO for the
three months ended March 31, 2002 and 2001, respectively:
Three Months Ended Three Months Ended
March 31, 2002 March 31, 2001
------------------ ------------------
FUNDS FROM OPERATIONS:
Net income $ 10,779,745 $ 3,275,345
Add:
Depreciation of real assets 5,744,452 3,187,179
Amortization of deferred leasing costs 72,749 75,837
Depreciation and amortization -
unconsolidated partnerships 613,034 299,094
------------------ ------------------
Funds from operations (FFO) 17,209,979 6,837,455
Adjustments:
Loan cost amortization 175,462 214,757
Straight line rent (348,808) (616,465)
Straight line rent -
unconsolidated partnerships (52,995) (39,739)
Lease acquisition fees paid 400,000 0
Lease acquisition fees paid-
unconsolidated partnerships 0 (2,356)
------------------ ------------------
Adjusted funds from operations (AFFO) $ 17,383,639 $ 6,393,653
================== ==================
WEIGHTED AVERAGE SHARES:
BASIC AND DILUTED 95,130,210 34,359,444
================== ==================
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Inflation
The real estate market has not been affected significantly by inflation
in the past three years due to the relatively low inflation rate. However, there
are provisions in the majority of tenant leases which would protect us from the
impact of inflation. These provisions include reimbursement billings for common
area maintenance charges (CAM), real estate tax and insurance reimbursements on
a per square foot basis, or in some cases, annual reimbursement of operating
expenses above a certain per square foot allowance.
Critical Accounting Policies
Our accounting policies have been established and conform with generally
accepted accounting principles in the United States (GAAP). The preparation of
financial statements in conformity with GAAP requires management to use judgment
in the application of accounting policies, including making estimates and
assumptions. These judgments affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the dates of
the financial statements and the reported amounts of revenue and expenses during
the reporting periods. If our judgment or interpretation of the facts and
circumstances relating to various transactions had been different, it is
possible that different accounting policies would have been applied; thus,
resulting in a different presentation of our financial statements. Below is a
discussion of the accounting policies that we consider to be critical in that
they may require complex judgment in their application or require estimates
about matters which are inherently uncertain.
Straight-Lined Rental Revenues
We recognize rental income generated from all leases on real estate
assets in which we have an ownership interest, either directly or through
investments in joint ventures, on a straight-line basis over the terms of the
respective leases. If a tenant was to encounter financial difficulties in future
periods, the amount recorded as a receivable may not be realized.
Operating Cost Reimbursements
We generally bill tenants for operating cost reimbursements, either
directly or through investments in joint ventures, on a monthly basis at amounts
estimated largely based on actual prior period activity and the respective lease
terms. Such billings are generally adjusted on an annual basis to reflect
reimbursements owed to the landlord based on the actual costs incurred during
the period and the respective lease terms. Financial difficulties encountered by
tenants may result in receivables not being realized.
Real Estate
We continually monitor events and changes in circumstances indicating
that the carrying amounts of the real estate assets in which we have an
ownership interest, either directly or through investments in joint ventures,
may not be recoverable. When such events or changes in circumstances are
present, we assess the potential impairment by comparing the fair market value
of the asset, estimated at an amount equal to the future undiscounted operating
cash flows expected to be generated from tenants over the life of the asset and
from its eventual disposition, to the carrying value of the asset. In the event
that the carrying amount exceeds the estimated fair market value, we would
recognize an impairment loss in the amount required to adjust the carrying
amount of the asset to its estimated fair market value. Neither the
106
Wells REIT nor our joint ventures have recognized impairment losses on real
estate assets in 2001, 2000 or 1999.
Deferred Project Costs
We record acquisition and advisory fees and acquisition expenses payable
to Wells Capital, Inc., our advisor, by capitalizing deferred project costs and
reimbursing our advisor in an amount equal to 3.5% of cumulative capital raised
to date. As we invest our capital proceeds, deferred project costs are applied
to real estate assets, either directly or through contributions to joint
ventures, at an amount equal to 3.5% of each investment and depreciated over the
useful lives of the respective real estate assets.
Deferred Offering Costs
Our advisor expects to continue to fund 100% of the organization and
offering costs and recognize related expenses, to the extent that such costs
exceed 3% of cumulative capital raised, on our behalf. Organization and offering
costs include items such as legal and accounting fees, marketing and promotional
costs, and printing costs, and specifically exclude sales costs and underwriting
commissions. We record offering costs by accruing deferred offering costs, with
an offsetting liability included in due to affiliates, at an amount equal to the
lesser of 3% of cumulative capital raised to date or actual costs incurred from
third-parties less reimbursements paid to our advisor. As the actual equity is
raised, we reverse the deferred offering costs accrual and recognize a charge to
stockholders' equity upon reimbursing our advisor.
Prior Performance Summary
The information presented in this section represents the historical
experience of real estate programs managed by Wells Capital, our advisor, and
its affiliates. Investors in the Wells REIT should not assume that they will
experience returns, if any, comparable to those experienced by investors in such
prior Wells real estate programs.
Of the 14 publicly offered real estate limited partnerships in which Leo
F. Wells, III has served as a general partner, 13 of such limited partnerships
have completed their respective offerings. These 13 limited partnerships and the
year in which each of their offerings was completed are:
1. Wells Real Estate Fund I (1986),
2. Wells Real Estate Fund II (1988),
3. Wells Real Estate Fund II-OW (1988),
4. Wells Real Estate Fund III, L.P. (1990),
5. Wells Real Estate Fund IV, L.P. (1992),
6. Wells Real Estate Fund V, L.P. (1993),
7. Wells Real Estate Fund VI, L.P. (1994),
8. Wells Real Estate Fund VII, L.P. (1995),
9. Wells Real Estate Fund VIII, L.P. (1996),
10. Wells Real Estate Fund IX, L.P. (1996),
11. Wells Real Estate Fund X, L.P. (1997),
12. Wells Real Estate Fund XI, L.P. (1998), and
13. Wells Real Estate Fund XII, L.P. (2001).
In addition to the foregoing real estate limited partnerships, Wells
Capital and its affiliates have sponsored three prior public offerings of shares
of common stock of the Wells REIT. The initial public offering of the Wells REIT
began on January 30, 1998 and was terminated on December 19, 1999. We
107
received gross proceeds of approximately $132,181,919 from the sale of
approximately 13,218,192 shares in our initial public offering. We commenced our
second public offering of shares of common stock of the Wells REIT on December
20, 1999 and terminated the second offering on December 19, 2000. We received
gross proceeds of approximately $175,229,193 from the sale of approximately
17,522,919 shares in our second public offering. We commenced our third public
offering of shares of common stock of the Wells REIT on December 20, 2000. As of
____________, 2002, we had received gross proceeds of approximately
$________________ from the sale of approximately _________________ shares in our
third public offering. Accordingly, as of _______, 2002, we had received
aggregate gross offering proceeds of approximately $______________ from the sale
of approximately ______________ shares in our three prior public offerings.
Wells Capital and its affiliates are also currently sponsoring a public
offering of 4,500,000 units on behalf of Wells Real Estate Fund XIII, L.P.
(Wells Fund XIII), a public limited partnership. Wells Fund XIII began its
offering on March 29, 2001 and, as of ___________, 2002, Wells Fund XIII had
raised $_____________ from __________ investors.
The Prior Performance Tables included in the back of this prospectus set
forth information as of the dates indicated regarding certain of these Wells
programs as to (1) experience in raising and investing funds (Table I); (2)
compensation to sponsor (Table II); (3) annual operating results of prior
programs (Table III); and (4) sales or disposals of properties (Table V).
In addition to the real estate programs sponsored by Wells Capital and its
affiliates discussed above, they are also sponsoring an index mutual fund that
invests in various REIT stocks known as the Wells S&P REIT Index Fund (REIT
Index Fund). The REIT Index Fund is a mutual fund that seeks to provide
investment results corresponding to the performance of the S&P REIT Index by
investing in the REIT stocks included in the S&P REIT Index. The REIT Index Fund
began its offering on January 12, 1998 and, as of __________, 2002, had raised
$_____________ from ____________ investors.
Publicly Offered Unspecified Real Estate Programs
Wells Capital and its affiliates have previously sponsored the above listed
13 publicly offered real estate limited partnerships and are currently
sponsoring Wells Fund XIII offered on an unspecified property or "blind pool"
basis. The total amount of funds raised from investors in the offerings of these
14 publicly offered limited partnerships, as of December 31, 2001, was
approximately $_____________, and the total number of investors in such programs
was approximately ____________.
The investment objectives of each of the other Wells programs are
substantially identical to the investment objectives of the Wells REIT.
Substantially all of the proceeds of the offerings of Wells Fund I, Wells Fund
II, Wells Fund II-OW, Wells Fund III, Wells Fund IV, Wells Fund V, Wells Fund
VI, Wells Fund VII, Wells Fund VIII, Wells Fund IX, Wells Fund X, Wells Fund XI
and Wells Fund XII available for investment in real properties have been
invested in properties. As of December 31, 2001, approximately ___% of the
aggregate gross rental income of the 13 publicly offered programs listed above
was derived from tenants which are corporations, each of which at the time of
lease execution had a net worth of at least $100,000,000 or whose lease
obligations were guaranteed by another corporation with a net worth of at least
$100,000,000.
Because of the cyclical nature of the real estate market, decreases in net
income of the public partnerships could occur at any time in the future when
economic conditions decline. No assurance can be made that the Wells programs
will ultimately be successful in meeting their investment objectives. (See "Risk
Factors.")
108
The aggregate dollar amount of the acquisition and development costs of the
properties purchased by the 14 publicly offered limited partnerships, as of
December 31, 2001, was $697,161,047. Of this amount, approximately 90.2% was
spent on acquiring or developing office buildings, and approximately 9.8% was
spent on acquiring or developing shopping centers. Of this amount, approximately
22.6% was or will be spent on new properties, 57.1% on existing or used
properties and 20.3% on construction properties. Following is a table showing a
breakdown of the aggregate amount of the acquisition and development costs of
the properties purchased by the Wells REIT, Wells Fund XIII and the 13 Wells
programs listed above as of December 31, 2001:
Type of Property New Used Construction
------------------ --- ---- ------------
Office Buildings ___% ____% ____%
Shopping Centers ___% ____% ____%
Wells Fund I terminated its offering on September 5, 1986, and received
gross proceeds of $35,321,000 representing subscriptions from 4,895 limited
partners ($24,679,000 of the gross proceeds were attributable to sales of Class
A Units, and $10,642,000 of the gross proceeds were attributable to sales of
Class B Units). Limited partners in Wells Fund I have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund I owns
interests in the following properties:
. a condominium interest in a three-story medical office building in
Atlanta, Georgia;
. a commercial office building in Atlanta, Georgia;
. a shopping center in Knoxville, Tennessee; and
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia.
The prospectus of Wells Fund I provided that the properties purchased by
Wells Fund I would typically be held for a period of eight to 12 years, but that
the general partners may exercise their discretion as to whether and when to
sell the properties owned by Wells Fund I and that the general partners were
under no obligation to sell the properties at any particular time.
Wells Fund I has sold the following properties from its portfolio:
---------------------------------------------------------------------------
% Net Sale Taxable
Date of Sale Property Name Ownwership Proceeds Gain
---------------------------------------------------------------------------
Aug. 31, 2000 One of two buildings 90% $ 633,694 $ 205,019
at Peachtree Place
---------------------------------------------------------------------------
Jan. 11, 2001 Crowe's Crossing 100% $6,569,000 $ 11,496
---------------------------------------------------------------------------
Oct. 1, 2001 Cherokee Commons 24% $2,037,315 $ 52,461
---------------------------------------------------------------------------
Wells Fund I is in the process of marketing its remaining properties for
sale.
Wells Fund II and Wells Fund II-OW terminated their offerings on September
7, 1988, and received aggregate gross proceeds of $36,870,250 representing
subscriptions from 4,659 limited partners ($28,829,000 of the gross proceeds
were attributable to sales of Class A Units, and $8,041,250 of the gross
proceeds were attributable to sales of Class B Units). Limited partners in Wells
Fund II and Wells Fund II-OW have no right to change the status of their units
from Class A to Class B or vice versa. Wells Fund II and Wells Fund II-OW own
all of their properties through a joint venture, which owns interests in the
following properties:
109
. a project consisting of seven office buildings and a shopping center
in Tucker, Georgia;
. a two-story office building in Charlotte, North Carolina which is
currently unoccupied;
. a four-story office building in Houston, Texas, three floors of which
are leased to Boeing;
. a restaurant property in Roswell, Georgia leased to Brookwood Grill of
Roswell, Inc.; and
. a combined retail center and office development in Roswell, Georgia.
The prospectus of Wells Fund II and Wells Fund II-OW provided that the
properties purchased by Wells Fund II and Wells Fund II-OW would typically be
held for a period of eight to 12 years, but that the general partners may
exercise their discretion as to whether and when to sell the properties owned by
Wells Fund II and Wells Fund II-OW and that the partnerships were under no
obligation to sell their properties at any particular time.
Wells Fund II and Wells Fund II - OW sold the following property from its
portfolio in 2001:
--------------------------------------------------------------------------
% Net Sale Taxable
Date of Sale Property Name Ownership Proceeds Gain
--------------------------------------------------------------------------
Oct. 1, 2001 Cherokee Commons 54% $4,601,723 $111,419
--------------------------------------------------------------------------
Wells Fund II and Wells Fund II - OW are in the process of marketing their
remaining properties for sale.
Wells Fund III terminated its offering on October 23, 1990, and received
gross proceeds of $22,206,310 representing subscriptions from 2,700 limited
partners ($19,661,770 of the gross proceeds were attributable to sales of Class
A Units, and $2,544,540 of the gross proceeds were attributable to sales of
Class B Units). Limited partners in Wells Fund III have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund III owns
interests in the following properties:
. a four-story office building in Houston, Texas, three floors of which
are leased to Boeing;
. a restaurant property in Roswell, Georgia leased to Brookwood Grill of
Roswell, Inc.;
. a combined retail center and office development in Roswell, Georgia;
. a two-story office building in Greenville, North Carolina;
. a shopping center in Stockbridge, Georgia having Kroger as the anchor
tenant; and
. a two-story office building in Richmond, Virginia leased to Reciprocal
Group.
The prospectus of Wells Fund III provided that the properties purchased by
Wells Fund III would typically be held for a period of eight to 12 years, but
that the general partners may exercise their discretion as to whether and when
to sell the properties owned by Wells Fund III and that they were under no
obligation to sell the properties at any particular time. The general partners
of Wells Fund III have decided to begin the process of positioning the
properties for sale over the next several years.
Wells Fund IV terminated its offering on February 29, 1992, and received
gross proceeds of $13,614,655 representing subscriptions from 1,286 limited
partners ($13,229,150 of the gross proceeds were attributable to sales of Class
A Units, and $385,505 of the gross proceeds were attributable to sales
110
of Class B Units). Limited partners in Wells Fund IV have no right to change the
status of their units from Class A to Class B or vice versa. Wells Fund IV owns
interests in the following properties:
. a shopping center in Stockbridge, Georgia having Kroger as the anchor
tenant;
. a four-story office building in Jacksonville, Florida leased to IBM
and Customized Transportation Inc. (CTI);
. a two-story office building in Richmond, Virginia leased to Reciprocal
Group; and
. two substantially identical two-story office buildings in Stockbridge,
Georgia.
Wells Fund V terminated its offering on March 3, 1993, and received gross
proceeds of $17,006,020 representing subscriptions from 1,667 limited partners
($15,209,666 of the gross proceeds were attributable to sales of Class A Units,
and $1,796,354 of the gross proceeds were attributable to sales of Class B
Units). Limited partners in Wells Fund V who purchased Class B Units are
entitled to change the status of their units to Class A, but limited partners
who purchased Class A Units are not entitled to change the status of their units
to Class B. After taking into effect conversion elections made by limited
partners subsequent to their subscription for units, as of December 31, 2001,
$15,664,160 of units of Wells Fund V were treated as Class A Units, and
$1,341,860 of units were treated as Class B Units. Wells Fund V owns interests
in the following properties:
. a four-story office building in Jacksonville, Florida leased to IBM
and CTI;
. two substantially identical two-story office buildings in Stockbridge,
Georgia;
. a four-story office building in Hartford, Connecticut leased to
Hartford Fire Insurance Company;
. restaurant properties in Stockbridge, Georgia leased to Apple
Restaurants, Inc., Taco Mac, Dependable Ins and Tokyo Japanese Steak;
and
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel.
Wells Fund VI terminated its offering on April 4, 1994, and received gross
proceeds of $25,000,000 representing subscriptions from 1,793 limited partners
($19,332,176 of the gross proceeds were attributable to sales of Class A Units,
and $5,667,824 of the gross proceeds were attributable to sales of Class B
Units). Limited partners in Wells Fund VI are entitled to change the status of
their units from Class A to Class B and vice versa. After taking into effect
conversion elections made by limited partners subsequent to their subscription
for units, as of December 31, 2001, $22,363,610 of units of Wells Fund VI were
treated as Class A Units, and $2,636,390 of units were treated as Class B Units.
Wells Fund VI owns interests in the following properties:
. a four-story office building in Hartford, Connecticut leased to
Hartford Fire Insurance Company;
. restaurant properties in Stockbridge, Georgia leased to Apple
Restaurants, Inc., Taco Mac, Dependable Ins and Tokyo Japanese Steak;
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
111
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel;
. a combined retail and office development in Roswell, Georgia;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.; and
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant.
Wells Fund VI sold its interest in the following property in 2001:
---------------------------------------------------------------------------
% Net Sale Taxable
Date of Sale Property Name Ownership Proceeds Gain
---------------------------------------------------------------------------
Oct. 1, 2001 Cherokee Commons 11% $903,122 $21,867
---------------------------------------------------------------------------
Wells Fund VII terminated its offering on January 5, 1995, and received
gross proceeds of $24,180,174 representing subscriptions from 1,910 limited
partners ($16,788,095 of the gross proceeds were attributable to sales of Class
A Units, and $7,392,079 of the gross proceeds were attributable to sales of
Class B Units). Limited partners in Wells Fund VII are entitled to change the
status of their units from Class A to Class B and vice versa. After taking into
effect conversion elections made by limited partners subsequent to their
subscriptions for units, as of December 31, 2001, $20,670,201 of units in Wells
Fund VII were treated as Class A Units, and $3,509,973 of units were treated as
Class B Units. Wells Fund VII owns interests in the following properties:
. a three-story office building in Appleton, Wisconsin leased to Jaako
Poyry Fluor Daniel;
. a restaurant and retail building in Stockbridge, Georgia;
. a shopping center in Stockbridge, Georgia;
. a combined retail and office development in Roswell, Georgia;
. a two-story office building in Alachua County, Florida near
Gainesville leased to CH2M Hill, Engineers, Planners, Economists,
Scientists;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.;
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant; and
. a retail development in Clayton County, Georgia.
Wells Fund VII sold its interest in the following property in 2001:
---------------------------------------------------------------------------
% Net Sale Taxable
Date of Sale Property Name Ownership Proceeds Gain
---------------------------------------------------------------------------
Oct. 1, 2001 Cherokee Commons 11% $903,122 $21,867
---------------------------------------------------------------------------
112
Wells Fund VIII terminated its offering on January 4, 1996, and received
gross proceeds of $32,042,689 representing subscriptions from 2,241 limited
partners ($26,135,339 of the gross proceeds were attributable to sales of Class
A Units, and $5,907,350 were attributable to sales of Class B Units). Limited
partners in Wells Fund VIII are entitled to change the status of their units
from Class A to Class B and vice versa. After taking into effect conversion
elections made by limited partners subsequent to their subscriptions for units
and certain repurchases made by Wells Fund VIII, as of December 31, 2001,
$28,065,187 of units in Wells Fund VIII were treated as Class A Units, and
$3,967,502 of units were treated as Class B Units. Wells Fund VIII owns
interests in the following properties:
. a two-story office building in Alachua County, Florida near Gainsville
leased to CH2M Hill, Engineers, Planners, Economists, Scientists;
. a four-story office building in Jacksonville, Florida leased to
Bellsouth Advertising and Publishing Corporation and American Express
Travel Related Services Company, Inc.;
. a shopping center in Clemmons, North Carolina having Harris Teeter,
Inc. as the anchor tenant;
. a retail development in Clayton County, Georgia;
. a four-story office building in Madison, Wisconsin leased to US
Cellular, a subsidiary of Bellsouth Corporation;
. a one-story office building in Farmers Branch, Texas leased to TCI
Valwood Limited Partnership I;
. a two-story office building in Orange County, California leased to
Quest Software, Inc.; and
. a two-story office building in Boulder County, Colorado leased to
Cirrus Logic, Inc.
Wells Fund IX terminated its offering on December 30, 1996, and received
gross proceeds of $35,000,000 representing subscriptions from 2,098 limited
partners ($29,359,310 of the gross proceeds were attributable to sales of Class
A Units, and $5,640,690 were attributable to sales of Class B Units). After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units, as of December 31, 2001, $31,364,290 of units in
Wells Fund IX were treated as Class A Units, and $3,635,710 of units were
treated as Class B Units. Wells Fund IX owns interests in the following
properties:
. a one-story office building in Farmers Branch, Texas leased to TCI
Valwood Limited Partnership I;
. a four-story office building in Madison, Wisconsin leased to US
Cellular, a subsidiary of Bellsouth Corporation;
. a two-story office building in Orange County, California leased to
Quest Software, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Cirrus Logic, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a three-story office building in Knox County, Tennessee leased to
Alstom Power, Inc.;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
113
. a three-story office multi-tenant building in Boulder County,
Colorado; and
. a one-story office building in Oklahoma City, Oklahoma leased to
Avaya, Inc.
Certain financial information for Wells Fund IX is summarized below:
----------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------------------------------------------------------------------------------------
Gross Revenues $1,874,290 $1,836,768 $1,593,734 $1,561,456 $1,199,300
----------------------------------------------------------------------------------------
Net Income $1,768,474 $1,758,676 $1,490,331 $1,449,955 $1,091,766
----------------------------------------------------------------------------------------
Wells Fund X terminated its offering on December 30, 1997, and received
gross proceeds of $27,128,912 representing subscriptions from 1,812 limited
partners ($21,160,992 of the gross proceeds were contributable to sales of Class
A Units, and $5,967,920 were attributable to sales of Class B Units). After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units, as of December 31, 2001, $23,166,181 of units in
Wells Fund X were treated as Class A Units and $3,962,731 of units were treated
as Class B Units. Wells Fund X owns interests in the following properties:
. a three-story office building in Knox County, Tennessee leased to
Alstom Power, Inc.;
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a three-story multi-tenant office building in Boulder County,
Colorado;
. a one-story office building in Oklahoma City, Oklahoma leased to
Avaya, Inc.;
. a one-story office and warehouse building in Orange County, California
leased to Cort Furniture Rental Corporation; and
. a two-story office and manufacturing building in Alameda County,
California leased to Fairchild Technologies U.S.A., Inc.
Certain financial information for Wells Fund X is summarized below:
----------------------------------------------------------------------------------------
2001 2000 1999 1998 1997
----------------------------------------------------------------------------------------
Gross Revenues $1,559,026 $1,557,518 $1,309,281 $1,204,597 $372,507
----------------------------------------------------------------------------------------
Net Income $1,449,849 $1,476,180 $1,192,318 $1,050,329 $278,025
----------------------------------------------------------------------------------------
Wells Fund XI terminated its offering on December 30, 1998, and received
gross proceeds of $16,532,802 representing subscriptions from 1,345 limited
partners ($13,029,424 of the gross proceeds were attributable to sales of Class
A Units and $3,503,378 were attributable to sales of Class B Units). After
taking into effect conversion elections made by limited partners subsequent to
their subscriptions for units, as of December 31, 2001, $13,462,560 of units in
Wells Fund XI were treated as Class A Units and $3,070,242 of units were treated
as Class B Units. Wells Fund XI owns interests in the following properties:
. a three-story office building in Knox County, Tennessee leased to
Alstom Power, Inc.;
. a one-story office building in Oklahoma City, Oklahoma leased to
Avaya, Inc.;
114
. a two-story office building in Boulder County, Colorado leased to
Ohmeda, Inc.;
. a three-story multi-tenant office building in Boulder County,
Colorado;
. a one-story office and warehouse building in Weber County, Utah leased
to Iomega Corporation;
. a one-story office and warehouse building in Orange County, California
leased to Cort Furniture Rental Corporation;
. a two-story office and manufacturing building in Alameda County,
California leased to Fairchild Technologies U.S.A., Inc.;
. a two-story manufacturing and office building in Greenville County,
South Carolina leased to EYBL CarTex, Inc.;
. a three-story office building in Johnson County, Kansas leased to
Sprint Communications Company L.P.;
. a two-story research and development office and warehouse building in
Chester County, Pennsylvania leased to Johnson Matthey, Inc.; and
. a two-story office building in Fort Myers, Florida leased to Gartner
Group, Inc.
Certain financial information for Wells Fund XI is summarized below:
-----------------------------------------------------------------------
2001 2000 1999 1998
-----------------------------------------------------------------------
Gross Revenues $960,676 $975,850 $766,586 $262,729
-----------------------------------------------------------------------
Net Income $870,350 $895,989 $630,528 $143,295
-----------------------------------------------------------------------
Wells Fund XII terminated its offering on March 21, 2001, and received
gross proceeds of $35,611,192 representing subscriptions from 1,333 limited
partners ($26,888,609 of the gross proceeds were attributable to sales of cash
preferred units and $8,722,583 were attributable to sales of tax preferred
units). After taking into effect conversion elections made by limited partners
subsequent to their subscriptions for units, as of December 31, 2001,
$27,786,067 of units in Wells Fund XII were treated as cash preferred units and
$7,825,125 of units were treated as tax preferred units. Wells Fund XII owns
interests in the following properties:
. a two-story manufacturing and office building in Greenville County,
South Carolina leased to EYBL CarTex, Inc.;
. a three-story office building in Johnson County, Kansas leased to
Sprint Communications Company L.P.;
. a two-story research and development office and warehouse building in
Chester County, Pennsylvania leased to Johnson Matthey, Inc.;
. a two-story office building in Fort Myers, Florida leased to Gartner
Group, Inc.;
. a three-story office building in Troy, Michigan leased to Siemens
Automotive Corporation;
115
. a one-story office building and a connecting two-story office building
in Oklahoma City, Oklahoma leased to AT&T Corp. and Jordan Associates,
Inc.; and
. a three-story office building in Brentwood, Tennessee leased to
Comdata Network, Inc.
Certain financial information for Wells Fund XII is summarized below:
-----------------------------------------------------------
2001 2000 1999
-----------------------------------------------------------
Gross Revenues $1,661,194 $929,868 $160,379
-----------------------------------------------------------
Net Income $1,555,418 $856,228 $122,817
-----------------------------------------------------------
Wells Fund XIII began its offering on March 29, 2001. As of __________,
2002, Wells Fund XIII had received gross proceeds of $______________
representing subscriptions from __________ limited partners ($_____________ of
the gross proceeds were attributable to sales of cash preferred units and
$______________ were attributable to sales of tax preferred units). Wells Fund
XIII owns interests in the following properties:
. a two-story office building in Orange Park, Florida leased to
AmeriCredit Financial Services Corporation; and
. two connected one-story office and assembly buildings in Parker,
Colorado leased to Advanced Digital Information Corporation.
The information set forth above should not be considered indicative of
results to be expected from the Wells REIT.
The foregoing properties in which the above 14 limited partnerships have
invested have all been acquired on an all cash basis.
Leo F. Wells, III and Wells Partners, L.P. are the general partners of
Wells Fund IV, Wells Fund V, Wells Fund VI, Wells Fund VII, Wells Fund VIII,
Wells Fund IX, Wells Fund X, Wells Fund XI and Wells Fund XII. Wells Capital,
which is the general partner of Wells Partners, L.P., and Leo F. Wells, III are
the general partners of Wells Fund I, Wells Fund II, Wells Fund II-OW, Wells
Fund III and Wells Fund XIII.
Potential investors are encouraged to examine the Prior Performance Tables
included in the back of the prospectus for more detailed information regarding
the prior experience of Wells Capital and its affiliates. In addition, upon
request, prospective investors may obtain from us without charge copies of
offering materials and any reports prepared in connection with any of the Wells
programs, including a copy of the most recent Annual Report on Form 10-K filed
with the Securities and Exchange Commission. For a reasonable fee, we will also
furnish upon request copies of the exhibits to any such Form 10-K. Any such
request should be directed to our secretary. Additionally, Table VI contained in
Part II of the registration statement, which is not part of this prospectus,
gives certain additional information relating to properties acquired by the
Wells programs. We will furnish, without charge, copies of such table upon
request.
116
Federal Income Tax Considerations
General
The following is a summary of material federal income tax considerations
associated with an investment in the shares. This summary does not address all
possible tax considerations that may be material to an investor and does not
constitute tax advice. Moreover, this summary does not deal with all tax aspects
that might be relevant to you, as a prospective stockholder, in light of your
personal circumstances; nor does it deal with particular types of stockholders
that are subject to special treatment under the Internal Revenue Code, such as
insurance companies, tax-exempt organizations, financial institutions or
broker-dealers, or foreign corporations or persons who are not citizens or
residents of the United States (Non-US Stockholders). The Internal Revenue Code
provisions governing the federal income tax treatment of REITs are highly
technical and complex, and this summary is qualified in its entirety by the
express language of applicable Internal Revenue Code provisions, Treasury
Regulations promulgated thereunder and administrative and judicial
interpretations thereof.
We urge you, as a prospective investor, to consult your own tax advisor
regarding the specific tax consequences to you of a purchase of shares,
ownership and sale of the shares and of our election to be taxed as a REIT,
including the federal, state, local, foreign and other tax consequences of such
purchase, ownership, sale and election.
Opinion of Counsel
Holland & Knight LLP (Holland & Knight) has acted as our counsel, has
reviewed this summary and is of the opinion that it fairly summarizes the
federal income tax considerations addressed that are material to stockholders.
It is also the opinion of our counsel that it is more likely than not that we
qualified to be taxed as a REIT under the Internal Revenue Code for our taxable
year ended December 31, 2001, provided that we have operated and will continue
to operate in accordance with various assumptions and the factual
representations we made to counsel concerning our business, properties and
operations. We must emphasize that all opinions issued by Holland & Knight are
based on various assumptions and are conditioned upon the assumptions and
representations we made concerning our business and properties. Moreover, our
qualification for taxation as a REIT depends on our ability to meet the various
qualification tests imposed under the Internal Revenue Code discussed below, the
results of which will not be reviewed by Holland & Knight. Accordingly, we
cannot assure you that the actual results of our operations for any one taxable
year will satisfy these requirements. (See "Risk Factors - Failure to Qualify as
a REIT.")
The statements made in this section of the prospectus and in the opinion of
Holland & Knight are based upon existing law and Treasury Regulations, as
currently applicable, currently published administrative positions of the
Internal Revenue Service and judicial decisions, all of which are subject to
change, either prospectively or retroactively. We cannot assure you that any
changes will not modify the conclusions expressed in our counsel's opinion.
Moreover, an opinion of counsel is not binding on the Internal Revenue Service
and we cannot assure you that the Internal Revenue Service will not successfully
challenge our status as a REIT.
Taxation of the Company
If we qualify for taxation as a REIT, we generally will not be subject to
federal corporate income taxes on that portion of our ordinary income or capital
gain that we distribute currently to our stockholders, because the REIT
provisions of the Internal Revenue Code generally allow a REIT to deduct
distributions paid to its stockholders. This substantially eliminates the
federal "double taxation"
117
on earnings (taxation at both the corporate level and stockholder level) that
usually results from an investment in a corporation.
Even if we qualify for taxation as a REIT, however, we will be subject to
federal income taxation as follows:
. we will be taxed at regular corporate rates on our undistributed REIT
taxable income, including undistributed net capital gains;
. under some circumstances, we will be subject to "alternative minimum
tax";
. if we have net income from the sale or other disposition of
"foreclosure property" that is held primarily for sale to customers in
the ordinary course of business or other non-qualifying income from
foreclosure property, we will be subject to tax at the highest
corporate rate on that income;
. if we have net income from prohibited transactions (which are, in
general, sales or other dispositions of property other than
foreclosure property held primarily for sale to customers in the
ordinary course of business), the income will be subject to a 100%
tax;
. if we fail to satisfy either of the 75% or 95% gross income tests
(discussed below) but have nonetheless maintained our qualification as
a REIT because certain conditions have been met, we will be subject to
a 100% tax on an amount equal to the greater of the amount by which we
fail the 75% or 95% test multiplied by a fraction calculated to
reflect our profitability;
. if we fail to distribute during each year at least the sum of (1) 85%
of our REIT ordinary income for the year, (2) 95% of our REIT capital
gain net income for such year, and (3) any undistributed taxable
income from prior periods, we will be subject to a 4% excise tax on
the excess of the required distribution over the amounts actually
distributed; and
. if we acquire any asset from a C corporation (i.e., a corporation
generally subject to corporate-level tax) in a carryover-basis
transaction and we subsequently recognize gain on the disposition of
the asset during the 10-year period beginning on the date on which we
acquired the asset, then a portion of the gains may be subject to tax
at the highest regular corporate rate, pursuant to guidelines issued
by the Internal Revenue Service (Built-In-Gain Rules).
Requirements for Qualification as a REIT
We elected to be taxable as a REIT for our taxable year ended December 31,
1998. In order for us to qualify as a REIT, however, we had to meet and we must
continue to meet the requirements discussed below relating to our organization,
sources of income, nature of assets and distributions of income to our
stockholders.
Organizational Requirements
In order to qualify for taxation as a REIT under the Internal Revenue Code,
we must:
. be a domestic corporation;
118
. elect to be taxed as a REIT and satisfy relevant filing and other
administrative requirements;
. be managed by one or more trustees or directors;
. have transferable shares;
. not be a financial institution or an insurance company;
. use a calendar year for federal income tax purposes;
. have at least 100 stockholders for at least 335 days of each taxable
year of 12 months; and
. not be closely held.
As a Maryland corporation, we satisfy the first requirement, and we have
filed an election to be taxed as a REIT with the IRS. In addition, we are
managed by a board of directors, we have transferable shares and we do not
intend to operate as a financial institution or insurance company. We utilize
the calendar year for federal income tax purposes, and we have more than 100
stockholders. We would be treated as closely held only if five or fewer
individuals or certain tax-exempt entities own, directly or indirectly, more
than 50% (by value) of our shares at any time during the last half of our
taxable year. For purposes of the closely-held test, the Internal Revenue Code
generally permits a look-through for pension funds and certain other tax-exempt
entities to the beneficiaries of the entity to determine if the REIT is closely
held. Five or fewer individuals or tax-exempt entities have never owned more
than 50% of our outstanding shares during the last half of any taxable year.
We are authorized to refuse to transfer our shares to any person if the
sale or transfer would jeopardize our ability to satisfy the REIT ownership
requirements. There can be no assurance that a refusal to transfer will be
effective. However, based on the foregoing, we should currently satisfy the
organizational requirements, including the share ownership requirements.
Notwithstanding compliance with the share ownership requirements outlined above,
tax-exempt stockholders may be required to treat all or a portion of their
distributions from us as "unrelated business taxable income" if tax-exempt
stockholders, in the aggregate, exceed certain ownership thresholds set forth in
the Internal Revenue Code. (See "Taxation of Tax-Exempt Stockholders.")
Ownership of Interests in Partnerships and Qualified REIT Subsidiaries
In the case of a REIT that is a partner in a partnership, Treasury
Regulations provide that the REIT is deemed to own its proportionate share,
based on its interest in partnership capital, of the assets of the partnership
and is deemed to have earned its allocable share of partnership income. Also, if
a REIT owns a qualified REIT subsidiary, which is defined as a corporation
wholly-owned by a REIT, the REIT will be deemed to own all of the subsidiary's
assets and liabilities and it will be deemed to be entitled to treat the income
of that subsidiary as its own. In addition, the character of the assets and
gross income of the partnership or qualified REIT subsidiary shall retain the
same character in the hands of the REIT for purposes of satisfying the gross
income tests and asset tests set forth in the Internal Revenue Code.
119
Operational Requirements - Gross Income Tests
To maintain our qualification as a REIT, we must satisfy annually two gross
income requirements.
. At least 75% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived
directly or indirectly from investments relating to real property or
mortgages on real property. Gross income includes "rents from real
property" and, in some circumstances, interest, but excludes gross
income from dispositions of property held primarily for sale to
customers in the ordinary course of a trade or business. Such
dispositions are referred to as "prohibited transactions." This is the
75% Income Test.
. At least 95% of our gross income, excluding gross income from
prohibited transactions, for each taxable year must be derived from
the real property investments described above and from distributions,
interest and gains from the sale or disposition of stock or securities
or from any combination of the foregoing. This is the 95% Income Test.
. The rents we receive or that we are deemed to receive qualify as
"rents from real property" for purposes of satisfying the gross income
requirements for a REIT only if the following conditions are met:
. the amount of rent received from a tenant generally must not be
based in whole or in part on the income or profits of any person,
however, an amount received or accrued generally will not be
excluded from the term "rents from real property" solely by
reason of being based on a fixed percentage or percentages of
gross receipts or sales;
. rents received from a tenant will not qualify as "rents from real
property" if an owner of 10% or more of the REIT directly or
constructively owns 10% or more of the tenant (a "Related Party
Tenant") or a subtenant of the tenant (in which case only rent
attributable to the subtenant is disqualified);
. if rent attributable to personal property leased in connection
with a lease of real property is greater than 15% of the total
rent received under the lease, then the portion of rent
attributable to the personal property will not qualify as "rents
from real property"; and
. the REIT must not operate or manage the property or furnish or
render services to tenants, other than through an "independent
contractor" who is adequately compensated and from whom the REIT
does not derive any income. However, a REIT may provide services
with respect to its properties, and the income derived therefrom
will qualify as "rents from real property," if the services are
"usually or customarily rendered" in connection with the rental
of space only and are not otherwise considered "rendered to the
occupant." Even if the services with respect to a property are
impermissible tenant services, the income derived therefrom will
qualify as "rents from real property" if such income does not
exceed one percent of all amounts received or accrued with
respect to that property.
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Prior to the making of investments in properties, we may satisfy the 75%
Income Test and the 95% Income Test by investing in liquid assets such as
government securities or certificates of deposit, but earnings from those types
of assets are qualifying income under the 75% Income Test only for one year from
the receipt of proceeds. Accordingly, to the extent that offering proceeds have
not been invested in properties prior to the expiration of this one year period,
in order to satisfy the 75% Income Test, we may invest the offering proceeds in
less liquid investments such as mortgage-backed securities, maturing mortgage
loans purchased from mortgage lenders or shares in other REITs. We expect to
receive proceeds from the offering in a series of closings and to trace those
proceeds for purposes of determining the one year period for "new capital
investments." No rulings or regulations have been issued under the provisions of
the Internal Revenue Code governing "new capital investments," however, so that
there can be no assurance that the Internal Revenue Service will agree with this
method of calculation.
Except for amounts received with respect to certain investments of cash
reserves, we anticipate that substantially all of our gross income will be
derived from sources that will allow us to satisfy the income tests described
above; however, we can make no assurance in this regard.
Notwithstanding our failure to satisfy one or both of the 75% Income and
the 95% Income Tests for any taxable year, we may still qualify as a REIT for
that year if we are eligible for relief under specific provisions of the
Internal Revenue Code. These relief provisions generally will be available if:
. our failure to meet these tests was due to reasonable cause and not
due to willful neglect;
. we attach a schedule of our income sources to our federal income tax
return; and
. any incorrect information on the schedule is not due to fraud with
intent to evade tax.
It is not possible, however, to state whether, in all circumstances, we would be
entitled to the benefit of these relief provisions. For example, if we fail to
satisfy the gross income tests because nonqualifying income that we
intentionally earn exceeds the limits on this income, the Internal Revenue
Service could conclude that our failure to satisfy the tests was not due to
reasonable cause. As discussed above in "Taxation of the Company," even if these
relief provisions apply, a tax would be imposed with respect to the excess net
income.
Operational Requirements - Asset Tests
At the close of each quarter of our taxable year, we also must satisfy
three tests (Asset Tests) relating to the nature and diversification of our
assets.
. First, at least 75% of the value of our total assets must be
represented by real estate assets, cash, cash items and government
securities. The term "real estate assets" includes real property,
mortgages on real property, shares in other qualified REITs and a
proportionate share of any real estate assets owned by a partnership
in which we are a partner or of any qualified REIT subsidiary of ours.
. Second, no more than 25% of our total assets may be represented by
securities other than those in the 75% asset class.
. Third, of the investments included in the 25% asset class, the value
of any one issuer's securities that we own may not exceed 5% of the
value of our total assets. Additionally, we may not own more than 10%
of any one issuer's outstanding voting securities, or securities
having a value of more than 10% of the total value of the outstanding
securities of any one issuer.
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These tests must generally be met for any quarter in which we acquire
securities. Further, if we meet the Asset Tests at the close of any quarter, we
will not lose our REIT status for a failure to satisfy the Asset Tests at the
end of a later quarter if such failure occurs solely because of changes in asset
values. If our failure to satisfy the Asset Tests results from an acquisition of
securities or other property during a quarter, we can cure the failure by
disposing of a sufficient amount of nonqualifying assets within 30 days after
the close of that quarter. We maintain, and will continue to maintain, adequate
records of the value of our assets to ensure compliance with the Asset Tests and
will take other action within 30 days after the close of any quarter as may be
required to cure any noncompliance.
Operational Requirements - Annual Distribution Requirement
In order to be taxed as a REIT, we are required to make dividend
distributions, other than capital gain distributions, to our stockholders each
year in the amount of at least 90% of our REIT taxable income (computed without
regard to the dividends paid deduction and our capital gain and subject to
certain other potential adjustments).
While we must generally pay dividends in the taxable year to which they
relate, we may also pay dividends in the following taxable year if (1) they are
declared before we timely file our federal income tax return for the taxable
year in question, and if (2) they are paid on or before the first regular
dividend payment date after the declaration.
Even if we satisfy the foregoing dividend distribution requirement and,
accordingly, continue to qualify as a REIT for tax purposes, we will still be
subject to tax on the excess of our net capital gain and our REIT taxable
income, as adjusted, over the amount of dividends distributed to stockholders.
In addition, if we fail to distribute during each calendar year at least
the sum of:
. 85% of our ordinary income for that year;
. 95% of our capital gain net income other than the capital gain net
income which we elect to retain and pay tax on for that year; and
. any undistributed taxable income from prior periods;
we will be subject to a 4% excise tax on the excess of the amount of such
required distributions over amounts actually distributed during such year.
We intend to make timely distributions sufficient to satisfy this
requirement; however, we may possibly experience timing differences between (1)
the actual receipt of income and payment of deductible expenses, and (2) the
inclusion of that income. We may also possibly be allocated a share of net
capital gain attributable to the sale of depreciated property that exceeds our
allocable share of cash attributable to that sale.
In such circumstances, we may have less cash than is necessary to meet our
annual distribution requirement or to avoid income or excise taxation on certain
undistributed income. We may find it necessary in such circumstances to arrange
for financing or raise funds through the issuance of additional shares in order
to meet our distribution requirements, or we may make taxable stock
distributions to meet the distribution requirement.
If we fail to satisfy the distribution requirement for any taxable year by
reason of a later adjustment to our taxable income made by the Internal Revenue
Service, we may be able to pay
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"deficiency dividends" in a later year and include such distributions in our
deductions for dividends paid for the earlier year. In such event, we may be
able to avoid being taxed on amounts distributed as deficiency dividends, but we
would be required in such circumstances to pay interest to the Internal Revenue
Service based upon the amount of any deduction taken for deficiency dividends
for the earlier year.
As noted above, we may also elect to retain, rather than distribute, our
net long-term capital gains. The effect of such an election would be as follows:
. we would be required to pay the tax on these gains;
. stockholders, while required to include their proportionate share of
the undistributed long-term capital gains in income, would receive a
credit or refund for their share of the tax paid by the REIT; and
. the basis of a stockholder's shares would be increased by the amount
of our undistributed long-term capital gains (minus the amount of
capital gains tax we pay) included in the stockholder's long-term
capital gains.
In computing our REIT taxable income, we will use the accrual method of
accounting and depreciate depreciable property under the alternative
depreciation system. We are required to file an annual federal income tax
return, which, like other corporate returns, is subject to examination by the
Internal Revenue Service. Because the tax law requires us to make many judgments
regarding the proper treatment of a transaction or an item of income or
deduction, it is possible that the Internal Revenue Service will challenge
positions we take in computing our REIT taxable income and our distributions.
Issues could arise, for example, with respect to the allocation of the purchase
price of properties between depreciable or amortizable assets and nondepreciable
or non-amortizable assets such as land and the current deductibility of fees
paid to Wells Capital or its affiliates. Were the Internal Revenue Service to
successfully challenge our characterization of a transaction or determination of
our REIT taxable income, we could be found to have failed to satisfy a
requirement for qualification as a REIT. If, as a result of a challenge, we are
determined to have failed to satisfy the distribution requirements for a taxable
year, we would be disqualified as a REIT, unless we were permitted to pay a
deficiency distribution to our stockholders and pay interest thereon to the
Internal Revenue Service, as provided by the Internal Revenue Code. A deficiency
distribution cannot be used to satisfy the distribution requirement, however, if
the failure to meet the requirement is not due to a later adjustment to our
income by the Internal Revenue Service.
Operational Requirements - Recordkeeping
In order to continue to qualify as a REIT, we must maintain certain records
as set forth in applicable Treasury Regulations. Further, we must request, on an
annual basis, certain information designed to disclose the ownership of our
outstanding shares. We intend to comply with such requirements.
Failure to Qualify as a REIT
If we fail to qualify as a REIT for any reason in a taxable year and
applicable relief provisions do not apply, we will be subject to tax (including
any applicable alternative minimum tax) on our taxable income at regular
corporate rates. We will not be able to deduct dividends paid to our
stockholders in any year in which we fail to qualify as a REIT. We also will be
disqualified for the four taxable years following the year during which
qualification was lost unless we are entitled to relief under specific statutory
provisions. (See "Risk Factors - Federal Income Tax Risks.")
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Sale-Leaseback Transactions
Some of our investments may be in the form of sale-leaseback transactions.
In most instances, depending on the economic terms of the transaction, we will
be treated for federal income tax purposes as either the owner of the property
or the holder of a debt secured by the property. We do not expect to request an
opinion of counsel concerning the status of any leases of properties as true
leases for federal income tax purposes.
The Internal Revenue Service may take the position that a specific
sale-leaseback transaction, which we treat as a true lease, is not a true lease
for federal income tax purposes but is, instead, a financing arrangement or
loan. We may also structure some sale-leaseback transactions as loans. In this
event, for purposes of the Asset Tests and the 75% Income Test, each such loan
likely would be viewed as secured by real property to the extent of the fair
market value of the underlying property. We expect that, for this purpose, the
fair market value of the underlying property would be determined without taking
into account our lease. If a sale-leaseback transaction were so recharacterized,
we might fail to satisfy the Asset Tests or the Income Tests and, consequently,
lose our REIT status effective with the year of recharacterization.
Alternatively, the amount of our REIT taxable income could be recalculated which
might also cause us to fail to meet the distribution requirement for a taxable
year.
Taxation of U.S. Stockholders
Definition
In this section, the phrase "U.S. stockholder" means a holder of shares
that for federal income tax purposes:
. is a citizen or resident of the United States;
. is a corporation, partnership or other entity created or organized in
or under the laws of the United States or of any political subdivision
thereof;
. is an estate or trust, the income of which is subject to U.S. federal
income taxation regardless of its source; or
. a trust if a U.S. court is able to exercise primary supervision over
the administration of the trust and one or more U.S. persons have the
authority to control all substantial decisions of the trust.
For any taxable year for which we qualify for taxation as a REIT, amounts
distributed to taxable U.S. stockholders will be taxed as described below.
Distributions Generally
Distributions to U.S. stockholders, other than capital gain distributions
discussed below, will constitute dividends up to the amount of our current or
accumulated earnings and profits and will be taxable to the stockholders as
ordinary income. These distributions are not eligible for the dividends received
deduction generally available to corporations. To the extent that we make a
distribution in excess of our current or accumulated earnings and profits, the
distribution will be treated first as a tax-free return of capital, reducing the
tax basis in each U.S. stockholder's shares, and the amount of each distribution
in excess of a U.S. stockholder's tax basis in its shares will be taxable as
gain realized from the sale of its shares. Distributions that we declare in
October, November or December of any year payable to a stockholder of record on
a specified date in any of these months will be treated as both paid
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by us and received by the stockholder on December 31 of the year, provided that
we actually pay the distribution no later than January 31 of the following
calendar year. U.S. stockholders may not include any of our losses on their own
federal income tax returns.
We will be treated as having sufficient earnings and profits to treat as a
dividend any distribution by us up to the amount required to be distributed in
order to avoid imposition of the 4% excise tax discussed above. Moreover, any
"deficiency distribution" will be treated as an ordinary or capital gain
distribution, as the case may be, regardless of our earnings and profits. As a
result, stockholders may be required to treat as taxable some distributions that
would otherwise result in a tax-free return of capital.
Capital Gain Distributions
Distributions to U.S. stockholders that we properly designate as capital
gain distributions will be treated as long-term capital gains to the extent they
do not exceed our actual net capital gain, for the taxable year without regard
to the period for which the U.S. stockholder has held his stock.
Passive Activity Loss and Investment Interest Limitations
Our distributions and any gain you realize from a disposition of shares
will not be treated as passive activity income, and stockholders may not be able
to utilize any of their "passive losses" to offset this income on their personal
tax returns. Our distributions (to the extent they do not constitute a return of
capital) will generally be treated as investment income for purposes of the
limitations on the deduction of investment interest. Net capital gain from a
disposition of shares and capital gain distributions generally will be included
in investment income for purposes of the investment interest deduction
limitations only if, and to the extent, you so elect, in which case any such
capital gains will be taxed as ordinary income.
Certain Dispositions of the Shares
In general, any gain or loss realized upon a taxable disposition of shares
by a U.S. stockholder who is not a dealer in securities will be treated as
long-term capital gain or loss if the shares have been held for more than 12
months and as short-term capital gain or loss if the shares have been held for
12 months or less. If, however, a U.S. stockholder has received any capital
gains distributions with respect to his shares, any loss realized upon a taxable
disposition of shares held for six months or less, to the extent of the capital
gains distributions received with respect to his shares, will be treated as
long-term capital loss. Also, the Internal Revenue Service is authorized to
issue Treasury Regulations that would subject a portion of the capital gain a
U.S. stockholder recognizes from selling his shares or from a capital gain
distribution to a tax at a 25% rate, to the extent the capital gain is
attributable to depreciation previously deducted.
Information Reporting Requirements and Backup Withholding for U.S.
Stockholders
Under some circumstances, U.S. stockholders may be subject to backup
withholding at a rate of 31% on payments made with respect to, or cash proceeds
of a sale or exchange of, our shares. Backup withholding will apply only if the
stockholder:
. fails to furnish his or her taxpayer identification number (which, for
an individual, would be his or her Social Security Number);
. furnishes an incorrect tax identification number;
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. is notified by the Internal Revenue Service that he or she has failed
properly to report payments of interest and distributions or is
otherwise subject to backup withholding; or
. under some circumstances, fails to certify, under penalties of
perjury, that he or she has furnished a correct tax identification
number and that (a) he or she has not been notified by the Internal
Revenue Service that he or she is subject to backup withholding for
failure to report interest and distribution payments or (b) he or she
has been notified by the Internal Revenue Service that he or she is no
longer subject to backup withholding.
Backup withholding will not apply with respect to payments made to some
stockholders, such as corporations and tax-exempt organizations. Backup
withholding is not an additional tax. Rather, the amount of any backup
withholding with respect to a payment to a U.S. stockholder will be allowed as a
credit against the U.S. stockholder's U.S. federal income tax liability and may
entitle the U.S. stockholder to a refund, provided that the required information
is furnished to the Internal Revenue Service. U.S. stockholders should consult
their own tax advisors regarding their qualifications for exemption from backup
withholding and the procedure for obtaining an exemption.
Treatment of Tax-Exempt Stockholders
Tax-exempt entities such as employee pension benefit trusts, individual
retirement accounts, charitable remainder trusts, etc. generally are exempt from
federal income taxation. Such entities are subject to taxation, however, on any
"unrelated business taxable income" (UBTI), as defined in the Internal Revenue
Code. Our payment of dividends to a tax-exempt employee pension benefit trust or
other domestic tax-exempt stockholder generally will not constitute UBTI to such
stockholder unless such stockholder has borrowed to acquire or carry its shares.
In the event that we are deemed to be "predominately held" by qualified
employee pension benefit trusts that each hold more than 10% (in value) of our
shares, such trusts would be required to treat a percentage of the dividend
distributions paid to them as UBTI. We would be deemed to be "predominately
held" by such trusts if either (1) one employee pension benefit trust owns more
than 25% in value of our shares, or (2) any group of such trusts, each owning
more than 10% in value of our shares, holds in the aggregate more than 50% in
value of our shares. If either of these ownership thresholds were ever exceeded,
any qualified employee pension benefit trust holding more than 10% in value of
our shares would be subject to tax on that portion of our dividend distributions
made to it which is equal to the percentage of our income which would be UBTI if
we, ourselves, were a qualified trust, rather than a REIT. We will attempt to
monitor the concentration of ownership of employee pension benefit trusts in our
shares, and we do not expect our shares to be deemed to be "predominately held"
by qualified employee pension benefit trusts, as defined in the Internal Revenue
Code, to the extent required to trigger the treatment of our income as UBTI to
such trusts.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
federal income taxation under Sections 501(c)(7), (c)(9), (c)(17) and (c)(20) of
the Internal Revenue Code, respectively, income from an investment in our shares
will constitute UBTI unless the stockholder in question is able to deduct
amounts "set aside" or placed in reserve for certain purposes so as to offset
the UBTI generated. Any such organization that is a prospective investor in our
shares should consult its own tax advisor concerning these "set aside" and
reserve requirements.
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Special Tax Considerations for Non-U.S. Stockholders
The rules governing U.S. income taxation of non-resident alien individuals,
foreign corporations, foreign partnerships and foreign trusts and estates
(collectively, "Non-U.S. stockholders") are complex. The following discussion is
intended only as a summary of these rules. Non-U.S. stockholders should consult
with their own tax advisors to determine the impact of federal, state and local
income tax laws on an investment in our shares, including any reporting
requirements.
Income Effectively Connected With a U.S. Trade or Business
In general, Non-U.S. stockholders will be subject to regular U.S. federal
income taxation with respect to their investment in our shares if the income
derived therefrom is "effectively connected" with the Non-U.S. stockholder's
conduct of a trade or business in the United States. A corporate Non-U.S.
stockholder that receives income that is (or is treated as) effectively
connected with a U.S. trade or business also may be subject to a branch profits
tax under Section 884 of the Internal Revenue Code, which is payable in addition
to the regular U.S. federal corporate income tax.
The following discussion will apply to Non-U.S. stockholders whose income
derived from ownership of our shares is deemed to be not "effectively connected"
with a U.S. trade or business.
Distributions Not Attributable to Gain From the Sale or Exchange of a
United States Real Property Interest
A distribution to a Non-U.S. stockholder that is not attributable to gain
realized by us from the sale or exchange of a United States real property
interest and that we do not designate as a capital gain distribution will be
treated as an ordinary income distribution to the extent that it is made out of
current or accumulated earnings and profits. Generally, any ordinary income
distribution will be subject to a U.S. federal income tax equal to 30% of the
gross amount of the distribution unless this tax is reduced by the provisions of
an applicable tax treaty. Any such distribution in excess of our earnings and
profits will be treated first as a return of capital that will reduce each
Non-U.S. stockholder's basis in its shares (but not below zero) and then as gain
from the disposition of those shares, the tax treatment of which is described
under the rules discussed below with respect to dispositions of shares.
Distributions Attributable to Gain From the Sale or Exchange of a United
States Real Property Interest
Distributions to a Non-U.S. stockholder that are attributable to gain from
the sale or exchange of a United States real property interest will be taxed to
a Non-U.S. stockholder under Internal Revenue Code provisions enacted by the
Foreign Investment in Real Property Tax Act of 1980 (FIRPTA). Under FIRPTA, such
distributions are taxed to a Non-U.S. stockholder as if the distributions were
gains "effectively connected" with a U.S. trade or business. Accordingly, a
Non-U.S. stockholder will be taxed at the normal capital gain rates applicable
to a U.S. stockholder (subject to any applicable alternative minimum tax and a
special alternative minimum tax in the case of non-resident alien individuals).
Distributions subject to FIRPTA also may be subject to a 30% branch profits tax
when made to a corporate Non-U.S. stockholder that is not entitled to a treaty
exemption.
Withholding Obligations With Respect to Distributions to Non-U.S.
Stockholders
Although tax treaties may reduce our withholding obligations, based on
current law, we will generally be required to withhold from distributions to
Non-U.S. stockholders, and remit to the Internal Revenue Service:
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. 35% of designated capital gain distributions or, if greater, 35% of
the amount of any distributions that could be designated as capital
gain distributions; and
. 30% of ordinary income distributions (i.e., dividends paid out of our
earnings and profits).
In addition, if we designate prior distributions as capital gain distributions,
subsequent distributions, up to the amount of the prior distributions, will be
treated as capital gain distributions for purposes of withholding. A
distribution in excess of our earnings and profits will be subject to 30%
withholding if at the time of the distribution it cannot be determined whether
the distribution will be in an amount in excess of our current or accumulated
earnings and profits. If the amount of tax we withhold with respect to a
distribution to a Non-U.S. stockholder exceeds the stockholder's U.S. tax
liability with respect to that distribution, the Non-U.S. stockholder may file a
claim with the Internal Revenue Service for a refund of the excess.
Sale of Our Shares by a Non-U.S. Stockholder
A sale of our shares by a Non-U.S. stockholder will generally not be
subject to U.S. federal income taxation unless our shares constitute a "United
States real property interest" within the meaning of FIRPTA. Our shares will not
constitute a United States real property interest if we are a "domestically
controlled REIT." A "domestically controlled REIT" is a REIT that at all times
during a specified testing period has less than 50% in value of its shares held
directly or indirectly by Non-U.S. stockholders. We currently anticipate that we
will be a domestically controlled REIT. Therefore, sales of our shares should
not be subject to taxation under FIRPTA. However, we cannot assure you that we
will continue to be a domestically controlled REIT. If we were not a
domestically controlled REIT, whether a Non-U.S. stockholder's sale of our
shares would be subject to tax under FIRPTA as a sale of a United States real
property interest would depend on whether our shares were "regularly traded" on
an established securities market and on the size of the selling stockholder's
interest in us. Our shares currently are not "regularly traded" on an
established securities market.
If the gain on the sale of shares were subject to taxation under FIRPTA, a
Non-U.S. stockholder would be subject to the same treatment as a U.S.
stockholder with respect to the gain, subject to any applicable alternative
minimum tax and a special alternative minimum tax in the case of non-resident
alien individuals. In addition, distributions that are treated as gain from the
disposition of shares and are subject to tax under FIRPTA also may be subject to
a 30% branch profits tax when made to a corporate Non-U.S. stockholder that is
not entitled to a treaty exemption. Under FIRPTA, the purchaser of our shares
may be required to withhold 10% of the purchase price and remit this amount to
the Internal Revenue Service.
Even if not subject to FIRPTA, capital gains will be taxable to a Non-U.S.
stockholder if the Non-U.S. stockholder is a non-resident alien individual who
is present in the United States for 183 days or more during the taxable year and
some other conditions apply, in which case the non-resident alien individual
will be subject to a 30% tax on his or her U.S. source capital gains.
Recently promulgated Treasury Regulations may alter the procedures for
claiming the benefits of an income tax treaty. Our Non-U.S. stockholders should
consult their tax advisors concerning the effect, if any, of these Treasury
Regulations on an investment in our shares.
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Information Reporting Requirements and Backup Withholding for Non-U.S.
Stockholders
Additional issues may arise for information reporting and backup
withholding for Non-U.S. stockholders. Non-U.S. stockholders should consult
their tax advisors with regard to U.S. information reporting and backup
withholding requirements under the Internal Revenue Code.
Statement of Stock Ownership
We are required to demand annual written statements from the record holders
of designated percentages of our shares disclosing the actual owners of the
shares. Any record stockholder who, upon our request, does not provide us with
required information concerning actual ownership of the shares is required to
include specified information relating to his or her shares in his or her
federal income tax return. We also must maintain, within the Internal Revenue
District in which we are required to file our federal income tax return,
permanent records showing the information we have received about the actual
ownership of shares and a list of those persons failing or refusing to comply
with our demand.
State and Local Taxation
We and any operating subsidiaries we may form may be subject to state and
local tax in states and localities in which we or they do business or own
property. The tax treatment of the Wells REIT, Wells OP, any operating
subsidiaries we may form and the holders of our shares in local jurisdictions
may differ from the federal income tax treatment described above.
Tax Aspects of Our Operating Partnership
The following discussion summarizes certain federal income tax
considerations applicable to our investment in Wells OP, our operating
partnership. The discussion does not cover state or local tax laws or any
federal tax laws other than income tax laws.
Classification as a Partnership
We will be entitled to include in our income a distributive share of Wells
OP's income and to deduct our distributive share of Wells OP's losses only if
Wells OP is classified for federal income tax purposes as a partnership, rather
than as an association taxable as a corporation. Under applicable Treasury
Regulations (Check-the-Box-Regulations), an unincorporated U.S. entity with at
least two members may elect to be classified either as an association taxable as
a corporation or as a partnership. If such an entity fails to make an election,
it generally will be treated as a partnership for federal income tax purposes.
Wells OP intends to be classified as a partnership for federal income tax
purposes and will not elect to be treated as an association taxable as a
corporation under the Check-the-Box-Regulations.
Even though Wells OP will be treated as a partnership for federal income
tax purposes, since it will not elect to be taxable as a corporation under the
Check-the-Box Regulations, it could still be taxed as a corporation if it were
deemed to be a "publicly traded partnership." A publicly traded partnership is a
partnership whose interests are traded on an established securities market or
are readily tradable on a secondary market (or the substantial equivalent
thereof); provided, that even if the foregoing requirements are met, a publicly
traded partnership will not be treated as a corporation for federal income tax
purposes if at least 90% of such partnership's gross income for a taxable year
consists of "qualifying income" under Section 7704(d) of the Internal Revenue
Code. Qualifying income generally includes any income that is qualifying income
for purposes of the 95% Income Test applicable to REITs (90% Passive-Type Income
Exception). (See "Requirements for Qualification as a REIT - Operational
Requirements - Gross Income Tests.")
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Under applicable Treasury Regulations (PTP Regulations), limited safe
harbors from the definition of a publicly traded partnership are provided.
Pursuant to one of those safe harbors (Private Placement Exclusion), interests
in a partnership will not be treated as readily tradable on a secondary market
or the substantial equivalent thereof if (1) all interests in the partnership
were issued in a transaction (or transactions) that was not required to be
registered under the Securities Act of 1933, as amended, and (2) the partnership
does not have more than 100 partners at any time during the partnership's
taxable year. In determining the number of partners in a partnership, a person
owning an interest in a flow-through entity (such as a partnership, grantor
trust or S corporation) that owns an interest in the partnership is treated as a
partner in such partnership only if (a) substantially all of the value of the
owner's interest in the flow-through is attributable to the flow-through
entity's interest (direct or indirect) in the partnership, and (b) a principal
purpose of the use of the flow-through entity is to permit the partnership to
satisfy the 100 partner limitation. Wells OP qualifies for the Private Placement
Exclusion. Further, even if Wells OP were to be considered a publicly traded
partnership under the PTP Regulations because it is deemed to have more than 100
partners, Wells OP should not be treated as a corporation because it should be
eligible for the 90% Passive-Type Income Exception described above.
We have not requested, and do not intend to request, a ruling from the
Internal Revenue Service that Wells OP will be classified as a partnership for
federal income tax purposes. Holland & Knight is of the opinion, however, that
based on certain factual assumptions and representations, Wells OP will more
likely than not be treated for federal income tax purposes as a partnership and
not as an association taxable as a corporation, or as a publicly traded
partnership. Unlike a tax ruling, however, an opinion of counsel is not binding
upon the Internal Revenue Service, and no assurance can be given that the
Internal Revenue Service will not challenge the status of Wells OP as a
partnership for federal income tax purposes. If such challenge were sustained by
a court, Wells OP would be treated as a corporation for federal income tax
purposes, as described below. In addition, the opinion of Holland & Knight is
based on existing law, which is to a great extent the result of administrative
and judicial interpretation. No assurance can be given that administrative or
judicial changes would not modify the conclusions expressed in the opinion.
If for any reason Wells OP were taxable as a corporation, rather than a
partnership, for federal income tax purposes, we would not be able to qualify as
a REIT. (See "Federal Income Tax Considerations - Requirements for Qualification
as a REIT - Operational Requirements - Gross Income Tests" and "Requirements for
Qualification as a REIT - Operational Requirements - Asset Tests.") In addition,
any change in Wells OP's status for tax purposes might be treated as a taxable
event, in which case we might incur a tax liability without any related cash
distribution. Further, items of income and deduction of Wells OP would not pass
through to its partners, and its partners would be treated as stockholders for
tax purposes. Consequently, Wells OP would be required to pay income tax at
corporate tax rates on its net income, and distributions to its partners would
constitute dividends that would not be deductible in computing Wells OP's
taxable income.
Income Taxation of the Operating Partnership and its Partners
Partners, Not a Partnership, Subject to Tax. A partnership is not a taxable
entity for federal income tax purposes. As a partner in Wells OP, we will be
required to take into account our allocable share of Wells OP's income, gains,
losses, deductions, and credits for any taxable year of Wells OP ending within
or with our taxable year, without regard to whether we have received or will
receive any distribution from Wells OP.
Partnership Allocations. Although a partnership agreement generally
determines the allocation of income and losses among partners, such allocations
will be disregarded for tax purposes if they do not comply with the provisions
of Section 704(b) of the Internal Revenue Code and the Treasury Regulations
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promulgated thereunder. If an allocation is not recognized for federal income
tax purposes, the item subject to the allocation will be reallocated in
accordance with the partners' interests in the partnership, which will be
determined by taking into account all of the facts and circumstances relating to
the economic arrangement of the partners with respect to such item. Wells OP's
allocations of taxable income and loss are intended to comply with the
requirements of Section 704(b) of the Internal Revenue Code and the Treasury
Regulations promulgated thereunder.
Tax Allocations With Respect to Contributed Properties. Pursuant to Section
704(c) of the Internal Revenue Code, income, gain, loss, and deduction
attributable to appreciated or depreciated property that is contributed to a
partnership in exchange for an interest in the partnership must be allocated for
federal income tax purposes in a manner such that the contributor is charged
with, or benefits from, the unrealized gain or unrealized loss associated with
the property at the time of the contribution. The amount of such unrealized gain
or unrealized loss is generally equal to the difference between the fair market
value of the contributed property at the time of contribution and the adjusted
tax basis of such property at the time of contribution. Under applicable
Treasury Regulations, partnerships are required to use a "reasonable method" for
allocating items subject to Section 704(c) of the Internal Revenue Code and
several reasonable allocation methods are described therein.
Under the partnership agreement for Wells OP, depreciation or amortization
deductions of Wells OP generally will be allocated among the partners in
accordance with their respective interests in Wells OP, except to the extent
that Wells OP is required under Section 704(c) to use a method for allocating
depreciation deductions attributable to its properties that results in us
receiving a disproportionately large share of such deductions. We may possibly
be allocated (1) lower amounts of depreciation deductions for tax purposes with
respect to contributed properties than would be allocated to us if each such
property were to have a tax basis equal to its fair market value at the time of
contribution, and (2) taxable gain in the event of a sale of such contributed
properties in excess of the economic profit allocated to us as a result of such
sale. These allocations may cause us to recognize taxable income in excess of
cash proceeds received by us, which might adversely affect our ability to comply
with the REIT distribution requirements, although we do not anticipate that this
event will occur. The foregoing principles also will affect the calculation of
our earnings and profits for purposes of determining which portion of our
distributions is taxable as a dividend. The allocations described in this
paragraph may result in a higher portion of our distributions being taxed as a
dividend than would have occurred had we purchased such properties for cash.
Basis in Operating Partnership Interest. The adjusted tax basis of our
partnership interest in Wells OP generally is equal to (1) the amount of cash
and the basis of any other property contributed to Wells OP by us, (2) increased
by (A) our allocable share of Wells OP's income and (B) our allocable share of
the indebtedness of Wells OP, and (3) reduced, but not below zero, by (A) our
allocable share of Wells OP's loss and (B) the amount of cash distributed to us,
including constructive cash distributions resulting from a reduction in our
share of the indebtedness of Wells OP.
If the allocation of our distributive share of Wells OP's losses would
reduce the adjusted tax basis of our partnership interest in Wells OP below
zero, the recognition of such losses will be deferred until such time as the
recognition of such losses would not reduce our adjusted tax basis below zero.
If a distribution from Wells OP or a reduction in our share of Wells OP's
liabilities (which is treated as a constructive distribution for tax purposes)
would reduce our adjusted tax basis below zero, any such distribution, including
a constructive distribution, would cause us to recognize taxable income equal to
the amount of such distribution in excess of our adjusted tax basis. The gain
realized by us upon the receipt of any such distribution or constructive
distribution would normally be characterized as capital gain, and if our
partnership interest in Wells OP has been held for longer than the long-term
capital gain holding period (currently one year), the distribution would
constitute long-term capital gain.
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Depreciation Deductions Available to the Operating Partnership. Wells OP
will use a portion of contributions made by the Wells REIT from offering
proceeds to acquire interests in properties. Wells OP's initial basis in such
properties for federal income tax purposes generally will be equal to the
purchase price paid by Wells OP. Wells OP plans to depreciate each such
depreciable property for federal income tax purposes under the alternative
depreciation system of depreciation (ADS). Under ADS, Wells OP generally will
depreciate buildings and improvements over a 40-year recovery period using a
straight-line method and a mid-month convention and will depreciate furnishings
and equipment over a 12-year recovery period. To the extent that Wells OP
acquires properties in exchange for units of Wells OP, Wells OP's initial basis
in each such property for federal income tax purposes should be the same as the
transferor's basis in that property on the date of acquisition by Wells OP.
Although the law is not entirely clear, Wells OP generally intends to depreciate
such depreciable property for federal income tax purposes over the same
remaining useful lives and under the same methods used by the transferors of
such properties.
Sale of the Operating Partnership's Property
Generally, any gain realized by Wells OP on the sale of property held for
more than one year will be long-term capital gain, except for any portion of
such gain that is treated as depreciation or cost recovery recapture. Any gain
recognized by Wells OP upon the disposition of a property will be allocated
among the partners in accordance with their respective percentage interests in
Wells OP.
Our share of any gain realized by Wells OP on the sale of any property held
by Wells OP as inventory or other property held primarily for sale to customers
in the ordinary course of Wells OP's trade or business will be treated as income
from a prohibited transaction that is subject to a 100% penalty tax. Such
prohibited transaction income also may have an adverse effect upon our ability
to satisfy the Income Tests for maintaining our REIT status. (See "Federal
Income Tax Considerations - Requirements for Qualification as a REIT - Gross
Income Tests" above.) We, however, do not presently intend to acquire or hold or
allow Wells OP to acquire or hold any property that represents inventory or
other property held primarily for sale to customers in the ordinary course of
our or Wells OP's trade or business.
ERISA Considerations
The following is a summary of some non-tax considerations associated with
an investment in our shares by a qualified employee pension benefit plan or an
individual retirement account (IRA). This summary is based on provisions of the
Employee Retirement Income Security Act of 1974, as amended (ERISA), and the
Internal Revenue Code, as amended through the date of this prospectus, and
relevant regulations and opinions issued by the Department of Labor and the
Internal Revenue Service. We cannot assure you that there will not be adverse
tax decisions or legislative, regulatory or administrative changes which would
significantly modify the statements expressed herein. Any such changes may or
may not apply to transactions entered into prior to the date of their enactment.
Each fiduciary of an employee pension benefit plan subject to ERISA, such
as a profit sharing, section 401(k) or pension plan, or of any other retirement
plan or account subject to Section 4975 of the Internal Revenue Code, such as an
IRA (Benefit Plans), seeking to invest plan assets in our shares must, taking
into account the facts and circumstances of such Benefit Plan, consider, among
other matters:
. whether the investment is consistent with the applicable provisions of
ERISA and the Internal Revenue Code;
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. whether, under the facts and circumstances appertaining to the Benefit
Plan in question, the fiduciary's responsibility to the plan has been
satisfied;
. whether the investment will produce UBTI to the Benefit Plan (see
"Federal Income Tax Considerations - Treatment of Tax-Exempt
Stockholders"); and
. the need to value the assets of the Benefit Plan annually.
Under ERISA, a plan fiduciary's responsibilities include the following
duties:
. to act solely in the interest of plan participants and beneficiaries
and for the exclusive purpose of providing benefits to them, as well
as defraying reasonable expenses of plan administration;
. to invest plan assets prudently;
. to diversify the investments of the plan unless it is clearly prudent
not to do so;
. to ensure sufficient liquidity for the plan; and
. to consider whether an investment would constitute or give rise to a
prohibited transaction under ERISA or the Internal Revenue Code.
ERISA also requires that the assets of an employee benefit plan be held in trust
and that the trustee, or a duly authorized named fiduciary or investment
manager, have exclusive authority and discretion to manage and control the
assets of the plan.
Prohibited Transactions
Section 406 of ERISA and Section 4975 of the Internal Revenue Code prohibit
specified transactions involving the assets of a Benefit Plan which are between
the plan and any "party in interest" or "disqualified person" with respect to
that Benefit Plan. These transactions are prohibited regardless of how
beneficial they may be for the Benefit Plan. Prohibited transactions include the
sale, exchange or leasing of property, and the lending of money or the extension
of credit, between a Benefit Plan and a party in interest or disqualified
person. The transfer to, or use by or for the benefit of, a party in interest,
or disqualified person of any assets of a Benefit Plan is also prohibited. A
fiduciary of a Benefit Plan also is prohibited from engaging in self-dealing,
acting for a person who has an interest adverse to the plan or receiving any
consideration for its own account from a party dealing with the plan in a
transaction involving plan assets. Furthermore, Section 408 of the Internal
Revenue Code states that assets of an IRA trust may not be commingled with other
property except in a common trust fund or common investment fund.
Plan Asset Considerations
In order to determine whether an investment in our shares by Benefit Plans
creates or gives rise to the potential for either prohibited transactions or a
commingling of assets as referred to above, a fiduciary must consider whether an
investment in our shares will cause our assets to be treated as assets of the
investing Benefit Plans. Neither ERISA nor the Internal Revenue Code define the
term "plan assets," however, U.S. Department of Labor Regulations provide
guidelines as to whether, and under what circumstances, the underlying assets of
an entity will be deemed to constitute assets of a Benefit Plan when the plan
invests in that entity (Plan Assets Regulation). Under the Plan Assets
Regulation, the
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assets of corporations, partnerships or other entities in which a Benefit Plan
makes an equity investment will generally be deemed to be assets of the Benefit
Plan unless the entity satisfies one of the exceptions to this general rule. As
discussed below, we have received an opinion of counsel that, based on the Plan
Assets Regulation, our underlying assets should not be deemed to be "plan
assets" of Benefit Plans investing in shares, assuming the conditions set forth
in the opinion are satisfied, based upon the fact that at least one of the
specific exemptions set forth in the Plan Assets Regulation is satisfied, as
determined under the criteria set forth below.
Specifically, the Plan Assets Regulation provides that the underlying
assets of REITs will not be treated as assets of a Benefit Plan investing
therein if the interest the Benefit Plan acquires is a "publicly-offered
security." A publicly-offered security must be:
. sold as part of a public offering registered under the Securities Act
of 1933, as amended, and be part of a class of securities registered
under the Securities Exchange Act of 1934, as amended, within a
specified time period;
. part of a class of securities that is owned by 100 or more persons who
are independent of the issuer and one another; and
. "freely transferable."
Our shares are being sold as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act,
and are part of a class registered under the Securities Exchange Act. In
addition, we have well in excess of 100 independent stockholders. Thus, both the
first and second criterion of the publicly-offered security exception will be
satisfied.
Whether a security is "freely transferable" depends upon the particular
facts and circumstances. For example, our shares are subject to certain
restrictions on transferability intended to ensure that we continue to qualify
for federal income tax treatment as a REIT. The regulation provides, however,
that where the minimum investment in a public offering of securities is $10,000
or less, the presence of a restriction on transferability intended to prohibit
transfers which would result in a termination or reclassification of the entity
for state or federal tax purposes will not ordinarily affect a determination
that such securities are "freely transferable." The minimum investment in our
shares is less than $10,000; thus, the restrictions imposed in order to maintain
our status as a REIT should not cause the shares to be deemed not "freely
transferable. "
In the event that our underlying assets were treated by the Department of
Labor as the assets of investing Benefit Plans, our management would be treated
as fiduciaries with respect to each Benefit Plan stockholder, and an investment
in our shares might constitute an ineffective delegation of fiduciary
responsibility to Wells Capital, our advisor, and expose the fiduciary of the
Benefit Plan to co-fiduciary liability under ERISA for any breach by Wells
Capital of the fiduciary duties mandated under ERISA. Further, if our assets are
deemed to be "plan assets," an investment by an IRA in our shares might be
deemed to result in an impermissible commingling of IRA assets with other
property.
If Wells Capital, our advisor, or its affiliates were treated as
fiduciaries with respect to Benefit Plan stockholders, the prohibited
transaction restrictions of ERISA and the Internal Revenue Code would apply to
any transaction involving our assets. These restrictions could, for example,
require that we avoid transactions with entities that are affiliated with us or
our affiliates or restructure our activities in order to obtain an
administrative exemption from the prohibited transaction restrictions.
Alternatively, we might have to provide Benefit Plan stockholders with the
opportunity to sell their shares to us or we might dissolve or terminate.
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If a prohibited transaction were to occur, the Internal Revenue Code
imposes an excise tax equal to 15% of the amount involved and authorizes the IRS
to impose an additional 100% excise tax if the prohibited transaction is not
"corrected" in a timely manner. These taxes would be imposed on any disqualified
person who participates in the prohibited transaction. In addition, Wells
Capital and possibly other fiduciaries of Benefit Plan stockholders subject to
ERISA who permitted the prohibited transaction to occur or who otherwise
breached their fiduciary responsibilities, or a non-fiduciary participating in a
prohibited transaction, could be required to restore to the Benefit Plan any
profits they realized as a result of the transaction or breach, and make good to
the Benefit Plan any losses incurred by the Benefit Plan as a result of the
transaction or breach. With respect to an IRA that invests in our shares, the
occurrence of a prohibited transaction involving the individual who established
the IRA, or his or her beneficiary, would cause the IRA to lose its tax-exempt
status under Section 408(e)(2) of the Internal Revenue Code.
We have obtained an opinion from Holland & Knight that it is more likely
than not that our shares will be deemed to constitute "publicly-offered
securities" and, accordingly, it is more likely than not that our underlying
assets should not be considered "plan assets" under the Plan Assets Regulation,
assuming the offering takes place as described in this prospectus. If our
underlying assets are not deemed to be "plan assets," the problems discussed in
the immediately preceding three paragraphs are not expected to arise.
Other Prohibited Transactions
Regardless of whether the shares qualify for the "publicly-offered
security" exception of the Plan Assets Regulation, a prohibited transaction
could occur if the Wells REIT, Wells Capital, any selected dealer or any of
their affiliates is a fiduciary (within the meaning of Section 3(21) of ERISA)
with respect to any Benefit Plan purchasing the shares. Accordingly, unless an
administrative or statutory exemption applies, shares should not be purchased by
a Benefit Plan with respect to which any of the above persons is a fiduciary. A
person is a fiduciary with respect to a Benefit Plan under Section 3(21) of
ERISA if, among other things, the person has discretionary authority or control
with respect to "plan assets" or provides investment advice for a fee with
respect to "plan assets." Under a regulation issued by the Department of Labor,
a person shall be deemed to be providing investment advice if that person
renders advice as to the advisability of investing in our shares and that person
regularly provides investment advice to the Benefit Plan pursuant to a mutual
agreement or understanding (written or otherwise) (1) that the advice will serve
as the primary basis for investment decisions, and (2) that the advice will be
individualized for the Benefit Plan based on its particular needs.
Annual Valuation
A fiduciary of an employee benefit plan subject to ERISA is required to
determine annually the fair market value of each asset of the plan as of the end
of the plan's fiscal year and to file a report reflecting that value with the
Department of Labor. When the fair market value of any particular asset is not
available, the fiduciary is required to make a good faith determination of that
asset's fair market value assuming an orderly liquidation at the time the
determination is made. In addition, a trustee or custodian of an IRA must
provide an IRA participant with a statement of the value of the IRA each year.
In discharging its obligation to value assets of a plan, a fiduciary subject to
ERISA must act consistently with the relevant provisions of the plan and the
general fiduciary standards of ERISA.
Unless and until our shares are listed on a national securities exchange or
are included for quotation on NASDAQ, it is not expected that a public market
for the shares will develop. To date, neither the Internal Revenue Service nor
the Department of Labor has promulgated regulations specifying how a plan
fiduciary should determine the fair market value of the shares, namely when the
fair market value of the shares is not determined in the marketplace. Therefore,
to assist fiduciaries in fulfilling their
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valuation and annual reporting responsibilities with respect to ownership of
shares, we intend to have our advisor prepare annual reports of the estimated
value of our shares. The methodology to be utilized for determining such
estimated share values will be for our advisor to estimate the amount a
stockholder would receive if our properties were sold at their estimated fair
market values at the end of the fiscal year and the proceeds therefrom (without
reduction for selling expenses) were distributed to the stockholders in
liquidation. Due to the inordinate expense involved in obtaining annual
appraisals for all of our properties, no actual appraisals will be obtained;
however, in connection with the advisor's estimated valuations, the advisor will
obtain a third party opinion that its estimates of value are reasonable. We will
provide our reports to plan fiduciaries and IRA trustees and custodians who
identify themselves to us and request this information.
Until December 31, 2002, we intend to use the offering price of shares as
the per share net asset value. Beginning with the year 2003, we will have our
advisor prepare estimated valuations utilizing the methodology described above.
You should be cautioned, however, that such valuations will be estimates only
and will be based upon a number of assumptions that may not be accurate or
complete. As set forth above, we will not obtain appraisals for our properties
and, accordingly, the advisor's estimates should not be viewed as an accurate
reflection of the fair market value of our properties, nor will they represent
the amount of net proceeds that would result from an immediate sale of our
properties. In addition, property values are subject to change and can always
decline in the future. For these reasons, our estimated valuations should not be
utilized for any purpose other than to assist plan fiduciaries in fulfilling
their valuation and annual reporting responsibilities. Further, we cannot assure
you:
. that the estimated values we obtain could or will actually be realized
by us or by our stockholders upon liquidation (in part because
estimated values do not necessarily indicate the price at which assets
could be sold and because no attempt will be made to estimate the
expenses of selling any of our assets);
. that our stockholders could realize these values if they were to
attempt to sell their shares; or
. that the estimated values, or the method used to establish values,
would comply with the ERISA or IRA requirements described above.
Description of Shares
The following description of the shares is not complete but is a summary of
portions of our articles of incorporation and is qualified in its entirety by
reference to our articles of incorporation.
Under our articles of incorporation, we have authority to issue a total of
500,000,000 shares of capital stock. Of the total shares authorized, 350,000,000
shares are designated as common stock with a par value of $0.01 per share,
50,000,000 shares are designated as preferred stock with a par value of $0.01
per share and 100,000,000 shares are designated as shares-in-trust, which would
be issued only in the event we have purchases in excess of the ownership limits
described below.
As of ____________, 2002, approximately ______________ shares of our common
stock were issued and outstanding, and no shares of preferred stock or
shares-in-trust were issued and outstanding.
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Common Stock
The holders of common stock are entitled to one vote per share on all
matters voted on by stockholders, including election of our directors. Our
articles of incorporation do not provide for cumulative voting in the election
of our directors. Therefore, the holders of a majority of the outstanding common
shares can elect our entire board of directors. Subject to any preferential
rights of any outstanding series of preferred stock, the holders of common stock
are entitled to such dividends as may be declared from time to time by our board
of directors out of legally available funds and, upon liquidation, are entitled
to receive all assets available for distribution to our stockholders. All shares
issued in the offering will be fully paid and non-assessable shares of common
stock. Holders of shares of common stock will not have preemptive rights, which
means that you will not have an automatic option to purchase any new shares that
we issue.
We will not issue certificates for our shares. Shares will be held in
"uncertificated" form which will eliminate the physical handling and safekeeping
responsibilities inherent in owning transferable stock certificates and
eliminate the need to return a duly executed stock certificate to effect a
transfer. Wells Capital, our advisor, acts as our registrar and as the transfer
agent for our shares. Transfers can be effected simply by mailing to Wells
Capital a transfer and assignment form, which we will provide to you at no
charge.
Preferred Stock
Our articles of incorporation authorize our board of directors to designate
and issue one or more classes or series of preferred stock without stockholder
approval. Our board of directors may determine the relative rights, preferences
and privileges of each class or series of preferred stock so issued, which may
be more beneficial than the rights, preferences and privileges attributable to
the common stock. The issuance of preferred stock could have the effect of
delaying or preventing a change in control of the Wells REIT. Our board of
directors has no present plans to issue preferred stock, but may do so at any
time in the future without stockholder approval.
Meetings and Special Voting Requirements
An annual meeting of the stockholders will be held each year, at least 30
days after delivery of our annual report. Special meetings of stockholders may
be called only upon the request of a majority of our directors, a majority of
the independent directors, the chairman, the president or upon the written
request of stockholders holding at least 10% of the shares. The presence of a
majority of the outstanding shares either in person or by proxy shall constitute
a quorum. Generally, the affirmative vote of a majority of all votes entitled to
be cast is necessary to take stockholder action authorized by our articles of
incorporation, except that a majority of the votes represented in person or by
proxy at a meeting at which a quorum is present is sufficient to elect a
director.
Under Maryland Corporation Law and our articles of incorporation,
stockholders are entitled to vote at a duly held meeting at which a quorum is
present on (1) amendments of our articles of incorporation, (2) a liquidation or
dissolution of the Wells REIT, (3) a reorganization of the Wells REIT, (4) a
merger, consolidation or sale or other disposition of substantially all of our
assets, and (5) a termination of our status as a REIT. Accordingly, any
provision in our articles of incorporation, including our investment objectives,
can be amended by the vote of a majority of our stockholders. Stockholders
voting against any merger or sale of assets are permitted under Maryland
Corporation Law to petition a court for the appraisal and payment of the fair
value of their shares. In an appraisal proceeding, the court appoints appraisers
who attempt to determine the fair value of the stock as of the date of the
stockholder vote on the merger or sale of assets. After considering the
appraisers' report, the court makes the final
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determination of the fair value to be paid to the dissenting stockholder and
decides whether to award interest from the date of the merger or sale of assets
and costs of the proceeding to the dissenting stockholders.
Wells Capital, as our advisor, is selected and approved annually by our
directors. While the stockholders do not have the ability to vote to replace
Wells Capital or to select a new advisor, stockholders do have the ability, by
the affirmative vote of a majority of the shares entitled to vote on such
matter, to elect to remove a director from our board.
Stockholders are entitled to receive a copy of our stockholder list upon
request. The list provided by us will include each stockholder's name, address
and telephone number, if available, and number of shares owned by each
stockholder and will be sent within 10 days of the receipt by us of the request.
A stockholder requesting a list will be required to pay reasonable costs of
postage and duplication. We have the right to request that a requesting
stockholder represent to us that the list will not be used to pursue commercial
interests.
In addition to the foregoing, stockholders have rights under Rule 14a-7
under the Securities Exchange Act, which provides that, upon the request of
investors and the payment of the expenses of the distribution, we are required
to distribute specific materials to stockholders in the context of the
solicitation of proxies for voting on matters presented to stockholders or, at
our option, provide requesting stockholders with a copy of the list of
stockholders so that the requesting stockholders may make the distribution of
proxies themselves.
Restriction on Ownership of Shares
In order for us to qualify as a REIT, not more than 50% of our outstanding
shares may be owned by any five or fewer individuals, including some tax-exempt
entities. In addition, the outstanding shares must be owned by 100 or more
persons independent of us and each other during at least 335 days of a 12-month
taxable year or during a proportionate part of a shorter taxable year. We may
prohibit certain acquisitions and transfers of shares so as to ensure our
continued qualification as a REIT under the Internal Revenue Code. However, we
cannot assure you that this prohibition will be effective.
In order to assist us in preserving our status as a REIT, our articles of
incorporation contain a limitation on ownership that prohibits any person or
group of persons from acquiring, directly or indirectly, beneficial ownership of
more than 9.8% of our outstanding shares. Our articles of incorporation provide
that any transfer of shares that would violate our share ownership limitations
is null and void and the intended transferee will acquire no rights in such
shares, unless the transfer is approved by our board of directors based upon
receipt of information that such transfer would not violate the provisions of
the Internal Revenue Code for qualification as a REIT.
Shares in excess of the ownership limit which are attempted to be
transferred will be designated as "shares-in-trust" and will be transferred
automatically to a trust effective on the day before the reported transfer of
such shares. The record holder of the shares that are designated as
shares-in-trust will be required to submit such number of shares to the Wells
REIT in the name of the trustee of the trust. We will designate a trustee of the
share trust that will not be affiliated with us. We will also name one or more
charitable organizations as a beneficiary of the share trust. Shares-in-trust
will remain issued and outstanding shares and will be entitled to the same
rights and privileges as all other shares of the same class or series. The
trustee will receive all dividends and distributions on the shares-in-trust and
will hold such dividends or distributions in trust for the benefit of the
beneficiary. The trustee will vote all shares-in-trust during the period they
are held in trust.
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At our direction, the trustee will transfer the shares-in-trust to a person
whose ownership will not violate the ownership limits. The transfer shall be
made within 20 days of our receipt of notice that shares have been transferred
to the trust. During this 20-day period, we will have the option of redeeming
such shares. Upon any such transfer or redemption, the purported transferee or
holder shall receive a per share price equal to the lesser of (1) the price per
share in the transaction that created such shares-in-trust, or (2) the market
price per share on the date of the transfer or redemption.
Any person who (1) acquires shares in violation of the foregoing
restriction or who owns shares that were transferred to any such trust is
required to give immediate written notice to the Wells REIT of such event, or
(2) transfers or receives shares subject to such limitations is required to give
the Wells REIT 15 days written notice prior to such transaction. In both cases,
such persons shall provide to the Wells REIT such other information as we may
request in order to determine the effect, if any, of such transfer on our status
as a REIT.
The foregoing restrictions will continue to apply until (1) our board of
directors determines it is no longer in our best interest to continue to qualify
as a REIT, and (2) there is an affirmative vote of the majority of shares
entitled to vote on such matter at a regular or special meeting of our
stockholders.
The ownership limit does not apply to an offeror which, in accordance with
applicable federal and state securities laws, makes a cash tender offer, where
at least 85% of the outstanding shares are duly tendered and accepted pursuant
to the cash tender offer. The ownership limit also does not apply to the
underwriter in a public offering of shares or to a person or persons so exempted
from the ownership limit by our board of directors based upon appropriate
assurances that our qualification as a REIT is not jeopardized.
Any person who owns 5% or more of the outstanding shares during any taxable
year will be asked to deliver a statement or affidavit setting forth the number
of shares beneficially owned, directly or indirectly.
Dividends
Dividends will be paid on a quarterly basis regardless of the frequency
with which such dividends are declared. Dividends will be paid to investors who
are stockholders as of the record dates selected by our directors. We currently
calculate our quarterly dividends based upon daily record and dividend
declaration dates so our investors will be entitled to be paid dividends
immediately upon their purchase of shares. We then make quarterly dividend
payments following the end of each calendar quarter.
We are required to make distributions sufficient to satisfy the
requirements for qualification as a REIT for tax purposes. Generally, income
distributed as dividends will not be taxable to us under the Internal Revenue
Code if we distribute at least 90% of our taxable income. (See "Federal Income
Tax Considerations - Requirements for Qualification as a REIT.")
Dividends will be declared at the discretion of our board of directors, in
accordance with our earnings, cash flow and general financial condition. Our
board's discretion will be directed, in substantial part, by its obligation to
cause us to comply with the REIT requirements. Because we may receive income
from interest or rents at various times during our fiscal year, dividends may
not reflect our income earned in that particular distribution period but may be
made in anticipation of cash flow which we expect to receive during a later
quarter and may be made in advance of actual receipt of funds in an attempt to
make dividends relatively uniform. We may borrow money, issue new securities or
sell assets in order to make dividend distributions.
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We are not prohibited from distributing our own securities in lieu of
making cash dividends to stockholders, provided that the securities so
distributed to stockholders are readily marketable. Stockholders who receive
marketable securities in lieu of cash dividends may incur transaction expenses
in liquidating the securities.
Dividend Reinvestment Plan
We currently have a dividend reinvestment plan available that allows you to
have your dividends otherwise distributable to you invested in additional shares
of the Wells REIT.
You may purchase shares under our dividend reinvestment plan for $10 per
share until all of the shares registered as part of this offering have been
sold. After this time, we may purchase shares either through purchases on the
open market, if a market then exists, or through an additional issuance of
shares. In any case, the price per share will be equal to the then-prevailing
market price, which shall equal the price on the securities exchange or
over-the-counter market on which such shares are listed at the date of purchase
if such shares are then listed. A copy of our Amended and Restated Dividend
Reinvestment Plan as currently in effect is included as Exhibit B to this
prospectus.
You may elect to participate in the dividend reinvestment plan by
completing the Subscription Agreement, the enrollment form or by other written
notice to the plan administrator. Participation in the plan will begin with the
next distribution made after receipt of your written notice. We may terminate
the dividend reinvestment plan for any reason at any time upon 10 days' prior
written notice to participants. Your participation in the plan will also be
terminated to the extent that a reinvestment of your dividends in our shares
would cause the percentage ownership limitation contained in our articles of
incorporation to be exceeded. In addition, you may terminate your participation
in the dividend reinvestment plan at any time by providing us with written
notice.
If you elect to participate in the dividend reinvestment plan and are
subject to federal income taxation, you will incur a tax liability for dividends
allocated to you even though you have elected not to receive the dividends in
cash but rather to have the dividends withheld and reinvested pursuant to the
dividend reinvestment plan. Specifically, you will be treated as if you have
received the dividend from us in cash and then applied such dividend to the
purchase of additional shares. You will be taxed on the amount of such dividend
as ordinary income to the extent such dividend is from current or accumulated
earnings and profits, unless we have designated all or a portion of the dividend
as a capital gain dividend.
Share Redemption Program
Prior to the time that our shares are listed on a national securities
exchange, stockholders of the Wells REIT who have held their shares for at least
one year may receive the benefit of limited interim liquidity by presenting for
redemption all or any portion of their shares to us at any time in accordance
with the procedures outlined herein. At that time, we may, subject to the
conditions and limitations described below, redeem the shares presented for
redemption for cash to the extent that we have sufficient funds available to us
to fund such redemption.
If you have held your shares for the required one-year period, you may
redeem your shares for a purchase price equal to the lesser of (1) $10 per
share, or (2) the purchase price per share that you actually paid for your
shares of the Wells REIT. In the event that you are redeeming all of your
shares, shares purchased pursuant to our dividend reinvestment plan may be
excluded from the foregoing one-year holding period requirement, in the
discretion of our board of directors. In addition, for purposes of the one-year
holding period, limited partners of Wells OP who exchange their limited
partnership units for shares in the Wells REIT shall be deemed to have owned
their shares as of the date they were issued their
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limited partnership units in Wells OP. Our board of directors reserves the right
in its sole discretion at any time and from time to time to (1) change the
purchase price for redemptions, or (2) otherwise amend the terms of our share
redemption program. In addition, our board of directors has delegated to our
officers the right to (1) waive the one-year holding period in the event of the
death or bankruptcy of a stockholder or other exigent circumstances, or (2)
reject any request for redemption at any time and for any reason.
Redemption of shares, when requested, will be made quarterly on a
first-come, first-served basis. Subject to funds being available, we will limit
the number of shares redeemed pursuant to our share redemption program as
follows: (1) during any calendar year, we will not redeem in excess of 3.0% of
the weighted average number of shares outstanding during the prior calendar
year; and (2) funding for the redemption of shares will come exclusively from
the proceeds we receive from the sale of shares under our dividend reinvestment
plan such that in no event shall the aggregate amount of redemptions under our
share redemption program exceed aggregate proceeds received from the sale of
shares pursuant to our dividend reinvestment plan. The board of directors, in
its sole discretion, may choose to terminate the share redemption program or to
reduce the number of shares purchased under the share redemption program if it
determines the funds otherwise available to fund our share redemption program
are needed for other purposes. (See "Risk Factors - Investment Risks.")
We cannot guarantee that the funds set aside for our share redemption
program will be sufficient to accommodate all requests made in any year. If we
do not have such funds available, at the time when redemption is requested, you
can (1) withdraw your request for redemption, or (2) ask that we honor your
request at such time, if any, when sufficient funds become available. Such
pending requests will be honored on a first-come, first-served basis.
Our share redemption program is only intended to provide interim liquidity
for stockholders until a secondary market develops for the shares. No such
market presently exists, and we cannot assure you that any market for your
shares will ever develop.
The shares we redeem under our share redemption program will be cancelled,
and will be held as treasury stock. We will not resell such shares to the public
unless they are first registered with the Securities and Exchange Commission
(Commission) under the Securities Act of 1933 and under appropriate state
securities laws or otherwise sold in compliance with such laws.
Restrictions on Roll-Up Transactions
In connection with any proposed transaction considered a "Roll-up
Transaction" involving the Wells REIT and the issuance of securities of an
entity (a Roll-up Entity) that would be created or would survive after the
successful completion of the Roll-up Transaction, an appraisal of all properties
shall be obtained from a competent independent appraiser. The properties shall
be appraised on a consistent basis, and the appraisal shall be based on the
evaluation of all relevant information and shall indicate the value of the
properties as of a date immediately prior to the announcement of the proposed
Roll-up Transaction. The appraisal shall assume an orderly liquidation of
properties over a 12-month period. The terms of the engagement of the
independent appraiser shall clearly state that the engagement is for our benefit
and the stockholders. A summary of the appraisal, indicating all material
assumptions underlying the appraisal, shall be included in a report to
stockholders in connection with any proposed Roll-up Transaction.
A "Roll-up Transaction" is a transaction involving the acquisition, merger,
conversion or consolidation, directly or indirectly, of the Wells REIT and the
issuance of securities of a Roll-up Entity. This term does not include:
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. a transaction involving our securities that have been for at least 12
months listed on a national securities exchange or included for
quotation on NASDAQ; or
. a transaction involving the conversion to corporate, trust, or
association form of only the Wells REIT if, as a consequence of the
transaction, there will be no significant adverse change in any of the
following: stockholder voting rights; the term of our existence;
compensation to Wells Capital; or our investment objectives.
In connection with a proposed Roll-up Transaction, the person sponsoring
the Roll-up Transaction must offer to stockholders who vote "no" on the proposal
the choice of:
(1) accepting the securities of a Roll-up Entity offered in the proposed
Roll-up Transaction; or
(2) one of the following:
(A) remaining as stockholders of the Wells REIT and preserving their
interests therein on the same terms and conditions as existed
previously, or
(B) receiving cash in an amount equal to the stockholder's pro rata
share of the appraised value of our net assets.
We are prohibited from participating in any proposed Roll-up Transaction:
. that would result in the stockholders having democracy rights in a
Roll-up Entity that are less than those provided in our bylaws and
described elsewhere in this prospectus, including rights with respect
to the election and removal of directors, annual reports, annual and
special meetings, amendment of our articles of incorporation, and
dissolution of the Wells REIT;
. that includes provisions that would operate to materially impede or
frustrate the accumulation of shares by any purchaser of the
securities of the Roll-up Entity, except to the minimum extent
necessary to preserve the tax status of the Roll-up Entity, or which
would limit the ability of an investor to exercise the voting rights
of its securities of the Roll-up Entity on the basis of the number of
shares held by that investor;
. in which investor's rights to access of records of the Roll-up Entity
will be less than those provided in the section of this prospectus
entitled "Description of Shares - Meetings and Special Voting
Requirements;" or
. in which any of the costs of the Roll-up Transaction would be borne by
us if the Roll-up Transaction is not approved by the stockholders.
Business Combinations
Maryland Corporation Law prohibits certain business combinations between a
Maryland corporation and an interested stockholder or the interested
stockholder's affiliate for five years after the most recent date on which the
stockholder becomes an interested stockholder. These provisions of the Maryland
Corporation Law will not apply, however, to business combinations that are
approved or exempted by the board of directors of the corporation prior to the
time that the interested stockholder becomes an interested stockholder. As
permitted by Maryland Corporation Law, we have provided in our
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articles of incorporation that the business combination provisions of Maryland
Corporation Law will not apply to transactions involving the Wells REIT.
Control Share Acquisitions
Maryland Corporation Law provides that control shares of a Maryland
corporation acquired in a control share acquisition have no voting rights except
to the extent approved by a vote of two-thirds of the votes entitled to be cast
on the matter. Shares owned by the acquiror, or by officers or directors who are
employees of the corporation are not entitled to vote on the matter. As
permitted by Maryland Corporation Law, we have provided in our articles of
incorporation that the control share provisions of Maryland Corporation Law will
not apply to transactions involving the Wells REIT.
The Operating Partnership Agreement
General
Wells Operating Partnership, L.P. (Wells OP) was formed in January 1998 to
acquire, own and operate properties on our behalf. It is considered to be an
Umbrella Partnership Real Estate Investment Trust (UPREIT), which structure is
utilized generally to provide for the acquisition of real property from owners
who desire to defer taxable gain otherwise to be recognized by them upon the
disposition of their property. Such owners may also desire to achieve diversity
in their investment and other benefits afforded to owners of stock in a REIT.
For purposes of satisfying the Asset and Income Tests for qualification as a
REIT for tax purposes, the REIT's proportionate share of the assets and income
of an UPREIT, such as Wells OP, will be deemed to be assets and income of the
REIT.
The property owner's goals are accomplished because a property owner may
contribute property to an UPREIT in exchange for limited partnership units on a
tax-deferred basis. Further, Wells OP is structured to make distributions with
respect to limited partnership units which will be equivalent to the dividend
distributions made to stockholders of the Wells REIT. Finally, a limited partner
in Wells OP may later exchange his limited partnership units in Wells OP for
shares of the Wells REIT (in a taxable transaction) and, if our shares are then
listed, achieve liquidity for his investment.
Substantially all of our assets are held by Wells OP, and we intend to make
future acquisitions of real properties using the UPREIT structure. The Wells
REIT is the sole general partner of Wells OP and, as of ______________, 2002,
owned an approximately 99.___% equity percentage interest in Wells OP. Wells
Capital, our advisor, has contributed $200,000 to Wells OP and is currently the
only limited partner owning the other approximately 0.___% equity percentage
interest in Wells OP. As the sole general partner of Wells OP, we have the
exclusive power to manage and conduct the business of Wells OP.
The following is a summary of certain provisions of the partnership
agreement of Wells OP. This summary is not complete and is qualified by the
specific language in the partnership agreement. You should refer to the
partnership agreement, itself, which we have filed as an exhibit to the
registration statement, for more detail.
Capital Contributions
As we accept subscriptions for shares, we will transfer substantially all
of the net proceeds of the offering to Wells OP as a capital contribution;
however, we will be deemed to have made capital contributions in the amount of
the gross offering proceeds received from investors. Wells OP will be deemed to
have simultaneously paid the selling commissions and other costs associated with
the offering. If Wells OP requires additional funds at any time in excess of
capital contributions made by us and Wells
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Capital or from borrowing, we may borrow funds from a financial institution or
other lender and lend such funds to Wells OP on the same terms and conditions as
are applicable to our borrowing of such funds. In addition, we are authorized to
cause Wells OP to issue partnership interests for less than fair market value if
we conclude in good faith that such issuance is in the best interest of Wells OP
and the Wells REIT.
Operations
The partnership agreement requires that Wells OP be operated in a manner
that will enable the Wells REIT to (1) satisfy the requirements for being
classified as a REIT for tax purposes, (2) avoid any federal income or excise
tax liability, and (3) ensure that Wells OP will not be classified as a
"publicly traded partnership" for purposes of Section 7704 of the Internal
Revenue Code, which classification could result in Wells OP being taxed as a
corporation, rather than as a partnership. (See "Federal Income Tax
Considerations - Tax Aspects of the Operating Partnership - Classification as a
Partnership.")
The partnership agreement provides that Wells OP will distribute cash flow
from operations to the limited partners of Wells OP in accordance with their
relative percentage interests on at least a quarterly basis in amounts
determined by the Wells REIT as general partner such that a holder of one unit
of limited partnership interest in Wells OP will receive the same amount of
annual cash flow distributions from Wells OP as the amount of annual dividends
paid to the holder of one of our shares. Remaining cash from operations will be
distributed to the Wells REIT as the general partner to enable us to make
dividend distributions to our stockholders.
Similarly, the partnership agreement of Wells OP provides that taxable
income is allocated to the limited partners of Wells OP in accordance with their
relative percentage interests such that a holder of one unit of limited
partnership interest in Wells OP will be allocated taxable income for each
taxable year in an amount equal to the amount of taxable income to be recognized
by a holder of one of our shares, subject to compliance with the provisions of
Sections 704(b) and 704(c) of the Internal Revenue Code and corresponding
Treasury Regulations. Losses, if any, will generally be allocated among the
partners in accordance with their respective percentage interests in Wells OP.
Upon the liquidation of Wells OP, after payment of debts and obligations,
any remaining assets of Wells OP will be distributed to partners with positive
capital accounts in accordance with their respective positive capital account
balances. If the Wells REIT were to have a negative balance in its capital
account following a liquidation, it would be obligated to contribute cash to
Wells OP equal to such negative balance for distribution to other partners, if
any, having positive balances in their capital accounts.
In addition to the administrative and operating costs and expenses incurred
by Wells OP in acquiring and operating real properties, Wells OP will pay all
administrative costs and expenses of the Wells REIT and such expenses will be
treated as expenses of Wells OP. Such expenses will include:
. all expenses relating to the formation and continuity of existence of
the Wells REIT;
. all expenses relating to the public offering and registration of
securities by the Wells REIT;
. all expenses associated with the preparation and filing of any
periodic reports by the Wells REIT under federal, state or local laws
or regulations;
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. all expenses associated with compliance by the Wells REIT with
applicable laws, rules and regulations; and
. all other operating or administrative costs of the Wells REIT incurred
in the ordinary course of its business on behalf of Wells OP.
Exchange Rights
The limited partners of Wells OP, including Wells Capital, have the right
to cause Wells OP to redeem their limited partnership units for cash equal to
the value of an equivalent number of our shares, or, at our option, we may
purchase their limited partnership units by issuing one share of the Wells REIT
for each limited partnership unit redeemed. These exchange rights may not be
exercised, however, if and to the extent that the delivery of shares upon such
exercise would (1) result in any person owning shares in excess of our ownership
limits, (2) result in shares being owned by fewer than 100 persons, (3) result
in the Wells REIT being "closely held" within the meaning of Section 856(h) of
the Internal Revenue Code, (4) cause the Wells REIT to own 10% or more of the
ownership interests in a tenant within the meaning of Section 856(d)(2)(B) of
the Internal Revenue Code, or (5) cause the acquisition of shares by a redeemed
limited partner to be "integrated" with any other distribution of our shares for
purposes of complying with the Securities Act of 1933.
Subject to the foregoing, limited partners may exercise their exchange
rights at any time after one year following the date of issuance of their
limited partnership units; provided, however, that a limited partner may not
deliver more than two exchange notices each calendar year and may not exercise
an exchange right for less than 1,000 limited partnership units, unless such
limited partner holds less than 1,000 units, in which case, he must exercise his
exchange right for all of his units.
Transferability of Interests
The Wells REIT may not (1) voluntarily withdraw as the general partner of
Wells OP, (2) engage in any merger, consolidation or other business combination,
or (3) transfer its general partnership interest in Wells OP (except to a
wholly-owned subsidiary), unless the transaction in which such withdrawal,
business combination or transfer occurs results in the limited partners
receiving or having the right to receive an amount of cash, securities or other
property equal in value to the amount they would have received if they had
exercised their exchange rights immediately prior to such transaction or unless,
in the case of a merger or other business combination, the successor entity
contributes substantially all of its assets to Wells OP in return for an
interest in Wells OP and agrees to assume all obligations of the general partner
of Wells OP. The Wells REIT may also enter into a business combination or we may
transfer our general partnership interest upon the receipt of the consent of a
majority-in-interest of the limited partners of Wells OP, other than Wells
Capital. With certain exceptions, the limited partners may not transfer their
interests in Wells OP, in whole or in part, without the written consent of the
Wells REIT as general partner. In addition, Wells Capital may not transfer its
interest in Wells OP as long as it is acting as the advisor to the Wells REIT,
except pursuant to the exercise of its right to exchange limited partnership
units for Wells REIT shares, in which case similar restrictions on transfer will
apply to the REIT shares received by Wells Capital.
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Plan of Distribution
General
We are offering a maximum of 300,000,000 shares to the public through Wells
Investment Securities, our Dealer Manager, a registered broker-dealer affiliated
with Wells Capital, our advisor. (See "Conflicts of Interest.") The shares are
being offered at a price of $10.00 per share on a "best efforts" basis, which
means generally that the Dealer Manager will be required to use only its best
efforts to sell the shares and it has no firm commitment or obligation to
purchase any of the shares. We are also offering 30,000,000 shares for sale
pursuant to our dividend reinvestment plan at a price of $10.00 per share. We
reserve the right in the future to reallocate additional shares to our dividend
reinvestment plan out of our public offering shares. An additional 6,600,000
shares are reserved for issuance upon exercise of soliciting dealer warrants,
which are granted to participating broker-dealers based upon the number of
shares they sell. Therefore, a total of 336,600,000 shares are being registered
in this offering.
The offering of shares will terminate on or before _______________, 2004.
However, we reserve the right to terminate this offering at any time prior to
such termination date.
Underwriting Compensation and Terms
Except as provided below, the Dealer Manager will receive selling
commissions of 7.0% of the gross offering proceeds. The Dealer Manager will also
receive 2.5% of the gross offering proceeds in the form of a dealer manager fee
as compensation for acting as the Dealer Manager and for expenses incurred in
connection with marketing our shares and paying the employment costs of the
Dealer Manager's wholesalers. Out of its dealer manager fee, the Dealer Manager
may pay salaries and commissions to its wholesalers of up to 1.0% of gross
offering proceeds. We will not pay referral or similar fees to any accountants,
attorneys or other persons in connection with the distribution of the shares.
Stockholders who elect to participate in the dividend reinvestment plan will be
charged selling commissions and dealer manager fees on shares purchased pursuant
to the dividend reinvestment plan on the same basis as stockholders purchasing
shares other than pursuant to the dividend reinvestment plan.
The Dealer Manager may authorize certain other broker-dealers who are
members of the NASD (Participating Dealers) to sell our shares. In the event of
the sale of shares by such Participating Dealers, the Dealer Manager may reallow
its commissions in the amount of up to 7.0% of the gross offering proceeds to
such Participating Dealers. In addition, the Dealer Manager may reallow a
portion of its dealer manager fee to Participating Dealers in the aggregate
amount of up to 1.5% of gross offering proceeds to be paid to such Participating
Dealers as marketing fees, based upon such factors as the volume of sales of
such Participating Dealer, the level of marketing support provided by such
Participating Dealer and the assistance of such Participating Dealer in
marketing the offering, or to reimburse representatives of such Participating
Dealers the costs and expenses of attending our educational conferences and
seminars. In addition, unless otherwise agreed with the Dealer Manager,
Participating Dealers will be reimbursed for bona fide due diligence expenses,
not to exceed 0.5% of gross offering proceeds in the aggregate.
We will also award to the Dealer Manager one soliciting dealer warrant for
every 50 shares sold to the public or issued to stockholders pursuant to our
dividend reinvestment plan during the offering period. The Dealer Manager
intends to reallow these warrants to Participating Dealers by awarding one
soliciting dealer warrant for every 50 shares sold during the offering period,
unless such issuance of soliciting dealer warrants is prohibited by either
federal or state securities laws. The holder of a soliciting dealer warrant will
be entitled to purchase one share from the Wells REIT at a price of $12 per
share during the period beginning on the first anniversary of the effective date
of this offering and ending five years after the effective date of this
offering. Subject to certain exceptions, a soliciting dealer warrant may not be
transferred, assigned, pledged or hypothecated for a period of one year
following the
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effective date of this offering. The shares issuable upon exercise of the
soliciting dealer warrants are being registered as part of this offering. For
the life of the soliciting dealer warrants, Participating Dealers are given the
opportunity to profit from a rise in the market price for the common stock
without assuming the risk of ownership, with a resulting dilution in the
interest of other stockholders upon exercise of such warrants. In addition,
holders of the soliciting dealer warrants would be expected to exercise such
warrants at a time when we could obtain needed capital by offering new
securities on terms more favorable than those provided by the soliciting dealer
warrants. Exercise of the soliciting dealer warrants is governed by the terms
and conditions detailed in this prospectus and in the Warrant Purchase
Agreement, which is an exhibit to the registration statement.
In no event shall the total aggregate underwriting compensation, including
sales commissions, the dealer manager fee and underwriting expense
reimbursements, exceed 9.5% of gross offering proceeds in the aggregate, except
for the soliciting dealer warrants described above and bona fide due diligence
expenses not to exceed 0.5% of gross offering proceeds in the aggregate.
We have agreed to indemnify the Participating Dealers, including the Dealer
Manager, against certain liabilities arising under the Securities Act of 1933,
as amended.
The Participating Dealers are not obligated to obtain any subscriptions on
our behalf, and we cannot assure you that any shares will be sold.
Our executive officers and directors, as well as officers and employees of
Wells Capital or other affiliates, may purchase shares in this offering at a
discount. The purchase price for such shares shall be $8.90 per share reflecting
the fact that the acquisition and advisory fees relating to such shares will be
reduced by $0.15 per share (from $0.30 per share to $0.15 per share), and that
selling commissions in the amount of $0.70 per share and dealer manager fees in
the amount of $0.25 per share will not be payable in connection with such sales.
The net offering proceeds we receive will not be affected by such sales of
shares at a discount. Wells Capital and its affiliates shall be expected to hold
their shares purchased as stockholders for investment and not with a view
towards distribution. In addition, shares purchased by Wells Capital or its
affiliates shall not be entitled to vote on any matter presented to the
stockholders for a vote.
We may sell shares to retirement plans of Participating Dealers, to
Participating Dealers in their individual capacities, to IRAs and qualified
plans of their registered representatives or to any one of their registered
representatives in their individual capacities for 93% of the public offering
price in consideration of the services rendered by such broker-dealers and
registered representatives in the offering. The net proceeds to the Wells REIT
from such sales will be identical to net proceeds we receive from other sales of
shares.
In connection with sales of certain minimum numbers of shares to a
"purchaser," as defined below, certain volume discounts resulting in reductions
in selling commissions payable with respect to such sales are available to
investors. In such event, any such reduction will be credited to the investor by
reducing the purchase price per share payable by the investor. The following
table illustrates the various discount levels available:
Commissions on Sales per Incremental
Share in Volume Discount Range
Purchase Price per
Number of Incremental Share in Percentage
Shares Purchased Volume Discount Range (based on $10 per share) Amount
----------------- --------------------- ------------------------ -------
1 to 50,000 $10.00 7.0% $ 0.70
50,001 to 100,000 $ 9.80 5.0% $ 0.50
100,001 and Over $ 9.60 3.0% $ 0.30
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For example, if an investor purchases 200,000 shares he would pay (1)
$500,000 for the first 50,000 shares ($10.00 per share), (2) $490,000 for the
next 50,000 shares ($9.80 per share), and (3) $960,000 for the remaining 100,000
shares ($9.60 per share). Accordingly, he could pay as little as $1,950,000
($9.75 per share) rather than $2,000,000 for the shares, in which event the
commission on the sale of such shares would be $90,000 ($0.45 per share) and,
after payment of the dealer manager fee of $50,000 ($0.25 per share), we would
receive net proceeds of $1,810,000 ($9.05 per share). The net proceeds to the
Wells REIT will not be affected by volume discounts.
Because all investors will be paid the same dividends per share as other
investors, an investor qualifying for a volume discount will receive a higher
percentage return on his investment than investors who do not qualify for such
discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," as that term is
defined below, provided all such shares are purchased through the same
broker-dealer. The volume discount shall be prorated among the separate
subscribers considered to be a single "purchaser." Any request to combine more
than one subscription must be made in writing submitted simultaneously with your
subscription for shares, and must set forth the basis for such request. Any such
request will be subject to verification by the Dealer Manager that all of such
subscriptions were made by a single "purchaser."
For the purposes of such volume discounts, the term "purchaser" includes:
. an individual, his or her spouse and their children under the age of
21 who purchase the units for his, her or their own accounts;
. a corporation, partnership, association, joint-stock company, trust
fund or any organized group of persons, whether incorporated or not;
. an employees' trust, pension, profit sharing or other employee
benefit plan qualified under Section 401(a) of the Internal Revenue
Code; and
. all commingled trust funds maintained by a given bank.
Notwithstanding the above, in connection with volume sales made to investors in
the Wells REIT, Wells Capital, our advisor, may aggregate subscriptions,
including subscriptions to public real estate programs previously sponsored by
our advisor or its affiliates, as part of a combined order for purposes of
determining the number of shares purchased, provided that any aggregate group of
subscriptions must be received from the same Participating Dealer, including the
Dealer Manager. Any such reduction in selling commission will be prorated among
the separate subscribers except that, in the case of purchases through the
Dealer Manager, the Dealer Manager may allocate such reduction among separate
subscribers considered to be a single "purchaser" as it deems appropriate. An
investor may reduce the amount of his purchase price to the net amount shown in
the foregoing table, if applicable. As set forth above, all requests to
aggregate subscriptions as a single "purchaser" or other application of the
foregoing volume discount provisions must be made in writing, and except as
provided in this paragraph, separate subscriptions will not be cumulated,
combined or aggregated.
California residents should be aware that volume discounts will not be
available in connection with the sale of shares made to California residents to
the extent such discounts do not comply with the provisions of Rule 260.140.51
adopted pursuant to the California Corporate Securities Law of 1968. Pursuant to
this Rule, volume discounts can be made available to California residents only
in accordance with the following conditions:
148
. there can be no variance in the net proceeds to the Wells REIT from
the sale of the shares to different purchasers of the same offering;
. all purchasers of the shares must be informed of the availability of
quantity discounts;
. the same volume discounts must be allowed to all purchasers of shares
which are part of the offering;
. the minimum amount of shares as to which volume discounts are allowed
cannot be less than $10,000;
. the variance in the price of the shares must result solely from a
different range of commissions, and all discounts allowed must be
based on a uniform scale of commissions; and
. no discounts are allowed to any group of purchasers.
Accordingly, volume discounts for California residents will be available in
accordance with the foregoing table of uniform discount levels based on dollar
volume of shares purchased, but no discounts are allowed to any group of
purchasers, and no subscriptions may be aggregated as part of a combined order
for purposes of determining the number of shares purchased.
Investors may agree with their broker-dealer to reduce the amount of
selling commissions payable with respect to the sale of their shares down to
zero (1) in the event that the investor has engaged the services of a registered
investment advisor or other financial advisor with whom the investor has agreed
to pay compensation for investment advisory services or other financial or
investment advice, or (2) in the event that the investor is investing in a bank
trust account with respect to which the investor has delegated the
decision-making authority for investments made in the account to a bank trust
department. The net proceeds to the Wells REIT will not be affected by reducing
the commissions payable in connection with such transactions.
Neither the Dealer Manager nor its affiliates will compensate any person
engaged as an investment advisor by a potential investor as an inducement for
such investment advisor to advise favorably for an investment in the Wells REIT.
In addition, subscribers for shares may agree with their Participating
Dealers and the Dealer Manager to have selling commissions due with respect to
the purchase of their shares paid over a six-year period pursuant to a deferred
commission arrangement. Stockholders electing the deferred commission option
will be required to pay a total of $9.40 per share purchased upon subscription,
rather than $10.00 per share, with respect to which $0.10 per share will be
payable as commissions due upon subscription. For the period of six years
following subscription, $0.10 per share will be deducted on an annual basis from
dividends or other cash distributions otherwise payable to the stockholders and
used by the Wells REIT to pay deferred commission obligations. The net proceeds
to the Wells REIT will not be affected by the election of the deferred
commission option. Under this arrangement, a stockholder electing the deferred
commission option will pay a 1% commission upon subscription, rather than a 7%
commission, and an amount equal to a 1% commission per year thereafter for the
next six years, or longer if required to satisfy outstanding deferred commission
obligations, will be deducted from dividends or other cash distributions
otherwise payable to such stockholder and used by the Wells REIT to satisfy
commission obligations. The foregoing commission amounts may be adjusted with
approval of the Dealer Manager by application of the volume discount provisions
described previously.
Stockholders electing the deferred commission option who are subject to
federal income taxation will incur tax liability for dividends or other cash
distributions otherwise payable to them with respect to
149
their shares even though such dividends or other cash distributions will be
withheld from such stockholders and will instead be paid to third parties to
satisfy commission obligations.
Investors who wish to elect the deferred commission option should make
the election on their Subscription Agreement Signature Page. Election of the
deferred commission option shall authorize the Wells REIT to withhold dividends
or other cash distributions otherwise payable to such stockholder for the
purpose of paying commissions due under the deferred commission option;
provided, however, that in no event may the Wells REIT withhold in excess of
$0.60 per share in the aggregate under the deferred commission option. Such
dividends or cash distributions otherwise payable to stockholders may be pledged
by the Wells REIT, the Dealer Manager, Wells Capital or their affiliates to
secure one or more loans, the proceeds of which would be used to satisfy sales
commission obligations.
In the event that, at any time prior to the satisfaction of our remaining
deferred commission obligations, listing of the shares occurs or is reasonably
anticipated to occur, or we begin a liquidation of our properties, the remaining
commissions due under the deferred commission option may be accelerated by the
Wells REIT. In either such event, we shall provide notice of any such
acceleration to stockholders who have elected the deferred commission option. In
the event of listing, the amount of the remaining commissions due shall be
deducted and paid by the Wells REIT out of dividends or other cash distributions
otherwise payable to such stockholders during the time period prior to listing.
To the extent that the distributions during such time period are insufficient to
satisfy the remaining commissions due, the obligation of Wells REIT and our
stockholders to make any further payments of deferred commissions under the
deferred commission option shall terminate, and Participating Dealers will not
be entitled to receive any further portion of their deferred commissions
following listing of our shares. In the event of a liquidation of our
properties, the amount of remaining commissions due shall be deducted and paid
by the Wells REIT out of dividends or net sale proceeds otherwise payable to
stockholders who are subject to any such acceleration of their deferred
commission obligations. In no event may the Wells REIT withhold in excess of
$0.60 per share in the aggregate for the payment of deferred commissions.
Subscription Procedures
You should pay for your shares by check payable to "Wells Real Estate
Investment Trust, Inc." Subscriptions will be effective only upon our
acceptance, and we reserve the right to reject any subscription in whole or in
part. We may not accept a subscription for shares until at least five business
days after the date you receive this prospectus. You will receive a confirmation
of your purchase. We will initially deposit the subscription proceeds in an
interest-bearing account with Bank of America, N.A., Atlanta, Georgia.
Subscribers may not withdraw funds from the account. We will withdraw funds from
the account periodically for the acquisition of real estate properties, the
payment of fees and expenses or other investments approved by our board of
directors. We generally admit stockholders to the Wells REIT on a daily basis.
Except for purchases pursuant to our dividend reinvestment plan or
reinvestment plans of other public real estate programs, all accepted
subscriptions will be for whole shares and for not less than 100 shares
($1,000). (See "Suitability Standards.") Except in Maine, Minnesota, Nebraska
and Washington, investors who have satisfied the minimum purchase requirement
and have purchased units or shares in Wells programs or units or shares in other
public real estate programs may purchase less than the minimum number of shares
discussed above, provided that such investors purchase a minimum of 2.5 shares
($25). After investors have satisfied the minimum purchase requirement, minimum
additional purchases must be in increments of at least 2.5 shares ($25), except
for purchases made pursuant to our dividend reinvestment plan or reinvestment
plans of other public real estate programs.
150
Investors who desire to establish an IRA for purposes of investing in
shares may do so by having Wells Advisors, Inc., a qualified non-bank IRA
custodian affiliated with our advisor, act as their IRA custodian. In the event
that an IRA is established having Wells Advisors, Inc. as the IRA custodian, the
authority of Wells Advisors, Inc. will be limited to holding the shares on
behalf of the beneficiary of the IRA and making distributions or reinvestments
in shares solely at the discretion of the beneficiary of the IRA. Wells
Advisors, Inc. will not have the authority to vote any of the shares held in an
IRA except strictly in accordance with the written instructions of the
beneficiary of the IRA.
The proceeds of this offering will be used only for the purposes set
forth in the "Estimated Use of Proceeds" section. Subscriptions will be accepted
or rejected within 30 days of receipt by the Wells REIT and, if rejected, all
funds shall be returned to the rejected subscribers within 10 business days.
The Dealer Manager and each Participating Dealer who sells shares on
behalf of the Wells REIT have the responsibility to make every reasonable effort
to determine that the purchase of shares is appropriate for the investor and
that the requisite suitability standards are met. (See "Suitability Standards.")
In making this determination, the Participating Dealer will rely on relevant
information provided by the investor, including information as to the investor's
age, investment objectives, investment experience, income, net worth, financial
situation, other investments, and other pertinent information. Each investor
should be aware that the Participating Dealer will be responsible for
determining suitability.
The Dealer Manager or each Participating Dealer shall maintain records of
the information used to determine that an investment in shares is suitable and
appropriate for an investor. These records are required to be maintained for a
period of at least six years.
Supplemental Sales Material
In addition to this prospectus, we may utilize certain sales material in
connection with the offering of the shares, although only when accompanied by or
preceded by the delivery of this prospectus. In certain jurisdictions, some or
all of such sales material may not be available. This material may include
information relating to this offering, the past performance of Wells Capital,
our advisor, and its affiliates, property brochures and articles and
publications concerning real estate. In addition, the sales material may contain
certain quotes from various publications without obtaining the consent of the
author or the publication for use of the quoted material in the sales material.
The offering of shares is made only by means of this prospectus. Although
the information contained in such sales material will not conflict with any of
the information contained in this prospectus, such material does not purport to
be complete, and should not be considered a part of this prospectus or the
registration statement of which this prospectus is a part, or as incorporated by
reference in this prospectus or said registration statement or as forming the
basis of the offering of the shares.
Legal Opinions
The legality of the shares being offered hereby has been passed upon for
the Wells REIT by Holland & Knight LLP (Holland & Knight). The statements under
the caption "Federal Income Tax Consequences" as they relate to federal income
tax matters have been reviewed by Holland & Knight, and Holland & Knight has
opined as to certain income tax matters relating to an investment in shares of
the Wells REIT. Holland & Knight has also represented Wells Capital, our
advisor, as well as various other affiliates of Wells Capital, in other matters
and may continue to do so in the future. (See "Conflicts of Interest.")
151
Experts
Audited Financial Statements
The financial statements of the Wells REIT, as of December 31, 2001, 2000
and 1999, and for each of the years in the three-year period ended December 31,
2001, included in this prospectus and elsewhere in the registration statement,
have been audited by Arthur Andersen LLP, independent public accountants, as
indicated in their report with respect thereto, and are included in this
prospectus in reliance upon the authority of said firm as experts in giving said
report.
Unaudited Financial Statements
The Schedule III - Real Estate Investments and Accumulated Depreciation
as of December 31, 2001, which is included in this prospectus, has not been
audited.
The financial statements of the Wells REIT, as of March 31, 2002, and for
the three month period ended March 31, 2002, which are included in this
prospectus, have not been audited.
Additional Information
We have filed with the Securities and Exchange Commission (Commission),
Washington, D.C., a registration statement under the Securities Act of 1933, as
amended, with respect to the shares offered pursuant to this prospectus. This
prospectus does not contain all the information set forth in the registration
statement and the exhibits related thereto filed with the Commission, reference
to which is hereby made. Copies of the registration statement and exhibits
related thereto, as well as periodic reports and information filed by the Wells
REIT, may be obtained upon payment of the fees prescribed by the Commission, or
may be examined at the offices of the Commission without charge, at the public
reference facility in Washington, D.C. at Judiciary Plaza, Room 1024, 450 Fifth
Street, N.W., Washington, D.C. 20549. In addition, the Commission maintains a
Web site at http://www.sec.gov that contains reports, proxy and information
statements and other information regarding registrants that file electronically
with the Commission.
Glossary
The following are definitions of certain terms used in this prospectus
and not otherwise defined in this prospectus:
"IRA" means an individual retirement account established pursuant to
Section 408 or Section 408A of the Internal Revenue Code.
"NASAA Guidelines" means the Statement of Policy Regarding Real Estate
Investment Trusts of the North American Securities Administrators Association,
Inc., as revised and adopted on September 29, 1993.
"UBTI" means unrelated business taxable income, as that term is defined
in Sections 511 through 514 of the Internal Revenue Code.
152
Index to Financial Statements and Prior Performance Tables
Page
Wells Real Estate Investment Trust, Inc. and Subsidiary
Audited Financial Statements
Report of Independent Public Accountants ___
Consolidated Balance Sheets as of December 31, 2001, 2000
and 1999 ___
Consolidated Statements of Income for the years ended
December 31, 2001, 2000 and 1999 ___
Consolidated Statements of Stockholders' Equity for the
years ended December 31, 2001, 2000 and 1999 ___
Consolidated Statements of Cash Flows for the years ended
December 31, 2001, 2000 and 1999 ___
Notes to Consolidated Financial Statements ___
Unaudited Financial Statements
Schedule III - Real Estate Investments and Accumulated Depreciation
as of December 31, 2001 ___
Consolidated Balance Sheets as of March 31, 2002 and
December 31, 2001 ___
Consolidated Statements of Income for the three months ended
March 31, 2002 and March 31, 2001 ___
Consolidated Statements of Shareholders' Equity for the year ended
December 31, 2001 and for the three months ended March 31, 2002 ___
Consolidated Statements of Cash Flows for the three months ended
March 31, 2002 and March 31, 2001 ___
Condensed Notes to Consolidated Financial Statements
March 31, 2002
Prior Performance Tables (Unaudited) ___
153
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
154
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
DECEMBER 31, 2001 AND 2000
ASSETS
2001 2000
------------ ------------
REAL ESTATE ASSETS, at cost:
Land $ 86,246,985 $ 46,237,812
Building, less accumulated depreciation of $24,814,454 and $9,469,653 at
December 31, 2001 and 2000, respectively 472,383,102 287,862,655
Construction in progress 5,738,573 3,357,720
------------ ------------
Total real estate assets 564,368,660 337,458,187
INVESTMENT IN JOINT VENTURES 77,409,980 44,236,597
CASH AND CASH EQUIVALENTS 75,586,168 4,298,301
INVESTMENT IN BONDS 22,000,000 0
ACCOUNTS RECEIVABLE 6,003,179 3,781,034
DEFERRED PROJECT COSTS 2,977,110 550,256
DUE FROM AFFILIATES 1,692,727 309,680
DEFERRED LEASE ACQUISITION COSTS 1,525,199 1,890,332
DEFERRED OFFERING COSTS 0 1,291,376
PREPAID EXPENSES AND OTHER ASSETS, net 718,389 4,734,583
------------ ------------
Total assets $752,281,412 $398,550,346
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable $ 8,124,444 $127,663,187
Obligation under capital lease 22,000,000 0
Accounts payable and accrued expenses 8,727,473 2,166,387
Due to affiliate 2,166,161 1,772,956
Dividends payable 1,059,026 1,025,010
Deferred rental income 661,657 381,194
------------ ------------
Total liabilities $ 42,738,761 $133,008,734
------------ ------------
COMMITMENTS AND CONTINGENCIES
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 200,000
------------ ------------
SHAREHOLDERS' EQUITY:
Common shares, $.01 par value; 125,000,000 shares authorized, 83,761,469
shares issued and 83,206,429 shares outstanding at December 31, 2001;
125,000,000 shares authorized, 31,509,807 shares issued, and 31,368,510
shares outstanding at December 31, 2000 837,614 315,097
Additional paid-in capital 738,236,525 275,573,339
Cumulative distributions in excess of earnings (24,181,092) (9,133,855)
Treasury stock, at cost, 555,040 shares at December 31, 2001 and 141,297
shares at December 31, 2000 (5,550,396) (1,412,969)
------------ ------------
Total shareholders' equity 709,342,651 265,341,612
------------ ------------
Total liabilities and shareholders' equity $752,281,412 $398,550,346
============ ============
The accompanying notes are an integral part of these consolidated balance
sheets.
155
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
----------- ----------- -----------
REVENUES:
Rental income $44,204,279 $20,505,000 $ 4,735,184
Equity in income of joint ventures 3,720,959 2,293,873 1,243,969
Take out fee (Note 9) 137,500 0 0
Interest and other income 1,246,064 574,333 516,242
----------- ----------- -----------
49,308,802 23,373,206 6,495,395
----------- ----------- -----------
EXPENSES:
Depreciation 15,344,801 7,743,551 1,726,103
Interest expense 3,411,210 3,966,902 442,029
Amortization of deferred financing costs 770,192 232,559 8,921
Operating costs, net of reimbursements 4,128,883 888,091 (74,666)
Management and leasing fees 2,507,188 1,309,974 257,744
General and administrative 973,785 438,953 135,144
Legal and accounting 448,776 240,209 115,471
----------- ----------- -----------
27,584,835 14,820,239 2,610,746
----------- ----------- -----------
NET INCOME $21,723,967 $ 8,552,967 $ 3,884,649
=========== =========== ===========
EARNINGS PER SHARE:
Basic and diluted $ 0.43 $ 0.40 $ 0.50
=========== =========== ===========
The accompanying notes are an integral part of these consolidated statements.
156
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
Cumulative
Additional Distributions Total
Common Stock Paid-In in Excess Retained Treasury Stock Shareholders'
--------------------- -----------------------
Shares Amount Capital of Earnings Earnings Shares Amount Equity
---------- --------- ------------- ------------- ------------ -------- ------------ -------------
BALANCE,
December 31, 1998 3,154,136 $ 31,541 $ 27,567,275 $ (511,163) $ 334,034 0 $ 0 $ 27,421,687
Issuance of common
stock 10,316,949 103,169 103,066,321 0 0 0 0 103,169,490
Net income 0 0 0 0 3,884,649 0 0 3,884,649
Dividends ($.70
per share) 0 0 0 (1,346,240) (4,218,683) 0 0 (5,564,923)
Sales commissions 0
and discounts 0 0 (9,801,197) 0 0 0 (9,801,197)
Other offering
expenses 0 0 (3,094,111) 0 0 0 0 (3,094,111)
---------- --------- ------------- ------------ ------------ -------- ------------ -------------
BALANCE,
December 31, 1999 13,471,085 134,710 117,738,288 (1,857,403) 0 0 0 116,015,595
Issuance of
common stock 18,038,722 180,387 180,206,833 0 0 0 0 180,387,220
Treasury stock 0
purchased 0 0 0 0 (141,297) (1,412,969) (1,412,969)
Net income 0 0 0 0 8,552,967 0 0 8,552,967
Dividends ($.73
per share) 0 0 0 (7,276,452) (8,552,967) 0 0 (15,829,419)
Sales commissions
and discounts 0 0 (17,002,554) 0 0 0 0 (17,002,554)
Other offering
expenses 0 0 (5,369,228) 0 0 0 0 (5,369,228)
---------- --------- ------------- ------------ ------------ -------- ------------ -------------
BALANCE,
December 31, 2000 31,509,807 315,097 275,573,339 (9,133,855) 0 (141,297) (1,412,969) 265,341,612
Issuance of
common stock 52,251,662 522,517 521,994,103 0 0 0 0 522,516,620
Treasury stock
purchased 0 0 0 0 0 (413,743) (4,137,427) (4,137,427)
Net income 0 0 0 0 21,723,967 0 0 21,723,967
Dividends ($.76
per share) 0 0 0 (15,047,237) (21,723,967) 0 0 (36,771,204)
Sales commissions
and discounts 0 0 (49,246,118) 0 0 0 0 (49,246,118)
Other offering
expenses 0 0 (10,084,799) 0 0 0 (10,084,799)
---------- --------- ------------- ------------ ------------ -------- ------------ -------------
BALANCE,
December 31, 2001 83,761,469 $ 837,614 $ 738,236,525 $(24,181,092) $ 0 (555,040) $ (5,550,396) $ 709,342,651
========== ========= ============- ============ ============ ======== ============ =============
The accompanying notes are an integral part of these consolidated statements.
157
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999
------------- -------------- --------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 21,723,967 $ 8,552,967 $ 3,884,649
------------- -------------- --------------
Adjustments to reconcile net income to net cash provided by
operating activities:
Equity in income of joint ventures (3,720,959) (2,293,873) (1,243,969)
Depreciation 15,344,801 7,743,551 1,726,103
Amortization of deferred financing costs 770,192 232,559 8,921
Amortization of deferred leasing costs 303,347 350,991 0
Write-off of deferred lease acquisition fees 61,786 0 0
Changes in assets and liabilities:
Accounts receivable (2,222,145) (2,457,724) (898,704)
Due from affiliates 10,995 (435,600) 0
Prepaid expenses and other assets, net 3,246,002 (6,826,568) 149,501
Accounts payable and accrued expenses 6,561,086 1,941,666 36,894
Deferred rental income 280,463 144,615 236,579
Due to affiliates (10,193) 367,055 108,301
------------- -------------- --------------
Total adjustments 20,625,375 (1,233,328) 123,626
------------- -------------- --------------
Net cash provided by operating activities 42,349,342 7,319,639 4,008,275
------------- -------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investment in real estate (227,933,858) (231,518,138) (85,514,506)
Investment in joint ventures (33,690,862) (15,063,625) (17,641,211)
Deferred project costs paid (17,220,446) (6,264,098) (3,610,967)
Distributions received from joint ventures 4,239,431 3,529,401 1,371,728
------------- -------------- --------------
Net cash used in investing activities (274,605,735) (249,316,460) (105,394,956)
------------- -------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 110,243,145 187,633,130 40,594,463
Repayments of notes payable (229,781,888) (83,899,171) (30,725,165)
Dividends paid to shareholders (36,737,188) (16,971,110) (3,806,398)
Issuance of common stock 522,516,620 180,387,220 103,169,490
Treasury stock purchased (4,137,427) (1,412,969) 0
Sales commissions paid (49,246,118) (17,002,554) (9,801,197)
Offering costs paid (9,312,884) (5,369,228) (3,094,111)
------------- -------------- --------------
Net cash provided by financing activities 303,544,260 243,365,318 96,337,082
------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 71,287,867 1,368,497 (5,049,599)
CASH AND CASH EQUIVALENTS, beginning of year 4,298,301 2,929,804 7,979,403
------------- -------------- --------------
CASH AND CASH EQUIVALENTS, end of year $ 75,586,168 $ 4,298,301 $ 2,929,804
============= ============== ==============
SUPPLEMENTAL DISCLOSURES OF NONCASH ACTIVITIES:
Deferred project costs applied to real estate assets $ 14,321,416 $ 5,114,279 $ 3,183,239
============= ============== ==============
Deferred project costs contributed to joint ventures $ 1,395,035 $ 627,656 $ 735,056
============= ============== ==============
Deferred project costs due to affiliate $ 1,114,140 $ 191,281 $ 191,783
============= ============== ==============
Deferred offering costs due to affiliate $ 0 $ 1,291,376 $ 964,941
============= ============== ==============
Reversal of deferred offering costs due to affiliate $ 964,941 $ 0 $ 0
============= ============== ==============
Other offering expenses due to affiliate $ 943,107 $ 0 $ 0
============= ============== ==============
Assumption of obligation under capital lease $ 22,000,000 $ 0 $ 0
============= ============== ==============
Investment in bonds $ 22,000,000 $ 0 $ 0
============= ============== ==============
The accompanying notes are an integral part of these consolidated statements.
158
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2001, 2000, AND 1999
1. Organization and Summary of Significant Accounting Policies
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation that qualifies as a real estate investment trust ("REIT"). The
Company is conducting an offering for the sale of a maximum of 125,000,000
(exclusive of 10,000,000 shares available pursuant to the Company's
dividend reinvestment program) shares of common stock, $.01 par value per
share, at a price of $10 per share. The Company will seek to acquire and
operate commercial properties, including, but not limited to, office
buildings, shopping centers, business and industrial parks, and other
commercial and industrial properties, including properties which are under
construction, are newly constructed, or have been constructed and have
operating histories. All such properties may be acquired, developed, and
operated by the Company alone or jointly with another party. The Company is
likely to enter into one or more joint ventures with affiliated entities
for the acquisition of properties. In connection therewith, the Company may
enter into joint ventures for the acquisition of properties with prior or
future real estate limited partnership programs sponsored by Wells Capital,
Inc. (the "Advisor") or its affiliates.
Substantially all of the Company's business is conducted through Wells
Operating Partnership, L.P. (the "Operating Partnership"), a Delaware
limited partnership. During 1997, the Operating Partnership issued 20,000
limited partner units to the Advisor in exchange for $200,000. The Company
is the sole general partner in the Operating Partnership and possesses full
legal control and authority over the operations of the Operating
Partnership; consequently, the accompanying consolidated financial
statements of the Company include the accounts of the Operating
Partnership. All significant intercompany balances have been eliminated in
consolidation.
The Company owns interests in the following properties directly through its
ownership in the Operating Partnership: (i) the PricewaterhouseCoopers
property (the "PwC Building"), a four-story office building located in
Tampa, Florida; (ii) the AT&T Building, a four-story office building
located in Harrisburg, Pennsylvania; (iii) the Marconi Data Systems
property (the "Marconi Building"), a two-story office, assembly, and
manufacturing building located in Wood Dale, Illinois; (iv) the Cinemark
Property (the "Cinemark Building"), a five-story office building located in
Plano, Texas; (v) the Matsushita Property (the "Matsushita Building"), a
two-story office building located in Lake Forest, California; (vi) the ASML
Property (the "ASML Building"), a two-story office and warehouse building
located in Tempe, Arizona; (vii) the Motorola Property (the "Motorola Tempe
Building"), a two-story office building located in Tempe, Arizona; (viii)
the Dial Property (the "Dial Building"), a two-story office building
located in Scottsdale, Arizona; (ix) the Delphi Building, a three-story
office building located in Troy, Michigan; (x) the Avnet Property (the
"Avnet Building"), a two-story office building located in Tempe, Arizona;
(xi) the Metris Oklahoma Building, a three-story office building located in
Tulsa, Oklahoma; (xii) the Alstom Power-Richmond Building, a four-story
office building located in Richmond, Virginia; (xiii) the Motorola
Plainfield Building, a three-story office building located in South
Plainfield, New Jersey; (xiv) the Stone & Webster Building, a six-story
office building located in Houston, Texas; (xv) the Metris Minnetonka
Building, a nine-story office building located in Minnetonka, Minnesota;
(xvi) the State Street Bank Building, a seven-story office building located
in Quincy, Massachusetts; (xvii) the IKON Buildings, two one-story office
buildings located in Houston, Texas; (xviii) the Ingram Micro Distribution
Facility, a one-story office and warehouse building located in Millington,
Tennessee; (xix) the Lucent Building, a four-story office building located
in Cary, North Carolina; (xx) the Nissan land (the "Nissan Property"), a
14.873 acre tract of undeveloped land located in Irving, Texas; (xxi) the
Convergys Building, a two-story office building located in Tamarac,
Florida; and (xxii) the Windy Point Buildings, a seven-story office
building and an eleven-story office building located in Schaumburg,
Illinois.
The Company owns an interest in one property through a joint venture
between the Operating Partnership, Wells Real Estate Fund VIII, L.P.
("Wells Fund VIII"), and Wells Real Estate Fund IX, L.P. ("Wells Fund IX"),
which is referred
159
to as the Fund VIII, IX, and REIT Joint Venture. The Company also owns
interests in five properties through a joint venture between the Operating
Partnership, Wells Fund IX, Wells Real Estate Fund X, L.P. ("Wells Fund
X"), and Wells Real Estate Fund XI, L.P. ("Wells Fund XI"), which is
referred to as the Fund IX, Fund X, Fund XI, and REIT Joint Venture. The
Company owns an interest in one property through each of two unique joint
ventures between the Operating Partnership and Fund X and XI Associates, a
joint venture between Wells Fund X and Wells Fund XI. In addition, the
Company owns interests in four properties through a joint venture between
the Operating Partnership, Wells Fund XI, and Wells Real Estate Fund XII,
L.P. ("Wells Fund XII"), which is referred to as the Fund XI, XII, and REIT
Joint Venture. The Company owns interests in three properties through a
joint venture between the Operating Partnership and Wells Fund XII, which
is referred to as the Fund XII and REIT Joint Venture. The Company also
owns interests in two properties through a joint venture between the
Operating Partnership and Wells Fund XIII, which is referred to as the Fund
XIII and REIT Joint Venture.
Through its investment in the Fund VIII, IX, and REIT Joint Venture, the
Company owns an interest in a two-story office building in Irvine,
California (the "Quest Building").
The following properties are owned by the Company through its investment in
the Fund IX, X, XI, and REIT Joint Venture: (i) a three-story office
building in Knoxville, Tennessee (the "Alstom Power Building"), (ii) a
two-story office building in Louisville, Colorado (the "Ohmeda Building"),
(iii) a three-story office building in Broomfield, Colorado (the "360
Interlocken Building"), (iv) a one-story office and warehouse building in
Ogden, Utah (the "Iomega Building"), and (v) a one-story office building in
Oklahoma City, Oklahoma (the "Avaya Building").
Through its investment in two joint ventures with Fund X and XI Associates,
the Company owns interests in the following properties: (i) a one-story
office and warehouse building in Fountain Valley, California (the "Cort
Furniture Building"), owned by Wells/Orange County Associates and (ii) a
two-story manufacturing and office building in Fremont, California (the
"Fairchild Building"), owned by Wells/Fremont Associates.
The following properties are owned by the Company through its investment in
the Fund XI, XII, and REIT Joint Venture: (i) a two-story manufacturing and
office building in Fountain Inn, South Carolina (the "EYBL CarTex
Building"), (ii) a three-story office building Leawood, Kansas (the "Sprint
Building"), (iii) an office and warehouse building in Chester County,
Pennsylvania (the "Johnson Matthey Building"), and (iv) a two-story office
building in Ft. Myers, Florida (the "Gartner Building").
Through its investment in the Fund XII and REIT Joint Venture, the Company
owns interests in the following properties: (i) a three-story office
building in Troy, Michigan (the "Siemens Building"), (ii) a one-story
office building and a two-story office building in Oklahoma City, Oklahoma
(collectively referred to as the "AT&T Call Center Buildings"), and (iii) a
three-story office building in Brentwood, Tennessee (the "Comdata
Building").
The following properties are owned by the Company through its investment in
the Fund XIII and REIT Joint Venture: (i) a one-story office building in
Orange Park, Florida (the "AmeriCredit Building"), and (ii) two connected
one-story office and assembly buildings in Parker, Colorado (the "ADIC
Buildings").
Use of Estimates and Factors Affecting the Company
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States requires management to
make estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.
The carrying values of real estate are based on management's current intent
to hold the real estate assets as long-term investments. The success of the
Company's future operations and the ability to realize the investment in
its assets will be dependent on the Company's ability to maintain rental
rates, occupancy, and an appropriate level of operating expenses in future
years. Management believes that the steps it is taking will enable the
Company to realize its investment in its assets.
160
Income Taxes
The Company has elected to be taxed as a REIT under the Internal Revenue
Code of 1986, as amended. To qualify as a REIT, the Company must meet a
number of organizational and operational requirements, including a
requirement to currently distribute at least 90% of the REIT's ordinary
taxable income to shareholders. It is management's current intention to
adhere to these requirements and maintain the Company's REIT status. As a
REIT, the Company generally will not be subject to federal income tax on
distributed taxable income. Even if the Company qualifies as a REIT, it may
be subject to certain state and local taxes on its income and real estate
assets, and to federal income and excise taxes on its undistributed taxable
income. No provision for federal income taxes has been made in the
accompanying consolidated financial statements, as the Company made
distributions equal to or in excess of its taxable income in each of the
three years in the period ended December 31, 2001.
Real Estate Assets
Real estate assets held by the Company and joint ventures are stated at
cost less accumulated depreciation. Major improvements and betterments are
capitalized when they extend the useful life of the related asset. All
repair and maintenance expenditures are expensed as incurred.
Management continually monitors events and changes in circumstances which
could indicate that carrying amounts of real estate assets may not be
recoverable. When events or changes in circumstances are present which
indicate that the carrying amounts of real estate assets may not be
recoverable, management assesses the recoverability of real estate assets
by determining whether the carrying value of such real estate assets will
be recovered through the future cash flows expected from the use of the
asset and its eventual disposition. Management has determined that there
has been no impairment in the carrying value of real estate assets held by
the Company or the joint ventures as of December 31, 2001 and 2000.
Depreciation of building and improvements is calculated using the
straight-line method over 25 years. Tenant improvements are amortized over
the life of the related lease or the life of the asset, whichever is
shorter.
Revenue Recognition
All leases on real estate assets held by the Company or the joint ventures
are classified as operating leases, and the related rental income is
recognized on a straight-line basis over the terms of the respective
leases.
Cash and Cash Equivalents
For the purposes of the statements of cash flows, the Company considers all
highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash equivalents include cash and
short-term investments. Short-term investments are stated at cost, which
approximates fair value, and consist of investments in money market
accounts.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and amortized on
a straight-line basis over the terms of the related leases.
Earnings Per Share
Earnings per share are calculated based on the weighted average number of
common shares outstanding during each period. The weighted average number
of common shares outstanding is identical for basic and fully diluted
earnings per share, as there is no dilutive impact created from the
Company's stock option plan (Note 10) using the treasury stock method.
161
Reclassifications
Certain prior year amounts have been reclassified to conform with the
current year financial statement presentation.
Investment in Joint Ventures
Basis of Presentation
The Operating Partnership does not have control over the operations of
the joint ventures; however, it does exercise significant influence.
Accordingly, the Operating Partnership's investments in joint ventures
are recorded using the equity method of accounting.
Partners' Distributions and Allocations of Profit and Loss
Cash available for distribution and allocations of profit and loss to
the Operating Partnership by the joint ventures are made in accordance
with the terms of the individual joint venture agreements. Generally,
these items are allocated in proportion to the partners' respective
ownership interests. Cash is paid from the joint ventures to the
Operating Partnership on a quarterly basis.
Deferred Lease Acquisition Costs
Costs incurred to procure operating leases are capitalized and
amortized on a straight-line basis over the terms of the related
leases. Deferred lease acquisition costs are included in prepaid
expenses and other assets, net, in the balance sheets presented in Note
5.
2. DEFERRED PROJECT COSTS
The Company paid a percentage of shareholder contributions to the Advisor
for acquisition and advisory services and acquisition expenses. These
payments, as stipulated in the prospectus, can be up to 3.5% of shareholder
contributions, subject to certain overall limitations contained in the
prospectus. Aggregate fees paid through December 31, 2001 were $29,122,286
and amounted to 3.5% of shareholders' contributions received. These fees
are allocated to specific properties as they are purchased or developed and
are included in capitalized assets of the joint ventures or real estate
assets. Deferred project costs at December 31, 2001 and 2000 represent fees
not yet applied to properties.
3. DEFERRED OFFERING COSTS
Offering expenses, to the extent they exceed 3% of gross offering proceeds,
will be paid by the Advisor and not by the Company. Offering expenses
include such costs as legal and accounting fees, printing costs, and other
offering expenses and specifically exclude sales costs and underwriting
commissions.
As of December 31, 2001, the Advisor paid offering expenses on behalf of
the Company in the aggregate amount of $20,459,289, of which the Advisor
had been reimbursed $18,551,241, which did not exceed the 3% limitation.
4. RELATED-PARTY TRANSACTIONS
Due from affiliates at December 31, 2001 and 2000 represents the Operating
Partnership's share of the cash to be distributed from its joint venture
investments for the fourth quarter of 2001 and 2000 and advances due from
the Advisor as of December 31, 2000:
162
2001 2000
------------ ----------
Fund VIII, IX, and REIT Joint Venture $ 46,875 $ 21,605
Fund IX, X, XI, and REIT Joint Venture 36,073 12,781
Wells/Orange County Associates 83,847 24,583
Wells/Fremont Associates 164,196 53,974
Fund XI, XII, and REIT Joint Venture 429,980 136,648
Fund XII and REIT Joint Venture 680,542 49,094
Fund XIII and REIT 251,214 0
Advisor 0 10,995
---------- --------
$1,692,727 $309,680
========== ========
The Operating Partnership entered into a property management and leasing
agreement with Wells Management Company, Inc. ("Wells Management"), an
affiliate of the Advisor. In consideration for supervising the management
and leasing of the Operating Partnership's properties, the Operating
Partnership will pay management and leasing fees equal to the lesser of (a)
4.5% of the gross revenues generally paid over the life of the lease or (b)
.6% of the net asset value of the properties (excluding vacant properties)
owned by the Company to Wells Management. These management and leasing fees
are calculated on an annual basis plus a separate competitive fee for the
one-time initial lease-up of newly constructed properties generally paid in
conjunction with the receipt of the first month's rent.
The Operating Partnership's portion of the management and leasing fees and
lease acquisition costs paid to Wells Management, both directly and at the
joint venture level, were $2,468,294, $1,111,748, and $336,517 for the
years ended December 31, 2001, 2000, and 1999, respectively.
The Advisor performs certain administrative services for the Operating
Partnership, such as accounting and other partnership administration, and
incurs the related expenses. Such expenses are allocated among the
Operating Partnership and the various Wells Real Estate Funds based on time
spent on each fund by individual administrative personnel. In the opinion
of management, such allocation is a reasonable basis for allocating such
expenses.
The Advisor is a general partner in various Wells Real Estate Funds. As
such, there may exist conflicts of interest where the Advisor, while
serving in the capacity as general partner for Wells Real Estate Funds, may
be in competition with the Operating Partnership for tenants in similar
geographic markets.
5. INVESTMENT IN JOINT VENTURES
The Operating Partnership's investment and percentage ownership in joint
ventures at December 31, 2001 and 2000 are summarized as follows:
2001 2000
------------------------ -----------------------
Amount Percent Amount Percent
------------- --------- ------------ ----------
Fund VIII, IX, and REIT Joint Venture $ 1,189,067 16% $ 1,276,551 16%
Fund IX, X, XI, and REIT Joint Venture 1,290,360 4 1,339,636 4
Wells/Orange County Associates 2,740,000 44 2,827,607 44
Wells/Fremont Associates 6,575,358 78 6,791,287 78
Fund XI, XII, and REIT Joint Venture 17,187,985 57 17,688,615 57
Fund XII and REIT Joint Venture 30,299,872 55 14,312,901 47
Fund XIII and REIT Joint Venture 18,127,338 68 0 0
------------ -----------
$77,409,980 $44,236,597
============ ===========
163
The following is a roll forward of the Operating Partnership's investment in
joint ventures for the years ended December 31, 2001 and 2000:
2001 2000
----------------- --------------
Investment in joint ventures, beginning of year $44,236,597 $29,431,176
Equity in income of joint ventures 3,720,959 2,293,873
Contributions to joint ventures 35,085,897 15,691,281
Distributions from joint ventures (5,633,473) (3,179,733)
----------- -----------
Investment in joint ventures, end of year $77,409,980 $44,236,597
=========== ===========
FUND VIII, IX, AND REIT JOINT VENTURE
On June 15, 2000, Fund VIII and IX Associates, a joint venture between Wells
Real Estate Fund VIII, L.P. ("Fund VIII") and Wells Real Estate Fund IX, L.P.
("Fund IX"), entered into a joint venture with the Operating Partnership to form
Fund VIII, IX, and REIT Joint Venture, for the purpose of acquiring, developing,
operating, and selling real properties.
On July 1, 2000, Fund VIII and IX Associates contributed the Quest Building
(formerly the Bake Parkway Building) to the joint venture. Fund VIII, IX, and
REIT Joint Venture recorded the net assets of the Quest Building at an amount
equal to the respective historical net book values. The Quest Building is a
two-story office building containing approximately 65,006 rentable square feet
on a 4.4-acre tract of land in Irvine, California. During 2000, the Operating
Partnership contributed $1,282,111 to the Fund VIII, IX, and REIT Joint Venture.
Ownership percentage interests were recomputed accordingly.
164
Following are the financial statements for Fund VIII, IX, and REIT Joint
Venture:
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
---------- -----------
Real estate assets, at cost:
Land $2,220,993 $2,220,993
Building and improvements, less accumulated depreciation of $649,436 in
2001 and $187,891 in 2000 4,952,724 5,408,892
---------- ----------
Total real estate assets 7,173,717 7,629,885
Cash and cash equivalents 297,533 170,664
Accounts receivable 164,835 197,802
Prepaid expenses and other assets, net 191,799 283,864
---------- ----------
Total assets $7,827,884 $8,282,215
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 676 $ 0
Partnership distributions payable 296,856 170,664
---------- ----------
Total liabilities 297,532 170,664
---------- ----------
Partners' capital:
Fund VIII and IX Associates 6,341,285 6,835,000
Wells Operating Partnership, L.P. 1,189,067 1,276,551
---------- ----------
Total partners' capital 7,530,352 8,111,551
---------- ----------
Total liabilities and partners' capital $7,827,884 $8,282,215
========== ==========
165
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
2001 2000
------------ ------------
Revenues:
Rental income $1,207,995 $ 563,049
Interest income 729 0
---------- ----------
1,208,724 563,049
---------- ----------
Expenses:
Depreciation 461,545 187,891
Management and leasing fees 142,735 54,395
Property administration expenses 22,278 5,692
Operating costs, net of reimbursements 15,326 5,178
---------- ----------
641,884 253,156
---------- ----------
Net income $ 566,840 $ 309,893
========== ==========
Net income allocated to Fund VIII and IX Associates $ 477,061 $ 285,006
========== ==========
Net income allocated to Wells Operating Partnership, L.P. $ 89,779 $ 24,887
========== ==========
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
Fund VIII Wells Total
and IX Operating Partners'
Associates Partnership, L.P. Capital
--------------- -------------------- -------------
Balance, June 15, 2000 (inception) $ 0 $ 0 $ 0
Net income 285,006 24,887 309,893
Partnership contributions 6,857,889 1,282,111 8,140,000
Partnership distributions (307,895) (30,447) (338,342)
------------ ------------- -----------
Balance, December 31, 2000 6,835,000 1,276,551 8,111,551
Net income 477,061 89,779 566,840
Partnership contributions 0 5,377 5,377
Partnership distributions (970,776) (182,640) (1,153,416)
------------ ------------- -----------
Balance, December 31, 2001 $ 6,341,285 $ 1,189,067 $ 7,530,352
============ ============= ===========
166
Fund VIII, IX, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period from June 15, 2000 (Inception) Through
December 31, 2000
2001 2000
----------- -----------
Cash flows from operating activities:
Net income $ 566,840 $ 309,893
----------- -----------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 461,545 187,891
Changes in assets and liabilities:
Accounts receivable 32,967 (197,802)
Prepaid expenses and other assets, net 92,065 (283,864)
Accounts payable 676 0
----------- -----------
Total adjustments 587,253 (293,775)
----------- -----------
Net cash provided by operating activities 1,154,093 16,118
----------- -----------
Cash flows from investing activities:
Investment in real estate (5,377) (959,887)
----------- -----------
Cash flows from financing activities:
Contributions from joint venture partners 5,377 1,282,111
Distributions to joint venture partners (1,027,224) (167,678)
----------- -----------
Net cash (used in) provided by financing activities (1,021,847) 1,114,433
----------- -----------
Net increase in cash and cash equivalents 126,869 170,664
Cash and cash equivalents, beginning of period 170,664 0
----------- -----------
Cash and cash equivalents, end of year $ 297,533 $ 170,664
=========== ===========
Supplemental disclosure of noncash activities:
Real estate contribution received from joint venture partner $ 0 $ 6,857,889
=========== ===========
Fund IX, X, XI, and REIT Joint Venture
On March 20, 1997, Fund IX and Wells Real Estate Fund X, L.P. ("Fund X") entered
into a joint venture agreement. The joint venture, Fund IX and X Associates, was
formed to acquire, develop, operate, and sell real properties. On March 20,
1997, Wells Fund IX contributed a 5.62-acre tract of real property in Knoxville,
Tennessee, and improvements thereon, known as the Alstom Power Building, to the
Fund IX and X Associates joint venture. An 84,404-square foot, three-story
building was constructed and commenced operations at the end of 1997.
On February 13, 1998, the joint venture purchased a two-story office building,
known as the Ohmeda Building, in Louisville, Colorado. On March 20, 1998, the
joint venture purchased a three-story office building, known as the 360
Interlocken Building, in Broomfield, Colorado. On June 11, 1998, Fund IX and X
Associates was amended and restated to admit Wells Real Estate Fund XI, L.P.
("Fund XI") and the Operating Partnership. The joint venture was renamed the
Fund IX, X, XI, and REIT Joint Venture. On June 24, 1998, the new joint venture
purchased a one-story office building, known as the Avaya Building, in Oklahoma
City, Oklahoma. On April 1, 1998, Wells Fund X purchased a one-story warehouse
facility, known as the Iomega Building, in Ogden, Utah. On July 1, 1998, Wells
Fund X contributed the Iomega Building to the Fund IX, X, XI, and REIT Joint
Venture.
During 1999, Fund IX and Fund XI made contributions to the Fund IX, X, XI, and
REIT Joint Venture; during 2000, Fund IX and Fund X made contributions to the
Fund IX, X, XI, and REIT Joint Venture.
167
Following are the financial statements for the Fund IX, X, XI, and REIT Joint
Venture:
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
----------- -----------
Real estate assets, at cost:
Land $ 6,698,020 $ 6,698,020
Building and improvements, less accumulated depreciation of
$5,619,744 in 2001 and $4,203,502 in 2000 27,178,526 28,594,768
----------- -----------
Total real estate assets, net 33,876,546 35,292,788
Cash and cash equivalents 1,555,917 1,500,044
Accounts receivable 596,050 422,243
Prepaid expenses and other assets, net 439,002 487,276
----------- -----------
Total assets $36,467,515 $37,702,351
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable and accrued liabilities $ 620,907 $ 568,517
Refundable security deposits 100,336 99,279
Due to affiliates 13,238 9,595
Partnership distributions payable 966,912 931,151
----------- -----------
Total liabilities 1,701,393 1,608,542
----------- -----------
Partners' capital:
Wells Real Estate Fund IX 13,598,505 14,117,803
Wells Real Estate Fund X 16,803,586 17,445,277
Wells Real Estate Fund XI 3,073,671 3,191,093
Wells Operating Partnership, L.P. 1,290,360 1,339,636
----------- -----------
Total partners' capital 34,766,122 36,093,809
----------- -----------
Total liabilities and partners' capital $36,467,515 $37,702,351
=========== ===========
168
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Revenues:
Rental income $ 4,174,379 $ 4,198,388 $ 3,932,962
Other income 119,828 116,129 61,312
Interest income 50,002 73,676 58,768
----------- ----------- -----------
4,344,209 4,388,193 4,053,042
----------- ----------- -----------
Expenses:
Depreciation 1,416,242 1,411,434 1,538,912
Management and leasing fees 357,761 362,774 286,139
Operating costs, net of reimbursements (232,601) (133,505) (34,684)
Property administration expense 91,747 57,924 59,886
Legal and accounting 26,223 20,423 30,545
----------- ----------- -----------
1,659,372 1,719,050 1,880,798
----------- ----------- -----------
Net income $ 2,684,837 $ 2,669,143 $ 2,172,244
=========== =========== ===========
Net income allocated to Wells Real Estate Fund IX $ 1,050,156 $ 1,045,094 $ 850,072
=========== =========== ===========
Net income allocated to Wells Real Estate Fund X $ 1,297,665 $ 1,288,629 $ 1,056,316
=========== =========== ===========
Net income allocated to Wells Real Estate Fund XI $ 237,367 $ 236,243 $ 184,355
=========== =========== ===========
Net income allocated to Wells Operating Partnership, L.P. $ 99,649 $ 99,177 $ 81,501
=========== =========== ===========
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Wells Real Wells Real Wells Real Operating Total
Estate Estate Estate Partnership, Partners'
Fund IX Fund X Fund XI L.P. Capital
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1998 $ 14,960,100 $ 18,707,139 $ 2,521,003 $ 1,443,378 $ 37,631,620
Net income 850,072 1,056,316 184,355 81,501 2,172,244
Partnership contributions 198,989 0 911,027 0 1,110,016
Partnership distributions (1,418,535) (1,762,586) (307,982) (135,995) (3,625,098)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 1999 14,590,626 18,000,869 3,308,403 1,388,884 37,288,782
Net income 1,045,094 1,288,629 236,243 99,177 2,669,143
Partnership contributions 46,122 84,317 0 0 130,439
Partnership distributions (1,564,039) (1,928,538) (353,553) (148,425) (3,994,555)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2000 14,117,803 17,445,277 3,191,093 1,339,636 36,093,809
Net income 1,050,156 1,297,665 237,367 99,649 2,684,837
Partnership distributions (1,569,454) (1,939,356) (354,789) (148,925) (4,012,524)
------------ ------------ ------------ ------------ ------------
Balance, December 31, 2001 $ 13,598,505 $ 16,803,586 $ 3,073,671 $ 1,290,360 $ 34,766,122
============ ============ ============ ============ ============
169
The Fund IX, X, XI, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Cash flows from operating activities:
Net income $ 2,684,837 $ 2,669,143 $ 2,172,244
----------- ----------- -----------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,416,242 1,411,434 1,538,912
Changes in assets and liabilities:
Accounts receivable (173,807) 132,722 (421,708)
Prepaid expenses and other assets, net 48,274 39,133 (85,281)
Accounts payable and accrued liabilities, and
refundable security deposits 53,447 (37,118) 295,177
Due to affiliates 3,643 3,216 1,973
----------- ----------- -----------
Total adjustments 1,347,799 1,549,387 1,329,073
----------- ----------- -----------
Net cash provided by operating activities 4,032,636 4,218,530 3,501,317
----------- ----------- -----------
Cash flows from investing activities:
Investment in real estate 0 (127,661) (930,401)
----------- ----------- -----------
Cash flows from financing activities:
Distributions to joint venture partners (3,976,763) (3,868,138) (3,820,491)
Contributions received from partners 0 130,439 1,066,992
----------- ----------- -----------
Net cash used in financing activities (3,976,763) (3,737,699) (2,753,499)
----------- ----------- -----------
Net increase (decrease) in cash and cash equivalents 55,873 353,170 (182,583)
Cash and cash equivalents, beginning of year 1,500,044 1,146,874 1,329,457
----------- ----------- -----------
Cash and cash equivalents, end of year $ 1,555,917 $ 1,500,044 $ 1,146,874
=========== =========== ===========
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 0 $ 43,024
=========== =========== ===========
Wells/Orange County Associates
On July 27, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Orange County
Associates. On July 31, 1998, Wells/Orange County Associates acquired a
52,000-square foot warehouse and office building located in Fountain Valley,
California, known as the Cort Furniture Building.
On September 1, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Orange County Associates, which resulted in Fund
X and XI Associates becoming a joint venture partner with the Operating
Partnership in the ownership of the Cort Furniture Building.
170
Following are the financial statements for Wells/Orange County Associates:
Wells/Orange County Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
---------- ----------
Real estate assets, at cost:
Land $2,187,501 $2,187,501
Building, less accumulated depreciation of $651,780 in
2001 and $465,216 in 2000 4,012,335 4,198,899
---------- ----------
Total real estate assets 6,199,836 6,386,400
Cash and cash equivalents 188,407 119,038
Accounts receivable 80,803 99,154
Prepaid expenses and other assets 9,426 0
---------- ----------
Total assets $6,478,472 $6,604,592
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 11,792 $ 1,000
Partnership distributions payable 192,042 128,227
---------- ----------
Total liabilities 203,834 129,227
---------- ----------
Partners' capital:
Wells Operating Partnership, L.P. 2,740,000 2,827,607
Fund X and XI Associates 3,534,638 3,647,758
---------- ----------
Total partners' capital 6,274,638 6,475,365
---------- ----------
Total liabilities and partners' capital $6,478,472 $6,604,592
========== ==========
171
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
-------- -------- --------
Revenues:
Rental income $795,528 $795,545 $795,545
Interest income 2,409 0 0
-------- -------- --------
797,937 795,545 795,545
-------- -------- --------
Expenses:
Depreciation 186,564 186,564 186,565
Management and leasing fees 33,547 30,915 30,360
Operating costs, net of reimbursements 21,855 5,005 22,229
Legal and accounting 9,800 4,100 5,439
-------- -------- --------
251,766 226,584 244,593
-------- -------- --------
Net income $546,171 $568,961 $550,952
======== ======== ========
Net income allocated to Wells Operating Partnership, L.P $238,542 $248,449 $240,585
======== ======== ========
Net income allocated to Fund X and XI Associates $307,629 $320,512 $310,367
======== ======== ========
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
----------- ---------- ----------
Balance, December 31, 1998 $2,958,617 $3,816,766 $6,775,383
Net income 240,585 310,367 550,952
Partnership distributions (306,090) (394,871) (700,961)
----------- ---------- ----------
Balance, December 31, 1999 2,893,112 3,732,262 6,625,374
Net income 248,449 320,512 568,961
Partnership distributions (313,954) (405,016) (718,970)
----------- ---------- ----------
Balance, December 31, 2000 2,827,607 3,647,758 6,475,365
Net income 238,542 307,629 546,171
Partnership distributions (326,149) (420,749) (746,898)
----------- ---------- ----------
Balance, December 31, 2001 $2,740,000 $3,534,638 $6,274,638
=========== ========== ==========
172
Wells/Orange County Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- ------------
Cash flows from operating activities:
Net income $ 546,171 $ 568,961 $ 550,952
--------- --------- ---------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 186,564 186,564 186,565
Changes in assets and liabilities:
Accounts receivable 18,351 (49,475) (36,556)
Accounts payable 10,792 1,000 (1,550)
Prepaid and other expenses (9,426) 0 0
--------- --------- ---------
Total adjustments 206,281 138,089 148,459
--------- --------- ---------
Net cash provided by operating activities 752,452 707,050 699,411
Cash flows from financing activities:
Distributions to partners (683,083) (764,678) (703,640)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 69,369 (57,628) (4,229)
Cash and cash equivalents, beginning of year 119,038 176,666 180,895
--------- --------- ---------
Cash and cash equivalents, end of year $ 188,407 $ 119,038 $ 176,666
========= ========= =========
Wells/Fremont Associates
On July 15, 1998, the Operating Partnership entered into a joint venture
agreement with Wells Development Corporation, referred to as Wells/Fremont
Associates. On July 21, 1998, Wells/Fremont Associates acquired a 58,424-square
foot two-story manufacturing and office building located in Fremont, California,
known as the Fairchild Building.
On October 8, 1998, Fund X and XI Associates acquired Wells Development
Corporation's interest in Wells/Fremont Associates, which resulted in Fund X and
XI Associates becoming a joint venture partner with the Operating Partnership in
the ownership of the Fairchild Building.
173
Following are the financial statements for Wells/Fremont Associates:
Wells/Fremont Associates
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
--------------- -------------
Real estate assets, at cost:
Land $2,219,251 $2,219,251
Building, less accumulated depreciation of $999,301 in 2001 and $713,773
in 2000 6,138,857 6,424,385
---------- ----------
Total real estate assets 8,358,108 8,643,636
Cash and cash equivalents 203,750 92,564
Accounts receivable 133,801 126,433
---------- ----------
Total assets $8,695,659 $8,862,633
========== ==========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 1,896 $ 3,016
Due to affiliate 8,030 7,586
Partnership distributions payable 201,854 89,549
---------- ----------
Total liabilities 211,780 100,151
---------- ----------
Partners' capital:
Wells Operating Partnership, L.P. 6,575,358 6,791,287
Fund X and XI Associates 1,908,521 1,971,195
---------- ----------
Total partners' capital 8,483,879 8,762,482
---------- ----------
Total liabilities and partners' capital $8,695,659 $8,862,633
========== ==========
174
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ------------ ------------
Revenues:
Rental income $902,945 $902,946 $902,946
Interest income 2,713 0 0
Other income 2,015 0 0
-------- -------- --------
907,673 902,946 902,946
-------- -------- --------
Expenses:
Depreciation 285,528 285,527 285,526
Management and leasing fees 36,267 36,787 37,355
Operating costs, net of reimbursements 16,585 13,199 16,006
Legal and accounting 6,400 4,300 4,885
-------- -------- --------
344,780 339,813 343,772
-------- -------- --------
Net income $562,893 $563,133 $559,174
======== ======== ========
Net income allocated to Wells Operating Partnership, L.P. $436,265 $436,452 $433,383
======== ======== ========
Net income allocated to Fund X and XI Associates $126,628 $126,681 $125,791
======== ======== ========
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Operating Fund X Total
Partnership, and XI Partners'
L.P. Associates Capital
------------------ ---------------- --------------
Balance, December 31, 1998 $7,166,682 $2,080,155 $9,246,837
Net income 433,383 125,791 559,174
Partnership distributions (611,855) (177,593) (789,448)
---------- ---------- ----------
Balance, December 31, 1999 6,988,210 2,028,353 9,016,563
Net income 436,452 126,681 563,133
Partnership distributions (633,375) (183,839) (817,214)
---------- ---------- ----------
Balance, December 31, 2000 6,791,287 1,971,195 8,762,482
Net income 436,265 126,628 562,893
Partnership distributions (652,194) (189,302) (841,496)
---------- ---------- ----------
Balance, December 31, 2001 $6,575,358 $1,908,521 $8,483,879
========== ========== ==========
175
Wells/Fremont Associates
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
---------- ---------- ----------
Cash flows from operating activities:
Net income $ 562,893 $ 563,133 $ 559,174
---------- ---------- ----------
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation 285,528 285,527 285,526
Changes in assets and liabilities:
Accounts receivable (7,368) (33,454) (58,237)
Accounts payable (1,120) 1,001 (1,550)
Due to affiliate 444 2,007 3,527
---------- ---------- ----------
Total adjustments 277,484 255,081 229,266
---------- ---------- ----------
Net cash provided by operating activities 840,377 818,214 788,440
Cash flows from financing activities:
Distributions to partners (729,191) (914,662) (791,940)
---------- ---------- ----------
Net increase (decrease) in cash and cash equivalents 111,186 (96,448) (3,500)
Cash and cash equivalents, beginning of year 92,564 189,012 192,512
---------- ---------- ----------
Cash and cash equivalents, end of year $ 203,750 $ 92,564 $ 189,012
========== ========== ==========
Fund XI, XII, and REIT Joint Venture
On May 1, 1999, the Operating Partnership entered into a joint venture with Fund
XI and Wells Real Estate Fund XII, L.P. ("Fund XII"). On May 18, 1999, the joint
venture purchased a 169,510-square foot, two-story manufacturing and office
building, known as EYBL CarTex Building, in Fountain Inn, South Carolina. On
July 21, 1999, the joint venture purchased a 68,900-square foot,
three-story-office building, known as the Sprint Building, in Leawood, Kansas.
On August 17, 1999, the joint venture purchased a 130,000-square foot office and
warehouse building, known as the Johnson Matthey Building, in Chester County,
Pennsylvania. On September 20, 1999, the joint venture purchased a 62,400-square
foot, two-story office building, known as the Gartner Building, in Fort Myers,
Florida.
176
Following are the financial statements for the Fund XI, XII, and REIT Joint
Venture:
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
------------ ------------
Real estate assets, at cost:
Land $ 5,048,797 $ 5,048,797
Building and improvements, less accumulated depreciation of
$2,692,116 in 2001 and $1,599,263 in 2000 24,626,336 25,719,189
------------ ------------
Total real estate assets 29,675,133 30,767,986
Cash and cash equivalents 775,805 541,089
Accounts receivable 675,022 394,314
Prepaid assets and other expenses 26,486 26,486
------------ ------------
Total assets $31,152,446 $31,729,875
============ ============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 114,612 $ 114,180
Partnership distributions payable 757,500 453,395
------------ ------------
Total liabilities 872,112 567,575
------------ ------------
Partners' capital:
Wells Real Estate Fund XI 7,917,646 8,148,261
Wells Real Estate Fund XII 5,174,703 5,325,424
Wells Operating Partnership, L.P. 17,187,985 17,688,615
------------ ------------
Total partners' capital 30,280,334 31,162,300
------------ ------------
Total liabilities and partners' capital $31,152,446 $31,729,875
============ ============
177
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -----------
Revenues
Rental income $3,346,227 $3,345,932 $1,443,446
Interest income 24,480 2,814 0
Other income 360 440 57
----------- ----------- -----------
3,371,067 3,349,186 1,443,503
----------- ----------- -----------
Expenses:
Depreciation 1,092,853 1,092,680 506,582
Management and leasing fees 156,987 157,236 59,230
Operating costs, net of reimbursements (27,449) (30,718) 4,639
Property administration 65,765 36,707 15,979
Legal and accounting 18,000 14,725 4,000
1,306,156 1,270,630 590,430
----------- ----------- -----------
Net income $2,064,911 $2,078,556 $ 853,073
----------- ----------- -----------
Net income allocated to Wells Real Estate Fund XI $ 539,930 $ 543,497 $ 240,031
=========== =========== ===========
Net income allocated to Wells Real Estate Fund XII $ 352,878 $ 355,211 $ 124,542
=========== =========== ===========
Net income allocated to Wells Operating Partnership, L.P. $1,172,103 $1,179,848 $ 488,500
=========== =========== ===========
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Years Ended December 31, 2001, 2000, and 1999
Wells
Wells Real Wells Real Operating Total
Estate Estate Partnership, Partners'
Fund XI Fund XII L.P. Capital
---------- ---------- ------------ -----------
Balance, December 31, 1998 $ 0 $ 0 $ 0 $ 0
Net income 240,031 124,542 488,500 853,073
Partnership contributions 8,470,160 5,520,835 18,376,267 32,367,262
Partnership distributions (344,339) (177,743) (703,797) (1,225,879)
---------- ---------- ------------ -----------
Balance, December 31, 1999 8,365,852 5,467,634 18,160,970 31,994,456
Net income 543,497 355,211 1,179,848 2,078,556
Partnership distributions (761,088) (497,421) (1,652,203) (2,910,712)
---------- ---------- ------------ -----------
Balance, December 31, 2000 8,148,261 5,325,424 17,688,615 31,162,300
Net income 539,930 352,878 1,172,103 2,064,911
Partnership distributions (770,545) (503,599) (1,672,733) (2,946,877)
---------- ---------- ------------ -----------
Balance, December 31, 2001 $7,917,646 $5,174,703 $17,187,985 $30,280,334
========== ========== ============ ===========
178
The Fund XI, XII, and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Years Ended December 31, 2001, 2000, and 1999
2001 2000 1999
----------- ----------- -------------
Cash flows from operating activities:
Net income $ 2,064,911 $ 2,078,556 $ 853,073
----------- ----------- -------------
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 1,092,853 1,092,680 506,582
Changes in assets and liabilities:
Accounts receivable (280,708) (260,537) (133,777)
Prepaid expenses and other assets 0 0 (26,486)
Accounts payable 432 1,723 112,457
----------- ----------- -------------
Total adjustments 812,577 833,866 458,776
----------- ----------- -------------
Net cash provided by operating activities 2,877,488 2,912,422 1,311,849
Cash flows from financing activities:
Distributions to joint venture partners (2,642,772) (3,137,611) (545,571)
----------- ----------- -------------
Net increase (decrease) in cash and cash equivalents 234,716 (225,189) 766,278
Cash and cash equivalents, beginning of year 541,089 766,278 0
----------- ----------- -------------
Cash and cash equivalents, end of year $ 775,805 $ 541,089 $ 766,278
=========== =========== =============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 0 $ 1,294,686
=========== =========== =============
Contribution of real estate assets to joint venture $ 0 $ 0 $ 31,072,562
=========== =========== =============
Fund XII and REIT Joint Venture
On May 10, 2000, the Operating Partnership entered into a joint venture with
Fund XII. The joint venture, Fund XII and REIT Joint Venture, was formed to
acquire, develop, operate, and sell real property. On May 20, 2000, the joint
venture purchased a 77,054-square foot, three-story office building known as the
Siemens Building in Troy, Oakland County, Michigan. On December 28, 2000, the
joint venture purchased a 50,000-square foot, one-story office building and a
78,500-square foot two-story office building collectively known as the AT&T Call
Center Buildings in Oklahoma City, Oklahoma County, Oklahoma. On May 15, 2001,
the joint venture purchased a 201,237-square foot, three-story office building
known as the Comdata Building located in Brentwood, Williamson County,
Tennessee.
179
Following are the financial statements for Fund XII and REIT Joint Venture:
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheets
December 31, 2001 and 2000
Assets
2001 2000
----------- -----------
Real estate assets, at cost:
Land $ 8,899,574 $ 4,420,405
Building and improvements, less accumulated depreciation of $2,131,838
in 2001 and $324,732 in 2000 45,814,781 26,004,918
----------- -----------
Total real estate assets 54,714,355 30,425,323
Cash and cash equivalents 1,345,562 207,475
Accounts receivable 442,023 130,490
----------- -----------
Total assets $56,501,940 $30,763,288
=========== ===========
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 134,969 $ 0
Partnership distributions payable 1,238,205 208,261
----------- -----------
Total liabilities 1,373,174 208,261
----------- -----------
Partners' capital:
Wells Real Estate Fund XII 24,828,894 16,242,127
Wells Operating Partnership, L.P. 30,299,872 14,312,900
----------- -----------
Total partners' capital 55,128,766 30,555,027
----------- -----------
Total liabilities and partners' capital $56,501,940 $30,763,288
=========== ===========
180
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Income
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
2001 2000
---------- --------
Revenues:
Rental income $4,683,323 $974,796
Interest income 25,144 2,069
---------- --------
4,708,467 976,865
---------- --------
Expenses:
Depreciation 1,807,106 324,732
Management and leasing fees 224,033 32,756
Partnership administration 38,928 3,917
Legal and accounting 16,425 0
Operating costs, net of reimbursements 10,453 1,210
---------- --------
2,096,945 362,615
---------- --------
Net income $2,611,522 $614,250
========== ========
Net income allocated to Wells Real Estate Fund XII $1,224,645 $309,190
========== ========
Net income allocated to Wells Operating Partnership, L.P. $1,386,877 $305,060
========== ========
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Partners' Capital
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
Wells Real Wells Total
Estate Operating Partners'
Fund XII Partnership, L.P. Capital
----------- ----------------- -----------
Balance, May 10, 2000 (inception) $ 0 $ 0 $ 0
Net income 309,190 305,060 614,250
Partnership contributions 16,340,884 14,409,171 30,750,055
Partnership distributions (407,948) (401,330) (809,278)
----------- ----------------- -----------
Balance, December 31, 2000 16,242,126 14,312,901 30,555,027
Net income 1,224,645 1,386,877 2,611,522
Partnership contributions 9,298,084 16,795,441 26,093,525
Partnership distributions (1,935,961) (2,195,347) (4,131,308)
----------- ----------------- -----------
Balance, December 31, 2001 $24,828,894 $ 30,299,872 $55,128,766
=========== ================ ===========
181
Fund XII and REIT Joint Venture
(A Georgia Joint Venture)
Statements of Cash Flows
for the Year Ended December 31, 2001 and
the Period From May 10, 2000 (Inception) Through
December 31, 2000
2001 2000
------------- ------------
Cash flows from operating activities:
Net income $ 2,611,522 $ 614,250
------------- ------------
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation 1,807,106 324,732
Changes in assets and liabilities:
Accounts receivable (311,533) (130,490)
Accounts payable 134,969 0
------------- ------------
Total adjustments 1,630,542 194,242
------------- ------------
Net cash provided by operating activities 4,242,064 808,492
------------- ------------
Cash flows from investing activities:
Investment in real estate (26,096,138) (29,520,043)
------------- ------------
Cash flows from financing activities:
Distributions to joint venture partners (3,101,364) (601,017)
Contributions received from partners 26,093,525 29,520,043
------------- ------------
Net cash provided by financing activities 22,992,161 28,919,026
------------- ------------
Net increase in cash and cash equivalents 1,138,087 207,475
Cash and cash equivalents, beginning of period 207,475 0
------------- ------------
Cash and cash equivalents, end of year $ 1,345,562 $ 207,475
============= ============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to joint venture $ 0 $ 1,230,012
============= ============
182
Fund XIII and REIT Joint Venture
On June 27, 2001, Wells Real Estate Fund XIII, L.P. ("Fund XIII") entered into a
joint venture with the Operating Partnership to form the Fund XIII and REIT
Joint Venture. On July 16, 2001, the Fund XIII and REIT Joint Venture purchased
an 85,000-square foot, two-story office building known as the AmeriCredit
Building in Clay County, Florida. On December 21, 2001, the Fund XIII and REIT
Joint Venture purchased two connected one-story office and assembly buildings
consisting of 148,200 square feet known as the ADIC Buildings in Douglas County,
Colorado.
Following are the financial statements for the Fund XIII and REIT Joint Venture:
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Balance Sheet
December 31, 2001
Assets
Real estate assets, at cost:
Land $ 3,724,819
Building and improvements, less accumulated depreciation of $266,605 in 2001 22,783,948
------------
Total real estate assets 26,508,767
Cash and cash equivalents 460,380
Accounts receivable 71,236
Prepaid assets and other expenses 773
------------
Total assets $ 27,041,156
============
Liabilities and Partners' Capital
Liabilities:
Accounts payable $ 145,331
Partnership distributions payable 315,049
------------
Total liabilities 460,380
------------
Partners' capital:
Wells Real Estate Fund XIII 8,453,438
Wells Operating Partnership, L.P. 18,127,338
------------
Total partners' capital 26,580,776
------------
Total liabilities and partners' capital $27,041,156
============
183
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Income
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
Revenues:
Rental income $706,373
--------
Expenses:
Depreciation 266,605
Management and leasing fees 26,954
Operating costs, net of reimbursements 53,659
Legal and accounting 2,800
--------
350,018
--------
Net income $356,355
========
Net income allocated to Wells Real Estate Fund XIII $ 58,610
========
Net income allocated to Wells Operating Partnership, L.P. $297,745
========
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Partners' Capital
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
Wells
Wells Real Operating Total
Estate Partnership, Partners'
Fund XIII L.P. Capital
-------------- --------------- ------------
Balance, June 27, 2001 (inception) $ 0 $ 0 $ 0
Net income 58,610 297,745 356,355
Partnership contributions 8,491,069 18,285,076 26,776,145
Partnership distributions (96,241) (455,483) (551,724)
-------------- --------------- ------------
Balance, December 31, 2001 $8,453,438 $18,127,338 $26,580,776
============== =============== ============
184
The Fund XIII and REIT Joint Venture
(A Georgia Joint Venture)
Statement of Cash Flows
for the Period From June 27, 2001 (Inception) Through
December 31, 2001
Cash flows from operating activities:
Net income $ 356,355
--------------
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation 266,605
Changes in assets and liabilities:
Accounts receivable (71,236)
Prepaid expenses and other assets (773)
Accounts payable 145,331
--------------
Total adjustments 339,927
--------------
Net cash provided by operating activities 696,282
--------------
Cash flows from investing activities:
Investment in real estate (25,779,337)
--------------
Cash flows from financing activities:
Contributions from joint venture partners 25,780,110
Distributions to joint venture partners (236,675)
--------------
Net cash provided by financing activities 25,543,435
--------------
Net increase in cash and cash equivalents 460,380
Cash and cash equivalents, beginning of period 0
--------------
Cash and cash equivalents, end of year $ 460,380
==============
Supplemental disclosure of noncash activities:
Deferred project costs contributed to Joint Venture $ 996,035
==============
6. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL
The Operating Partnership's income tax basis net income for the years ended
December 31, 2001 and 2000 are calculated as follows:
2001 2000
------------- -------------
Financial statement net income $ 21,723,967 $ 8,552,967
Increase (decrease) in net income resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 7,347,459 3,511,353
Rental income accrued for financial reporting purposes in excess of
amounts for income tax purposes (2,735,237) (1,822,220)
Expenses deductible when paid for income tax purposes, accrued for
financial reporting purposes 25,658 37,675
------------ ------------
Income tax basis net income $ 26,361,847 $ 10,279,775
============ ============
185
The Operating Partnership's income tax basis partners' capital at December
31, 2001 and 2000 is computed as follows:
2001 2000
-------------- --------------
Financial statement partners' capital $710,285,758 $265,341,612
Increase (decrease) in partners' capital resulting from:
Depreciation expense for financial reporting purposes in excess of
amounts for income tax purposes 11,891,061 4,543,602
Capitalization of syndication costs for income tax purposes, which
are accounted for as cost of capital for financial reporting
purposes 12,896,312 12,896,312
Accumulated rental income accrued for financial reporting purposes
in excess of amounts for income tax purposes (5,382,483) (2,647,246)
Accumulated expenses deductible when paid for income tax purposes,
accrued for financial reporting purposes 114,873 89,215
Dividends payable 1,059,026 1,025,010
Other (222,378) (222,378)
------------ ------------
Income tax basis partners' capital $730,642,169 $281,026,127
============ ============
7. RENTAL INCOME
The future minimum rental income due from the Operating Partnership's
direct investment in real estate or its respective ownership interest in
the joint ventures under noncancelable operating leases at December 31,
2001 is as follows:
Year ended December 31:
2002 $ 69,364,229
2003 70,380,691
2004 71,184,787
2005 70,715,556
2006 71,008,821
Thereafter 270,840,299
-------------
$ 623,494,383
=============
One tenant contributed 10% of rental income for the year ended December 31,
2001. In addition, one tenant will contribute 12% of future minimum rental
income.
Future minimum rental income due from Fund VIII, IX, and REIT Joint Venture
under noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 1,287,119
2003 1,287,119
2004 107,260
2005 0
2006 0
Thereafter 0
-------------
$ 2,681,498
=============
One tenant contributed 100% of rental income for the year ended December
31, 2001. In addition, one tenant will contribute 100% of future minimum
rental income.
186
The future minimum rental income due from Fund IX, X, XI, and REIT Joint
Venture under noncancelable operating leases at December 31, 2001 is as
follows:
Year ended December 31:
2002 $ 3,648,769
2003 3,617,432
2004 3,498,472
2005 2,482,815
2006 2,383,190
Thereafter 3,053,321
-------------
$ 18,683,999
=============
Four tenants contributed 26%, 23%, 13%, and 13% of rental income for the
year ended December 31, 2001. In addition, four tenants will contribute
38%, 21%, 20%, and 17% of future minimum rental income.
The future minimum rental income due Wells/Orange County Associates under
noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 834,888
2003 695,740
-------------
$ 1,530,628
=============
One tenant contributed 100% of rental income for the year ended December
31, 2001 and will contribute 100% of future minimum rental income.
The future minimum rental income due Wells/Fremont Associates under
noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 922,444
2003 950,118
2004 894,832
-------------
$ 2,767,394
=============
One tenant contributed 100% of rental income for the year ended December
31, 2001 and will contribute 100% of future minimum rental income.
The future minimum rental income due from Fund XI, XII, and REIT Joint
Venture under noncancelable operating leases at December 31, 2001 is as
follows:
Year ended December 31:
2002 $ 3,277,512
2003 3,367,510
2004 3,445,193
2005 3,495,155
2006 3,552,724
Thereafter 2,616,855
-------------
$ 19,754,949
=============
Four tenants contributed approximately 30%, 28%, 24%, and 18% of rental
income for the year ended December 31, 2001. In addition, four tenants will
contribute approximately 30%, 27%, 25%, and 18% of future minimum rental
income.
187
The future minimum rental income due from Fund XII and REIT Joint Venture
under noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 5,352,097
2003 5,399,451
2004 5,483,564
2005 5,515,926
2006 5,548,289
Thereafter 34,677,467
------------
$ 61,976,794
============
Three tenants contributed approximately 31%, 29%, and 27% of rental income
for the year ended December 31, 2001. In addition, three tenants will
contribute approximately 58%, 21%, and 18% of future minimum rental income.
The future minimum rental income due Fund XIII and REIT Joint Venture under
noncancelable operating leases at December 31, 2001 is as follows:
Year ended December 31:
2002 $ 2,545,038
2003 2,602,641
2004 2,661,228
2005 2,721,105
2006 2,782,957
Thereafter 13,915,835
------------
$ 27,228,804
============
One tenant contributed approximately 95% of rental income for the year
ended December 31, 2001. In addition, two tenants will contribute
approximately 51% and 49% of future minimum rental income.
8. INVESTMENT IN BONDS AND OBLIGATION UNDER CAPITAL LEASE
On September 27, 2001, the Operating Partnership acquired a ground
leasehold interest in the Ingram Micro Distribution Facility pursuant to a
Bond Real Property Lease dated December 20, 1995 (the "Bond Lease"). The
ground leasehold interest under the Bond Lease, along with the Bond and
Bond Deed of Trust described below, were purchased from Ingram Micro, L.P.
("Ingram") in a sale lease-back transaction for a purchase price of
$21,050,000. The Bond Lease expires on December 31, 2026. At closing, the
Operating Partnership also entered into a new lease with Ingram pursuant to
which Ingram agreed to lease the entire Ingram Micro Distribution Facility
for a lease term of 10 years with two successive 10-year renewal options.
In connection with the original development of the Ingram Micro
Distribution Facility, the Industrial Development Board of the City of
Milington, Tennessee (the "Industrial Development Board") issued an
Industrial Development Revenue Note dated December 20, 1995 in the
principal amount of $22,000,000 (the "Bond") to Lease Plan North America,
Inc. (the "Original Bond Holder"). The proceeds from the issuance of the
Bond were utilized to finance the construction of the Ingram Micro
Distribution Facility. The Bond is secured by a Fee Construction Mortgage
Deed of Trust Assignment of Rents and Leases also dated December 20, 1995
(the "Bond Deed of Trust") executed by the Industrial Development Board for
the benefit of the Original Bond Holder. Beginning in 2006, the holder of
the Bond Lease has the option to purchase the land underlying the Ingram
Micro Distribution Facility for $100.00 plus satisfaction of the
indebtedness evidenced by the Bond which, as set forth below, was acquired
and is currently held by the Operating Partnership.
On December 20, 2000, Ingram purchased the Bond and the Bond Deed of Trust
from the Original Bond Holder. On September 27, 2001, along with purchasing
the Ingram Micro Distribution Facility through its acquisition of the
ground leasehold interest under the Bond Lease, the Operating Partnership
also acquired the Bond and the Bond Deed of Trust from Ingram. Because the
Operating Partnership is technically subject to the obligation to pay the
$22,000,000 indebtedness evidenced by the Bond, the obligation to pay the
Bond is carried on the Company's books as a liability;
188
however, since Operating Partnership is also the owner of the Bond, the
Bond is also carried on the Company's books as an asset.
9. NOTES PAYABLE
As of December 31, 2001, the Operating Partnership's notes payable included
the following:
Note payable to Bank of America, interest at 5.9%,
interest payable monthly, due July 30, 2003,
collateralized by the Nissan property $ 468,844
Note payable to SouthTrust Bank, interest at LIBOR
plus 175 basis points, principal and interest payable
monthly, due June 10, 2002; collateralized by the
Operating Partnership's interests in the Cinemark
Building, the Dial Building, the ASML Building, the
Motorola Tempe Building, the Avnet Building, the
Matsushita Building, and the PwC Building 7,655,600
-------------
Total $ 8,124,444
=============
The contractual maturities of the Operating Partnership's notes payable are
as follows as of December 31, 2001:
2002 $7,655,600
2003 468,844
----------
Total $8,124,444
==========
10. COMMITMENTS AND CONTINGENCIES
Take Out Purchase and Escrow Agreement
An affiliate of the Advisor ("Wells Exchange") has developed a program (the
"Wells Section 1031 Program") involving the acquisition by Wells Exchange
of income-producing commercial properties and the formation of a series of
single member limited liability companies for the purpose of facilitating
the resale of co-tenancy interests in such real estate properties to be
owned in co-tenancy arrangements with persons ("1031 Participants") who are
looking to invest the proceeds from a sale of real estate held for
investment in another real estate investment for purposes of qualifying for
like-kind exchange treatment under Section 1031 of the Code. Each of these
properties will be financed by a combination of permanent first mortgage
financing and interim loan financing obtained from institutional lenders.
Following the acquisition of each property, Wells Exchange will attempt to
sell co-tenancy interests to 1031 Participants, the proceeds of which will
be used to pay off the interim financing. In consideration for the payment
of a take out fee to the Company, and following approval of the potential
property acquisition by the Company's board of directors, it is anticipated
that Wells OP will enter into a take out purchase and escrow agreement or
similar contract providing that, in the event that Wells Exchange is unable
to sell all of the co-tenancy interest in that particular property to 1031
Participants, the Operating Partnership will purchase, at Wells Exchange's
cost, any co-tenancy interests remaining unsold at the end of the offering
period.
As a part of the initial transaction in the Wells Section 1031 Program, and
in consideration for the payment of a take out fee in the amount of
$137,500 to the Company, Wells OP entered into a take out purchase and
escrow agreement dated April 16, 2001 providing that, among other things,
Wells OP is obligated to acquire, at Wells Exchange's cost ($839,694 in
cash plus $832,060 of assumed debt for each 7.63358% interest of co-tenancy
interest unsold), any co-tenancy interest in the building known as the Ford
Motor Credit Complex which remains unsold at the expiration of the offering
of Wells Exchange, which has been extended to April 15, 2002, which is also
the maturity date of the interim loan relating to such property. The Ford
Motor Credit Complex consists of two connecting office buildings containing
167,438 rentable square feet located in Colorado Springs, Colorado,
currently under a triple-net lease with Ford Motor Credit Company, a wholly
owned subsidiary of Ford Motor Company.
The obligations of Wells OP under the take out purchase and escrow
agreement are secured by reserving against a portion of Wells OP's existing
line of credit with Bank of America, N.A. (the "Interim Lender"). If, for
any reason, Wells OP fails to acquire any of the co-tenancy interest in the
Ford Motor Credit Complex which remains unsold as of
189
April 15, 2002, or there is otherwise an uncured default under the interim
loan or the line of credit documents, the Interim Lender is authorized to
draw down Wells OP's line of credit in the amount necessary to pay the
outstanding balance of the interim loan in full, in which event the
appropriate amount of co-tenancy interest in the Ford Motor Credit Complex
would be deeded to Wells OP. Wells OP's maximum economic exposure in the
transaction is $21,900,000, in which event Wells OP would acquire the Ford
Motor Credit Complex for $11,000,000 in cash plus assumption of the first
mortgage financing in the amount of $10,900,000. If some, but not all, of
the co-tenancy interests are sold, Wells OP's exposure would be less, and
it would own an interest in the property in co-tenancy with the 1031
Participants who had previously acquired co-tenancy interests in the Ford
Motor Credit Complex from Wells Exchange.
Development of the Nissan Property
The Operating Partnership has entered into an agreement with an independent
third-party general contractor for the purpose of designing and
constructing a three-story office building containing 268,290 rentable
square feet on the Nissan Property. The construction agreement provides
that the Operating Partnership will pay the contractor a maximum of
$25,326,017 for the design and construction of the building. Construction
commenced on January 25, 2002 and is scheduled to be completed within 20
months.
General
Management, after consultation with legal counsel, is not aware of any
significant litigation or claims against the Company, the Operating
Partnership, or the Advisor. In the normal course of business, the Company,
the Operating Partnership, or the Advisor may become subject to such
litigation or claims.
11. SHAREHOLDERS' EQUITY
Common Stock Option Plan
The Wells Real Estate Investment Trust, Inc. Independent Director Stock
Option Plan ("the Plan") provides for grants of stock to be made to
independent nonemployee directors of the Company. Options to purchase 2,500
shares of common stock at $12 per share are granted upon initially becoming
an independent director of the Company. Of these shares, 20% are
exercisable immediately on the date of grant. An additional 20% of these
shares become exercisable on each anniversary following the date of grant
for a period of four years. Effective on the date of each annual meeting of
shareholders of the Company, beginning in 2000, each independent director
will be granted an option to purchase 1,000 additional shares of common
stock. These options vest at the rate of 500 shares per full year of
service thereafter. All options granted under the Plan expire no later than
the date immediately following the tenth anniversary of the date of grant
and may expire sooner in the event of the disability or death of the
optionee or if the optionee ceases to serve as a director.
The Company has adopted the disclosure provisions in Statement of Financial
Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." As permitted by the provisions of SFAS No. 123, the Company
applies Accounting Principles Board Opinion No. 25 and the related
interpretations in accounting for its stock option plans and, accordingly,
does not recognize compensation cost.
190
A summary of the Company's stock option activity during 2001 and 2000 is as
follows:
Exercise
Number Price
------ --------
Outstanding at December 31, 1999 17,500 $ 12
Granted 7,000 12
------
Outstanding at December 31, 2000 24,500 12
Granted 7,000 12
------
Outstanding at December 31, 2001 31,500 12
======
Outstanding options exercisable as of December 31, 2001 10,500 12
======
For SFAS No. 123 purposes, the fair value of each stock option for 2001 and
2000 has been estimated as of the date of the grant using the minimum value
method. The weighted average risk-free interest rates assumed for 2001 and
2000 were 5.05% and 6.45%, respectively. Dividend yields of 7.8% and 7.3%
were assumed for 2001 and 2000, respectively. The expected life of an
option was assumed to be six years and four years for 2001 and 2000,
respectively. Based on these assumptions, the fair value of the options
granted during 2001 and 2000 is $0.
Treasury Stock
During 1999, the Company's board of directors authorized a dividend
reinvestment program (the "DRP"), through which common shareholders may
elect to reinvest an amount equal to the dividends declared on their common
shares into additional shares of the Company's common stock in lieu of
receiving cash dividends. During 2000, the Company's board of directors
authorized a common stock repurchase plan subject to the amount reinvested
in the Company's common shares through the DRP, less shares already
redeemed, and a limitation in the amount of 3% of the average common shares
outstanding during the preceding year. During 2001 and 2000, the Company
repurchased 413,743 and 141,297 of its own common shares at an aggregate
cost of $4,137,427 and $1,412,969, respectively. These transactions were
funded with cash on hand and did not exceed either of the foregoing
limitations.
12. QUARTERLY RESULTS (UNAUDITED)
Presented below is a summary of the unaudited quarterly financial
information for the years ended December 31, 2001 and 2000:
2001 Quarters Ended
---------------------------------------------------------------------
March 31 June 30 September 30 December 31
------------ -------------- ---------------- ---------------
Revenues $ 10,669,713 $ 10,891,240 $ 12,507,904 $ 15,239,945
Net income 3,275,345 5,038,898 6,109,137 7,300,587
Basic and diluted earnings per share
(a) $ 0.10 $ 0.12 $ 0.11 $ 0.10
Dividends per share (a) 0.19 0.19 0.19 0.19
(a) The totals of the four quarterly amounts for the
year ended December 31, 2001 do not equal the
totals for the year. This difference results
from rounding differences between quarters.
191
2000 Quarters Ended
----------------------------------------------------------
March 31 June 30 September 30 December 31
----------- ----------- ------------ ------------
Revenues $ 3,710,409 $ 5,537,618 $ 6,586,611 $ 7,538,568
Net income 1,691,288 1,521,021 2,525,228 2,815,430
Basic and diluted earnings per share $ 0.11 $ 0.08 $ 0.11 $ 0.10
Dividends per share 0.18 0.18 0.18 0.19
13. SUBSEQUENT EVENT
On January 11, 2002, the Operating Partnership purchased a three-story
office building on a 9.8-acre tract of land located in Sarasota County,
Florida known as the Arthur Andersen Building, from an unaffiliated third
party for $21,400,000. The Operating Partnership incurred additional
related acquisition expenses, including attorneys' fees, recording fees,
structural report and environmental report fees, and other closing costs,
of approximately $30,000.
192
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Accumulated
Cost Depreciation
------------- ------------
BALANCE AT DECEMBER 31, 1998 $ 76,201,910 $ 1,487,963
1999 additions 103,916,288 4,243,688
------------- ------------
BALANCE AT DECEMBER 31, 1999 180,118,198 5,731,651
2000 additions 293,450,036 11,232,378
------------- ------------
BALANCE AT DECEMBER 31, 2000 473,568,234 16,964,029
============= ============
============= ============
2001 additions 294,740,403 20,821,037
============= ============
BALANCE AT DECEMBER 31, 2001 $ 768,308,697 $ 37,785,066
============= ============
193
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
ASSETS
March 31, December 31,
2002 2001
------------ -------------
REAL ESTATE ASSETS, at cost:
Land $ 94,273,542 $ 86,246,985
Building and improvements, less accumulated depreciation of $30,558,906 in 2002
and $24,814,454 in 2001 563,639,005 472,383,102
Construction in progress 8,827,823 5,738,573
------------ ------------
Total real estate assets 666,740,370 564,368,660
INVESTMENT IN JOINT VENTURES 76,811,543 77,409,980
CASH AND CASH EQUIVALENTS 187,022,573 75,586,168
INVESTMENT IN BONDS 22,000,000 22,000,000
ACCOUNTS RECEIVABLE 7,697,487 6,003,179
DEFERRED PROJECT COSTS 7,739,896 2,977,110
DEFERRED LEASE ACQUISITION COSTS, net 1,868,674 1,525,199
DUE FROM AFFILIATES 1,820,241 1,692,727
PREPAID EXPENSES AND OTHER ASSETS, net 1,584,942 718,389
DEFERRED OFFERING COSTS 244,761 0
------------ ------------
Total assets $973,530,487 $752,281,412
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES:
Notes payable $ 11,071,586 $ 8,124,444
Obligation under capital lease 22,000,000 22,000,000
Accounts payable and accrued expenses 8,570,735 8,727,473
Dividends payable 3,657,498 1,059,026
Due to affiliates 990,923 2,166,161
Deferred rental income 1,567,241 661,657
------------ ------------
Total liabilities 47,857,983 42,738,761
------------ ------------
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP 200,000 200,000
SHAREHOLDERS' EQUITY: ------------ ------------
Common shares, $.01 par value; 125,000,000 shares authorized, 109,331,764
shares issued and 108,472,526 shares outstanding at March 31, 2002, and
83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001 1,093,317 837,614
Additional paid-in capital 966,577,500 738,236,525
Cumulative distributions in excess of earnings (33,555,824) (24,181,092)
Treasury stock, at cost, 859,238 shares at March 31, 2002 and 555,040 shares
at December 31, 2001 (8,592,377) (5,550,396)
Other comprehensive loss (50,112) 0
------------ ------------
Total shareholders' equity 925,472,504 709,342,651
------------ ------------
Total liabilities and shareholders' equity $973,530,487 $752,281,412
============ ============
The accompanying condensed notes are an integral part of these consolidated
financial statements
194
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
Three Months Ended
--------------------------------
March 31, March 31,
2002 2001
---------------- --------------
REVENUES:
Rental income $ 16,738,163 $ 9,860,085
Equity in income of joint ventures 1,206,823 709,713
Interest income 1,113,715 99,915
Take out fee 134,102 0
-------------- -------------
19,192,803 10,669,713
-------------- -------------
EXPENSES:
Depreciation 5,744,452 3,187,179
Management and leasing fees 899,495 565,714
Operating costs, net of reimbursements 624,698 1,091,185
General and administrative 529,031 175,107
Interest expense 440,001 2,160,426
Amortization of deferred financing costs 175,462 214,757
-------------- -------------
8,413,139 7,394,368
-------------- -------------
NET INCOME $ 10,779,664 $ 3,275,345
============== =============
EARNINGS PER SHARE
Basic and diluted $ 0.11 $ 0.10
============== =============
The accompanying condensed notes are an integral part of these consolidated
financial statements.
195
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE THREE MONTHS ENDED MARCH 31, 2002
Cumulative
Common Additional Distributions in Treasury
Common Stock Paid-In Excess of Retained Stock
Stock Shares Amount Capital Earnings Earnings Shares
------------ ------------ ------------- ----------------- -------------- -------------
BALANCE, December 31, 2000 31,509,807 $ 315,097 $ 275,573,339 $ (9,133,855) $ 0 $ (141,297)
Issuance of common stock 52,251,662 522,517 521,994,103 0 0 0
Treasury stock purchased 0 0 0 0 0 (413,743)
Net income 0 0 0 0 21,723,967 0
Dividends ($.76 per share) 0 0 0 (15,047,237) (21,723,967) 0
Sales commissions and discounts 0 0 (49,246,118) 0 0 0
Other offering expenses 0 0 (10,084,799) 0 0 0
----------- ----------- ------------- --------------- -------------- ------------
BALANCE, December 31, 2001 83,761,469 837,614 738,236,525 (24,181,092) 0 (555,040)
Issuance of common stock 25,570,295 255,703 255,447,240 0 0 0
Treasury stock purchased 0 0 0 0 0 (304,198)
Net income 0 0 0 0 10,779,664 0
Dividends ($.19 per share) 0 0 0 (9,374,732) (10,779,664) 0
Sales commissions and discounts 0 0 (24,579,655) 0 0 0
Other offering expenses 0 0 (2,526,610) 0 0 0
Gain/(loss) on interest rate swap 0 0 0 0 0 0
----------- ----------- ------------- -------------- ------------- ------------
BALANCE, March 31, 2002 109,331,764 $ 1,093,317 $ 966,577,500 $ (33,555,824) $ 0 $ (859,238)
=========== =========== ============= ============== ============= ============
Other Total
Treasury Stock Comprehensive Shareholders'
Amount Income Equity
---------------- -------------- --------------
BALANCE, December 31, 2000 $ (1,412,969) $ 0 $ 265,341,612
Issuance of common stock 0 0 522,516,620
Treasury stock purchased (4,137,427) 0 (4,137,427)
Net income 0 0 21,723,967
Dividends ($.76 per share) 0 0 (36,771,204)
Sales commissions and discounts 0 0 (49,246,118)
Other offering expenses 0 0 (10,084,799)
-------------- -------------- --------------
BALANCE, December 31, 2001 (5,550,396) 0 709,342,651
Issuance of common stock 0 0 255,702,943
Treasury stock purchased (3,041,981) 0 (3,041,981)
Net income 0 0 10,779,664
Dividends ($.19 per share) 0 0 (20,154,396)
Sales commissions and discounts 0 0 (24,579,655)
Other offering expenses 0 0 (2,526,610)
Gain/(loss) on interest rate swap 0 (50,112) (50,112)
-------------- -------------- --------------
BALANCE, March 31, 2002 $ (8,592,377) $ (50,112) $ 925,472,504
============== ============== ==============
The accompanying condensed notes are an integral part of these consolidated
financial statements.
196
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended
---------------------------------
March 31, March 31,
2002 2001
---------------- ----------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 10,779,664 $ 3,275,345
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in income of joint ventures (1,206,823) (709,713)
Depreciation 5,744,452 3,187,179
Amortization of deferred financing costs 175,462 214,757
Amortization of deferred leasing costs 72,749 75,837
Deferred lease acquisition costs paid (400,000) 0
Changes in assets and liabilities:
Accounts receivable (1,694,308) (264,416)
Due from affiliates (13,740) 0
Deferred rental income 905,584 (142,888)
Prepaid expenses and other assets, net (1,092,127) 2,481,643
Accounts payable and accrued expenses (156,738) 96,828
Due to affiliates (626) 20,742
--------------- --------------
Net cash provided by operating activities 13,113,549 8,235,314
--------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Investments in real estate (104,051,998) (2,703,858)
Investment in joint ventures 0 (5,749)
Deferred project costs paid (9,461,180) (2,288,936)
Distributions received from joint ventures 1,691,486 734,286
--------------- --------------
Net cash used in investing activities (111,821,692) (4,264,257)
--------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from notes payable 2,947,142 5,800,000
Repayment of notes payable 0 (56,923,187)
Dividends paid to shareholders (17,555,924) (6,213,236)
Issuance of common stock 255,702,943 66,174,705
Sales commissions paid (24,579,655) (6,212,824)
Offering costs paid (3,327,977) (1,961,945)
Treasury stock purchased (3,041,981) (776,555)
--------------- --------------
Net cash (used in) provided by financing activities 210,144,548 (113,042)
--------------- --------------
NET INCREASE IN CASH AND CASH EQUIVALENTS 111,436,405 3,858,015
CASH AND CASH EQUIVALENTS, beginning of year 75,586,168 4,298,301
--------------- --------------
CASH AND CASH EQUIVALENTS, end of period $ 187,022,573 $ 8,156,316
=============== ==============
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
Deferred project costs applied to real estate assets $ 4,080,388 $ 1,430,111
=============== ==============
Deferred project costs due to affiliate $ 496,134 $ 0
=============== ==============
Interest rate swap $ (50,112) $ 0
=============== ==============
Deferred offering costs due to affiliate $ 244,761 $ 0
=============== ==============
Other offering costs due to affiliate $ 141,761 $ 0
=============== ==============
Write-off of deferred offering costs due to affiliate $ 0 $ 709,686
=============== ==============
The accompanying condensed notes are an integral part of these consolidated
financial statements.
197
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2002
1. Summary of Significant Accounting Policies
(a) General
Wells Real Estate Investment Trust, Inc. (the "Company") is a Maryland
corporation formed on July 3, 1997, which qualifies as a real estate
investment trust ("REIT"). Substantially all of the Company's business is
conducted through Wells Operating Partnership, L.P. ("Wells OP"), a Delaware
limited partnership organized for the purpose of acquiring, developing,
owning, operating, improving, leasing, and otherwise managing income
producing commercial properties for investment purposes on behalf of the
Company. The Company is the sole general partner of Wells OP.
On January 30, 1998, the Company commenced its initial public offering of up
to 16,500,000 shares of common stock at $10 per share pursuant to a
Registration Statement on Form S-11 filed under the Securities Act of 1933.
The Company commenced active operations on June 5, 1998, upon receiving and
accepting subscriptions for 125,000 shares. The Company terminated its
initial public offering on December 19, 1999 at which time gross proceeds of
approximately $132,181,919 had been received from the sale of approximately
13,218,192 shares. The Company commenced its second public offering of
shares of common stock on December 20, 1999, which was terminated on
December 19, 2000 after receipt of gross proceeds of approximately
$175,229,193 from the sale of approximately 17,522,919 shares from the
second public offering. The Company commenced its third public offering of
the shares of common stock on December 20, 2000. As of March 31, 2002, the
Company has received gross proceeds of approximately $785,906,526 from the
sale of approximately 78,590,653 shares from its third public offering.
Accordingly, as of March 31, 2002, the Company has received aggregate gross
offering proceeds of approximately $1,093,317,638 from the sale of
109,331,764 shares of its common stock to 27,900 investors. After payment of
$37,965,419 in acquisition and advisory fees and acquisition expenses,
payment of $125,647,820 in selling commissions and organization and offering
expenses, capital contributions to joint ventures and acquisitions
expenditures by Wells OP of $735,821,825 for property acquisitions, and
common stock redemptions of $8,592,377 pursuant to the Company's share
redemption program, the Company was holding net offering proceeds of
$185,290,197 available for investment in properties, as of March 31, 2002.
198
WELLS REAL ESTATE INVESTMENT TRUST, INC. AND SUBSIDIARY
(A Georgia Public Limited Partnership)
SCHEDULE III--REAL ESTATE INVESTMENTS AND ACCUMULATED DEPRECIATION
DECEMBER 31, 2001
Initial Cost Gross Amount at Which Carried at December 31, 2001
------------------------ --------------------------------------------------
Costs of
Ownership Buildings and Capitalized Buildings and Construct
Description Percentage Encumbrances Land Improvements Improvements Land Improvements in Progress Total
----------- ---------- ------------ ---- ------------ ------------ ---- ------------ ----------- -----
ALSTOM
POWER--
KNOXVILLE
PROPERTY
(a) 4% None $ 582,897 $ 744,164 $6,744,547 $ 607,930 $ 7,463,678 $ 0 $ 8,071,608
AVAYA BUILDING 4 None 1,002,723 4,386,374 242,241 1,051,138 4,580,200 0 5,631,338
360 INTERLOCKEN (c) 4 None 1,570,000 6,733,500 437,266 1,650,070 7,090,696 0 8,740,766
IOMEGA
PROPERTY (d) 4 None 597,000 4,674,624 876,459 641,988 5,506,095 0 6,148,083
OHMEDA
PROPERTY (e) 4 None 2,613,600 7,762,481 528,415 2,746,894 8,157,602 0 10,904,496
FAIRCHILD
PROPERTY (f) 78 None 2,130,480 6,852,630 374,300 2,219,251 7,138,159 0 9,357,410
ORANGE COUNTY
PROPERTY (g) 44 None 2,100,000 4,463,700 287,916 2,187,501 4,664,115 0 6,851,616
PRICEWATER-
HOUSECOOPERS
PROPERTY (h) 100 None 1,460,000 19,839,071 825,560 1,520,834 20,603,797 0 22,124,631
EYBL CARTEX
PROPERTY (i) 57 None 330,000 4,791,828 213,411 343,750 4,991,489 0 5,335,239
SPRINT BUILDING
(j) 57 None 1,696,000 7,850,726 397,783 1,766,667 8,177,842 0 9,944,509
JOHNSON
MATTHEY (k) 57 None 1,925,000 6,131,392 335,685 2,005,209 6,386,868 0 8,392,077
GARTNER
PROPERTY (l) 57 None 895,844 7,451,760 347,820 933,171 7,762,253 0 8,695,424
AT&T--PA
PROPERTY (m) 100 None 662,000 11,836,368 265,740 689,583 12,074,525 0 12,764,108
MARCONI
PROPERTY (n) 100 None 5,000,000 28,161,665 1,381,747 5,208,335 29,335,077 0 34,543,412
Life on Which
Depreciation
Accumulated Date of Date is Computed
Description Depreciation Construction Acquired (dd)
----------- ------------ ------------ -------- -------------
ALSTOM
POWER--
KNOXVILLE
PROPERTY
(a) $1,844,482 1997 12/10/96 20 to 25 years
AVAYA BUILDING 656,495 1998 6/24/98 20 to 25 years
360 INTERLOCKEN (c) 1,098,339 1996 3/20/98 20 to 25 years
IOMEGA
PROPERTY (d) 742,404 1998 7/01/98 20 to 25 years
OHMEDA
PROPERTY (e) 1,278,024 1998 2/13/98 20 to 25 years
FAIRCHILD
PROPERTY (f) 999,301 1998 7/21/98 20 to 25 years
ORANGE COUNTY
PROPERTY (g) 651,780 1988 7/31/98 20 to 25 years
PRICEWATER-
HOUSECOOPERS
PROPERTY (h) 2,469,792 1998 12/31/98 20 to 25 years
EYBL CARTEX
PROPERTY (i) 532,416 1998 5/18/99 20 to 25 years
SPRINT BUILDING
(j) 817,785 1998 7/2/99 20 to 25 years
JOHNSON
MATTHEY (k) 617,438 1973 8/17/99 20 to 25 years
GARTNER
PROPERTY (l) 724,477 1998 9/20/99 20 to 25 years
AT&T--PA
PROPERTY (m) 1,408,686 1998 2/4/99 20 to 25 years
MARCONI
PROPERTY (n) 2,737,941 1991 9/10/99 20 to 25 years
199
Initial Cost
--------------------------
Costs of
Ownership Buildings and Capitalized Buildings and
Description Percentage Encumbrances Land Improvements Improvements Land Improvements
------------- ------------ ------------ ---------- -------------- -------------- ----------- --------------
CINEMARK
PROPERTY (o) 100 None 1,456,000 20,376,881 908,217 1,516,667 21,224,431
MATSUSHITA
PROPERTY (p) 100 None 4,577,485 0 13,860,142 4,768,215 13,773,660
ALSTOM POWER--
RICHMOND
PROPERTY(q) 100 None 948,401 0 9,938,308 987,918 9,923,454
METRIS--OK
PROPERTY (r) 100 None 1,150,000 11,569,583 541,489 1,197,917 12,063,155
DIAL PROPERTY(s) 100 None 3,500,000 10,785,309 601,264 3,645,835 11,240,738
ASML PROPERTY (t) 100 None 0 17,392,633 731,685 0 18,124,318
MOTOROLA--AZ
PROPERTY (u) 100 None 0 16,036,219 669,639 0 16,705,858
AVNET
PROPERTY (v) 100 None 0 13,271,502 551,156 0 13,822,658
DELPHI
PROPERTY (w) 100 None 2,160,000 16,775,971 1,676,956 2,250,008 18,469,408
SIEMENS
PROPERTY (x) 47 None 2,143,588 12,048,902 591,358 2,232,905 12,550,943
QUEST
PROPERTY (y) 16 None 2,220,993 5,545,498 51,285 2,220,993 5,602,160
MOTOROLA--NJ
PROPERTY (z) 100 None 9,652,500 20,495,243 0 10,054,720 25,540,919
METRIS--MN
PROPERTY (aa) 100 None 7,700,000 45,151,969 2,181 8,020,859 47,042,309
STONE &
WEBSTER
PROPERTY (bb) 100 None 7,100,000 37,914,954 0 7,395,857 39,498,469
AT&T--OK
PROPERTY (cc) 47 None 2,100,000 13,227,555 638,651 2,187,500 13,785,631
COMDATA
PROPERTY 64 None 4,300,000 20,650,000 572,944 4,479,168 21,566,287
AMERICREDIT
PROPERTY 87 None 1,610,000 10,890,000 563,257 1,677,084 11,386,174
STATE STREET
PROPERTY 100 None 10,600,000 38,962,988 4,344,837 11,041,670 40,666,305
IKON PROPERTY 100 None 2,735,000 17,915,000 985,856 2,847,300 18,792,672
NISSAN
PROPERTY 100 $8,124,444 5,545,700 0 21,353 5,567,053 0
Gross Amount at Which Carried at December 31, 2001
----------------------------------------------------------------
Life on Which
Depreciation
Construction Accumulated Date of Date is Computed
Description in Progress Total Depreciation Construction Acquired (dd)
-------------- ------------ ---------- ------------ ------------ -------- ---------------
CINEMARK
PROPERTY (o) 0 22,741,098 1,768,692 1999 12/21/99 20 to 25 years
MATSUSHITA
PROPERTY (p) 0 18,541,875 2,032,803 1999 3/15/99 20 to 25 years
ALSTOM POWER--
RICHMOND
PROPERTY (q) 0 10,911,372 921,980 1999 7/22/99 20 to 25 years
METRIS--OK
PROPERTY (r) 0 13,261,072 881,413 2000 2/11/00 20 to 25 years
DIAL PROPERTY(s) 83,125 14,969,698 821,315 1997 3/29/00 20 to 25 years
ASML PROPERTY (t 0 18,124,318 1,314,573 1995 3/29/00 20 to 25 years
MOTOROLA--AZ
PROPERTY (u) 0 16,705,858 1,218,400 1998 3/29/00 20 to 25 years
AVNET
PROPERTY (v) 0 13,822,658 868,060 2000 6/12/00 20 to 25 years
DELPHI
PROPERTY (w) 14,877 20,734,293 1,286,705 2000 6/29/00 20 to 25 years
SIEMENS
PROPERTY (x) 43,757 14,827,605 959,465 2000 5/10/00 20 to 25 years
QUEST
PROPERTY (y) 0 7,823,153 649,436 1997 9/10/97 20 to 25 years
MOTOROLA--NJ
PROPERTY (z) 392,104 35,987,743 1,541,768 2000 11/1/00 20 to 25 years
METRIS--MN
MN
PROPERTY (aa) 0 55,063,168 2,000,737 2000 12/21/00 20 to 25 years
STONE &
WEBSTER
PROPERTY (bb) 0 46,894,326 1,679,981 1994 12/21/00 20 to 25 years
AT&T--OK
OK
PROPERTY (cc) 0 15,973,131 597,317 1999 12/28/00 20 to 25 years
COMDATA
PROPERTY 0 26,045,455 575,056 1986 5/15/2001 20 to 25 years
AMERICREDIT
PROPERTY 0 13,063,258 227,724 2001 7/16/2001 20 to 25 years
STATE STREET
PROPERTY 2,201,913 53,909,888 807,903 1998 7/30/2001 20 to 25 years
IKON PROPERTY 0 21,639,972 250,689 2000 9/7/2001 20 to 25 years
NISSAN
PROPERTY 2,653,777 8,220,830 0 2002 9/19/2001 20 to 25 years
200
Initial Cost
---------------------------
Costs of
Ownership Buildings and Capitalized
Description Percentage Encumbrances Land Improvements Improvements Land
-------------- ---------- ------------ ------------ ------------- ------------ ------------
INGRAM MICRO
PROPERTY 100 $22,000,00 333,049 20,666,951 922,657 333,049
LUCENT
PROPERTY 100 None 7,000,000 10,650,000 1,106,240 7,275,830
CONVERGYS
PROPERTY 100 None 3,500,000 9,755,000 791,672 3,642,442
ADIC PROPERTY 51 None 1,954,213 11,000,000 757,902 2,047,735
WINDY POINT I
PROPERTY 100 None 4,360,000 29,298,642 1,440,568 4,536,862
WINDY POINT II
PROPERTY 100 None 3,600,000 52,016,358 2,385,402 3,746,033
---- --------- ---------- --------- ---------
Total $30,124,444 $112,812,473 $584,077,441 $57,913,909 $117,245,941
=========== ============ ============ ============= ============
Gross Amount at Which Carried at December 31, 2001
--------------------------------------------------
Life on Which
Depriciation
Buildings and Construction Accumulated Date of Date to Computed
Description Improvements in Progress Total Depreciation Construction Acquired (dd)
--------------- ------------- ------------ ---------- ------------ ------------ -------- --------------
INGRAM MICRO
PROPERTY 21,590,010 0 21,923,059 292,307 1997 9/27/2001 20 to 25 years
LUCENT
PROPERTY 11,484,562 0 18,760,392 153,093 2000 9/28/2001 20 to 25 years
CONVERGYS
PROPERTY 10,404,230 0 14,046,672 34,681 2001 12/21/2001 20 to 25 years
ADIC PROPERTY 11,664,380 0 13,712,115 38,881 2001 12/21/2001 20 to 25 years
WINDY POINT I
PROPERTY 30,562,349 0 35,099,211 101,875 1999 12/31/2001 20 to 25 years
WINDY POINT II
PROPERTY 54,255,727 0 58,001,760 180,852 2001 12/31/2001 20 to 25 years
---------- - ---------- -------
Total $645,673,203 $5,389,553 $768,308,697 $37,785,066
============ ========== ============ ===========
(a) The Alstom Power Knoxville Property consists of a three-story office
building located in Knoxville, Tennessee. It is owned by Fund
IX-X-XI-REIT Joint Venture.
(b) The Avaya Building consists of a one-story office building located in
Oklahoma City, Oklahoma. It is owned by Fund IX-X-XI-REIT Joint
Venture.
(c) The 360 Interlocken Property consists of a three-story multi-tenant
office building located in Broomfield, Colorado. It is owned by Fund
IX-X-XI-REIT Joint Venture.
(d) The Iomega Property consists of a one-story warehouse and office
building located in Ogden, Utah. It is owned by Fund IX-X-XI-REIT
Joint Venture.
(e) The Ohmeda Property consists of a two-story office building located in
Louisville, Colorado. It is owned by Fund IX-X-XI-REIT Joint Venture.
(f) The Fairchild Property consists of a two-story warehouse and office
building located in Fremont, California. It is owned by Wells/Freemont
Associates.
(g) The Orange County Property consists of a one-story warehouse and
office building located in Fountain Valley, California. It is owned by
Wells/Orange County Associates.
(h) The PriceWaterhouseCoopers Property consists of a four-story office
building located in Tampa, Florida. It is 100% owned by the Company.
(i) The EYBL CarTex Property consists of a one-story manufacturing and
office building located in Fountain Inn, South Carolina. It is owned
by Fund XI-XII-REIT Joint Venture.
(j) The Sprint Building consists of a three-story office building located
in Leawood, Kansas. It is owned by Fund XI-XII-REIT Joint Venture.
(k) The Johnson Matthey Property consists of a one-story research and
development office and warehouse building located in Chester County,
Pennsylvania. It is owned by Fund XI-XII-REIT Joint Venture.
(l) The Gartner Property consists of a two-story office building located
in Ft. Myers, Florida. It is owned by Fund XI-XII-REIT Joint Venture
(m) The AT&T--PA Property consists of a four-story office building located
in Harrisburg, Pennsylvania. It is 100% owned by the Company.
(n) The Marconi Property consists of a two-story office building located
in Wood Dale, Illinois. It is 100% owned by the Company.
(o) The Cinemark Property consists of a five-story office building located
in Plano, Texas. It is 100% owned by the Company.
(p) The Matsushita Property consists of a two-story office building
located in Lake Forest, California. It is 100% owned by the Company.
(q) The Alstom Property consists of a four-story office building located
in Midlothian, Chesterfield County, Virginia. It is 100% owned by the
Company.
(r) The Metris--OK Property consists of a three-story office building
located in Tulsa, Oklahoma. It is 100% owned by the Company.
(s) The Dial Property consists of a two-story office building located in
Scottsdale, Arizona. It is 100% owned by the Company.
(t) The ASML Property consists of a two-story office building located in
Tempe, Arizona. It is 100% owned by the Company.
(u) The Motorola--AZ Property consists of a two-story office building
located in Tempe, Arizona. It is 100% owned by the Company.
(v) The Avnet Property consists of a two-story office building located in
Tempe, Arizona. It is 100% owned by the Company.
(w) The Delphi Property consists of a three-story office building located
in Troy, Michigan. It is 100% owned by the Company.
(x) The Siemens Property consists of a three-story office building located
in Troy, Michigan. It is owned by Fund XII-REIT Joint Venture.
(y) The Quest Property consists of a two-story office building located in
Orange County, California. It is owned by Fund VIII-IX-REIT Joint
Venture.
(z) The Motorola--NJ Property consists of a three-story office building
located in South Plainfield, New Jersey. It is 100% owned by the
Company.
201
(aa) The Metris--MN Property consists of a nine-story office building
located in Minnetonka, Minnesota. It is 100% owned by the Company.
(bb) The Stone & Webster Property consists of a six-story office building
located in Houston, Texas. It is 100% owned by the Company.
(cc) The AT&T--OK Property consists of a two-story office building located
in Oklahoma City, Oklahoma. It is owned by the Fund XII-REIT Joint
Venture.
(dd) Depreciation lives used for buildings are 25 years. Depreciation lives
used for land improvements are 20 years.
202
PRIOR PERFORMANCE TABLES
The following Prior Performance Tables (Tables) provide information
relating to real estate investment programs sponsored by Wells Capital, Inc.,
our advisor, and its affiliates (Wells Public Programs) which have investment
objectives similar to Wells Real Estate Investment Trust, Inc. (Wells REIT).
(See "Investment Objectives and Criteria.") Except for the Wells REIT, all of
the Wells Public Programs have used capital, and no acquisition indebtedness, to
acquire their properties.
Prospective investors should read these Tables carefully together with the
summary information concerning the Wells Public Programs as set forth in the
"Prior Performance Summary" section of this prospectus.
Investors in the Wells REIT will not own any interest in the other Wells
Public Programs and should not assume that they will experience returns, if any,
comparable to those experienced by investors in other Wells Public Programs.
The advisor is responsible for the acquisition, operation, maintenance and
resale of the real estate properties. The financial results of the Wells Public
Programs, thus, may provide some indication of the advisor's performance of its
obligations during the periods covered. However, general economic conditions
affecting the real estate industry and other factors contribute significantly to
financial results.
The following tables are included herein:
Table I - Experience in Raising and Investing Funds (As a Percentage of
Investment)
Table II - Compensation to Sponsor (in Dollars)
Table III - Annual Operating Results of Wells Public Programs
Table IV (Results of completed programs) has been omitted since none of the
Wells Public Programs have been liquidated.
Table V - Sales or Disposals of Property
Additional information relating to the acquisition of properties by the
Wells Public Programs is contained in Table VI, which is included in Part II of
the registration statement which the Wells REIT has filed with the Securities
and Exchange Commission. Copies of any or all information will be provided to
prospective investors at no charge upon request.
The following are definitions of certain terms used in the Tables:
"Acquisition Fees" shall mean fees and commissions paid by a Wells Public
Program in connection with its purchase or development of a property, except
development fees paid to a person not affiliated with the Wells Public Program
or with a general partner or advisor of the Wells Public Program in connection
with the actual development of a project after acquisition of the land by the
Wells Public Program.
"Organization Expenses" shall include legal fees, accounting fees,
securities filing fees, printing and reproduction expenses and fees paid to the
sponsor in connection with the planning and formation of the Wells Public
Program.
"Underwriting Fees" shall include selling commissions and wholesaling fees
paid to broker-dealers for services provided by the broker-dealers during the
offering.
203
TABLE I
(UNAUDITED)
EXPERIENCE IN RAISING AND INVESTING FUNDS
This Table provides a summary of the experience of the sponsors of Wells
Public Programs for which offerings have been completed since December 31, 1998.
Information is provided with regard to the manner in which the proceeds of the
offerings have been applied. Also set forth is information pertaining to the
timing and length of these offerings and the time period over which the proceeds
have been invested in the properties. All figures are as of December 31, 2001.
Wells Real Wells Real Wells Real Estate
Estate Fund Estate Fund Investment
XI, L.P. XII, L.P. Trust, Inc.
-------- --------- -----------
Dollar Amount Raised $ 16,532,802/(3)/ $ 35,611,192/(4)/ $ 307,411,112/(5)/
========== ========== ===========
Percentage Amount Raised 100%/(3)/ 100%/(4)/ 100%/(5)/
Less Offering Expenses
Underwriting Fees 9.5% 9.5% 9.5%
Organizational Expenses 3.0% 3.0% 3.0%
Reserves/(1)/ 0.0% 0.0% 0.0%
---- ---- ----
Percent Available for Investment 87.5% 87.5% 87.5%
Acquisition and Development Costs
Prepaid Items and Fees related to
Purchase of Property 0.0% 0.0 0.5%
Cash Down Payment 84.0% 84.0% 73.8%
Acquisition Fees/(2)/ 3.5% 3.5% 3.5%
Development and Construction Costs 0.0% 0.0 9.7%
Reserve for Payment of Indebtedness 0.0% 0.0% 0.0%
---- ---- ----
Total Acquisition and Development Cost 87.5% 87.5% 87.5%
Percent Leveraged 0.0% 0.0% 30.9%
==== ==== ====
Date Offering Began 12/31/97 03/22/99 01/30/98
Length of Offering 12 mo. 24 mo. 35 mo.
Months to Invest 90% of Amount Available
for Investment (Measured from Beginning of 20 mo. 26 mo. 21 mo.
Offering)
Number of Investors as of 12/31/01 1,338 1,337 7,422
(1) Does not include general partner contributions held as part of reserves.
(2) Includes acquisition fees, real estate commissions, general contractor fees
and/or architectural fees paid to affiliates of the general partners.
(3) Total dollar amount registered and available to be offered was $35,000,000.
Wells Real Estate Fund XI, L.P. closed its offering on December 30, 1998,
and the total dollar amount raised was $16,532,802.
(4) Total dollar amount registered and available to be offered was $70,000,000.
Wells Real Estate Fund XII, L.P. closed its offering on March 21, 2001, and
the total dollar amount raised was $35,611,192.
(5) The total dollar amount registered and available to be offered in the first
offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed
its initial offering on December 19, 1999, and the total dollar amount
raised in its initial offering was $132,181,919. The total dollar amount
registered and available to be offered in the second offering was
$222,000,000. Wells Real Estate Investment Trust, Inc. closed its second
offering on December 19, 2000, and the total dollar amount raised in its
second offering was $175,229,193.
204
TABLE II
(UNAUDITED)
COMPENSATION TO SPONSOR
The following sets forth the compensation received by Wells Capital, Inc.,
our advisor, and its affiliates, including compensation paid out of offering
proceeds and compensation paid in connection with the ongoing operations of
Wells Public Programs having similar or identical investment objectives the
offerings of which have been completed since December 31, 1998. All figures are
as of December 31, 2001.
Wells Real
Wells Real Wells Real Estate Other
Estate Fund Estate Fund Investment Public
XI, L.P. XII, L.P. Trust, Inc./(1)/ Programs/(2)/
-------- --------- ---------------- -----------
Date Offering Commenced 12/31/97 03/22/99 01/30/98 --
Dollar Amount Raised $ 16,532,802 $ 35,611,192 $307,411,112 $268,370,007
To Sponsor from Proceeds of Offering:
Underwriting Fees/(3)/ $ 151,911 $ 362,416 $ 3,076,844 $ 1,494,470
Acquisition Fees
Real Estate Commissions -- -- -- --
Acquisition and Advisory Fees/(4)/ $ 578,648 $ 1,246,392 $ 10,759,389 $ 12,644,556
Dollar Amount of Cash Generated from
Operations Before Deducting Payments
to Sponsor/(5)/ $ 3,494,174 $ 3,508,128 $116,037,681 $ 58,169,461
Amount Paid to Sponsor from Operations:
Property Management Fee/(2)/ $ 90,731 $ 113,238 $ 1,899,140 $ 2,257,424
Partnership Management Fee -- -- -- --
Reimbursements $ 164,746 $ 142,990 $ 1,047,449 $ 2,503,609
Leasing Commissions $ 90,731 $ 113,238 $ 1,899,140 $ 2,257,426
General Partner Distributions -- -- -- --
Other -- -- -- --
Dollar Amount of Property Sales and
Refinancing
Payments to Sponsors: -- -- -- --
Cash -- -- -- --
Notes
Amount Paid to Sponsor from Property Sales
and Refinancing:
Real Estate Commissions -- -- -- --
Incentive Fees -- -- -- --
Other -- -- -- --
(1) The total dollar amount registered and available to be offered in the first
offering was $165,000,000. Wells Real Estate Investment Trust, Inc. closed
its initial offering on December 19, 1999, and the total dollar amount
raised in its initial offering was $132,181,919. The total dollar amount
registered and available to be offered in the second offering was
$222,000,000. Wells Real Estate Investment Trust, Inc. closed its second
offering on December 19, 2000, and the total dollar amount raised in its
second offering was $175,229,193.
(2) Includes compensation paid to the general partners from Wells Real Estate
Fund I, Wells Real Estate Fund II, Wells Real Estate Fund II-OW, Wells Real
Estate Fund III, L.P., Wells Real Estate Fund IV, L.P., Wells Real Estate
Fund V, L.P., Wells Real Estate Fund VI, L.P., Wells Real Estate Fund VII,
L.P., Wells Real Estate Fund VIII, L.P., Wells Real Estate Fund IX, L.P.
and Wells Real Estate Fund X, L.P. during the past three years. In addition
to the amounts shown, affiliates of the general partners of Wells Real
Estate Fund I are entitled to certain property management and leasing fees
but have elected to defer the payment of such fees until a later year on
properties owned by Wells Real Estate Fund I. As of December 31, 2001, the
amount of such deferred fees totaled $2,627,841.
(3) Includes net underwriting compensation and commissions paid to Wells
Investment Securities, Inc. in connection with the offering which was not
reallowed to participating broker-dealers.
205
(4) Fees paid to the general partners or their affiliates for acquisition and
advisory services in connection with the review and evaluation of potential
real property acquisitions.
(5) Includes $(161,104) in net cash provided by operating activities,
$3,308,970 in distributions to limited partners and $346,208 in payments to
sponsor for Wells Real Estate Fund XI, L.P.; $167,620 in net cash used by
operating activities, $2,971,042 in distributions to limited partners and
$369,466 in payments to sponsor for Wells Real Estate Fund XII, L.P.;
$53,677,256 in net cash provided by operating activities, $57,514,696 in
dividends and $4,845,729 in payments to sponsor for Wells Real Estate
Investment Trust, Inc.; and $956,542 in net cash provided by operating
activities, $50,169,329 in distributions to limited partners and $7,018,457
in payments to sponsor for other public programs.
206
TABLE III
(UNAUDITED)
The following five tables set forth operating results of Wells Public
Programs the offerings of which have been completed since December 30, 1996. The
information relates only to public programs with investment objectives similar
to those of the Wells REIT. All figures are as of December 31 of the year
indicated.
207
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND IX, L.P.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,874,290 $ 1,836,768 $ 1,593,734 $ 1,561,456 $ 1,199,300
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 105,816 78,092 90,903 105,251 101,284
Depreciation and Amortization/(3)/ 0 0 12,500 6,250 6,250
----------- ----------- ----------- ------------ -------------
Net Income GAAP Basis/(4)/ $ 1,768,474 $ 1,758,676 $ 1,490,331 $ 1,449,955 $ 1,091,766
=========== =========== =========== ============ =============
Taxable Income: Operations $ 2,251,474 $ 2,147,094 $ 1,924,542 $ 1,906,011 $ 1,083,824
=========== =========== =========== ============ =============
Cash Generated (Used By):
Operations $ (101,573) $ (66,145) $ (94,403) $ 80,147 $ 501,390
Joint Ventures 2,978,785 2,831,329 2,814,870 2,125,489 527,390
----------- ----------- ----------- ------------ -------------
$ 2,877,212 $ 2,765,184 $ 2,720,467 $ 2,205,636 $ 1,028,780
Less Cash Distributions to Investors:
Operating Cash Flow 2,877,212 2,707,684 2,720,467 2,188,189 1,028,780
Return of Capital -- -- 15,528 -- 41,834
Undistributed Cash Flow From Prior Year Operations 20,074 -- 17,447 -- 1,725
----------- ----------- ----------- ------------ -------------
Cash Generated (Deficiency) after Cash Distributions $ (20,074) $ 57,500 $ (32,975) $ 17,447 $ (43,559)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- --
----------- ----------- ----------- ------------ -------------
$ (20,074) $ 57,500 $ (32,975) $ 17,447 $ (43,559)
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- -- 323,039
Return of Original Limited Partner's Investment -- -- -- -- 100
Property Acquisitions and Deferred Project Costs -- 44,357 190,853 9,455,554 13,427,158
----------- ----------- ----------- ------------ -------------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ (20,074) $ 13,143 $ (223,828) $ (9,438,107) $ (13,793,856)
=========== =========== =========== ============ =============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 57 93 89 88 53
- Operations Class B Units (0) (267) (272) (218) (77)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 94 91 86 85 46
- Operations Class B Units (195) (175) (164) (123) (47)
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 56 87 88 73 36
- Return of Capital Class A Units 36 -- 2 -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 92 87 89 73 35
- Return of Capital Class A Units -- -- 1 -- 1
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 81 76 77 61 29
- Return of Capital Class A Units 11 11 13 12 7
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested in Program
Properties at the end of the Last Year Reported in the Table 100%
208
(1) Includes $593,914 in equity in earnings of joint ventures and $605,386 from
investment of reserve funds in 1997; $1,481,869 in equity in earnings of
joint ventures and $79,587 from investment of reserve funds in 1998;
$1,593,734 in equity in earnings of joint ventures and $0 from investment
of reserve funds in 1999; and $1,829,216 in equity in earnings of joint
ventures and $7,552 from investment of reserve funds in 2000; and
$1,870,378 in equity in earnings of joint ventures and $3,912 from
investment of reserve funds in 2001. As of December 31, 2001, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $469,126 for 1997; $1,143,407 for 1998; $1,210,939 for
1999; $1,100,915 for 2000; and $1,076,802 for 2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $1,564,778 to Class A Limited
Partners, $(472,806) to Class B Limited Partners and $(206) to the General
Partners for 1997; $2,597,938 to Class A Limited Partners, $(1,147,983) to
Class B Limited Partners and $0 to the General Partners for 1998;
$2,713,636 to Class A Limited Partners, $(1,223,305) to Class B Limited
Partners and $0 to the General Partners for 1999; $2,858,806 to Class A
Limited Partners, $(1,100,130) to Class B Limited Partners and $0 to the
General Partners for 2000; and $1,768,474 to Class A Limited Partners, $(0)
to Class B Limited Partners and $0 to the General Partners for 2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,668,253.
209
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND X, L.P.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 1,559,026 $ 1,557,518 $ 1,309,281 $ 1,204,597 $ 372,507
Profit on Sale of Properties -- -- -- -- --
Less: Operating Expenses/(2)/ 109,177 81,338 98,213 99,034 88,232
Depreciation and Amortization/(3)/ 0 0 18,750 55,234 6,250
----------- ----------- ----------- ------------- ------------
Net Income GAAP Basis/(4)/ $ 1,449,849 $ 1,476,180 $ 1,192,318 $ 1,050,329 $ 278,025
=========== =========== =========== ============= ============
Taxable Income: Operations $ 1,688,775 $ 1,692,792 $ 1,449,771 $ 1,277,016 $ 382,543
=========== =========== =========== ============= ============
Cash Generated (Used By):
Operations (100,983) (59,595) (99,862) 300,019 200,668
Joint Ventures 2,307,137 2,192,397 2,175,915 886,846 --
----------- ----------- ----------- ------------- ------------
$ 2,206,154 $ 2,132,802 2,076,053 $ 1,186,865 $ 200,668
Less Cash Distributions to Investors:
Operating Cash Flow 2,206,154 2,103,260 2,067,801 1,186,865 --
Return of Capital -- -- -- 19,510 --
Undistributed Cash Flow From Prior Year
Operations 25,647 -- -- 200,668 --
----------- ----------- ----------- ------------- ------------
Cash Generated (Deficiency) after Cash Distributions $ (25,647) $ 29,542 $ 8,252 $ (220,178) $ 200,668
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- -- --
Increase in Limited Partner Contributions -- -- -- -- 27,128,912
----------- ----------- ----------- ------------- ------------
$ (25,647) $ 29,542 $ 8,252 $ (220,178) $ 27,329,580
Use of Funds:
Sales Commissions and Offering Expenses -- -- -- 300,725 3,737,363
Return of Original Limited Partner's Investment -- -- -- -- 100
Property Acquisitions and Deferred Project Costs 0 81,022 0 17,613,067 5,188,485
----------- ----------- ----------- ------------- ------------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ (25,647) $ (51,480) $ 8,252 $ (18,133,970) $ 18,403,632
=========== =========== =========== ============= ============
Net Income and Distributions Data per $1,000
Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 99 104 97 85 28
- Operations Class B Units (188) (159) (160) (123) (9)
Capital Gain (Loss) -- -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 95 98 92 78 35
- Operations Class B Units (130) (107) (100) (64) 0
Capital Gain (Loss) -- -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 96 94 95 66 --
- Return of Capital Class A Units -- -- -- -- --
- Return of Capital Class B Units -- -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 96 94 95 56 --
- Return of Capital Class A Units -- -- -- 10 --
- Operations Class B Units -- -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 80 74 71 48 --
- Return of Capital Class A Units 16 20 24 18 --
- Return of Capital Class B Units -- -- -- -- --
Amount (in Percentage Terms) Remaining Invested
in Program Properties at the end of the Last
Year Reported in the Table 100%
210
(1) Includes $(10,035) in equity in earnings of joint ventures and $382,542
from investment of reserve funds in 1997; $869,555 in equity in earnings of
joint ventures and $215,042 from investment of reserve funds in 1998;
$1,309,281 in equity in earnings of joint ventures and $0 from investment
of reserve funds in 1999; 1,547,664 in equity in earnings of joint ventures
and $9,854 from investment of reserve funds in 2000; and $1,549,588 in
equity in earnings of joint ventures and $9,438 from investment of reserve
funds in 2001. As of December 31, 2001, the leasing status was 100%
including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $18,675 for 1997; $674,986 for 1998; $891,911 for 1999;
$816,544 for 2000; and $814,502 for 2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $302,862 to Class A Limited
Partners, $(24,675) to Class B Limited Partners and $(162) to the General
Partners for 1997; $1,779,191 to Class A Limited Partners, $(728,524) to
Class B Limited Partners and $(338) to General Partners for 1998;
$2,084,229 to Class A Limited Partners, $(891,911) to Class B Limited
Partners and $0 to the General Partners for 1999; $2,292,724 to Class A
Limited Partners, $(816,544) to Class B Limited Partners and $0 to the
General Partners for 2000; and $2,264,351 to Class A Limited Partners,
$(814,502) to Class B Limited Partners and $0 to the General Partners for
2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$1,735,882.
211
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XI, L.P.
2001 2000 1999 1998 1997
---- ---- ---- ---- ----
Gross Revenues/(1)/ $ 960,676 $ 975,850 $ 766,586 $ 262,729 N/A
Profit on Sale of Properties -- -- -- --
Less:Operating Expenses/(2)/ 90,326 79,861 111,058 113,184
Depreciation and Amortization/(3)/ 0 -- 25,000 6,250
----------- ----------- ----------- ------------
Net Income GAAP Basis/(4)/ $ 870,350 $ 895,989 $ 630,528 $ 143,295
=========== =========== =========== ============
Taxable Income: Operations $ 1,038,394 $ 944,775 $ 704,108 $ 177,692
=========== =========== =========== ============
Cash Generated (Used By):
Operations (128,985) (72,925) 40,906 (50,858)
Joint Ventures 1,376,673 1,333,337 705,394 102,662
----------- ------------
$ 1,247,688 $ 1,260,412 $ 746,300 $ 51,804
Less Cash Distributions to Investors:
Operating Cash Flow 1,247,688 1,205,303 746,300 51,804
Return of Capital 4,809 -- 49,761 48,070
Undistributed Cash Flow From Prior Year Operations 55,109 -- -- --
----------- ----------- ----------- ------------
Cash Generated (Deficiency) after Cash Distributions $ (59,918) $ 55,109 $ (49,761) $ (48,070)
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- -- --
Increase in Limited Partner Contributions -- -- -- 16,532,801
----------- ----------- ----------- ------------
$ (59,918) $ 55,109 $ ( 49,761) $ 16,484,731
Use of Funds:
Sales Commissions and Offering Expenses -- -- 214,609 1,779,661
Return of Original Limited Partner's Investment -- -- 100 --
Property Acquisitions and Deferred Project Costs -- -- 9,005,979 5,412,870
----------- ----------- ----------- ------------
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ (59,918) $ 55,109 $(9,270,449) $ 9,292,200
=========== =========== =========== ============
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 101 103 77 50
- Operations Class B Units (158) (155) (112) (77)
Capital Gain (Loss) -- -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 100 97 71 18
- Operations Class B Units (100) (112) (73) (17)
Capital Gain (Loss) -- -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 97 90 60 8
- Return of Capital Class A Units -- -- -- --
- Return of Capital Class B Units -- -- -- --
Source (on Cash Basis)
- Operations Class A Units 97 90 56 4
- Return of Capital Class A Units -- -- 4 4
- Operations Class B Units -- -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 75 69 46 6
- Return of Capital Class A Units 22 21 14 2
- Return of Capital Class B Units -- -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
212
(1) Includes $142,163 in equity in earnings of joint ventures and $120,566 from
investment of reserve funds in 1998; $607,579 in equity in earnings of
joint ventures and $159,007 from investment of reserve funds in 1999;
$967,900 in equity in earnings of joint ventures and $7,950 from investment
of reserve funds in 2000; and $959,631 in equity in earnings of joint
ventures and $1,045 from investment of reserve funds in 2001. As of
December 31, 2001, the leasing status was 100% including developed property
in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $105,458 for 1998; $353,840 for 1999; $485,558 for 2000;
and $491,478 for 2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $254,862 to Class A Limited
Partners, $(111,067) to Class B Limited Partners and $(500) to General
Partners for 1998; $1,009,368 to Class A Limited Partners, $(378,840) to
Class B Limited Partners and $0 to the General Partners for 1999;
$1,381,547 to Class A Limited Partners, $(485,558) to Class B Limited
Partners and $0 to General Partners for 2000; and $1,361,828 to Class A
Limited Partners, $(491,478) to Class B Limited Partners and $0 to the
General Partners for 2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$791,502.
213
TABLE III (UNAUDITED)
OPERATING RESULTS OF PRIOR PROGRAMS
WELLS REAL ESTATE FUND XII, L.P.
2001 2000 1999
---- ---- ----
Gross Revenues/(1)/ $ 1,661,194 $ 929,868 $ 160,379
Profit on Sale of Properties -- -- --
Less:Operating Expenses/(2)/ 105,776 73,640 37,562
Depreciation and Amortization/(3)/ 0 0 0
----------- - -
Net Income GAAP Basis/(4)/ $ 1,555,418 $ 856,228 $ 122,817
=========== =========== ==========
Taxable Income: Operations $ 1,850,674 $ 863,490 $ 130,108
=========== =========== ==========
Cash Generated (Used By):
Operations
Joint Ventures (83,406) 247,244 3,783
2,036,837 737,266 61,485
$ 1,953,431 $ 984,510 $ 65,268
Less Cash Distributions to Investors:
Operating Cash Flow $ 1,953,431 $ 984,510 $ 65,268
Return of Capital -- -- --
Undistributed Cash Flow From Prior Year Operations 174,859 -- --
Cash Generated (Deficiency) after Cash Distributions $ (174,859) $ 204,692 $ 2,334
Special Items (not including sales and financing):
Source of Funds:
General Partner Contributions -- -- --
Increase in Limited Partner Contributions 10,625,431 15,617,575 9,368,186
$10,450,572 $15,822,267 $9,370,520
Use of Funds:
Sales Commissions and Offering Expenses 1,328,179 1,952,197 1,171,024
Return of Original Limited Partner's Investment -- -- 100
Property Acquisitions and Deferred Project Costs 9,298,085 16,246,485 5,615,262
Cash Generated (Deficiency) after Cash Distributions
and Special Items $ (175,692) $(2,376,415) $2,584,134
=========== =========== ==========
Net Income and Distributions Data per $1,000 Invested:
Net Income on GAAP Basis:
Ordinary Income (Loss)
- Operations Class A Units 98 89 50
- Operations Class B Units (131) (92) (56)
Capital Gain (Loss) -- -- --
Tax and Distributions Data per $1,000 Invested:
Federal Income Tax Results:
Ordinary Income (Loss)
- Operations Class A Units 84 58 23
- Operations Class B Units (74) (38) (25)
Capital Gain (Loss) -- -- --
Cash Distributions to Investors:
Source (on GAAP Basis)
- Investment Income Class A Units 77 41 8
- Return of Capital Class A Units -- -- --
- Return of Capital Class B Units -- -- --
Source (on Cash Basis)
- Operations Class A Units 77 41 8
- Return of Capital Class A Units -- -- --
- Operations Class B Units -- -- --
Source (on a Priority Distribution Basis)/(5)/
- Investment Income Class A Units 55 13 6
- Return of Capital Class A Units 22 28 2
- Return of Capital Class B Units -- -- --
Amount (in Percentage Terms) Remaining Invested in
Program Properties at the end of the Last Year 100%
Reported in the Table
214
(1) Includes $124,542 in equity in earnings of joint ventures and $35,837 from
investment of reserve funds in 1999; $664,401 in equity in earnings of
joint ventures and $265,467 from investment of reserve funds in 2000; and
$1,577,523 in equity in earnings of joint ventures and $83,671 from
investment of reserve funds in 2001. As of December 31, 2001, the leasing
status was 100% including developed property in initial lease up.
(2) Includes partnership administrative expenses.
(3) Included in equity in earnings of joint ventures in gross revenues is
depreciation of $72,427 for 1999; $355,210 for 2000; and $1,035,609 for
2001.
(4) In accordance with the partnership agreement, net income or loss,
depreciation and amortization are allocated $195,244 to Class A Limited
Partners, $(71,927) to Class B Limited Partners and $(500) to the General
Partners for 1999; $1,209,438 to Class A Limited Partners, $(353,210) to
Class B Limited Partners and $0 to General Partners for 2000; and
$2,591,027 to Class A Limited Partners, $(1,035,609) to Class B Limited
Partners and $0 to the General Partners for 2001.
(5) Pursuant to the terms of the partnership agreement, an amount equal to the
cash distributions paid to Class A Limited Partners is payable as priority
distributions out of the first available net proceeds from the sale of
partnership properties to Class B Limited Partners. The amount of cash
distributions paid per unit to Class A Limited Partners is shown as a
return of capital to the extent of such priority distributions payable to
Class B Limited Partners. As of December 31, 2001, the aggregate amount of
such priority distributions payable to Class B Limited Partners totaled
$870,747.
215
TABLE V (UNAUDITED)
SALES OR DISPOSALS OF PROPERTIES
The following Table sets forth sales or other disposals of properties
by Wells Public Programs within the most recent three years. The information
relates to only public programs with investment objectives similar to those of
Wells Real Estate Investment Trust, Inc. All figures are as of December 31,
2001.
Excess
(Deficiency)
Of Property
Operating Cash
Date Cost Of Properties Receipts Over
Date Of Selling Price, Net Of Including Closing And Cash
Property Acquired Sale Closing Costs And GAAP Adjustments Soft Costs Expenditures
===================================================================================================================================
Total
Purchase Acquisition
Cash Money Adjustments Cost,
Received Mortgage Mortgage Resulting Capital
Net Of Balance Taken From Original Improvement,
Closing At Time Back By Application Mortgage Closing And
Costs Of Sale Program Of GAAP Total Financing Soft Costs/1/ Total
-----------------------------------------------------------------------------------------------------------------------------------
3875 12/1/85 08/31/00 $ 727,982 -0- -0- -0- $ 727,982/2/ -0- $ 647,648 $ 647,648
Peachtree
Place,
Atlanta,
Georgia
Crowe's 12/31/86 01/11/01 $6,487,000 -0- -0- -0- $6,487,000/3/ -0- $ 9,388,869 $ 9,368,869
Crossing
Shopping
Center,
DeKalb
Count,
Georgia
Cherokee 10/30/87 10/01/01 $8,434,089 -0- -0- -0- $8,434,089/4/ -0- $10,650,750 $10,650,750
Commons
Shopping
Center,
Cherokee
County,
Georgia
_______________
/1/ Amount shown does not include po rata share of original offering costs.
/2/ Includes Wells Real Estae Fund I's share of taxable gain from this sale in
the amount of $205,019, of which $205,019 is allocated to capital gain and
$0 is allocated to ordinary gain.
/3/ Includes taxable gain from this sale in the amount of $11,496, of which
$11,496 is allocated to capital gain and $0 is allocated to ordinary gain.
/4/ Includes taxable gain from this sale in the amount of $207,613, of which
$207,613 is allocated to capital gain and $0 is allocated to ordinary gain.
216
EXHIBIT "A"
SUBSCRIPTION AGREEMENT
To: Wells Real Estate Investment Trust, Inc.
Suite 250
6200 The Corners Parkway
Atlanta, Georgia 30092
Ladies and Gentlemen:
The undersigned, by signing and delivering a copy of the attached
Subscription Agreement Signature Page, hereby tenders this subscription and
applies for the purchase of the number of shares of common stock ("Shares") of
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the "Wells
REIT"), set forth on such Subscription Agreement Signature Page. Payment for the
Shares is hereby made by check payable to "Wells Real Estate Investment Trust,
Inc."
I hereby acknowledge receipt of the Prospectus of Wells REIT dated
____________, 2002 (the "Prospectus").
I agree that if this subscription is accepted, it will be held, together
with the accompanying payment, on the terms described in the Prospectus.
Subscriptions may be rejected in whole or in part by Wells REIT in its sole and
absolute discretion.
Prospective investors are hereby advised of the following:
(a) The assignability and transferability of the Shares is restricted and
will be governed by Wells REIT's Articles of Incorporation and Bylaws and all
applicable laws as described in the Prospectus.
(b) Prospective investors should not invest in Shares unless they have an
adequate means of providing for their current needs and personal contingencies
and have no need for liquidity in this investment.
(c) There is no public market for the Shares and, accordingly, it may not
be possible to readily liquidate an investment in Wells REIT.
A-1
SPECIAL NOTICE FOR CALIFORNIA RESIDENTS ONLY
CONDITIONS RESTRICTING TRANSFER OF SHARES
260.141.11 Restrictions on Transfer.
------------------------
(a) The issuer of any security upon which a restriction on transfer has
been imposed pursuant to Sections 260.102.6, 260.141.10 or 260.534 of the Rules
(the "Rules") adopted under the California Corporate Securities Law (the "Code")
shall cause a copy of this section to be delivered to each issuee or transferee
of such security at the time the certificate evidencing the security is
delivered to the issuee or transferee.
(b) It is unlawful for the holder of any such security to consummate a
sale or transfer of such security, or any interest therein, without the prior
written consent of the Commissioner (until this condition is removed pursuant to
Section 260.141.12 of the Rules), except:
(1) to the issuer;
(2) pursuant to the order or process of any court;
(3) to any person described in subdivision (i) of Section 25102 of
the Code or Section 260.105.14 of the Rules;
(4) to the transferor's ancestors, descendants or spouse, or any
custodian or trustee for the account of the transferor or the transferor's
ancestors, descendants or spouse; or to a transferee by a trustee or custodian
for the account of the transferee or the transferee's ancestors, descendants or
spouse;
(5) to holders of securities of the same class of the same issuer;
(6) by way of gift or donation inter vivos or on death;
(7) by or through a broker-dealer licensed under the Code (either
acting as such or as a finder) to a resident of a foreign state, territory or
country who is neither domiciled in this state to the knowledge of the
broker-dealer, nor actually present in this state if the sale of such securities
is not in violation of any securities laws of the foreign state, territory or
country concerned;
(8) to a broker-dealer licensed under the Code in a principal
transaction, or as an underwriter or member of an underwriting syndicate or
selling group;
(9) if the interest sold or transferred is a pledge or other lien
given by the purchaser to the seller upon a sale of the security for which the
Commissioner's written consent is obtained or under this rule not required;
(10) by way of a sale qualified under Sections 25111, 25112, 25113 or
25121 of the Code, of the securities to be transferred, provided that no order
under Section 25140 or subdivision (a) of Section 25143 is in effect with
respect to such qualification;
(11) by a corporation to a wholly owned subsidiary of such
corporation, or by a wholly owned subsidiary of a corporation to such
corporation;
(12) by way of an exchange qualified under Section 25111, 25112 or
25113 of the Code provided that no order under Section 25140 or subdivision (a)
of Section 25143 is in effect with respect to such qualification;
(13) between residents of foreign states, territories or countries who
are neither domiciled or actually present in this state;
A-2
(14) to the State Controller pursuant to the Unclaimed Property Law or
to the administrator of the unclaimed property law of another state;
(15) by the State Controller pursuant to the Unclaimed Property Law or
by the administrator of the unclaimed property law of another state if, in
either such case, such person (i) discloses to potential purchasers at the sale
that transfer of the securities is restricted under this rule, (ii) delivers to
each purchaser a copy of this rule, and (iii) advises the Commissioner of the
name of each purchaser;
(16) by a trustee to a successor trustee when such transfer does not
involve a change in the beneficial ownership of the securities;
(17) by way of an offer and sale of outstanding securities in an
issuer transaction that is subject to the qualification requirement of Section
25110 of the Code but exempt from that qualification requirement by subdivision
(f) of Section 25102; provided that any such transfer is on the condition that
any certificate evidencing the security issued to such transferee shall contain
the legend required by this section.
(c) The certificates representing all such securities subject to such a
restriction on transfer, whether upon initial issuance or upon any transfer
thereof, shall bear on their face a legend, prominently stamped or printed
thereon in capital letters of not less than 10-point size, reading as follows:
"IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER OF THIS SECURITY,
OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION THEREFOR,
WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF
CORPORATIONS OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN
THE COMMISSIONER'S RULES."
[Last amended effective January 21, 1988.]
A-3
SPECIAL NOTICE FOR MAINE, MASSACHUSETTS, MINNESOTA, MISSOURI
AND NEBRASKA RESIDENTS ONLY
In no event may a subscription for Shares be accepted until at least five
business days after the date the subscriber receives the Prospectus. Residents
of the States of Maine, Massachusetts, Minnesota, Missouri and Nebraska who
first received the Prospectus only at the time of subscription may receive a
refund of the subscription amount upon request to Wells REIT within five days of
the date of subscription.
STANDARD REGISTRATION REQUIREMENTS
The following requirements have been established for the various forms of
registration. Accordingly, complete Subscription Agreements and such supporting
material as may be necessary must be provided.
TYPE OF OWNERSHIP AND SIGNATURE(S) REQUIRED
1. INDIVIDUAL: One signature required.
2. JOINT TENANTS WITH RIGHT OF SURVIVORSHIP: All parties must sign.
3. TENANTS IN COMMON: All parties must sign.
4. COMMUNITY PROPERTY: Only one investor signature required.
5. PENSION OR PROFIT SHARING PLANS: The trustee signs the Signature Page.
6. TRUST: The trustee signs the Signature Page. Provide the name of the trust,
the name of the trustee and the name of the beneficiary.
7. PARTNERSHIP: Identify whether the entity is a general or limited
partnership. The general partners must be identified and their signatures
obtained on the Signature Page. In the case of an investment by a general
partnership, all partners must sign (unless a "managing partner" has been
designated for the partnership, in which case he may sign on behalf of the
partnership if a certified copy of the document granting him authority to
invest on behalf of the partnership is submitted).
8. CORPORATION: The Subscription Agreement must be accompanied by (1) a
certified copy of the resolution of the Board of Directors designating the
officer(s) of the corporation authorized to sign on behalf of the
corporation and (2) a certified copy of the Board's resolution authorizing
the investment.
9. IRA AND IRA ROLLOVERS: Requires signature of authorized signer (e.g., an
officer) of the bank, trust company, or other fiduciary. The address of the
trustee must be provided in order for the trustee to receive checks and
other pertinent information regarding the investment.
10. KEOGH (HR 10): Same rules as those applicable to IRAs.
11. UNIFORM GIFT TO MINORS ACT (UGMA) or UNIFORM TRANSFERS TO MINORS ACT
(UTMA): The required signature is that of the custodian, not of the parent
(unless the parent has been designated as the custodian). Only one child is
permitted in each investment under UGMA or UTMA. In addition, designate the
state under which the gift is being made.
A-4
INSTRUCTIONS TO SUBSCRIPTION AGREEMENT SIGNATURE PAGE
TO WELLS REAL ESTATE INVESTMENT TRUST, INC. SUBSCRIPTION AGREEMENT
--------------------------------------------------------------------------------
INVESTOR Please follow these instructions carefully. Failure to do so
INSTRUCTIONS may result in the rejection of your subscription. All
information on the Subscription Agreement Signature Page
should be completed as follows:
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1. INVESTMENT a. GENERAL: A minimum investment of $1,000 (100 Shares) is
required, except for certain states which require a
higher minimum investment. A CHECK FOR THE FULL
PURCHASE PRICE OF THE SHARES SUBSCRIBED FOR SHOULD BE
MADE PAYABLE TO THE ORDER OF "WELLS REAL ESTATE
INVESTMENT TRUST, INC." Investors who have satisfied
the minimum purchase requirements in Wells Real Estate
Fund I, Wells Real Estate Fund II, Wells Real Estate
Fund II-OW, Wells Real Estate Fund III, L.P., Wells
Real Estate Fund IV, L.P., Wells Real Estate Fund V,
L.P., Wells Real Estate Fund VI, L.P., Wells Real
Estate Fund VII, L.P., Wells Real Estate Fund VIII,
L.P., Wells Real Estate Fund IX, L.P., Wells Real
Estate Fund X, L.P., Wells Real Estate Fund XI, L.P.,
Wells Real Estate Fund XII, L.P., or Wells Real Estate
Fund XIII, L.P., or in any other public real estate
program may invest as little as $25 (2.5 Shares) except
for residents of Maine, Minnesota, Nebraska or
Washington. Shares may be purchased only by persons
meeting the standards set forth under the Section of
the Prospectus entitled "Investor Suitability
Standards." Please indicate the state in which the sale
was made. WE WILL NOT ACCEPT CASH, MONEY ORDERS OR
TRAVELERS CHECKS FOR INITIAL INVESTMENTS.
b. DEFERRED COMMISSION OPTION: Please check the box if you
have agreed with your Broker-Dealer to elect the
Deferred Commission Option, as described in the
Prospectus, as supplemented to date. By electing the
Deferred Commission Option, you are required to pay
only $9.40 per Share purchased upon subscription. For
the next six years following the year of subscription,
you will have a 1% sales commission ($.10 per Share)
per year deducted from and paid out of dividends or
other cash distributions otherwise distributable to
you. Election of the Deferred Commission Option shall
authorize Wells REIT to withhold such amounts from
dividends or other cash distributions otherwise payable
to you as is set forth in the "Plan of Distribution"
section of the Prospectus.
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2. ADDITIONAL Please check if you plan to make one or more additional
INVESTMENTS investments in Wells REIT. All additional investments must
be in increments of at least $25. Additional investments by
residents of Maine must be for the minimum amounts stated
under "Suitability Standards" in the Prospectus, and
residents of Maine must execute a new Subscription Agreement
Signature Page to make additional investments in Wells REIT.
If additional investments in Wells REIT are made, the
investor agrees to notify Wells REIT and the Broker-Dealer
named on the Subscription Agreement Signature Page in
writing if at any time he fails to meet the applicable
suitability standards or he is unable to make any other
representations or warranties set forth in the Prospectus or
the Subscription Agreement. The investor acknowledges that
the Broker-Dealer named in the Subscription Agreement
Signature Page may receive commissions on such additional
investments as described in the Prospectus.
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3. TYPE OF Please check the appropriate box to indicate the type of
OWNERSHIP entity or type of individuals subscribing.
A-5
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4. REGISTRATION Please enter the exact name in which the Shares are to
NAME AND ADDRESS be held. For joint tenants with right of survivorship
or tenants in common, include the names of both
investors. In the case of partnerships or corporations,
include the name of an individual to whom
correspondence will be addressed. Trusts should include
the name of the trustee. All investors must complete
the space provided for taxpayer identification number
or social security number. By signing in Section 6, the
investor is certifying that this number is correct.
Enter the mailing address and telephone numbers of the
registered owner of this investment. In the case of a
Qualified Plan or trust, this will be the address of
the trustee. Indicate the birthdate and occupation of
the registered owner unless the registered owner is a
partnership, corporation or trust.
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5. INVESTOR NAME Complete this Section only if the investor's name and
AND ADDRESS address is different from the registration name and
address provided in Section 4. If the Shares are
registered in the name of a trust, enter the name,
address, telephone number, social security number,
birthdate and occupation of the beneficial owner of the
trust.
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6. SUBSCRIBER Please separately initial each representation made by
SIGNATURES the investor where indicated. Except in the case of
fiduciary accounts, the investor may not grant any
person a power of attorney to make such representations
on his or her behalf. Each investor must sign and date
this Section. If title is to be held jointly, all
parties must sign. If the registered owner is a
partnership, corporation or trust, a general partner,
officer or trustee of the entity must sign. PLEASE NOTE
THAT THESE SIGNATURES DO NOT HAVE TO BE NOTARIZED.
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7. DIVIDENDS a. DIVIDEND REINVESTMENT PLAN: By electing the
Dividend Reinvestment Plan, the investor elects to
reinvest the stated percentage of dividends
otherwise payable to such investor in Shares of
Wells REIT. The investor agrees to notify Wells
REIT and the Broker-Dealer named on the
Subscription Agreement Signature Page in writing
if at any time he fails to meet the applicable
suitability standards or he is unable to make any
other representations and warranties as set forth
in the Prospectus or Subscription Agreement or in
the prospectus and subscription agreement of any
future limited partnerships sponsored by the
Advisor or its affiliates. The investor
acknowledges that the Broker-Dealer named in the
Subscription Agreement Signature Page may receive
commissions not to exceed 7% of any reinvested
dividends.
b. DIVIDEND ADDRESS: If cash dividends are to be sent
to an address other than that provided in Section
4 (i.e., a bank, brokerage firm or savings and
loan, etc.), please provide the name, account
number and address.
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8. BROKER-DEALER This Section is to be completed by the Registered
Representative. Please complete all BROKER-DEALER
information contained in Section 8 including
suitability certification. SIGNATURE PAGE MUST BE
SIGNED BY AN AUTHORIZED REPRESENTATIVE.
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The Subscription Agreement Signature Page, which has been delivered with
this Prospectus, together with a check for the full purchase price, should be
delivered or mailed to your Broker-Dealer. Only original, completed copies of
Subscription Agreements can be accepted. Photocopied or otherwise duplicated
Subscription Agreements cannot be accepted by Wells REIT.
IF YOU NEED FURTHER ASSISTANCE IN COMPLETING THIS
SUBSCRIPTION AGREEMENT SIGNATURE PAGE,
PLEASE CALL 1-800-448-1010
A-6
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Special Instructions:
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[LOGO] WELLS WELLS REAL ESTATE INVESTMENT TRUST, INC.
REIT SUBSCRIPTION AGREEMENT SIGNATURE PAGE
See page A5-A in the Prospectus for instructions.
1.=====INVESTMENT==================================================================================================
---------------------------------------------- Make Investment Check Payable to:
_________________ ___________________ Wells Real Estate Investment Trust, Inc.
# of Shares Total $ Invested
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(# Shares x $10 = $ Invested) [_] Initial Investment (Minimum $1,000)
[_] Additional Investment (Minimum $25)
Minimum purchase $1,000 or 100 Shares State in which sale was made___________________________
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Check the following box to elect Deferred Commission Option: [_]
(This election must be agreed to by the Broker-Dealer listed below)
2.=====ADDITIONAL INVESTMENTS======================================================================================
Please check if you plan to make additional investments in the Wells REIT: [_]
[If additional investments are made, please include social security number or other taxpayer identification number
on your check. All additional investments must be made in increments of at least $25. By checking this box, I agree
to notify the Wells REIT in writing if at any time I fail to meet the suitability standards or am unable to make the
representations in Section 6.]
3.=====TYPE OF OWNERSHIP===========================================================================================
[_] IRA (06) [_] Individual (01)
(Enter Custodial Information [_] Joint Tenants With Right of Survivorship (02)
under section 4) [_] Community Property (03)
[_] Keogh (10) [_] Tenants in Common (04)
[_] Qualified Pension Plan (11) [_] Custodian: A Custodian for _______________ under
[_] Qualified Profit Sharing Plan (12) the Uniform Gift to Minors Act or the Uniform
[_] Trust / Trust Type: Transfers to Minors Act of the State of
(Please specify, i.e. Family, Living, ______________________ (08)
Revocable, etc.)
Is this Trust tax exempt? [_] Yes [_] No [_] Other____________________________________
4.======REGISTRATION NAME AND ADDRESS==============================================================================
Please print name(s) in which Shares are to be registered. Include trust or custodial name if applicable. If Wells
Advisors Inc. is the designated custodian, please complete the Wells IRA Application Booklet in addition to this
form.
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other_________________ Taxpayer Identification Number
------------------------------------------------------------------------------ [_][_]-[_][_][_][_][_][_][_]
------------------------------------------------------------------------------ Social Security Number
------------------------------------------------------------------------------ [_][_][_]-[_][_]-[_][_][_][_]
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Street Address
or P.O. Box
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City State Zip Code
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Home Business
Telephone No. ( ) Telephone No. ( )
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Birthdate Occupation
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Email Address Provide only if you would like to receive updated
(Optional) information about Wells via email.
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5.=====INVESTOR NAME AND ADDRESS===================================================================================
(COMPLETE ONLY IF DIFFERENT FROM REGISTRATION NAME AND ADDRESS)
[_] Mr [_] Mrs [_] Ms [_] MD [_] PhD [_] DDS [_] Other_________________
Name Social Security Number
------------------------------------------------------------------------------
[_][_][_]-[_][_]-[_][_][_][_]
------------------------------------------------------------------------------
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Street Address
or P.O. Box
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City State Zip Code
---------------------------------- ----------------------- ---------------------------
---------------------------------- --------------------------------------------
Home Business
Telephone No. ( ) Telephone No. ( )
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---------------------------------- --------------------------------------------
Birthdate Occupation
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Email Address Provide only if you would like to receive updated information
(Optional) about Wells via email.
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(REVERSE SIDE MUST BE COMPLETED)
6.=====SUBSCRIBER SIGNATURES=======================================================================================
Please separately initial each of the representations below. Except in the case of fiduciary accounts, you may not
grant any person a power of attorney to make such representations on your behalf. In order to induce the Wells REIT
to accept this subscription, I hereby represent and warrant to you as follows:
(a) I have received the Prospectus. _______________ _______________
Initials Initials
(b) I have (i) a net worth (exclusive of home, home furnishings and
automobiles) of $150,000 or more; or (ii) a net worth (as described above)
of at least $45,000 and had during the last tax year or estimate that I
will have during the current tax year a minimum of $45,000 annual gross
income, or that I meet the higher suitability requirements imposed by my
state of primary residence as set forth in the Prospectus under _______________ _______________
"SUITABILITY STANDARDS." Initials Initials
(c) I acknowledge that the shares are not Initials Initials liquid. _______________ _______________
Initials Initials
(d) If I am a California resident or if the Person to whom I subsequently
propose to assign or transfer any Shares is a California resident, I may
not consummate a sale or transfer of my Shares, or any interest therein, or
receive any consideration there- for, without the prior written consent of
the Commissioner of the Department of Corporations of the State of
California, except as permitted in the Commissioner's Rules, and I
understand that my Shares, or any document evidencing my Shares, will bear
a legend reflecting the substance of the foregoing understanding. _______________ _______________
Initials Initials
(e) ARKANSAS, NEW MEXICO AND TEXAS RESIDENTS ONLY: I am purchasing the Shares _______________ _______________
for my own account and acknowledge that the investment is not liquid. Initials Initials
I declare that the information supplied above is true and correct and may be relied upon by the Wells REIT in
connection with my investment in the Wells REIT. Under penalties of perjury, by signing this Signature Page, I
hereby certify that (a) I have provided herein my correct Taxpayer Identification Number, and (b) I am not subject
to back-up withholding as a result of a failure to report all interest or dividends, or the Internal Revenue Service
has notified me that I am no longer subject to back-up withholding.
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Signature of Investor or Trustee Signature of Joint Owner, if applicable Date
(MUST BE SIGNED BY TRUSTEE(S) IF IRA, KEOGH OR QUALIFIED PLAN.)
7.=====DIVIDENDS (YOU MUST CHECK ONE OF THE FOLLOWING)=============================================================
NOTE: If you have checked "IRA" in section 3 and listed Wells Advisors, Inc. as custodian under Section 4, please
disregard this section. You must instead complete page 7 of the Well Advisors, Inc. IRA Application Booklet.
[_] I prefer to participate in the Dividend Reinvestment Plan
[_] I prefer dividends be paid to me at my address listed under Section 4
[_] I prefer dividends be paid to me but sent to the following account:
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Name
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Account Number
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Street Address
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or P.O. Box
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City State Zip Code
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8.=====BROKER-DEALER (TO BE COMPLETED BY REGISTERED REPRESENTATIVE)===============================================
[_] PLEASE CHECK IF THIS IS A CHANGE IN BROKER-DEALER
[_] PLEASE CHECK IF THIS IS A NEW BRANCH ADDRESS FOR THE REGISTERED REPRESENTATIVE
The Broker-Dealer or authorized representative must sign below to complete order. Broker-Dealer or authorized
representative warrants that it is a duly licensed Broker-Dealer or authorized representative and may lawfully
offer Shares in the state designated as the investor's address or the state in which the sale was made, if
different. The Broker-Dealer or authorized representative warrants that he has reasonable grounds to believe this
investment is suitable for the subscriber and that he has informed subscriber of all aspects of liquidity and
marketability of this investment.
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Broker-Dealer Name Telephone No. ( )
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Broker-Dealer Street
Address or P.O. Box
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City State Zip Code
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Registered
Representative Name Telephone No. ( )
------------------------------------------ -----------------------------
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Reg. Rep. Street
Address or P.O. Box
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---------------------------- -------------------------- --------------------
City State Zip Code
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Email Address Provide only if you would like to receive updated information
(Optional) about Wells via email.
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Broker-Dealer Signature, if required Registered Representative Signature
Please mail completed Subscription Agreement (with all signatures) and personal check(s) made payable to
Overnight address: Wells Real Estate Investment Trust, Inc. Mailing address:
6200 The Corners Parkway, Suite 250 800-557-4830 or 770-449-7800 P.O. Box 926040
Atlanta, Georgia 30092-2295 Cash, money orders and travelers Atlanta, Georgia
checks will not be accepted. 30010-6040
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ACCEPTANCE BY WELLS REIT Received and Subscription Accepted by:
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EXHIBIT B
AMENDED AND RESTATED
DIVIDEND REINVESTMENT PLAN
As of December 20, 1999
Wells Real Estate Investment Trust, Inc., a Maryland corporation (the
"Company"), pursuant to its Amended and Restated Articles of Incorporation,
adopted a Dividend Reinvestment Plan (the "DRP"), which is hereby amended and
restated in its entirety as set forth below. Capitalized terms shall have the
same meaning as set forth in the Articles unless otherwise defined herein.
1. Dividend Reinvestment. As agent for the shareholders ("Shareholders")
of the Company who (a) purchased shares of the Company's common stock (the
"Shares") pursuant to the Company's initial public offering (the "Initial
Offering"), which commenced on January 30, 1998 and will terminate on or before
January 30, 2000, (b) purchase Shares pursuant to the Company's second public
offering (the "Second Offering"), which will commence immediately upon the
termination of the Initial Offering, or (c) purchase Shares pursuant to any
future offering of the Company ("Future Offering"), and who elect to participate
in the DRP (the "Participants"), the Company will apply all dividends and other
distributions declared and paid in respect of the Shares held by each
Participant (the "Dividends"), including Dividends paid with respect to any full
or fractional Shares acquired under the DRP, to the purchase of the Shares for
such Participants directly, if permitted under state securities laws and, if
not, through the Dealer Manager or Soliciting Dealers registered in the
Participant's state of residence.
2. Effective Date. The effective date of this Amended and Restated
Dividend Reinvestment Plan (the "DRP") shall be the date that the Second
Offering becomes effective with the Securities and Exchange Commission (the
"Commission").
3. Procedure for Participation. Any Shareholder who purchased Shares
pursuant to the Initial Offering, the Second Offering or any Future Offering and
who has received a prospectus, as contained in the Company's registration
statement filed with the Commission, may elect to become a Participant by
completing and executing the Subscription Agreement, an enrollment form or any
other appropriate authorization form as may be available from the Company, the
Dealer Manager or Soliciting Dealer. Participation in the DRP will begin with
the next Dividend payable after receipt of a Participant's subscription,
enrollment or authorization. Shares will be purchased under the DRP on the date
that Dividends are paid by the Company. Dividends of the Company are currently
paid quarterly. Each Participant agrees that if, at any time prior to the
listing of the Shares on a national stock exchange or inclusion of the Shares
for quotation on the National Association of Securities Dealers, Inc. Automated
Quotation System ("Nasdaq"), he or she fails to meet the suitability
requirements for making an investment in the Company or cannot make the other
representations or warranties set forth in the Subscription Agreement, he or she
will promptly so notify the Company in writing.
4. Purchase of Shares. Participants will acquire DRP Shares from the
Company at a fixed price of $10 per Share until (i) all 2,200,000 of the DRP
Shares registered in the Second Offering are issued or (ii) the Second Offering
terminates and the Company elects to deregister with the Commission the unsold
DRP Shares. Participants in the DRP may also purchase fractional Shares so that
100% of the Dividends will be used to acquire Shares. However, a Participant
will not be able to acquire DRP Shares to the extent that any such purchase
would cause such Participant to exceed the Ownership Limit as set forth in the
Articles.
Shares to be distributed by the Company in connection with the DRP may (but
are not required to) be supplied from: (a) the DRP Shares which will be
registered with the Commission in connection with the Company's Second Offering,
(b) Shares to be registered with the Commission in a Future Offering for use in
the DRP (a "Future Registration"), or (c) Shares of the Company's common stock
purchased by the Company for the DRP in a secondary market (if available) or on
a stock exchange or Nasdaq (if listed) (collectively, the "Secondary Market").
B-1
Shares purchased on the Secondary Market as set forth in (c) above will be
purchased at the then-prevailing market price, which price will be utilized for
purposes of purchases of Shares in the DRP. Shares acquired by the Company on
the Secondary Market or registered in a Future Registration for use in the DRP
may be at prices lower or higher than the $10 per Share price which will be paid
for the DRP Shares pursuant to the Initial Offering and the Second Offering.
If the Company acquires Shares in the Secondary Market for use in the DRP,
the Company shall use reasonable efforts to acquire Shares for use in the DRP at
the lowest price then reasonably available. However, the Company does not in any
respect guarantee or warrant that the Shares so acquired and purchased by the
Participant in the DRP will be at the lowest possible price. Further,
irrespective of the Company's ability to acquire Shares in the Secondary Market
or to complete a Future Registration for shares to be used in the DRP, the
Company is in no way obligated to do either, in its sole discretion.
It is understood that reinvestment of Dividends does not relieve a
Participant of any income tax liability which may be payable on the Dividends.
5. Share Certificates. The ownership of the Shares purchased through the
DRP will be in book-entry form only until the Company begins to issue
certificates for its outstanding common stock.
6. Reports. Within 90 days after the end of the Company's fiscal year,
the Company shall provide each Shareholder with an individualized report on his
or her investment, including the purchase date(s), purchase price and number of
Shares owned, as well as the dates of Dividend distributions and amounts of
Dividends paid during the prior fiscal year. In addition, the Company shall
provide to each Participant an individualized quarterly report at the time of
each Dividend payment showing the number of Shares owned prior to the current
Dividend, the amount of the current Dividend and the number of Shares owned
after the current Dividend.
7. Commissions and Other Charges. In connection with Shares sold pursuant
to the DRP, the Company will pay selling commissions of 7%; a dealer manager fee
of 2.5%; and, in the event that proceeds from the sale of DRP Shares are used to
acquire properties, acquisition and advisory fees and expenses of 3.5%, of the
purchase price of the DRP Shares.
8. Termination by Participant. A Participant may terminate participation
in the DRP at any time, without penalty by delivering to the Company a written
notice. Prior to listing of the Shares on a national stock exchange or Nasdaq,
any transfer of Shares by a Participant to a non-Participant will terminate
participation in the DRP with respect to the transferred Shares. If a
Participant terminates DRP participation, the Company will ensure that the
terminating Participant's account will reflect the whole number of shares in his
or her account and provide a check for the cash value of any fractional share in
such account. Upon termination of DRP participation, Dividends will be
distributed to the Shareholder in cash.
9. Amendment or Termination of DRP by the Company. The Board of Directors
of the Company may by majority vote (including a majority of the Independent
Directors) amend or terminate the DRP for any reason upon 10 days' written
notice to the Participants.
10. Liability of the Company. The Company shall not be liable for any act
done in good faith, or for any good faith omission to act, including, without
limitation, any claims or liability; (a) arising out of failure to terminate a
Participant's account upon such Participant's death prior to receipt of notice
in writing of such death; and (b) with respect to the time and the prices at
which Shares are purchased or sold for a Participant's account. To the extent
that indemnification may apply to liabilities arising under the Securities Act
of 1933, as amended, or the securities act of a sate, the Company has been
advised that, in the opinion of the Commission and certain state securities
commissioners, such indemnification is contrary to public policy and, therefore,
unenforceable.
B-2
Until ____________, 200__ (90 days after the
date of this prospectus), all dealers that affect
transactions in these securities, whether or not
participating in this offering, may be required to
deliver a prospectus. This is in addition to the
obligation of dealers to deliver a prospectus when
acting as soliciting dealers.
ALPHABETICAL INDEX Page
We have not authorized any dealer, salesperson
or other individual to give any information or to make
Additional Information ....................... any representations that are not contained in this
Conflicts of Interest ........................ prospectus. If any such information or statements are
Description of Real Estate Investments ....... given or made, you should not rely upon such
Description of Shares ........................ information or representation. This prospectus does
ERISA Considerations ......................... not constitute an offer to sell any securities other
Estimated Use of Proceeds .................... than those to which this prospectus relates, or an
Experts ...................................... offer to sell, or a solicitation of an offer to buy,
Federal Income Tax Considerations ............ to any person in any jurisdiction where such an offer
Financial Statements ......................... or solicitation would be unlawful. This prospectus
Glossary ..................................... speaks as of the date set forth below. You should not
Investment Objectives and Criteria ........... assume that the delivery of this prospectus or that
Legal Opinions ............................... any sale made pursuant to this prospectus implies that
Management ................................... the information contained in this prospectus will
Management Compensation ...................... remain fully accurate and correct as of any time
Management's Discussion and subsequent to the date of this prospectus.
Analysis of Financial Condition
And Results of Operations ................... ________________
Plan of Distribution .........................
Prior Performance Summary .................... WELLS REAL ESTATE
Prior Performance Tables ..................... INVESTMENT TRUST, INC.
Prospectus Summary ...........................
Questions and Answers About Up to 300,000,000 Shares
This Offering ............................... of Common Stock
Risk Factors ................................. Offered to the Public
Suitability Standards ........................
Supplemental Sales Material .................. ________________
The Operating Partnership Agreement ..........
PROSPECTUS
________________
WELLS INVESTMENT
SECURITIES, INC.
_____________, 2002
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 31 Other Expenses of Issuance and Distribution
Following is an itemized statement of the expenses of the
offering and distribution of the securities to be registered,
other than underwriting commissions:
Amount
SEC Registration Fee $ 318,174
NASD Filing Fee 30,500
Printing Expenses 5,000,000
Legal Fees and Expenses 800,000
Accounting Fees and Expenses 500,000
Blue Sky Fees and Expenses 500,000
Sales and Advertising Expenses 6,000,000
Educational Seminars and
Conferences 4,500,000
Retail Seminars 5,500,000
Miscellaneous 26,351,326
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Total* $49,500,000
===========
* Estimated.
Item 32 Sales to Special Parties
Not Applicable
Item 33 Recent Sales of Unregistered Securities
Not Applicable
Item 34 Indemnification of the Officers and Directors
The MCGL permits a Maryland corporation to include in its Articles of
Incorporation a provision limiting the liability of its directors and officers
to the corporation and its stockholders for money damages except for liability
resulting from (a) actual receipt of an improper benefit or profit in money,
property or services or (b) active and deliberate dishonesty established by a
final judgement as being material to the cause of action.
Subject to the conditions set forth below, the Articles of
Incorporation provide that the company shall indemnify and hold harmless a
Director, Advisor or Affiliate against any and all losses or liabilities
reasonably incurred by such Director, Advisor or Affiliate in connection with or
by reason of any act or omission performed or omitted to be performed on behalf
of the Company in such capacity.
Under the Company's Articles of Incorporation, the Company shall not
indemnify its Directors, Advisor or any Affiliate for any liability or loss
suffered by the Directors, Advisors or Affiliates, nor shall
II-1
it provide that the Directors, Advisors or Affiliates be held harmless for any
loss or liability suffered by the Company, unless all of the following
conditions are met: (i) the Directors, Advisor or Affiliates have determined ,
in good faith, that the course of conduct which caused the loss or liability was
in the best interests of the Company; (ii) the Directors, Advisor or Affiliates
were acting on behalf of or performing services of the Company (iii) such
liability or loss was not the result of (A) negligence or misconduct by the
Directors, excluding the Independent Directors, Advisors or Affiliates; or (B)
gross negligence or willful misconduct by the Independent Directors; and (iv)
such indemnification or agreement to hold harmless is recoverable only out of
the company's net assets and not from Shareholders. Notwithstanding the
foregoing, the Directors, Advisors or Affiliates and any persons acting as a
broker-dealer shall not be indemnified by the Company for any losses, liability
or expenses arising from or out of an alleged violation of federal or state
securities laws by such party unless one or more of the following conditions are
met: (i) there has been a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee;
(ii) such claims have been dismissed with prejudice on the merits by a court of
competent jurisdiction as to the particular indemnitee; and (iii) a court of
competent jurisdiction approves a settlement of the claims against a particular
indemnitee and finds that indemnification of the settlement and the related
costs shold be made, and the court considering the request for indemnification
has been advised of he position of the SEC and of the published position of any
state securities regulatory authority in which securities of the Company were
offered or sold as to indemnification for violations of securities laws.
The Articles of Incorporation provide that the advancement of Company
funds to the Directors, Advisors or Affiliates for legal expenses and other
costs incurred as a result of any legal action for which indemnification is
being sought is permissible only if all of the following conditions are
satisfied: (i) the legal action relates to acts or omissions with respect to the
performance of duties or services on behalf of the company; (ii) the legal
action is initiated by a third party who is not a Shareholder or the legal
action is initiated by a Shareholder acting in his or her capacity as such and a
court of competent jurisdiction specifically approves such advancement; (iii)
the Directors, Advisor or Affiliates undertake to repay the advanced funds to
the Company together with the applicable legal rate of interest thereon, in
cases in which such Directors, Advisor or Affiliates are found not to be
entitled to indemnification.
The MGCL requires a Maryland corporation (unless its Articles of
Incorporation provide otherwise, which the Company's Articles of Incorporation
do not) to indemnify a director or officer who has been successful, on the
merits or otherwise, in the defense of any proceeding to which he is made a
party by reason of his service in that capacity. The MGCL permits a Maryland
corporation to indemnify its present and former directors and officers, among
others, against judgements, penalties, fines, settlements and reasonable
expenses actually incurred by them in connection with any proceeding to which
they may be made a party by reason of their service in those or other capacities
unless it is established that (a) the act or omission of the director or officer
was material to the matter giving rise to the proceeding and (i) was committed
in bad faith or (ii) was the result of active and deliberate dishonesty, (b) the
director or officer actually received an improper personal benefit in money,
property or services or (c) in the case of any criminal proceeding, the director
or officer had reasonable cause to believe that the act or omission was
unlawful. However, under the MGCL a Maryland corporation may not indemnify for
an adverse judgment in a suit by or in the right of the corporation or for a
judgment of liability on the basis that personal benefit was improperly
received, unless in either case a court orders indemnification and then only for
expenses. In addition, the MGCL permits a corporation to advance reasonable
expenses to director or officer upon the corporation's receipt of (a) a written
affirmation by the director or officer of his good faith belief that he has met
the standard of conduct necessary for indemnification by the Company as
authorized by the Bylaws and (b) a written undertaking by or on his behalf to
repay the amount paid or reimbursed by the Company if it shall ultimately be
determined that the standard of conduct was not met. Indemnification under the
provisions of the MGCL is not deemed exclusive of any other rights, by
indemnification or otherwise, to which an officer or director may be
II-2
entitled under the Company's Articles of Incorporation or Bylaws, or under
resolutions of stockholders or directors, contract or otherwise. It is the
position of the Commission that indemnification of directors and officers for
liabilities arising under the Securities Act is against public policy and is
unenforceable pursuant to Section 14 of the Securities Act.
The Company also has purchased and maintains insurance on behalf of all
of its Directors and executive officers against liability asserted against or
incurred by them in their official capacities with the Company, whether or not
the Company is required or has the power to indemnify them against the same
liability.
Item 35 Treatment of Proceeds from Stock Being Registered
Not Applicable
Item 36 Financial Statements and Exhibits.
(a) Financial Statements:
The following financial statements of Wells Real Estate
Investment Trust, Inc. are filed as part of this
Registration Statement and included in the Prospectus:
Audited Financial Statements
(1) Report of Independent Public Accountants,
(2) Consolidated Balance Sheets as of December 31,
2001 and December 31, 2000,
(3) Consolidated Statements of Income for the years
ended December 31, 2001, 2000 and 1999,
(4) Consolidated Statements of Stockholders' Equity
for the years ended December 31, 2001, 2000 and
1999,
(5) Consolidated Statements of Cash Flows for the
years ended December 31, 2001, 2000 and 1999,
and
(6) Notes to Consolidated Financial Statements.
Unaudited Financial Statements
(1) Schedule III-Real Estate Investments and
Accumulated Depreciation as of December 31,
2001,
(2) Consolidated Balance Sheets as of March 31,
2002 and December 31, 2001,
(3) Consolidated Statements of Income for the three
months ended March 31, 2002 and March 31, 2001,
(4) Consolidated Statements of Shareholders' Equity
for the year ended December 31, 2001 and for
the three months ended March 31, 2002,
(5) Consolidated Statements of Cash Flows for the
three months ended March 31, 2002 and March 31,
2001, and
(6) Condensed Notes to Consolidated Financial
Statements March 31, 2002
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(b) Exhibits (See Exhibit Index):
Exhibit No. Description
1.1 Form of Dealer Manager Agreement
1.2 Form of Warrant Purchase Agreement
3.1 Amended and Restated Articles of Incorporation dated as of July
1, 2000 (previously filed in and incorporated by reference to
Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on August 31, 2000)
3.2 Form of Bylaws (previously filed in and incorporated by reference
to Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-32099, filed on January 23,
1998)
3.3 Amendment No. 1 to Bylaws (previously filed in and incorporated
by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-32099, filed on April 15, 1999)
4.1 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit A to Prospectus)
5.1 Form of Opinion of Holland & Knight LLP as to legality of
securities
8.1 Form of Opinion of Holland & Knight LLP as to tax matters
8.2 Form of Opinion of Holland & Knight LLP as to ERISA matters
10.1 Advisory Agreement dated January 30, 2002 (previously filed in
and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-85848, filed on
April 8, 2002)
10.2 Amended and Restated Property Management and Leasing Agreement
among Registrant, Wells Operating Partnership, L.P. and Wells
Management Company, Inc. (previously filed in and incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.3 Amended and Restated Joint Venture Agreement of The Fund IX, Fund
X, Fund XI and REIT Joint Venture (previously filed in and
incorporated by reference to Post-Effective Amendment No. 2 of
the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on July 9, 1998)
10.4 Joint Venture Agreement of Wells/Fremont Associates (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 3 of the Registrant's Registration Statement on
Form S-11, Commission File No. 333-32099, filed on August 14,
1998)
10.5 Joint Venture Agreement of Wells/Orange County Associates
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on
August 14, 1998)
10.6 Amended and Restated Joint Venture Partnership Agreement of The
Wells Fund XI-Fund XII - REIT Joint Venture (previously filed in
and incorporated by reference to Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on November 17, 1999)
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10.7 Joint Venture Partnership Agreement of Wells Fund XII-REIT Joint
Venture Partnership (previously filed as Exhibit 10.11 and incorporated
by reference to Post-Effective Amendment No. 2 to Form S-11
Registration Statement of Wells Real Estate Fund XII, L.P. on Form
S-11, Commission File No. 33-66657, filed on April 25, 2000)
10.8 Joint Venture Partnership Agreement of Fund VIII-IX-REIT Joint Venture
(previously filed in and incorporated by reference to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on August 31, 2000)
10.9 Joint Venture Partnership Agreement of Wells Fund XIII-REIT Joint
Venture Partnership (previously filed in and incorporated by reference
to Post-Effective Amendment No. 3 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on July
23, 2001)
10.10 Agreement of Limited Partnership of Wells Operating Partnership, L.P.
as Amended and Restated as of January 1, 2000 (previously filed in and
incorporated by reference to Form 10-K of Registrant for the fiscal
year ended December 31, 2000, Commission File No. 0-25739)
10.11 Amended and Restated Promissory Note for $15,500,000 for the SouthTrust
Loan (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 of the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed on January
15, 1999)
10.12 Amendment No. 1 to Mortgage and Security Agreement and other Loan
Documents for the PwC Building securing the SouthTrust Loan (previously
filed in and incorporated by reference to Post-Effective Amendment No.
4 of the Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on January 15, 1999)
10.13 Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000 revolving
line of credit dated May 3, 2000 (previously filed in and incorporated
by reference to Post-Effective Amendment No. 3 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-83933,
filed on September 8, 2000)
10.14 Promissory Note for $35,000,000 to SouthTrust Bank, N.A. (previously
filed in and incorporated by reference to Post-Effective Amendment No.
3 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on September 8, 2000)
10.15 Allonge to Revolving Note relating to the SouthTrust Bank N.A.
$32,393,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.16 First Amendment to Revolving Loan Agreement and Other Loan Documents
relating to the SouthTrust Bank N.A. $32,393,000 revolving line of
credit (previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
December 18, 2000)
10.17 Second Note Modification Agreement relating to the SouthTrust Bank N.A.
$12,844,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.18 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
II-5
(previously filed in and incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on December 18, 2000)
10.19 Revolving Note relating to the SouthTrust Bank N.A. $19,003,000
revolving line of credit (previously filed in and incorporated by
reference to Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on December 18, 2000)
10.20 Revolving Loan Agreement relating to the SouthTrust Bank N.A.
$19,003,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.21 Amended and Restated Revolving Note relating to the SouthTrust Bank
N.A. $7,900,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.22 Amended and Restated Loan Agreement relating to the SouthTrust Bank
N.A. $7,900,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.23 Revolving Credit Agreement relating to the Bank of America, N.A.
$85,000,000 revolving line of credit (previously filed in and
incorporated by reference to Registrant's Registration Statement on
Form S-11, Commission File No. 333-85848, filed on April 8, 2002)
10.24 Construction Loan Agreement relating to the Bank of America, N.A.
$34,200,000 construction loan (previously filed in and incorporated by
reference to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on April 8, 2002)
10.25 Lease for the PwC Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 of the Registrant's
Registration Statement on Form S-11, Commission File No. 333-32099,
filed on January 15, 1999)
10.26 Office Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on April 15, 1999)
10.27 Guaranty of Lease for the Matsushita Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5 of the
Registrant's Registration Statement on Form S-11, Commission File No.
333-32099, filed on April 15, 1999)
10.28 Lease Agreement with Cinemark USA, Inc. for a portion of the Cinemark
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to Registrant's Registration Statement
on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)
10.29 Lease Agreement with The Coca-Cola Company for a portion of the
Cinemark Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to Registrant's Registration Statement
on Form S-11, Commission File No. 333-83933, filed on March 15, 2000)
II-6
10.30 Lease Agreement for the Motorola Tempe Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 2 to
Registrant's Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.31 First Amendment to Lease Agreement for the Motorola Tempe Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on June 9, 2000)
10.32 Ground Lease Agreement for the Motorola Tempe Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
2 to Registrant's Registration Statement on Form S-11, Commission File
No. 333-83933, filed on June 9, 2000)
10.33 Lease Agreement for the Motorola Plainfield Building (previously filed
in and incorporated by reference to Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on December 1, 2000)
10.34 Lease Agreement with Stone & Webster, Inc. for a portion of the Stone &
Webster Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.35 Lease Agreement with Sysco Corporation for a portion of the Stone &
Webster Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on
February 9, 2001)
10.36 Lease Agreement for the Metris Minnesota Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 1 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.37 Fourth Amendment to Lease Agreement for the Metris Minnesota Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 1 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on February 9, 2001)
10.38 Guaranty of Lease for the Metris Minnesota Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 1 to
the Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on February 9, 2001)
10.39 Lease Agreement for the Comdata Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on July 23, 2001)
10.40 First Amendment to Lease Agreement for the Comdata Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
3 to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on July 23, 2001)
10.41 Lease Agreement for the State Street Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
II-7
10.42 Lease Agreement for the IKON Buildings (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.43 First Amendment to Lease Agreement for the IKON Buildings (previously
filed in and incorporated by reference to Post-Effective Amendment No.
4 to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.44 Reinstatement of and Second Amendment to Lease Agreement for the IKON
Buildings (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on October
23, 2001)
10.45 Agreement of Sale for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.46 Lease Agreement for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.47 Guaranty of Lease for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.48 Development Agreement for the Nissan Property (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.49 Design and Build Construction Agreement for the Nissan Property
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23, 2001)
10.50 Indenture of Lease Agreement for Ingram Micro Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
4 to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.51 Guaranty of Lease Agreement for Ingram Micro Building (previously filed
in and incorporated by reference to Post-Effective Amendment No. 4 to
the Registrant's Registration Statement on Form S-11, Commission File
No. 333-44900, filed on October 23, 2001)
10.52 Absolute Assignment of Lease and Assumption Agreement for Ingram Micro
Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on October
23, 2001)
10.53 Bond Real Property Lease Agreement for the Ingram Micro Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23, 2001)
10.54 Second Amendment to Lease Agreement for Matsushita Building (previously
filed in and incorporated by reference to Post-Effective Amendment No.
4 to the Registrant's
II-8
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on October 23, 2001)
10.55 Lease Agreement with TCI Great Lakes, Inc. for a portion of the Windy
Point I Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on January
23, 2002)
10.56 First Amendment to Office Lease with TCI Great Lakes, Inc. (previously
filed in and incorporated by reference to Post-Effective Amendment No.
5 to the Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on January 23, 2002)
10.57 Lease Agreement with Zurich American Insurance Company for the Windy
Point II Building (previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-44900, filed on January
23, 2002)
10.58 Third Amendment to Office Lease with Zurich American Insurance Company
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on January 23, 2002)
10.59 Lease Agreement for the Arthur Andersen Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on January 23, 2002)
10.60 Lease Agreement with Transocean Deepwater Offshore Drilling, Inc. for a
portion of the Transocean Houston Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.61 Lease Agreement with Newpark Drilling Fluids, Inc. for a portion of the
Transocean Houston Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form S-11, Commission File No. 333-44900,
filed on April 22, 2002)
10.62 Lease Agreement for the Dana Detroit Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.63 Second Amendment to Lease Agreement for the Dana Detroit Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on April 22, 2002)
10.64 Lease Agreement for the Dana Kalamazoo Building (previously filed in
and incorporated by reference to Post-Effective Amendment No. 6 to the
Registrant's Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.65 Second Amendment to Lease Agreement for the Dana Kalamazoo Building
(previously filed in and incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on April 22, 2002)
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10.66 Purchase and Sale Agreement for the Experian/TRW Buildings
10.67 Lease Agreement for the Experian/TRW Buildings
10.68 Lease Amendment to Lease Agreement for the Experian/TRW Buildings
10.69 Purchase and Sale Agreement and Escrow Instructions for the Agilent
Boston Building
10.70 Lease Agreement for the Agilent Boston Building
23.1 Consent of Holland & Knight LLP (included in exhibits 5.1 and 8.1)
23.2 Consent of Arthur Andersen LLP (previously filed in and incorporated by
reference to Registrant's Registration Statement on Form S-11,
Commission File No. 333-85848, filed on April 8, 2002)
24.1 Power of Attorney
II-10
Item 37 Undertakings
(a) The Registrant undertakes to file, during any period in
which offers or sales are being made, a post-effective amendment to
this Registration Statement (i) to include any prospectus required by
Section 10(a)(3) of the Securities Act of 1933 (the "Act"); (ii) to
reflect in the prospectus any facts or events arising after the
effective date of this Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set
forth in the Registration Statement; and (iii) to include any
material information with respect to the plan of distribution not
previously disclosed in the Registration Statement or any material
change to such information in the Registration Statement, including
(but not limited to) any addition or deletion of a managing
underwriter.
(b) The Registrant undertakes (i) that, for the purpose of
determining any liability under the Act, each such post-effective
amendment may be deemed to be a new Registration Statement relating
to the securities offered therein and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof, (ii) that all post-effective amendments will comply with the
applicable forms, rules and regulations of the Commission in effect
at the time such post-effective amendments are filed, and (iii) to
remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the
termination of the offering.
(c) The Registrant undertakes to send to each shareholder, at
least on an annual basis, a detailed statement of any transactions
with the Advisor or its affiliates, and of fees, commissions,
compensation and other benefits paid, or accrued to the Advisor or
its affiliates, for the fiscal year completed, showing the amount
paid or accrued to each recipient and the services performed.
(d) To file a sticker supplement pursuant to Rule 424(c) under
the Act during the distribution period describing each property not
identified in the prospectus at such time as there arises a
reasonable probability that such property will be acquired and to
consolidate all such stickers into a post-effective amendment filed
at least once every three months with the information contained in
such amendment provided simultaneously to the existing shareholders;
each sticker supplement should disclose all compensation and fees
received by the Advisor and its affiliates in connection with any
such acquisition; the post-effective amendment shall include audited
financial statements meeting the requirements of Rule 3-14 of
Regulation S-X only for properties acquired during the distribution
period.
(e) To file, after the end of the distribution period, a
current report on Form 8-K containing the financial statements and
any additional information required by Rule 3-14 of Regulation S-X,
to reflect each commitment (i.e., the signing of a binding purchase
agreement) made after the end of the distribution period involving
the use of 10% or more (on a cumulative basis) of the net proceeds of
the offering and to provide the information contained in such report
to the shareholders at least once each quarter after the distribution
period of the offering has ended.
(f) The Registrant undertakes to file the financial statements
as required by Form 10-K for the first full fiscal year of operations
and to provide each shareholder the financial statements required by
Form 10-K for such year.
II-11
(g) The Registrant undertakes to distribute to each
shareholder, within sixty (60) days after the close of each quarterly
period, a copy of each report on Form 10-Q which is required to be
filed with the Commission or a quarterly report containing at least
as much information as the report on Form 10-Q.
(h) Insofar as indemnification for liabilities arising under
the Securities Act of 1933 may be permitted to directors, officers
and controlling persons of the Registrant pursuant to the foregoing
provisions, or otherwise, the Registrant has been advised that in the
opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and
is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any
action, suit or proceeding) is asserted by such director, officer or
controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Act and will be governed by the final adjudication of such issue.
II-12
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
The information contained on the following pages relates to
acquisitions of properties within the past three years by the Wells REIT and
prior programs with which Wells Capital, Inc., the Advisor to the Wells REIT,
and its affiliates have been affiliated and which have substantially similar
investment objectives to the Wells REIT. This table provides potential investors
with information regarding the general nature and location of the properties and
the manner in which the properties were acquired. None of the information in
this Table VI has been audited.
II-13
TABLE VI
Wells Funds XI, XII and REIT
Name of property EYBL CarTex Building
Location of property Fountain Inn, Greenville County, South Carolina
Type of property Two-story manufacturing and office building
Size of parcel 11.94 acres
Gross leasable space 169,510 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/1/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase May 18, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $50,000
Contract purchase price
plus acquisition fee $5,122,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized $225,540
Total Acquisition Cost $5,347,540
___________________
/1/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-14
TABLE VI (continued)
Wells Funds XI, XII and REIT
Name of property Sprint Building
Location of property Leawood, Kansas
Type of property Three-story office building
Size of parcel/l/ 7.12 acres
Gross leasable space 68,900 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/2/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase July 2, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $1,000,000
Contract purchase price
plus acquisition fee $9,546,210
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/3/ $398,299
Total Acquisition Cost $9,944,509
_______________________
/2/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/3/ Includes the improvements made after acquisition through April 30, 2002.
II-15
TABLE VI (continued)
Wells REIT
Name of property Alstom Power Richmond Building
Location of property Midlothian, Chesterfield County, Virginia
Type of property Four story office building
Size of parcel 7.49 acres
Gross leasable space 99,057 sq. feet
Date of commencement of
operations/4/ June 5, 1998
Date of purchase July 22, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $948,400
Contract purchase price
plus acquisition fee $948,400
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/5/ $9,969,515
Total Acquisition Cost $10,917,915
_____________________
/4/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/5/ Includes the improvements made after acquisition through April 30, 2002.
II-16
TABLE VI (continued)
Wells Funds XI, XII and REIT
Name of property Johnson Matthey Building
Location of property Tredyffrin Township, Chester County,
Pennsylvania
Type of property Research and development,
office and warehouse building
Size of parcel 10.0 acres
Gross leasable space 130,000 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/6/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase August 17, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $200,000
Contract purchase price
plus acquisition fee $8,050,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/7/ $342,077
Total Acquisition Cost $8,392,077
_____________________
/6/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/7/ Includes the improvements made after acquisition through April 30, 2002.
II-17
TABLE VI (continued)
Wells REIT
Name of property Videojet Technologies Chicago
Location of property Wood Dale, Illinois
Type of property Two story office, assembly
and manufacturing building
Size of parcel 15.3 acres
Gross leasable space 250,354 sq. feet
Date of commencement of
operations/8/ June 5, 1998
Date of purchase September 10, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $500,000
Contract purchase price
plus acquisition fee $32,630,940
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/9/ $1,912,472
Total Acquisition Cost $34,543,412
_____________________
/8/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/9/ Includes the improvements made after acquisition through April 30, 2002.
II-18
TABLE VI (continued)
Wells Funds XI, XII and REIT
Name of property Gartner Building
Location of property Fort Myers, Florida
Type of property Two story office building
Size of parcel 4.9 acres
Gross leasable space 62,400 sq. feet
Date of commencement of Fund XI - March 3, 1998
operations/10/ Fund XII - June 1, 1999
REIT - June 5, 1998
Date of purchase September 20, 1999
Mortgage financing at
date of purchase N/A
Cash down payment $500,000
Contract purchase price
plus acquisition fee $8,347,600
Other cash expenditures
expensed N/A
Other cash expenditures
Capitalized/11/ $347,824
Total Acquisition Cost $8,695,424
_____________________
/10/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/11/ Includes the improvements made after acquisition through April 30, 2002.
II-19
TABLE VI (continued)
Wells REIT
Name of property Cinemark Building
Location of property Plano, Collin County, Texas
Type of property Five story office building
Size of parcel 3.52 acres
Gross leasable space 118,108 sq. feet
Date of commencement of
operations/12/ June 5, 1998
Date of purchase December 21, 1999
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $21,826,900
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/13/ $920,379
Total Acquisition Cost $22,747,279
______________________
/12/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/13/ Includes the improvements made after acquisition through April 30, 2002.
II-20
TABLE VI (continued)
Wells REIT
Name of property Metris Tulsa Building
Location of property Tulsa, Tulsa County, Oklahoma
Type of property Three story office building
Size of parcel 14.6 acres
Gross leasable space 101,100 sq. feet
Date of commencement of
operations/14/ June 5, 1998
Date of purchase February 11, 2000
Mortgage financing at
date of purchase 8,000,000
Cash down payment $4,740,000
Contract purchase price
plus acquisition fee $12,740,000
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/15/ $521,072
Total Acquisition Cost $13,261,072
________________________
/14/ The date minimum offering proceeds were obtained and funds became available
for investment in properties.
/15/ Includes the improvements made after acquisition through April 30, 2002.
II-21
TABLE VI (continued)
Wells REIT
Name of property Dial Building
Location of property Scottsdale, Maricopa County, Arizona
Type of property Two story office building
Size of parcel 8.8 acres (approximately)
Gross leasable space 129,689 sq. feet
Date of commencement of
operations/16/ June 5, 1998
Date of purchase March 29, 2000
Mortgage financing at
date of purchase $14,289,309
Cash down payment $100,000
Contract purchase price
plus acquisition fee $14,289,309
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/17/ $597,264
Total Acquisition Cost $14,886,573
________________________
/16/ The date minimum offering proceeds were obtained and funds became available
for investment in properties.
/17/ Includes the improvements made after acquisition through April 30, 2002.
II-22
TABLE VI (continued)
Wells REIT
Name of property ASML Building
Location of property Tempe, Maricopa County, Arizona
Type of property Two story office and warehouse building
Size of parcel 9.51 acres
Gross leasable space 95,133 sq. feet
Date of commencement of
operations/18/ June 5, 1998
Date of purchase March 29, 2000
Mortgage financing at
date of purchase $17,397,133
Cash down payment $100,000
Contract purchase price
plus acquisition fee $17,397,133
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/19/ $727,185
Total Acquisition Cost $18,124,318
________________________
/18/ The date minimum offering proceeds were obtained and funds became available
for investment in properties.
/19/ Includes the improvements made after acquisition through April 30, 2002.
II-23
TABLE VI (continued)
Wells REIT
Name of property Motorola Tempe Building
Location of property Tempe, Maricopa County, Arizona
Type of property Two story office building
Size of parcel 12.44 acres
Gross leasable space 133,225 sq. feet
Date of commencement of
operations/20/ June 5, 1998
Date of purchase March 29, 2000
Mortgage financing at
date of purchase $8,813,558
Cash down payment $100,000
Contract purchase price
plus acquisition fee $16,036,219
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/21/ $669,639
Total Acquisition Cost $16,705,858
________________________
/20/ The date minimum offering proceeds were obtained and funds became available
for investment in properties.
/21/ Includes the improvements made after acquisition through April 30, 2002.
II-24
TABLE VI (continued)
Wells Fund XII and REIT
Name of property Siemens Building
Location of property Troy, Oakland County, Michigan
Type of property Three story office building
Size of parcel 5.3 acres
Gross leasable space 77,054 sq. feet
Date of commencement of Fund XII - June 1, 1999
operations/22/ REIT - June 5, 1998
Date of purchase May 10, 2000
Mortgage financing at
date of purchase N/A
Cash down payment $400,000
Contract purchase price
plus acquisition fee $14,292,489
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/23/ $1,440,430
Total Acquisition Cost $12,852,059
________________________
/22/ The date minimum offering proceeds were obtained and funds became available
for investment in properties.
/23/ Includes the improvements made after acquisition through April 30, 2002.
II-25
TABLE VI (continued)
Wells REIT
Name of property Avnet Building
Location of property Tempe, Maricopa County, Arizona
Type of property Two story office building
Size of parcel 9.63 acres
Gross leasable space 132,070 sq. feet
Date of commencement of June 5, 1998
operations/24/
Date of purchase June 12, 2000
Mortgage financing at
date of purchase N/A
Cash down payment $100,000
Contract purchase price
plus acquisition fee $13,269,502
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $13,269,502
_______________________________
/24/ The date minimum offering proceedings were obtained and funds became
available for investment in properties.
II-26
TABLE VI (continued)
Wells REIT
Name of property Delphi Building
Location of property Troy, Oakland County, Michigan
Type of property Three story office building
Size of parcel 5.52 acres
Gross leasable space 107,193 sq. feet
Date of commencement of June 5, 1998
operations/25/
Date of purchase June 29, 2000
Mortgage financing at
date of purchase $8,000,000
Cash down payment N/A
Contract purchase price
plus acquisition fee $19,921,332
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $19,921,332
___________________________
/25/ The date minimum offering proceedings were obtained and funds became
available for investment in properties.
II-27
TABLE VI (continued)
Wells REIT
Name of property Motorola Plainfield Building
Location of property S. Plainfield, Middlesex County, New Jersey
Type of property three-story office building
Size of parcel 34.5 acres
Gross leasable space 236,710 sq. feet
Date of commencement of June 5, 1998
operations/26/
Date of purchase November 1, 2000
Mortgage financing at
date of purchase $23,000,000
Cash down payment N/A
Contract purchase price
plus acquisition fee $33,753,381
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/27/ $424,760
Total Acquisition Cost $34,178,141
___________________________
/26/ The date minimum offering proceedings were obtained and funds became
available for investment in properties.
/27/ Includes the improvements made after acquisition through April 30, 2002.
II-28
TABLE VI (continued)
Wells REIT
Name of property Stone & Webster Building
Location of property Houston, Texas
Type of property six-story office building
Size of parcel 9.96 acres
Gross leasable space 312,564 sq. feet
Date of commencement of June 5, 1998
operations/28/
Date of purchase December 21, 2000
Mortgage financing at
date of purchase $38,900,000
Cash down payment N/A
Contract purchase price
plus acquisition fee $45,014,954
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $45,014,954
___________________________
/28/ The date minimum offering proceedings were obtained and funds became
available for investment in properties.
II-29
TABLE VI (continued)
Wells REIT
Name of property Metris Minnesota Building
Location of property Minnetonka, Minnesota
Type of property nine-story office building
Size of parcel 13.58 acres
Gross leasable space 300,633 sq. feet
Date of commencement of June 5, 1998
operations/29/
Date of purchase December 21, 2000
Mortgage financing at
date of purchase $52,800,000
Cash down payment N/A
Contract purchase price
plus acquisition fee $52,846,150
Other cash expenditures
expensed $1,669
Other cash expenditures
capitalized N/A
Total Acquisition Cost $52,847,819
_________________________
/29/ The date minimum offering proceedings were obtained and funds became
available for investment in properties.
II-30
TABLE VI (continued)
Wells Fund XII and REIT
Name of property AT&T Oklahoma Buildings
Location of property Oklahoma City, Oklahoma
Type of property one and two-story office buildings
Size of parcel 11.34 acres
Gross leasable space 128,500 sq. feet
Date of commencement of Fund XII - June 1, 1999
operations/30/ REIT - June 5, 1998
Date of purchase December 28, 2000
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $15,325,554
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $15,325,554
_________________________
/30/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-31
TABLE VI (continued)
Wells Fund XII and REIT
Name of property Comdata Building
Location of property Brentwood, Tennessee
Type of property three-story office building
Size of parcel 12.3 acres
Gross leasable space 201,237 sq. feet
Date of commencement of Fund XII - June 1, 1999
operations/31/ REIT - June 5, 1998
Date of purchase May 15, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $25,002,019
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $25,002,019
______________________
/31/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-32
TABLE VI (continued)
Wells Fund XIII and REIT
Name of property AmeriCredit Building
Location of property Orange Park, Florida
Type of property two-story office building
Size of parcel 12.33 acres
Gross leasable space 85,000 sq. feet
Date of commencement of Fund XIII - June 14, 2001
operations/32/ REIT - June 5, 1998
Date of purchase July 16, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $12,540,693
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $12,540,693
______________________
/32/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-33
TABLE VI (continued)
Wells REIT
Name of property State Street Building
Location of property Quincy, Massachusetts
Type of property seven-story office building
Size of parcel 11.22 acres
Gross leasable space 234,668 sq. feet
Date of commencement of
operations/33/ June 5, 1998
Date of purchase July 30, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $49,632,507
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/34/ $6,976
Total Acquisition Cost $49,639,483
______________________
/33/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/34/ Includes the improvements made after acquisition through April 30, 2002
II-34
TABLE VI (continued)
Wells REIT
Name of property IKON Buildings
Location of property Houston, Texas
Type of property two one-story office buildings
Size of parcel 15.69 acres
Gross leasable space 157,790 sq. feet
Date of commencement of
operations/35/ June 5, 1998
Date of purchase September 7, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $20,782,519
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $20,782,519
______________________
/35/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-35
TABLE VI (continued)
Wells REIT
Name of property Nissan Property
Location of property Irving, Texas
Type of property three-story office building
Size of parcel 14.873 acres
Gross leasable space 268,290 sq. feet
Date of commencement of
operations/36/ June 5, 1998
Date of purchase September 19, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $5,570,700
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $5,570,700
________________________
/36/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-36
TABLE VI (continued)
Wells REIT
Name of property Ingram Micro Building
Location of property Millington, Tennessee
Type of property one-story office building
Size of parcel 39.223 acres
Gross leasable space 701,819 sq. feet
Date of commencement of
operations/37/ June 5, 1998
Date of purchase/38/ September 27, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $21,055,184
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $21,055,184
________________________
/37/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/38/ On September 27, 2001, Wells acquired a leasehold interest in the Ingram
Micro Building, with an option to purchase property beginning in 2006.
II-37
TABLE VI (continued)
Wells REIT
Name of property Lucent Building
Location of property Cary, North Carolina
Type of property four-story office building
Size of parcel 29.19 acres
Gross leasable space 120,000 sq. feet
Date of commencement of
operations/39/ June 5, 1998
Date of purchase September 28, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $18,022,771
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $18,022,771
________________________
/39/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-38
TABLE VI (continued)
Wells Fund XIII and REIT
Name of property ADIC Buildings
Location of property Parker, Colorado
Type of property two one-story office buildings
Size of parcel 11.78 acres
Gross leasable space 148,204 sq. feet
Date of commencement of Fund XIII - June 14, 2001
operations/40/ REIT - June 5, 1998
Date of purchase December 21, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $13,169,835
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $13,169,835
____________________
/40/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-39
TABLE VI (continued)
Wells REIT
Name of property Convergys Building
Location of property Tamarac, Florida
Type of property two-story office building
Size of parcel 12.55 acres
Gross leasable space 100,000 sq. feet
Date of commencement of
operations/41/ June 5, 1998
Date of purchase December 21, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $13,497,360
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $13,497,360
_____________________
/41/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
II-40
TABLE VI (continued)
Wells REIT
Name of property Windy Point Buildings
Location of property Schaumburg, Illinois
Type of property seven and eleven-story office buildings
Size of parcel 18.73 acres
Gross leasable space 488,425 sq. feet
Date of commencement of
operations/42/ June 5, 1998
Date of purchase December 31, 2001
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $89,443,176
Other cash expenditures
expensed $1,927
Other cash expenditures
capitalized/43/ $28,417
Total Acquisition Cost $89,473,520
__________________
/42/ The date minimum offering proceeds were obtained and funds became
available for investment in properties.
/43/ Includes the improvements made after acquisition through April 30, 2002.
II-41
TABLE VI (continued)
Wells REIT
Name of property Arthur Andersen Building
Location of property Sarasota, Florida
Type of property three-story office building
Size of parcel 9.8 acres
Gross leasable space 157,700 sq. feet
Date of commencement of
operations/44/ June 5, 1998
Date of purchase January 11, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $21,431,212
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/45/ $18,267
Total Acquisition Cost $21,449,479
________________
/44/ The date minimum offering were obtained and funds became available for
investment in properties.
/45/ Includes the improvements made after acquisition through April 30, 2002.
II-42
TABLE VI (continued)
Wells REIT
Name of property Transocean Houston Building
Location of property Houston, Texas
Type of property six-story office building
Size of parcel 3.88 acres
Gross leasable space 155,991 sq. feet
Date of commencement of
operations/46/ June 5, 1998
Date of purchase March 15, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $22,038,362
Other cash expenditures
expensed $6,720
Other cash expenditures
capitalized/47/ $3,100
Total Acquisition Cost $22,048,182
________________
/46/ The date minimum offering proceeds were obtained and funds became
available
/47/ Includes the improvements made after acquisition through April 30, 2002.
II-43
TABLE VI (continued)
Wells REIT
Name of property Novartis Atlanta Building
Location of property Duluth, Georgia
Type of property four-story office building
Size of parcel 7.57 acres
Gross leasable space 100,087 sq. feet
Date of commencement of
operations/48/ June 5, 1998
Date of purchase March 28, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $15,045,996
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/49/ $1,320
Total Acquisition Cost $15,047,316
_______________
/48/ The date minimum offering proceeds were obtained and funds became
avilable for investment in properties.
/49/ Includes the improvements made after acquisition through April 30, 2002.
II-44
TABLE VI (continued)
Wells REIT
Name of property Dana Corporation Buildings
Location of property (a) Farmington Hills, Michigan
(b) Kalamazoo, Michigan
Type of property (a) three-story office and research and
development building
(b) two-story office and industrial building
Size of parcel (a) 7.8 acres
(b) 27.5 acres
Gross leasable space (a) 112,480 sq. feet
(b) 147,004 sq. feet
Date of commencement of
operations/50/ June 5, 1998
Date of purchase March 29, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Aggregate contract purchase
price plus acquisition fee $42,812,669
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized/51/ $500
Total Acquisition Cost $42,813,169
_______________
/50/ The date minimum offering proceedings were obtained and funds became
available for investment in properties.
/51/ Includes the improvement made after acquisition through April 30, 2002.
II-45
TABLE VI (continued)
Wells REIT
Name of property Travelers Express Denver Buildings
Location of property Lakewood, Colorado
Type of property two connected one-story office buildings
Size of parcel 7.88 acres
Gross leasable space 68,165 sq. feet
Date of commencement of
operations/52/ June 5, 1998
Date of purchase April 10, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $10,555,448
Other cash expenditures
expensed $33
Other cash expenditures
capitalized/53/ $7,967
Total Acquisition Cost $10,563,458
_______________
/52/ The date minimum offering proceeds were obtained and funds available for
investment in properties.
/53/ Includes the improvements made after acquisition through April 30, 2002.
II-46
TABLE VI (continued)
Wells REIT
Name of property Agilent Atlanta Building
Location of property Alpharetta, Georgia
Type of property two-story office building
Size of parcel 9.89 acres
Gross leasable space 101,207 sq. feet
Date of commencement of
operations/54/ June 5, 1998
Date of purchase April 18, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $15,151,643
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $15,151,643
_______________
/54/ The date minimum offering proceeds were obtained and funds available for
investment in properties.
II-47
TABLE VI (continued)
Wells REIT
Name of property BellSouth Ft. Lauderdale Building
Location of property Ft. Lauderdale, Florida
Type of property one-story office building
Size of parcel 4.27 acres
Gross leasable space 47,400 sq. feet
Date of commencement of
operations/55/ June 5, 1998
Date of purchase April 18, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $6,891,748
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $6,891,748
_______________
/55/ The date minimum offering proceeds were obtained and funds available for
investment in properties.
II-48
TABLE VI (continued)
Wells REIT
Name of property Experian/TRW Buildings
Location of property Allen, Texas
Type of property two two-story office buildings
Size of parcel 26.53 acres
Gross leasable space 292,700 sq. feet
Date of commencement of
operations/56/ June 5, 1998
Date of purchase May 1, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $35,765,115
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized N/A
Total Acquisition Cost $35,765,115
_______________
/56/ The date minimum offering proceeds were obtained and funds available for
investment in properties.
II-49
TABLE VI (continued)
Wells REIT
Name of property Agilent Boston Building
Location of property Boxborough, Massachusetts
Type of property three-story office building
Size of parcel 42.09 acres
Gross leasable space 174,585 sq. feet
Date of commencement of
operations/57/ June 5, 1998
Date of purchase May 3, 2002
Mortgage financing at
date of purchase N/A
Cash down payment N/A
Contract purchase price
plus acquisition fee $31,843,732
Other cash expenditures
expensed N/A
Other cash expenditures
capitalized $3,407,496
Total Acquisition Cost $35,251,228
_______________
/57/ The date minimum offering proceeds were obtained and funds available for
investment in properties.
II-50
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
the requirements for filing on Form S-11 and has duly caused this Amendment No.
1 to Registration Statement to be signed on its behalf by the undersigned,
thereunto duly authorized, in the City of Norcross, and State of Georgia, on the
10/th/ day of June, 2002.
WELLS REAL ESTATE INVESTMENT TRUST, INC.
A Maryland corporation
(Registrant)
By:/s/ Leo F. Wells, III
-------------------------------------
Leo F. Wells, III, President
Pursuant to the requirements of the Securities Act of 1933, this
Amendment No. 1 to Registration Statement has been signed below on June 10, 2002
by the following persons in the capacities indicated.
Name Title
---- -----
/s/ Leo F. Wells, III President and Director
-----------------------------------------------------
Leo F. Wells, III (Principal Executive Officer)
/s/ Douglas P. Williams Executive Vice President and Director
-----------------------------------------------------
Douglas P. Williams (Principal Financial and Accounting Officer)
/s/ John L. Bell * Director
-----------------------------------------------------
John L. Bell (By Douglas P. Williams, as Attorney-in-fact)
/s/ Richard W. Carpenter * Director
-----------------------------------------------------
Richard W. Carpenter (By Douglas P. Williams, as Attorney-in-fact)
/s/ Bud Carter * Director
-----------------------------------------------------
Bud Carter (By Douglas P. Williams, as Attorney-in-fact)
/s/ William H. Keogler, Jr. * Director
-----------------------------------------------------
William H. Keogler, Jr. (By Douglas P. Williams, as Attorney-in-fact)
/s/ Donald S. Moss * Director
-----------------------------------------------------
Donald S. Moss (By Douglas P. Williams, as Attorney-in-fact)
/s/ Walter W. Sessoms * Director
-----------------------------------------------------
Walter W. Sessoms (By Douglas P. Williams, as Attorney-in-fact)
/s/ Neil H. Strickland * Director
-----------------------------------------------------
Neil H. Strickland (By Douglas P. Williams, as Attorney-in-fact)
* By Douglas P. Williams, as Attorney-in-fact, pursuant to Power of
Attorney dated April 5, 2002 and included as Exhibit 24.1 herein.
EXHIBIT INDEX
Exhibit No. Description
---------- -----------
1.1 Form of Dealer Manager Agreement, filed herewith
1.2 Form of Warrant Purchase Agreement, filed herewith
3.1 Amended and Restated Articles of Incorporation dated as of
July 1, 2000, (previously filed in and incorporated by
reference to Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on August 31,
2000)
3.2 Form of Bylaws (previously filed in and incorporated by
reference to Amendment No. 4 to the Registrant's Registration
Statement on Form S-11, Commission File No. 333-32099, filed
on January 23, 1998)
3.3 Amendment No. 1 to Bylaws (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-32099, filed on April 15, 1999)
4.1 Form of Subscription Agreement and Subscription Agreement
Signature Page (included as Exhibit A to Prospectus)
5.1 Form of Opinion of Holland & Knight LLP as to legality of
securities, filed herewith
8.1 Form of Opinion of Holland & Knight LLP as to tax matters,
filed herewith
8.2 Form of Opinion of Holland & Knight LLP as to ERISA matters,
filed herewith
10.1 Advisory Agreement dated January 30, 2002 (previously filed
in and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-85848, filed
on April 8, 2002)
10.2 Amended and Restated Property Management and Leasing
Agreement among Registrant, Wells Operating Partnership, L.P.
and Wells Management Company, Inc. (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on December 18, 2000)
10.3 Amended and Restated Joint Venture Agreement of The Fund IX,
Fund X, Fund XI and REIT Joint Venture (previously filed in
and incorporated by reference to Post-Effective Amendment No.
2 of the Registrant's Registration Statement on Form S-11,
Commission File No. 333-32099, filed on July 9, 1998)
10.4 Joint Venture Agreement of Wells/Fremont Associates
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 of the Registrant's
Registration Statement on Form S-11, Commission File No.
333-32099, filed on August 14, 1998)
10.5 Joint Venture Agreement of Wells/Orange County Associates
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 of the Registrant's
Registration Statement on Form S-11, Commission File No.
333-32099, filed on August 14, 1998)
10.6 Amended and Restated Joint Venture Partnership Agreement of
The Wells Fund XI-Fund XII - REIT Joint Venture (previously
filed in and incorporated by reference to Amendment No. 1 to
the Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on November 17, 1999)
10.7 Joint Venture Partnership Agreement of Wells Fund XII-REIT
Joint Venture Partnership (previously filed as Exhibit 10.11
and incorporated by reference to Post-Effective
Amendment No. 2 to Form S-11 Registration Statement of Wells
Real Estate Fund XII, L.P. on Form S-11, Commission File No.
33-66657, filed on April 25, 2000)
10.8 Joint Venture Partnership Agreement of Fund VIII-IX-REIT
Joint Venture (previously filed in and incorporated by
reference to Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on August 31,
2000)
10.9 Joint Venture Partnership Agreement of Wells Fund XIII-REIT
Joint Venture Partnership (previously filed in and
incorporated by reference to Post-Effective Amendment No. 3
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on July 23, 2001)
10.10 Agreement of Limited Partnership of Wells Operating
Partnership, L.P. as Amended and Restated as of January 1,
2000 (previously filed in and incorporated by reference to
Form 10-K of Registrant for the fiscal year ended December
31, 2000, Commission File No. 0-25739)
10.11 Amended and Restated Promissory Note for $15,500,000 for the
SouthTrust Loan (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 of the
Registrant's Registration Statement on Form S-11, Commission
File No. 333-32099, filed on January 15, 1999)
10.12 Amendment No. 1 to Mortgage and Security Agreement and other
Loan Documents for the PwC Building securing the SouthTrust
Loan (previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 of the Registrant's
Registration Statement on Form S-11, Commission File No.
333-32099, filed on January 15, 1999)
10.13 Loan Agreement with SouthTrust Bank, N.A. for a $35,000,000
revolving line of credit dated May 3, 2000 (previously filed
in and incorporated by reference to Post-Effective Amendment
No. 3 to Registrant's Registration Statement on Form S-11,
Commission File No. 333-83933, filed on September 8, 2000)
10.14 Promissory Note for $35,000,000 to SouthTrust Bank, N.A.
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed
on September 8, 2000)
10.15 Allonge to Revolving Note relating to the SouthTrust Bank
N.A. $32,393,000 revolving line of credit (previously filed
in and incorporated by reference to Pre-Effective Amendment
No. 2 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on December 18,
2000)
10.16 First Amendment to Revolving Loan Agreement and Other Loan
Documents relating to the SouthTrust Bank N.A. $32,393,000
revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on December 18, 2000)
10.17 Second Note Modification Agreement relating to the SouthTrust
Bank N.A. $12,844,000 revolving line of credit (previously
filed in and incorporated by reference to Pre-Effective
Amendment No. 2 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on December
18, 2000)
10.18 Second Amendment to Amended and Restated Loan Agreement and
Other Loan Documents relating to the SouthTrust Bank N.A.
$12,844,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on December 18, 2000)
10.19 Revolving Note relating to the SouthTrust Bank N.A.
$19,003,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on December 18, 2000)
10.20 Revolving Loan Agreement relating to the SouthTrust Bank N.A.
$19,003,000 revolving line of credit (previously filed in and
incorporated by reference to Pre-Effective Amendment No. 2 to
the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on December 18, 2000)
10.21 Amended and Restated Revolving Note relating to the
SouthTrust Bank N.A. $7,900,000 revolving line of credit
(previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.22 Amended and Restated Loan Agreement relating to the
SouthTrust Bank N.A. $7,900,000 revolving line of credit
(previously filed in and incorporated by reference to
Pre-Effective Amendment No. 2 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on December 18, 2000)
10.23 Revolving Credit Agreement relating to the Bank of America,
N.A. $85,000,000 revolving line of credit (previously filed
in and incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-85848, filed
on April 8, 2002)
10.24 Construction Loan Agreement relating to the Bank of America,
N.A. $34,200,000 construction loan (previously filed in and
incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-85848, filed
on April 8, 2002)
10.25 Lease for the PwC Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 4
of the Registrant's Registration Statement on Form S-11,
Commission File No. 333-32099, filed on January 15, 1999)
10.26 Office Lease for the Matsushita Building (previously filed in
and incorporated by reference to Post-Effective Amendment No.
5 of the Registrant's Registration Statement on Form S-11,
Commission File No. 333-32099, filed on April 15, 1999)
10.27 Guaranty of Lease for the Matsushita Building (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 5 of the Registrant's Registration Statement on
Form S-11, Commission File No. 333-32099, filed on April 15,
1999)
10.28 Lease Agreement with Cinemark USA, Inc. for a portion of the
Cinemark Building (previously filed in and incorporated by
reference to Post-Effective Amendment No. 1 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-83933, filed on March 15, 2000)
10.29 Lease Agreement with The Coca-Cola Company for a portion of
the Cinemark Building (previously filed in and incorporated
by reference to Post-Effective Amendment No. 1 to
Registrant's Registration Statement on Form S-11, Commission
File No. 333-83933, filed on March 15, 2000)
10.30 Lease Agreement for the Motorola Tempe Building (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 2 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-83933, filed on June 9,
2000)
10.31 First Amendment to Lease Agreement for the Motorola Tempe
Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 2 to Registrant's
Registration Statement on Form S-11, Commission File No.
333-83933, filed on June 9, 2000)
10.32 Ground Lease Agreement for the Motorola Tempe Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 2 to Registrant's Registration
Statement on Form S-11, Commission File No. 333-83933, filed
on June 9, 2000)
10.33 Lease Agreement for the Motorola Plainfield Building
(previously filed in and incorporated by reference to
Amendment No. 1 to Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on December
1, 2000)
10.34 Lease Agreement with Stone & Webster, Inc. for a portion of
the Stone & Webster Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on February 9, 2001)
10.35 Lease Agreement with Sysco Corporation for a portion of the
Stone & Webster Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 1
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on February 9, 2001)
10.36 Lease Agreement for the Metris Minnesota Building (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 1 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on February
9, 2001)
10.37 Fourth Amendment to Lease Agreement for the Metris Minnesota
Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.38 Guaranty of Lease for the Metris Minnesota Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 1 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on February 9, 2001)
10.39 Lease Agreement for the Comdata Building (previously filed in
and incorporated by reference to Post-Effective Amendment No.
3 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on July 23, 2001)
10.40 First Amendment to Lease Agreement for the Comdata Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 3 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on July 23, 2001)
10.41 Lease Agreement for the State Street Building (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on October
23, 2001)
10.42 Lease Agreement for the IKON Buildings (previously filed in
and incorporated by reference to Post-Effective Amendment No.
4 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on October 23, 2001)
10.43 First Amendment to Lease Agreement for the IKON Buildings
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.44 Reinstatement of and Second Amendment to Lease Agreement for
the IKON Buildings (previously filed in and incorporated by
reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.45 Agreement of Sale for the Nissan Property (previously filed
in and incorporated by reference to Post-Effective Amendment
No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23,
2001)
10.46 Lease Agreement for the Nissan Property (previously filed in
and incorporated by reference to Post-Effective Amendment No.
4 to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on October 23, 2001)
10.47 Guaranty of Lease for the Nissan Property (previously filed
in and incorporated by reference to Post-Effective Amendment
No. 4 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on October 23,
2001)
10.48 Development Agreement for the Nissan Property (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on October
23, 2001)
10.49 Design and Build Construction Agreement for the Nissan
Property (previously filed in and incorporated by reference
to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.50 Indenture of Lease Agreement for Ingram Micro Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.51 Guaranty of Lease Agreement for Ingram Micro Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.52 Absolute Assignment of Lease and Assumption Agreement for
Ingram Micro Building (previously filed in and incorporated
by reference to Post-Effective Amendment No. 4 to the
Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on October 23, 2001)
10.53 Bond Real Property Lease Agreement for the Ingram Micro
Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.54 Second Amendment to Lease Agreement for Matsushita Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 4 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on October 23, 2001)
10.55 Lease Agreement with TCI Great Lakes, Inc. for a portion of
the Windy Point I Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on January 23, 2002)
10.56 First Amendment to Office Lease with TCI Great Lakes, Inc.
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 5 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on January 23, 2002)
10.57 Lease Agreement with Zurich American Insurance Company for
the Windy Point II Building (previously filed in and
incorporated by reference to Post-Effective Amendment No. 5
to the Registrant's Registration Statement on Form S-11,
Commission File No. 333-44900, filed on January 23, 2002)
10.58 Third Amendment to Office Lease with Zurich American
Insurance Company (previously filed in and incorporated by
reference to Post-Effective Amendment No. 5 to the
Registrant's Registration Statement on Form S-11, Commission
File No. 333-44900, filed on January 23, 2002)
10.59 Lease Agreement for the Arthur Andersen Building (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 5 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on January
23, 2002)
10.60 Lease Agreement with Transocean Deepwater Offshore Drilling,
Inc. for a portion of the Transocean Houston Building
(previously filed in and incorporated by reference to
Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.61 Lease Agreement with Newpark Drilling Fluids, Inc. for a
portion of the Transocean Houston Building (previously filed
in and incorporated by reference to Post-Effective Amendment
No. 6 to the Registrant's Registration Statement on Form
S-11, Commission File No. 333-44900, filed on April 22, 2002)
10.62 Lease Agreement for the Dana Detroit Building (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on April 22,
2002)
10.63 Second Amendment to Lease Agreement for the Dana Detroit
Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.64 Lease Agreement for the Dana Kalamazoo Building (previously
filed in and incorporated by reference to Post-Effective
Amendment No. 6 to the Registrant's Registration Statement on
Form S-11, Commission File No. 333-44900, filed on April 22,
2002)
10.65 Second Amendment to Lease Agreement for the Dana Kalamazoo
Building (previously filed in and incorporated by reference
to Post-Effective Amendment No. 6 to the Registrant's
Registration Statement on Form S-11, Commission File No.
333-44900, filed on April 22, 2002)
10.66 Purchase and Sale Agreement for the Experian/TRW Buildings,
filed herewith
10.67 Lease Agreement for the Experian/TRW Buildings, filed
herewith
10.68 Lease Amendment to Lease Agreement for the Experian/TRW
Buildings, filed herewith
10.69 Purchase and Sale Agreement and Escrow Instructions for the
Agilent Boston Building, filed herewith
10.70 Lease Agreement for the Agilent Boston Building, filed
herewith
23.1 Consent of Holland & Knight LLP (included in exhibits 5.1 and
8.1)
23.2 Consent of Arthur Andersen LLP (previously filed in and
incorporated by reference to Registrant's Registration
Statement on Form S-11, Commission File No. 333-85848, filed
on April 8, 2002)
24.1 Power of Attorney, filed herewith