10-K 1 d10k.txt FUND XI FORM 10-K SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K (Mark One) [X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [Fee Required] For the fiscal year ended December 31, 2001 or -------------------------------------- [ ] Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 [No Fee Required] For the transition period from to ___________________ To ___________________ Commission file number 0-25731 ------------------------------------------------------- Wells Real Estate Fund XI, L.P. -------------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Georgia 58-2250094 --------------------------------------- ----------------------------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) 6200 The Corners Parkway, Norcross, Georgia 30092 -------------------------------------------- ----------------------------- (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code (770) 449-7800 ----------------------------- Securities registered pursuant to Section 12 (b) of the Act: Title of each class Name of exchange on which registered ---------------------------------------- ------------------------------------ NONE NONE ---------------------------------------- ------------------------------------ Securities registered pursuant to Section 12 (g) of the Act: Class A Units -------------------------------------------------------------------------------- (Title of Class) Class B Units -------------------------------------------------------------------------------- (Title of Class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No --- --- Aggregate market value of the voting stock held by nonaffiliates: Not Applicable -------------- PART I ITEM 1. BUSINESS General Wells Real Estate Fund XI, L.P. (the "Partnership") is a Georgia public limited partnership with Leo F. Wells, III and Wells Partners, L.P. ("Wells Partners"), a Georgia nonpublic limited partnership, serving as General Partners. The Partnership was formed on June 20, 1996 for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income producing commercial properties for investment purposes. Limited partners have the right to change their prior elections to have some or all of their units treated as Class A Units or Class B Units one time during each quarterly accounting period. Limited partners may vote to, among other things, (a) amend the partnership agreement, subject to certain limitations, (b) change the business purpose or investment objectives of the Partnership, and (c) add or remove a general partner. A majority vote on any of the above-described matters will bind the Partnership, without the concurrence of the general partners. Each limited partnership unit has equal voting rights, regardless of class. On December 31, 1997, the Partnership commenced a public offering of up to $35,000,000 of limited partnership units ($10 per unit) pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Partnership commenced active operations on March 3, 1998 when it received and accepted subscriptions for 125,000 units. The offer terminated on December 30, 1998 at which time the Partnership had sold 1,302,942 Class A Units and 350,338 Class B Units, held by a total of 1,250 and 95 Class A and Class B Limited Partners, respectively, for total Limited Partner capital contributions of $16,532,802. As of December 31, 2001, the Partnership had paid a total of $578,648 in acquisition and advisory fees and expenses, $2,066,600 in selling commissions and organization and offering expenses, invested $3,357,436 in the Fund IX-X-XI-REIT Joint Venture, invested $2,398,767 in the Fund X-XI Joint Venture, and invested $8,131,351 in the Fund XI-XII-REIT Joint Venture. Employees The Company has no direct employees. The employees of Wells Capital, Inc. and Wells Management Company, Inc. perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. Insurance Wells Management Company, Inc., an affiliate of the General Partners, carries comprehensive liability and extended coverage with respect to all the properties owned by the Partnership through investments in the joint ventures described in Item 2. In the opinion of management, all such properties are adequately insured. Competition The Partnership will experience competition for tenants from owners and managers of competing projects which may include the General Partners and their affiliates. As a result, the Partnership may be required to provide free rent, reduced charges for tenant improvements, and other inducements, all of which may have an adverse impact on results of operations. At the time the Partnership elects to dispose -2- of its properties, the Partnership will also be in competition with sellers of similar properties to locate suitable purchasers for its properties. ITEM 2. PROPERTIES The Partnership owns interests in properties through the following joint ventures between the Partnership and other affiliated limited partnerships: (i) the Fund X-XI Joint Venture, a joint venture between the Partnership and Wells Real Estate Fund X, L.P., (ii) the Fund IX-X-XI-REIT Joint Venture, a joint venture among the Partnership, Wells Real Estate Fund IX, L.P., Wells Real Estate Fund X, L.P. and Wells Operating Partnership, L.P. ("Wells OP"), a Delaware limited partnership having Wells Real Estate Investment Trust, Inc. ("Wells REIT"), as its general partner, and (iii) the Fund XI-XII-REIT Joint Venture, a joint venture among the Partnership, Wells Real Estate Fund XII, L.P. and Wells OP. Wells REIT is a Maryland corporation that qualifies as a real estate investment trust. The Partnership does not have control over the operations of the joint ventures; however, it does exercise significant influence. Accordingly, investments in joint ventures are recorded using the equity method. As of December 30, 2001, the Partnership owned interests in the following properties through its ownership in the foregoing joint ventures: (i) a three-story office building in Knoxville, Tennessee (the "Alstom Power-Knoxville Building"), (ii) a two-story office building located in Boulder County, Colorado (the "Ohmeda Building"), (iii) a three-story office building located in Broomfield, Colorado (the "360 Interlocken Building"), (iv) a one-story office building in Oklahoma City, Oklahoma (the "Avaya Building"), and (v) a single-story warehouse and office building located in Ogden, Weber County, Utah (the "Iomega Building"), all of which are owned by the Fund IX-X-XI-REIT Joint Venture, (vi) a two-story office and manufacturing building located in Fremont, California (the "Fairchild Building"), which is owned by Wells/Fremont Associates (the "Fremont Joint Venture"), a joint venture between the Fund X-XI Joint Venture and Wells OP, (vii) a one-story office and warehouse building located in Fountain Valley, California (the "Cort Building"), which is owned by Wells/Orange County Associates (the "Cort Joint Venture"), a joint venture between the Fund X-XI Joint Venture and Wells OP, and (viii) a two-story manufacturing and office building located in Fountain Inn, South Carolina (the "EYBL Cartex Building"), (ix) a three-story office building located in Leawood, Johnson County, Kansas (the "Sprint Building"), (x) a one-story office building and warehouse located in Tredyffin Township, Chester County, Pennsylvania (the "Johnson Matthey Building"), and (xi) a two-story office building located in Ft. Myers, Lee County, Florida (the "Gartner Building"), all of which are owned by the Fund XI-XII-REIT Joint Venture. The following table shows lease expirations during each of the next ten years as of December 31, 2001, for leases at all properties owned by the joint ventures described above, assuming no exercise of renewal options or termination rights: -3-
Partnership Percentage Number Annualized Share of Percentage Year of Of Square Annualized Square of Total of Total Lease Leases Feet Gross Base Gross Base Feet Annualized Expiration Expiring Expiring Rent (1) Rent (1) Expiring Base Rent ---------- -------- -------- ---------- ----------- ---------- ---------- 2002 5 33,610 $ 558,407 $ 49,369 3.5 6.0 2003(2) 2 69,146 1,075,987 211,902 7.3 11.5 2004(3) 1 58,424 902,946 87,947 6.2 9.7 2005(4) 1 106,750 1,027,315 90,825 11.2 11.0 2006 0 0 0 0 0.0 0.0 2007(5) 3 283,304 3,093,891 607,890 29.9 33.2 2008(6) 3 289,096 1,997,312 421,355 30.5 21.4 2009(7) 1 108,250 673,000 59,500 11.4 7.2 2010 0 0 0 0 0.0 0.0 2011 0 0 0 0 0.0 0.0 -------- ------- ---------- ---------- ------- ------- 16 948,580 $9,328,858 $1,528,788 100.0% 100.0% ======== ======= ========== ========== ======= =======
(1) Average monthly gross rent over the life of the lease, annualized. (2) Expiration 52,000 of square feet (Cort Furniture lease), and 17,146 square feet (ODS Technologies lease at the 360 Interlocken Building). (3) Expiration of Fairchild lease. (4) Expiration of Ohmeda lease. (5) Expiration of Alstom Power-Knoxville lease, Sprint lease, and the Johnson Matthey lease. (6) Expiration of Avaya lease, Gartner lease, and EYBL CarTex lease. (7) Expiration of Iomega lease. The following describes the properties in which the Partnership owns an interest as of December 31, 2001: Fund IX-X-XI-REIT Joint Venture On June 11, 1998, Fund IX and Fund X Associates ("Fund IX-X Joint Venture"), a joint venture between Wells Real Estate Fund IX and Wells Real Estate Fund X, L.P. ("Wells Fund IX-X"), a Georgia public limited partnership, was amended and restated to admit the Partnership, a Georgia public limited partnership, and Wells OP. Wells Fund IX, Wells Fund X, Wells OP and the Wells REIT are all affiliates of the Partnership and its General Partners. The Fund IX-X Joint Venture, which changed its name to the Fund IX-X-XI-REIT Joint Venture, had previously acquired and owned the following three properties: (i) the Alstom Power-Knoxville Building, (ii) the Ohmeda Building, and (iii) the 360 Interlocken Building. On June 24, 1998, the Fund IX-X-XI-REIT Joint Venture purchased the Avaya Building. On July 1, 1998, Wells Fund X contributed a single-story warehouse and office building with 108,250 rentable square feet `Iomega Building' to the Fund IX-X-XI-REIT Joint Venture, which was recorded as a capital contribution. As of December 31, 2001, the Parntership had contributed $3,357,436 and held an approximate 8.9% equity interest in the Fund IX-X-XI-REIT Joint Venture. As of December 31, 2001, Wells Fund IX had an approximate 39.1% equity interest, Wells Fund X had an approximate 48.3% equity interest, and Wells OP had an approximate 3.7% equity interest in the Fund IX-X-XI-REIT Joint Venture. -4- Alstom Power-Knoxville Building On March 20, 1997, the Fund IX-X Joint Venture began construction of the Alstom Power-Knoxville Building, a three-story office building containing approximately 84,404 rentable square feet locates on a 5.62 acre tract of real property in Knoxville, Knox County, Tennessee. The land purchase and construction costs totaling $8,137,994 were funded by capital contributions of $4,221,973 from Wells Fund IX and $3,916,021 from Wells Fund X. Alstom Power, Inc. ("Alstom Power"), successor in interest to ABB Environmental Systems, a subsidiary of ABB, Inc., occupied its lease space of 56,012 rentable square feet comprising approximately 66% of the building in December 1997. The initial term of the lease is 9 years and 11 months commencing upon occupancy. Alstom Power has the option under its lease to extend the initial term of the lease for two consecutive five year periods. The annual base rent payable during the initial term is $646,250 during the first five years and $728,750 during the last four years and 11 months of the initial term. The annual base rent for each extended term will be at then currently prevailing market rental rates. In addition to the base rent, Alstom Power is required to pay additional rent equal to its share of operating expenses during the lease term. Commencing December 1, 1999, Alstom Power Environmental exercised its right of first refusal to lease an additional 23,992 square feet of space vacated by the Associates in September 1999, which increased their rentable floor area from 57,831 square feet to 81,823 square feet. On May 19, 2000, Alstom Power, Inc. executed the third amendment to its lease agreement in order to lease the remaining 2,581 square feet of rentable floor area on the second floor of the building. Accordingly, Alstom Power now occupies 100% of the building and will pay lease rent at the same terms and conditions of their original lease. The average effective annual rental per square foot at the Alstom Power-Knoxville Building was $13.83 for 2001, $14.05 for 2000, $11.82 for 1999, $9.97 for 1998, and $8.16 for 1997, the first year of occupancy. The occupancy rate at year-end was 100% for 2001 and 2000, and 98% for 1999, 95% for 1998, and 67% for 1997. Ohmeda Building On February 13, 1998, the Fund IX-X Joint Venture acquired the Ohmeda Building, a two story office building with approximately 106,750 rentable square feet . The Ohmeda Building was on a 15-acre tract of land located in Louisville, Boulder County, Colorado. The purchase price for the Ohmeda Building was $10,325,000. The Fund IX-X Joint Venture also incurred additional acquisition expenses in connection with the purchase of the Ohmeda Building, including attorneys' fees, recording fees, and other closing costs. As of December 31, 2001, Wells Fund IX had contributed $3,460,192 and Wells Fund X had contributed $6,900,878 towards the purchase of this building. The entire 106,750 rentable square feet of the Ohmeda Building is currently under a net lease dated February 26, 1987, as amended by First Amendment to Lease dated December 3, 1987, as amended by Second Amendment to Lease dated October 20, 1997 (the "Ohmeda Lease") with Ohmeda, Inc., a Delaware corporation. The lease was assigned to the Joint Venture at the closing. The Ohmeda Lease currently expires in January 2005, subject to (i) Ohmeda's right to effectuate an early termination of the lease under the terms and conditions described below, and (ii) Ohmeda's right to extend the lease for two additional five year periods of time at the then current market rental rates. -5- The monthly base rental payable under the lease is $83,710 through January 31, 2003; $87,891 from February 1, 2003 through January 31, 2004; and $92,250 from February 1, 2004 through January 31, 2005. Under the lease, Ohmeda is responsible for all utilities, taxes, insurance, and other operating costs with respect to the Ohmeda Building during the term of the lease. In addition, Ohmeda shall pay a $21,000 per year management fee for maintenance and administrative services of the Ohmeda Building. The Fund IX-X-XI-REIT Joint Venture, as landlord, is responsible for maintenance of the roof, exterior and structural walls, foundation, other structural members and floor slab, provided that the landlord's obligation to make repairs specifically excludes items of cosmetic and routine maintenance such as the painting of walls. The average effective annual rental per square foot at the Ohmeda Building was $9.62 for 2001, 2000, 1999, and 1998, the year of acquisition. The occupancy rate at year-end was 100% for 2001, 2000, 1999, and 1998. 360 Interlocken Building On March 20, 1998 the Fund IX-X Joint Venture acquired the 360 Interlocken Building, a three-story multi-tenant office building containing approximately 51,974 rentable square feet located on a 5.1 acre tract of land in Broomfield, Boulder County, Colorado. The purchase price was $8,275,000 excluding acquisition costs. The project was funded by capital contributions of $6,642,466 from Wells Fund IX and $1,674,271 from Wells Fund X. The 360 Interlocken Building was completed in December 1996. The first floor is leased to multiple tenants and contains 15,599 rentable square feet; the second floor is leased to ODS Technologies, L.P. and contains 17,146 rentable square feet; and the third floor is leased to Transecon, Inc. and contains 19,229 rentable square feet. The third floor lease expires in March 2002, subject to Transecon's right to extend for one additional term of five years upon 180 days' notice. The monthly rent payable under Transecon's lease is approximately $24,000 for the initial term of the lease. Under the lease Transecon is responsible for its share of utilities, taxes, insurance, and other operating expenses with respect to the Interlocken Building. In addition, Transecon has a right of first refusal under the lease for any second floor space proposed to be leased by the landlord. The second floor lease expires in September 2003, subject to ODS's right to extend for one additional term of three years. The monthly rent payable under the ODS lease is $22,100 through January 1998; $22,150 through January 1999; $22,600 through January 2000; $23,100 through January 2001; $23,550 through January 2002; $24,050 through January 2003, and $24,550 through September 2003. The rental payments under the ODS lease are secured by the assignment of a $275,000 letter of credit which may be drawn upon by the landlord in the event of a tenant default under the lease. Under the lease, ODS is responsible for its share of utilities, taxes, insurance, and other operating costs with respect to the 360 Interlocken building. The average effective annual rental per square foot at the 360 Interlocken Building was $16.12 for 2001, $16.23 for 2000, $15.97 for 1999 and 1998, the first year of occupancy. The occupancy rate at year-end was 100% for 2001, 2000, 1999 and 1998. Avaya Building On May 30, 1997, the Fund IX-X Joint Venture entered into a purchase and sale agreement with Wells Development Corporation ("Wells Development"), an affiliate of the General Partners, for the acquisition and development of the Avaya Building, a one-story office building containing -6- 57,186 net rentable square feet on 5.3 acres of land. On June 24, 1998, the Fund IX-X-XI-REIT Joint Venture purchased this property for $5,504,276. The purchase price was funded by capital contributions of $2,482,810 from the Partnership, $657,804 from Wells Fund IX, $950,392 from Wells Fund X, and $1,421,466 from Wells OP. Avaya, a world-wide leader in telecommunications technology producing a variety of communication products, occupies the entire Avaya Building. The initial term of the lease is ten years commencing January 5, 1998. Avaya has the option to extend the initial term of the lease for two additional five-year periods. The annual base rent payable during the initial term is $508,383 during the first five years and $594,152 during the second five years of the lease term. The annual base rent for each extended term will be at then currently prevailing market rental rates. In addition to the base rent, Avaya will be required to pay additional rent equal to its share of operating expenses during the lease term. The average effective annual rental per square foot at the Avaya Building was $10.19 for 2001, 2000, 1999, and 1998, the first year of occupancy. The occupancy rate at year-end was 100% for 2001, 2000, 1999 and 1998. Iomega Building On July 1, 1998, Wells Fund X contributed the Iomega Building, a single story warehouse and office building with 108,250 rentable square feet, and was credited with making a capital contribution to the Fund IX-X-XI-REIT Joint Venture in the amount of $5,050,425, which represents the purchase price of $5,025,000 plus acquisition expenses of $25,425 originally paid by Wells Fund X on April 1, 1998. The building is 100% occupied by Iomega Corporation with a ten year lease term that expires on July 31, 2006. The monthly base rent payable under the lease is $40,000 through November 12, 1999. Beginning on the 40th and 80th months of the lease term, the monthly base rent payable under the lease will be increased to reflect an amount equal to 100% of the increase in the Consumer Price Index (as defined in the lease) 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 annum, compounded annually, on a cumulative basis from the beginning of the lease term. The lease is a triple net lease, whereby the terms require the tenant to reimburse the Fund IX-X-XI-REIT Joint Venture for certain operating expenses, as defined in the lease, related to the building. On March 22, 1999, the Fund IX-X-XI-REIT Joint Venture purchased a four-acre tract of vacant land adjacent to the Iomega Building located in Ogden, Utah. The land was purchased at a cost of $212,000, excluding acquisition costs. The funds used to acquire the land and make improvements were funded out of capital contributions made by the Partnership to the Fund IX-X-XI-REIT Joint Venture in the amount of $874,625, which was the total project cost. The site was developed as additional parking and a loading-dock area, including 400 new parking stalls and new site work for truck maneuver space in accordance with the requirements of the tenant and the city of Ogden. The project was completed on July 31, 1999. Iomega Corporation has extended its lease term through April 30, 2009 and will pay as additional annual base rent $113,700 commencing May 1, 1999. The average effective annual rental per square foot at the Iomega Building was $6.22 for 2001 and 2000, $5.18 for 1999, and $4.60 for 1998, the first year of occupancy. The occupancy rate at year-end was 100% for 2001, 2000, 1999 and 1998. -7- Fund X-XI Joint Venture On July 17, 1998 the Partnership and Wells Real Estate Fund X, L.P. ("Wells Fund X"), a Georgia public limited partnership, affiliated with the Partnership through common general partners, formed a joint venture known as Fund X and Fund XI Associates (the "Fund X-XI Joint Venture"). The investment objectives of Wells Fund X are substantially identical to those of the Partnership. As of December 31, 2001, the Partnership had contributed $2,398,767 and Wells Fund X had contributed $3,296,233 for total contributions of $5,695,000 to the Fund X-XI Joint Venture. At December 31, 2001, the Partnership's equity interest in the Fund X-XI Joint Venture was approximately 42%, and Wells Fund X's equity interest was approximately 58%. Wells/Fremont Joint Venture - Fairchild Building On July 15, 1998, Wells OP entered into Fremont Joint Venture with Wells Development Corporation ("Wells Development"), a Georgia Corporation. Wells Development is an affiliate of the Partnership and its General Partners. On July 21, 1998, the Fremont Joint Venture acquired the Fairchild Building, a 58,424 square-foot manufacturing and office building located in Fremont, California (the "Fairchild Building"), for a purchase price of $8,900,000 plus acquisition expenses of approximately $60,000. On July 17,1998 the Fund X-XI Joint Venture entered into an agreement for the purchase of Wells Development's interest in the Fremont Joint Venture. On October 8, 1998, the Fund X-XI Joint Venture exercised its rights under the Fremont Joint Venture Contract and purchased Wells Development's interest in the Fremont Joint Venture and became a joint venture partner with Wells OP in the ownership of the Fairchild Building. As of December 31, 2001, Wells OP had contributed $6,983,110 and held an approximate 78% equity percentage interest in the Fremont Joint Venture, and Fund X-XI Joint Venture had contributed $2,000,000 and held an approximate 22% equity percentage interest in the Fremont Joint Venture. The Fairchild Building is 100% occupied by one tenant with a seven-year lease term that commenced on December 1, 1997 (with an early possession date of October 1, 1997) and expires on November 30, 2004. The monthly base rent payable under the lease is $68,128 with a 3% increase on each anniversary of the commencement date. The lease is a triple net lease, whereby the terms require the tenant to reimburse the landlord for certain operating expenses, as defined in the lease, related to the building. The average effective annual rental per square foot at the Fairchild Building was $15.46 for 2001, 2000, 1999, and 1998, the first year of occupancy. The occupancy rate at year end was 100% for 2001, 2000, 1999 and 1998. Wells/Orange County Joint Venture In July 1998, Wells OP entered into Cort Joint Venture with Wells Development Corporation. On July 31, 1998, the Cort Joint Venture acquired the Cort Building for a purchase price of $6,400,000 plus acquisition expenses of approximately $150,000. On July 30, 1998, the Fund X-XI Joint Venture entered into an agreement for the purchase of Wells Development's interest in the Cort Joint Venture. On September 1, 1998, the Fund X-XI Joint Venture exercised its rights under the Cort Joint Venture Contract and purchased Wells Development's interest in the Cort Joint Venture and became a joint venture partner with Wells OP in the ownership of the Cort Building. The Partnership contributed $1,398,767, the Fund X- -8- XI Joint Venture contributed $2,296,233, and Wells OP contributed $2,871,430 towards the purchase of this building. The Cort Building is a 52,000-square-foot warehouse and office building located in Fountain Valley California. The building is 100% occupied by one tenant with a 15-year lease term that commenced on November 1, 1988 and expires on October 31, 2003. The monthly base rent payable under the lease is $63,247 through April 30, 2001, at which time the monthly base rent will be increased 10% to $69,574 for the remainder of the lease term. The lease is a triple net lease, whereby the terms require the tenant to reimburse the Cort Joint Venture for certain operating expenses, as defined in the lease, related to the building. As of December 31, 2001, Wells OP had made total capital contributions of $2,871,430 and held an approximate 44% equity interest in the Cort Joint Venture, and the Fund X-XI Joint Venture had contributed $3,695,000 and held an approximate 56% equity percentage interest in the Cort Joint Venture. The average effective annual rental per square foot at the Cort Building was $15.30 for 2001, 2000, 1999, and 1998, the first year of occupancy. The occupancy rate at year end was 100% for 2001, 2000, 1999 and 1998. Fund XI-XII-REIT Joint Venture On June 21, 1999, Fund XI-REIT Joint Venture, a joint venture between the Partnership and Wells OP, was amended and restated to admit the Wells Real Estate Fund XII L.P. ("Wells Fund XII"), a Georgia public limited partnership. Wells Fund XII and Wells OP are all affiliates of the Partnership and its general partners. The Fund XI-REIT Joint Venture, which changed its name to Wells Fund XI-XII-REIT Joint Venture, had previously acquired and owned the EYBL CarTex Building located in Greenville, South Carolina. As of December 31, 2001, the Partnership had contributed $8,131,351 for an approximate 26.2% equity interest in the Fund XI-XII-REIT Joint Venture, Wells Fund XII had made capital contributions of $5,300,000 for an approximate 17.1% equity interest, and Wells OP had contributed $17,585,310 for an approximate 56.8% interest in the Fund XI-XII-REIT Joint Venture. EYBL CarTex Building On May 18, 1999, Wells Real Estate, LLC-SC I ("Wells LLC"), a Georgia limited liability company wholly owned by the Fund XI-XII-REIT Joint Venture, acquired the EYBL CarTex Building, a manufacturing and office building located in Fountain Inn, unincorporated Greenville County, South Carolina for a purchase price of $5,085,000 plus acquisition expenses of approximately $37,000. The purchase cost was funded by capital contributions of $1,530,000 from the partnership and $3,591,827 from Wells OP. The EYBL CarTex Building is a manufacturing building containing approximately 169,510 square feet, comprised of approximately 140,580 square feet of manufacturing space, 25,300 square feet of two-story office space and 3,360 square feet of cafeteria/training space. An addition was constructed to the EYBL CarTex Building in 1989, which contained approximately 64,000 square feet of warehouse space. The entire 169,510 rentable square feet of the EYBL CarTex Building is currently under an Agreement of Lease (the " EYBL CarTex lease") with EYBL CarTex, Inc., a South Carolina corporation ("EYBL CarTex"). The lease was assigned to Wells LLC at the closing. The initial -9- term of the Lease is ten years beginning on March 1, 1998. EYBL CarTex has the right to extend the Lease for two additional five year periods. Each extension option must be exercised by giving notice to the landlord at least twelve months prior to the expiration date of the then current lease term. The annual rent payable during the first four years of the lease is $508,530. The annual rent payable is $550,908 for years five and six, $593,285 for years seven and eight, and $610,236 for years nine and ten. Pursuant to a lease commission agreement dated February 12, 1998 between the Seller and The McNamara Company, Inc., Wells LLC is required to pay on or before March 1 of each year an amount equal to $13,787 as a brokerage fee to the McNamara Company, Inc. through March 1, 2007. The average effective annual rental per square foot at the EBYL CarTex Building was $3.31 for 2001, 2000 and 1999, the first year of occupancy. The occupancy rate at year-end was 100% for 2001, 2000 and 1999. Sprint Building On July 2, 1999, the Fund XI-XII-REIT Joint Venture acquired the Sprint Building, a three-story office building with approximately 68,900 rentable square feet on a 7.12-acre tract of land located in Leawood, Johnson County, Kansas, for a purchase price of $9,500,000 plus acquisition expenses of approximately $46,210. As of December 31, 2001, the Partnership had contributed $3,000,000, Wells Fund XII had contributed $1,000,000 and Wells OP had contributed $5,546,210 to the purchase of this property. The entire 68,900 rentable square feet of the Sprint Building is currently under a net lease agreement with Sprint Communications, Inc. ("Sprint") dated February 14, 1997. The seller's interest in the lease was assigned to the Fund XI-XII-REIT Joint Venture at the closing. The initial term of the lease is ten years which commenced on May 19, 1997 and expires on May 18, 2007. Sprint has the option to extend the lease for two additional five-year periods of time. The monthly base rent payable under the lease is $83,254 through May 18, 2002 and $91,867 for the remainder of the lease term. The monthly base rent payable for each extended term of the lease will be equal to 95% of the then current market rate which is calculated as a full-service rental rate less anticipated annual operating expenses on a rentable square foot basis charged for space of comparable location, size, and conditions in comparable office buildings in the suburban south Kansas City, Missouri, and south Johnson County, Kansas areas. The 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 Fund 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 Fund XI-XII-REIT Joint Venture a termination payment equal to $6.53 per square foot, or $450,199. Sprint also has an expansion option for an additional 20,000 square feet of office space, which may be exercised in two expansion phases. Sprint's expansion rights involve building on unfinished ground-level space that is currently used as covered parking within the existing building footprint and shell. At each exercise of an expansion option, the remaining lease term will be extended to be a minimum of an additional five years from the date of the completion of such expansion space. -10- The average effective annual rental per square foot at the Sprint Building was $15.45 for 2001, $15.44 for 2000 and 1999, the first year of occupancy. The occupancy rate at year-end was 100% for 2001, 2000 and 1999. Johnson Matthey Building On August 17, 1999, the Fund XI-XII-REIT Joint Venture acquired the Johnson Matthey Building, a research and development office and warehouse building located in Chester County, Pennsylvania for a purchase price of $8,000,000 plus acquisition expenses of approximately $60,000. The purchase of the building was funded by capital contributions of $3,494,727 from the Partnership, $1,500,000 from Wells Fund XII and $3,061,594 from Wells OP. The Johnson Matthey Building is a 130,000 square foot research and development office and warehouse building that was first constructed in 1973 as a multi-tenant facility. It was subsequently converted into a single-tenant facility in 1998. The site consists of a ten-acre tract of land located at 434-436 Devon Park Drive in the Tredyffrin Township, Chester County, Pennsylvania. The entire 130,000 rentable square feet of the Johnson Matthey Building is currently leased to Johnson Matthey. The lease was assigned to the Fund XI-XII-REIT Joint Venture at closing. The annual base rent payable under the Johnson Matthey lease for the remainder of the lease term is as follows: year three-$789,750, year four-$809,250, year five-$828,750, year six-$854,750, year seven-$874,250, year eight-$897,000, year nine-$916,500, and year ten-$939,250. The current lease term expires in June 2007. Johnson Matthey has the right to extend the lease for two additional three-year periods. Johnson Matthey has a right of first refusal to purchase the Johnson Matthey Building in the event that the Fund XI-XII-REIT Joint Venture desires to sell the building to an unrelated third party. The joint venture must give Johnson Matthey written notice of its intent to sell the Johnson Matthey Building, and Johnson Matthey will have ten days from the date of such notice to provide written notice of its intent to purchase the building. If Johnson Matthey exercises its right of first refusal, it must purchase the Johnson Matthey Building on the same terms contained in the third party offer. The average effective annual rental per square foot at the Johnson Matthey Building was $6.67 for 2001, 2000 and 1999, the first year of occupancy. The occupancy rate at year-end was 100% for 2001, 2000 and 1999. Gartner Building On September 20, 1999, the Fund XI-XII-REIT Joint Venture acquired the Gartner Building, a two-story office building with approximately 62,400 rentable square feet on a 4.9-acre tract of land located at 12600 Gateway Boulevard in Fort Myers, Lee County, Florida for a purchase price of $8,320,000 plus acquisition expenses of approximately $27,600. The purchase was funded by capital contributions of $106,554 by the Partnership, $2,800,000 by Wells Fund XII and $5,441,064 by Wells OP. The entire 62,400 rentable square feet of the Gartner Building is currently under a net lease agreement with Gartner dated July 30, 1997 (the "Gartner Lease"). The landlord's interest in the Gartner Lease was assigned to the Fund XI-XII-REIT Joint Venture at the closing. The initial term of the Gartner Lease is ten years which commenced on February 1, 1998 and expires on -11- January 31, 2008. Gartner has the right to extend the Gartner Lease for two additional five-year periods. The annual base rent payable for the remainder of the Gartner Lease term is $642,798 through January 2000, $790,642 through January 2001, and thereafter will increase by 2.5% through the remainder of the Gartner Lease. Gartner also has two expansion options for additional buildings under the Gartner Lease. The two option plans are described in the Gartner Lease as the "Small Option Building" and the "Large Option Building." The "Small Option Building" expansion option allows Gartner the ability to expand into a separate, free-standing facility on the property containing between 30,000 and 32,000 rentable square feet to be constructed by the Fund XI-XII-REIT Joint Venture. Gartner may exercise its expansion right for the "Small Option Building" by providing notice in writing to the Fund XI-XII-REIT Joint Venture on or before April 15, 2002. The "Large Option Building" expansion option allows Gartner the ability to expand into a separate, free-standing facility on the property containing between 60,000 and 75,000 rentable square feet to be constructed by the Fund XI-XII-REIT Joint Venture. Gartner may exercise its expansion right for the "Large Option Building" by providing notice in writing to the Fund XI-XII-REIT Joint Venture on or before April 15, 2002. The average effective annual rental per square foot at the Gartner Building was $13.68 for 2001, 2000 and 1999, the first year of occupancy. The occupancy rate at year end was 100% for 2001, 2000 and 1999. Because of the requirement for fiduciaries of retirement plans subject to ERISA to determine the value of the assets of such retirement plans on an annual basis, the General Partners are required under the Partnership Agreement to report estimated Unit values to the Limited Partners each year in the Partnership's annual Form 10-K. The methodology to be utilized for determining such estimated Unit values under the Partnership Agreement is for the General Partners to estimate the amount a Unit holder would receive if the Partnership's properties were sold at their estimated fair market values as of the end of the Partnership's fiscal year and the proceeds therefrom (without reduction for selling expenses) were distributed to the Limited Partners in liquidation of the Partnership. Utilizing this methodology, the General Partners have estimated Unit valuations, based upon their estimates of property values as of December 31, 2001, to be approximately $8.74 per Class A Unit and $11.52 per Class B Unit, based upon market conditions existing in early December 2001. In connection with these estimated valuations, the General Partners obtained an opinion from David L. Beal Company, an independent MAI appraiser, to the effect that such estimates of value were reasonable; however, due to the inordinate expense involved in obtaining appraisals for all of the Partnership's properties, no actual appraisals were obtained. Accordingly, these estimates should not be viewed as an accurate reflection of the fair market value of the Partnership's properties, nor do they represent the amount of net proceeds which would result from an immediate sale of the Partnership's properties. The valuations performed by the General Partners are estimates only, and are based a number of assumptions which may not be accurate or complete. In addition, property values are subject to change and could decline in the future. Further, as set forth above, no appraisals have or will be obtained. For these reasons, the estimated Unit valuations set forth above should not be relied upon for any purpose other than required ERISA disclosures. ITEM 3. LEGAL PROCEEDINGS There were no material pending legal proceedings or proceedings known to be contemplated by governmental authorities involving the Partnership during 2001. -12- ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS No matters were submitted to a vote of the Limited Partners during 2001. (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK) -13- PART II ITEM 5. MARKET FOR PARTNERSHIP'S UNITS AND RELATED SECURITY HOLDER MATTERS The offering for sale of Units in the Partnership terminated on December 30, 1998, at which time the Partnership had 1,314,906 outstanding Class A Units held by a total of 1,250 Limited Partners and 338,374 outstanding Class B Units held by a total of 95 Limited Partners. As of February 28, 2002, the Partnership had 1,346,256 outstanding Class A Units held by a total of 1,255 Limited Partners and 307,024 outstanding Class B Units held by a total of 83 Limited Partners. The capital contribution per unit is $10.00. There is no established public trading for the Partnership's limited partnership units, and it is not anticipated that a public trading market for the units will develop. Under the Partnership Agreement, the General Partners have the right to prohibit transfers of units. Class A Limited Partners are entitled to a distribution from Net Cash From Operations, as defined in the Partnership Agreement to mean cash flow, less adequate cash reserves for other obligations of the Partnership for which there is no provision, on a per Unit basis until they have received distributions in each fiscal year of the Partnership equal to 10% of their adjusted capital contributions. After this preference is satisfied, the General Partners will receive an amount of Net Cash From Operations equal to 10% of the total amount of Net Cash From Operations distributed. Thereafter, the Limited Partners holding Class A Units will receive 90% of Net Cash From Operations and the General Partners will receive 10%. No Net Cash From Operations will be distributed to Limited Partners holding Class B Units. Holders of Class A Units will, except in limited circumstances, be allocated none of the Partnership's net loss, depreciation and amortization deductions. These deductions will be allocated to the Class B Units, until their capital account balances have been reduced to zero. No distributions have been made to the General Partners as of December 31, 2001. Cash available for distribution to the Limited Partners is distributed on a quarterly basis unless Limited Partners elect to have their cash distributed monthly. Cash distributions made to Class A Limited Partners during 2000 and 2001 were as follows:
Per Class A Unit ------------------------- Distribution for Total Cash Investment Return of General Quarter Ended Distributed Income Capital Partner ---------------------- ----------- ---------- --------- ------- March 31, 2000 $300,802 $ 0.23 $ 0.00 $ 0.00 June 30, 2000 310,189 0.23 0.00 0.00 September 30, 2000 319,576 0.24 0.00 0.00 December 31, 2000 326,954 0.24 0.00 0.00 March 31, 2001 326,967 0.24 0.00 0.00 June 30, 2001 326,752 0.24 0.00 0.00 September 30, 2001 326,936 0.25 0.00 0.00 December 31, 2001 328,150 0.25 0.00 0.00
The fourth quarter distribution was accrued for accounting purposes in 2001, and paid to Limited Partners in February, 2002. No cash distributions were paid to holders of Class B Units in 2001. -14- ITEM 6. SELECTED FINANCIAL DATA The following sets forth a summary of the selected financial data for the fiscal years ended December 31, 2001, 2000, 1999, and 1998:
2001 2000 1999 1998 ------------ ------------ ------------ ------------ Total assets $ 13,644,230 $ 14,131,924 $ 14,440,800 $ 14,844,515 Total revenues 960,676 975,850 766,586 262,729 Net income 870,350 895,989 630,528 143,295 Net loss allocated to General Partners 0 0 0 (500) Net income allocated to Class A Limited Partners 1,361,828 1,381,547 1,009,368 254,862 Net loss allocated to Class B Limited Partners (491,478) (485,558) (378,840) (111,067) Net income per weighted average (1) Class A Limited Partner Unit $ 1.01 $ 1.03 $ 0.77 $ 0.50 Net loss per weighted average (1) Class B Limited Partner Unit (1.58) (1.55) (1.12) (0.77) Cash distribution per weighted average (1) Class A Limited Partner Unit: Investment income 0.98 0.94 0.71 0.30 Return of capital 0.00 0.00 0.00 0.00
(1) The weighted average unit is calculated by averaging units over the period they are outstanding during the time units were being purchased by Limited Partners in the Partnership. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL AND CONDITIONS RESULTS OF OPERATION Forward-Looking Statements The following discussion and analysis should be read in conjunction with the selected financial data and the accompanying financial statements of the Partnership and notes thereto. This Report contains forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of the financial condition of the Partnership, anticipated capital expenditures required to complete certain projects, amounts of cash distributions anticipated to be distributed to Limited Partners in the future and certain other matters. Readers of this Report should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statement made in this Report, which include construction costs which may exceed estimates, construction delays, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow. Results of Operations Gross revenues of the Partnership were $960,676, $975,850, and $766,586 for the twelve months ended December 31, 2001, 2000, and 1999, respectively. The increase in revenues from 1999 to 2000 is attributable primarily to increased earnings from the Fund IX-X-XI-REIT Joint Venture and the Fund XI-XII-REIT Joint Venture, primarily due to the Partnership investing in four additional joint venture properties in mid-1999 through these joint ventures. In addition, revenues were increased at Alstom Power-Knoxville Building as it became fully occupied in 2000 and at the Iomega Building as it finished the rentable parking area in July 1999. Expenses of the Partnership were $90,326, $79,861, and $136,058 for the twelve months ended December 31, 2001, 2000, and 1999, respectively. Expenses were -15- higher in 1999, as compared to 2000 and 2001, due to the total write-off of net capitalized organizational costs in accordance with accounting pronouncement ("SOP") 98-5, "Reporting on the Costs of Start-Up Activities." Expenses increased in 2001, as compared to 2000, due to increased partnership administration expenses. As a result, net income of the Partnership was $870,350 for the year ended December 31, 2001, $895,989 for the year ended December 31, 2000, and $630,528 for the year ended December 31, 2001. The Partnership made cash distributions of investment income to Limited Partners holding Class A Units of $0.98 per Class A Unit for the year ended December 31, 2001, $0.94 per Class A Unit for the year ended December 31, 2000, and $0.71 per Class A Unit for the year ended December 31, 1999. The General Partners anticipate distributions per unit to Limited Partners holding Class A Units will continue in 2002 at a level at least comparable with 2001 cash distributions on an annual basis. Distributions accrued for the fourth quarter of 2001 to the Limited partners holding Class A Units were paid in February 2002. No cash distributions were made to Limited Partners holding Class B Units. Refer to footnotes of audited Financial Statements where a complete summary of operations is disclosed. Liquidity and Capital Resources The Partnership's net cash (used in) provided by operating activities was ($128,985) in 2001, ($72,925) in 2000, and $40,906 in 1999. Net cash provided by operating activities in 1999, as compared to net cash used in 2000 and 2001, was attributed primarily to interest income earned on funds held by the Partnership prior to investment in properties while the Partnership had made all its investments by the end of 1999. Net cash used in 2001 increased, as compared to 2000, due to an increase in partnership expenses. Net cash provided by (used in) investing activities was $1,376,673 for 2001, $1,333,337 for 2000, and ($8,300,585) in 1999. This change was primarily the result of the Partnership investing capital proceeds in the joint ventures in 1999 and receiving a full year of joint venture distributions in 2000 and 2001. Net cash used in financing activities increased to $1,307,606 in 2001, from $1,205,303 in 2000, and from $1,010,770 in 1999 due to increased distributions from the Partnership. The Partnership expects to continue to meet its short-term liquidity requirements and budget demands generally through net cash provided by operations which the Partnership believes will continue to be adequate to meet both operating requirements and distributions to limited partners. Although there is no assurance, the General Partners anticipate that the cash distributions to Limited Partners holding Class A Units will continue in 2002 at a level at least comparable with 2001 cash distributions on an annual basis. At this time, given the nature of the joint ventures and properties in which the Partnership has invested, there are no known improvements or renovations to the properties expected to be funded from cash flow from operations. Since properties are acquired on an all-cash basis, the Partnership has no permanent long-term liquidity requirements. Inflation Real estate has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. There are provisions in the majority of tenant leases executed by the Partnership to protect the Partnership from the impact of inflation. These leases contain common area maintenance charges, real estate tax and insurance reimbursements on a per square foot basis, or in some cases, annual reimbursement of operating expenses above a certain per square foot allowance. The Partnership would have the ability to negotiation at higher rental rates upon the expiration of 5 leases in 2002. These -16- provisions should reduce the Partnership's exposure to increases in costs and operating expenses resulting from inflation. Critical Accounting Policies The Partnership's accounting policies have been established and conformed to in accordance with accounting principles generally accepted in the United States ("GAAP"). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions. These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters, which are inherently uncertain. Additional discussion of accounting policies that we consider to be significant, including further discussion of the critical accounting policies described below, is presented in the notes to the Partnership's financial statements in Item 14(a). Straight-Lined Rental Revenues The Partnership recognizes rental income generated from all leases on real estate assets in which the Partnership has an ownership interest, either directly or through investments in joint ventures, on a straight-line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as receivable may not be realized. Operating Cost Reimbursements The Partnership generally bills tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity and the respective lease terms. Such billings are generally adjusted on an annual basis to reflect reimbursements owed to the landlord based on the actual costs incurred during the period and the respective lease terms. Financial difficulties encountered by tenants may result in receivables not being realized. Real Estate Management continually monitors events and changes in circumstances indicating that the carrying amounts of the real estate assets in which the Partnership has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, the Partnership 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 Partnership nor its joint ventures have recognized impairment losses on real estate assets in 2001, 2000 or 1999. -17- ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA The Financial Statements of the Registrant and supplementary data are detailed under Item 14(a) and filed as part of the report on the pages indicated. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE There were no disagreements with the Partnership's accountants or other reportable events during 2001. (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK) -18- PART III ITEM 10. GENERAL PARTNERS OF THE PARTNERSHIP Wells Partners, L.P. The sole General Partner of Wells Partners, L.P. is Wells Capital, Inc. The executive offices of Wells Capital, Inc. are located at 6200 The Corners Parkway, Norcross, Georgia 30092. Leo F. Wells, III Mr. Wells is a resident of Atlanta, Georgia, is 58 years of age and holds a Bachelor of Business Administration Degree in Economics from the University of Georgia. Mr. Wells is the President and sole Director of Wells Capital, Inc. He is also the President, sole Director and sole shareholder of Wells Real Estate Investment Funds, Inc., the parent corporation of Wells Capital, Inc. Mr. Wells is also the President of Wells & Associates, Inc., a real estate brokerage and investment company formed in 1976 and incorporated in 1978, for which he serves as the principal broker. Mr. Wells is also the sole Director and President of Wells Management Company, Inc., a property management company he founded in 1983. In addition, Mr. Wells is the President and Chairman of the Board of Wells Investment Securities, Inc., Wells & Associates, Inc., and Wells Management Company, Inc., all of which are all affiliates of the General Partners. From 1980 to February 1985, Mr. Wells served as Vice-President of Hill-Johnson, Inc., a Georgia corporation engaged in the construction business. From 1973 to 1976, he was associated with Sax Gaskin Real Estate Company, and from 1970 to 1973, he was a real estate salesman and property manager for Roy D. Warren & Company, an Atlanta real estate company. The following table summarizes the compensation and fees paid to the General Partners and their affiliates during the year ended December 31, 2001:
Name of Individual Capacities in Which Served Cash or Number in Group Form of Compensation Compensation --------------------------------- ----------------------------------- ---------------- Wells Management Company, Inc. Property Manager-Management and $74,478(1) Leasing Fees
(1) These fees are not paid directly by the Partnership, but are paid by the joint venture entities which own properties for which the property management and leasing services relate and include management and leasing fees. The Partnership does not own any properties directly. Accordingly, these fees are payable to Wells Management, Inc. by the joint ventures described in Item 1 and represent the Partnership's ownership interest in amounts attributable to the properties owned directly by these joint ventures for services rendered during 2001. Some of these fees were accrued for accounting purposes in 2001, however, were not paid until January 2002. -19- ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT No Limited Partner is known by the Partnership to own beneficially more than 5% of the outstanding units of the Partnership. Set forth below is the security ownership of management as of December 31, 2001.
Name and Address of Amount and Nature of Title of Class Beneficial Owner Beneficial Ownership Percent of Class ---------------- ------------------- --------------------------- ---------------- Class A Units Leo F. Wells, III 5,109.22 units (IRA, 401(k) Less than 1% and Profit Sharing)
No arrangements exist which would, upon execution, result in a change in control of the Partnership. ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS The compensation and fees paid or to be paid by the Partnership to the General Partners and their affiliates in connection with the operation of the Partnership are as follows: Interest in Partnership Cash Flow and Net Sale Proceeds The General Partners will receive a subordinated participation in net cash flow from operations equal to 10% of net cash flow after the Limited Partners holding Class A Units have received preferential distributions equal to 10% of their adjusted capital accounts in each fiscal year. The General Partners will also receive a subordinated participation in net sales proceeds and net financing proceeds equal to 20% of residual proceeds available for distribution after Limited Partners holding Class A Units have received a return of their adjusted capital contributions plus a 10% cumulative return on their adjusted capital contributions and Limited Partners holding Class B Units have received a return of their adjusted capital contributions plus a 15% cumulative return on their adjusted capital contributions; provided, however, that in no event shall the General Partners receive in the aggregate in excess of 15% of net sales proceeds and net financing proceeds remaining after payments to Limited Partners from such proceeds of amounts equal to the sum of their adjusted capital contributions plus a 6% cumulative return on their adjusted capital contributions. The General Partners did not receive any distributions from net cash flow from operations or net sales proceeds for the year ended December 31, 2001. Property Management and Leasing Fees Wells Management Company, Inc., an affiliate of the General Partners, will receive compensation for supervising the management of the Partnership properties equal to the lesser of (a) fees that would be paid to a comparable outside firm or (b) 4.5% of the gross revenues generally paid over the life of the lease plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month's rent. In the case of commercial properties which are leased on a long-term (ten or more years) net lease basis, the maximum property management fee from such leases shall be 1% of the gross revenues generally paid over the life of the leases except for a one-time initial leasing fee of 3% of the gross revenues on each lease payable over the first five full years of the original lease term. -20- Wells Management Company, Inc. has received $74,478 in total cash compensation for services rendered during the year ended December 31, 2001. Real Estate Commissions In connection with the sale of Partnership properties, the General Partners or their affiliates may receive commissions not exceeding the lesser of (A) 50% of the commissions customarily charged by other brokers in arm's-length transactions involving comparable properties in the same geographic area or (B) 3% of the gross sales price of the property, and provided that payments of such commissions will be made only after Limited Partners have received prior distributions totaling 100% of their capital contributions plus a 6% cumulative return on their adjusted capital contributions. During 2001, no real estate commissions were paid to the General Partners or their affiliates. (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK.) -21- PART IV ITEM 13. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K (a)1. The financial statements are contained on pages F-2 through F-28 of this Annual Report on Form 10-K, and the list of the financial statements contained herein is set forth on page F-1, which is hereby incorporated by reference. (a)2. The Exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto. (b) No reports on Form 8-K were filed with the Commission during the fourth quarter of 2001. (c) The exhibits filed in response to Item 601 of Regulation S-K are listed on the Exhibit Index attached hereto. (d) See (a) 2 above. (THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK) -22- SIGNATURES Pursuant to the requirements of Sections 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized this 21st day of March 2002. Wells Real Estate Fund XI, L.P. (Registrant) By: /s/ LEO F. WELLS, III ------------------------------------- Leo F. Wells, III Individual General Partner and as President and Chief Financial Officer of Wells Capital, Inc., the Corporate General Partner Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following person on behalf of the registrant and in the capacity as and on the date indicated. Signature Title Date ------------------------ ------------------------------ -------------- /s/ LEO F. WELLS, III ------------------------ Leo F. Wells, III Individual General Partner, March 21, 2002 President and Sole Director of Wells Capital, Inc., the Corporate General Partner SUPPLEMENTAL INFORMATION TO BE FURNISHED WITH REPORTS FILED PURSUANT TO SECTION 15(d) OF THE ACT BY REGISTRARS WHICH HAVE NOT BEEN REGISTERED PURSUANT TO SECTION 12 OF THE ACT. No annual report or proxy material relating to an annual or other meeting of security holders has been sent to security holders. -23- INDEX TO FINANCIAL STATEMENTS Financial Statements Page ------------------------------------------------------------------------- ---- Independent Auditors' Report F-2 Balance Sheets as of December 31, 2001 and 2000 F-3 Statements of Income for the Years Ended December 31, 2001, 2000 and 1999 F-4 Statements of Partners' Capital for the Years Ended December 31, 2001, 2000 and 1999 F-5 Statements of Cash Flows for the Years Ended December 31, 2001, 2000 and 1999 F-6 Notes to Financial Statements for December 31, 2001, 2000 and 1999 F-7 F-1 REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS To Wells Real Estate Fund XI, L.P.: We have audited the accompanying balance sheets of WELLS REAL ESTATE FUND XI, L.P. (a Georgia public limited partnership) as of December 31, 2001 and 2000 and the related statements of income, partners' capital, and cash flows for each of the three years in the period ended December 31, 2001. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with auditing standards generally accepted in the United States. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Wells Real Estate Fund XI, L.P. as of December 31, 2001 and 2000 and the results of its operations and its 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. ARTHUR ANDERSEN LLP Atlanta, Georgia January 25, 2002 F-2 WELLS REAL ESTATE FUND XI, L.P. (A Georgia Public Limited Partnership) BALANCE SHEETS DECEMBER 31, 2001 AND 2000
ASSETS 2001 2000 ------------ ------------ INVESTMENT IN JOINT VENTURES $ 13,276,778 $ 13,698,627 CASH AND CASH EQUIVALENTS 17,542 77,460 DUE FROM AFFILIATES 348,632 343,825 ACCOUNTS RECEIVABLE 1,278 12,012 ------------ ------------ Total Assets $ 13,644,230 $ 14,131,924 ============ ============ LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Due to affiliate $ 15,000 $ 65,000 Partnership distributions payable 328,151 326,952 Accounts payable 0 438 ------------ ------------ Total liabilities 343,151 392,390 ------------ ------------ COMMITMENTS AND CONTINGENCIES (Note 7) PARTNERS' CAPITAL: Limited partners: Class A--1,346,256 units and 1,341,356 units as of December 31, 2001 and 2000, respectively 12,070,817 11,993,987 Class B--307,024 units and 311,924 units as of December 31, 2001 and 2000, respectively 1,230,262 1,745,547 ------------ ------------ Total partners' capital 13,301,079 13,739,534 ------------ ------------ Total liabilities and partners' capital $ 13,644,230 $ 14,131,924 ============ ============
The accompanying notes are an integral part of these balance sheets. F-3 WELLS REAL ESTATE FUND XI, L.P. (A Georgia Public Limited Partnership) STATEMENTS OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999 ----------- ----------- ----------- REVENUES: Equity in income of joint ventures $ 959,631 $ 967,900 $ 607,579 Interest income 1,045 7,950 159,007 ----------- ----------- ----------- 960,676 975,850 766,586 ----------- ----------- ----------- EXPENSES: Partnership administration 61,341 48,135 57,557 Legal and accounting 16,193 19,854 45,055 Amortization of organizational costs 0 0 25,000 Computer costs 12,792 11,872 8,446 ----------- ----------- ----------- 90,326 79,861 136,058 ----------- ----------- ----------- NET INCOME $ 870,350 $ 895,989 $ 630,528 =========== =========== =========== NET INCOME ALLOCATED TO CLASS A LIMITED PARTNERS $ 1,361,828 $ 1,381,547 $ 1,009,368 =========== =========== =========== NET LOSS ALLOCATED TO CLASS B LIMITED PARTNERS $ (491,478) $ (485,558) $ (378,840) =========== =========== =========== NET INCOME PER WEIGHTED AVERAGE CLASS A LIMITED PARTNER UNIT $ 1.01 $ 1.03 $ 0.77 =========== =========== =========== NET LOSS PER WEIGHTED AVERAGE CLASS B LIMITED PARTNER UNIT $ (1.58) $ (1.55) $ (1.12) =========== =========== =========== DISTRIBUTION PER WEIGHTED AVERAGE CLASS A LIMITED PARTNER UNIT $ 0.98 $ 0.94 $ 0.71 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-4 WELLS REAL ESTATE FUND XI, L.P. (A Georgia Public Limited Partnership) STATEMENTS OF PARTNERS' CAPITAL FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
Limited Partners --------------------------------------------------- Class A Class B Total ------------------------- ---------------------- General Partners' Original Units Amount Units Amount Partner Capital -------- --------- ------------ ------- ------------ ------- ------------ BALANCE, December 31, 1998 $ 100 1,302,942 $ 11,439,315 350,338 $ 2,961,011 $ 0 $ 14,400,426 Net income (loss) 0 0 1,009,368 0 (378,840) 0 630,528 Partnership distributions 0 0 (930,791) 0 0 0 (930,791) Class B conversions 0 33,964 287,048 (33,964) (287,048) 0 0 Return of capital (100) 0 0 0 0 0 (100) -------- --------- ------------ ------- ------------ ------- ------------ BALANCE, December 31, 1999 0 1,336,906 11,804,940 316,374 2,295,123 0 14,100,063 Net income (loss) 0 0 1,381,547 0 (485,558) 0 895,989 Partnership distributions 0 0 (1,256,518) 0 0 0 (1,256,518) Class B conversions 0 4,450 64,018 (4,450) (64,018) 0 0 -------- --------- ------------ ------- ------------ ------- ------------ BALANCE, December 31, 2000 0 1,341,356 11,993,987 311,924 1,745,547 0 13,739,534 Net income (loss) 0 0 1,361,828 0 (491,478) 0 870,350 Partnership distributions 0 0 (1,308,805) 0 0 0 (1,308,805) Class B conversions 0 4,900 23,807 (4,900) (23,807) 0 0 -------- --------- ------------ ------- ------------ ------- ------------ BALANCE, December 31, 2001 $ 0 1,346,256 $ 12,070,817 307,024 $ 1,230,262 $ 0 $ 13,301,079 ======== ========= ============ ======= ============ ======= ============
The accompanying notes are an integral part of these statements. F-5 WELLS REAL ESTATE FUND XI, L.P. (A Georgia Public Limited Partnership) STATEMENTS OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2001, 2000, AND 1999
2001 2000 1999 ----------- ----------- ----------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 870,350 $ 895,989 $ 630,528 ----------- ----------- ----------- Adjustments to reconcile net income to net cash (used in) provided by operating activities: Equity in income of joint venture (959,631) (967,900) (607,579) Amortization of organizational costs 0 0 25,000 Changes in assets and liabilities: Accounts receivable 10,734 (1,452) 16,430 Accounts payable (438) 438 0 Due to affiliates (50,000) 0 (23,473) ----------- ----------- ----------- Total adjustments (999,335) (968,914) (589,622) ----------- ----------- ----------- Net cash (used in) provided by operating activities (128,985) (72,925) 40,906 ----------- ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Investment in joint venture 0 0 (9,005,979) Distributions received from joint ventures 1,376,673 1,333,337 705,394 ----------- ----------- ----------- Net cash provided by (used in) investing activities 1,376,673 1,333,337 (8,300,585) ----------- ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Sales commissions and discounts paid 0 0 (214,609) Distributions to partners in excess of accumulated earnings 0 0 (10,816) Distributions to partners from accumulated earnings (1,307,606) (1,205,303) (785,245) Return of capital 0 0 (100) ----------- ----------- ----------- Net cash used in financing activities (1,307,606) (1,205,303) (1,010,770) ----------- ----------- ----------- NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS (59,918) 55,109 (9,270,449) CASH AND CASH EQUIVALENTS, beginning of year 77,460 22,351 9,292,800 ----------- ----------- ----------- CASH AND CASH EQUIVALENTS, end of year $ 17,542 $ 77,460 $ 22,351 =========== =========== =========== SUPPLEMENTAL DISCLOSURE OF NONCASH ACTIVITIES: Deferred project costs contributed to joint ventures $ 0 $ 0 $ 375,246 =========== =========== ===========
The accompanying notes are an integral part of these statements. F-6 WELLS REAL ESTATE FUND XI, L.P. (A Georgia Public Limited Partnership) NOTES TO FINANCIAL STATEMENTS DECEMBER 31, 2001, 2000, AND 1999 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Organization and Business Wells Real Estate Fund XI, L.P. (the "Partnership") is a public limited partnership organized on June 20, 1996 under the laws of the state of Georgia. The general partners are Leo F. Wells, III and Wells Partners, L.P. ("Wells Partners"), a Georgia nonpublic limited partnership. The Partnership has two classes of limited partnership units. Upon subscription for units, each limited partner must elect whether to have his or her units treated as Class A units or Class B units. Thereafter, limited partners have the right to change their prior elections to have some or all of their units treated as Class A units or Class B units one time during each quarterly accounting period. Limited partners may vote to, among other things: (a) amend the partnership agreement, subject to certain limitations, (b) change the business purpose or investment objectives of the Partnership, (c) elect or remove a general partner, (d) dissolve the Partnership, and (e) approve a sale of all or substantially all of the Partnership's assets, subject to certain limitations. A majority vote on any of the described matters will bind the Partnership without concurrence of the general partners. Each limited partnership unit has equal voting rights, regardless of class. The Partnership commenced operations as of March 3, 1998. The Partnership was formed to acquire and operate commercial real estate properties, including properties which are either to be developed, are currently under development or construction, are newly constructed, or have operating histories. The Partnership owns an interest in several properties through a joint venture between the Partnership, Wells Real Estate Fund IX, L.P. ("Fund IX"), Wells Real Estate Fund X, L.P. ("Fund X"), and Wells Operating Partnership, L.P. (the "Operating Partnership"), a Delaware limited partnership having Wells Real Estate Investment Trust, Inc. ("Wells REIT"), a Maryland corporation, as its general partner, which is referred to as "Fund IX, X, XI, and REIT Joint Venture." The Partnership also owns interests in two properties through a joint venture between the Partnership and Fund X, referred to as "Fund X and XI Associates." In addition, the Partnership owns an interest in several properties through a joint venture between the Partnership, Wells Real Estate Fund XII, L.P. ("Wells Fund XII") and the Operating Partnership, which is referred to as Fund XI, XII, and REIT Joint Venture. Through its investment in Fund IX, X, XI, and REIT Joint Venture, the Partnership owns interests in the following properties: (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," formerly the "Lucent Technologies Building"). The following properties are owned by Fund X and XI Associates through investments in two joint ventures with the Operating Partnership: (i) a one-story office and warehouse building in Fountain Valley, California (the "Cort Building"), and (ii) a two-story manufacturing and office building in Fremont, California (the "Fairchild Building"). Through its investment in Fund XI, XII, and REIT Joint Venture, the Partnership owns interests in the following properties: (i) a two-story manufacturing and office building in Fountain Inn, South Carolina (the F-7 "EYBL CarTexBuilding"), (ii) a three-story office building in 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 Fort Myers, Florida (the "Gartner Building"). Use of Estimates and Factors Affecting the Partnership The preparation of 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 Partnership's future operations and the ability to realize the investment in its assets will be dependent on the Partnership'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 Partnership to realize its investment in its assets. Income Taxes The Partnership is not subject to federal or state income taxes; therefore, none have been provided for in the accompanying financial statements. The partners are required to include their respective shares of profits and losses in their individual income tax returns. Distributions of Net Cash From Operations Cash available for distribution, as defined by the partnership agreement, will be distributed to the limited partners on a quarterly basis. In accordance with the partnership agreement, distributions are paid first to limited partners holding Class A units until they have received a 10% per annum return on their net capital contributions, as defined. Then, such distributions are paid to the general partners until they have received 10% of the total amount distributed thus far. Any remaining cash available for distribution is split 90% to the limited partners holding Class A units and 10% to the general partners. No such distributions will be made to the limited partners holding Class B units. Distribution of Sales Proceeds Upon sales of properties, the net sales proceeds will be distributed in the following order: . To limited partners holding units which at any time have been treated as Class B units until they receive an amount necessary to equal the net cash available for distribution received by the limited partners holding Class A units . To limited partners on a per unit basis until each limited partner has received 100% of their net capital contributions, as defined . To all limited partners on a per unit basis until they receive a cumulative 10% per annum return on their net capital contributions, as defined . To limited partners on a per unit basis until they receive an amount equal to their preferential limited partner return (defined as the sum of a 10% per annum cumulative return on net capital contributions for all periods during which the units were treated as Class A units and a 15% per annum cumulative return on net capital contributions for all periods during which the units were treated as Class B units) . To the general partners until they have received 100% of their capital contributions, as defined F-8 . Then, if limited partners have received any excess limited partner distributions (defined as distributions to limited partners over the life of their investment in the Partnership in excess of their net capital contributions, as defined, plus their preferential limited partner return), to the general partners until they have received distributions equal to 20% of the sum of any such excess limited partner distributions plus distributions made to the general partners pursuant to this provision . Thereafter, 80% to the limited partners on a per unit basis and 20% to the general partners Allocation of Net Income, Net Loss, and Gain on Sale Net income is defined as net income recognized by the Partnership, excluding deductions for depreciation and amortization. Net income, as defined, of the Partnership will be allocated each year in the same proportion that net cash from operations is distributed to the partners. To the extent the Partnership's net income in any year exceeds net cash from operations, it will be allocated 99% to the limited partners holding Class A units and 1% to the general partners. Net loss, depreciation, and amortization deductions for each fiscal year will be allocated as follows: (a) 99% to the limited partners holding Class B units and 1% to the general partners until their capital accounts are reduced to zero, (b) then to any partner having a positive balance in his/her capital account in an amount not to exceed such positive balance, and (c) thereafter to the general partners. Gain on the sale or exchange of the Partnership's properties will be allocated generally in the same manner that the net proceeds from such sale are distributed to partners after the following allocations are made, if applicable: (a) allocations made pursuant to the qualified income offset provisions of the partnership agreement, (b) allocations to partners having negative capital accounts until all negative capital accounts have been restored to zero, and (c) allocations to limited partners holding Class B units in amounts equal to the deductions for depreciation and amortization previously allocated to them with respect to the specific partnership property sold, but not in excess of the amount of gain on sale recognized by the Partnership with respect to the sale of such property. Investment in Joint Ventures Basis of Presentation The Partnership does not have control over the operations of the joint ventures; however, it does exercise significant influence. Accordingly, the Partnership's investments in joint ventures are recorded using the equity method of accounting. Real Estate Assets Real estate assets held by the 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 joint ventures as of December 31, 2001 or 2000. F-9 Depreciation for 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 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. Deferred lease acquisition costs are included in prepaid expenses and other assets, net, in the balance sheets presented in Note 2. Partners' Distributions and Allocations of Profit and Loss Cash available for distribution and allocations of profit and loss to the Partnership by the joint ventures are made in accordance with the terms of the individual joint venture agreement. Generally, these items are allocated in proportion to the partners' respective ownership interests. Cash is paid from the joint ventures to the 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 2. Cash and Cash Equivalents For the purposes of the statements of cash flows, the Partnership 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 approximate fair value, and consist of investments in money market accounts. Per Unit Data Net income (loss) per unit with respect to the Partnership for the years ended December 31, 2001, 2000, and 1999 is computed based on the weighted average number of units outstanding during the period. Reclassifications Certain prior year amounts have been reclassified to conform with the current year financial statement presentation. 2. RELATED-PARTY TRANSACTIONS Due from affiliates at December 31, 2001 and 2000 represents the Partnership's share of cash to be distributed from its joint venture investments for the fourth quarter of 2001 and 2000 as follows: 2001 2000 -------- -------- Fund IX, X, XI, and REIT Joint Venture $ 85,927 $ 89,332 Fund X and XI Associates 64,634 62,940 Fund XI, XII, and REIT Joint Venture 198,071 191,553 -------- -------- $348,632 $343,825 ======== ======== F-10 The Partnership entered into a property management and leasing agreement with Wells Management Company, Inc. ("Wells Management"), an affiliate of the general partners. In consideration for supervising the management and leasing of the Partnership's properties, the Partnership will pay Wells Management management and leasing fees equal to the lesser of (a) fees that would be paid to a comparable outside firm or (b) 4.5% of the gross revenues generally paid over the life of the lease plus a separate competitive fee for the one-time initial lease-up of newly constructed properties generally paid in conjunction with the receipt of the first month's rent. In the case of commercial properties which are leased on a long-term net basis (ten or more years), the maximum property management fee from such leases shall be 1% of the gross revenues generally paid over the life of the leases except for a one-time initial leasing fee of 3% of the gross revenues on each lease payable over the first five full years of the original lease term. The Partnership incurred management and leasing fees and lease acquisition costs, at the joint venture level, of $74,478, $75,700, and $45,039 for the years ended December 31, 2001, 2000, and 1999, respectively. Wells Capital, Inc. (the "Company"), general partner of Wells Partners, performs certain administrative services for the Partnership, such as accounting and other partnership administration, and incurs the related expenses. Such expenses are allocated among 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 estimation of such expenses. The general partners are also general partners in other Wells Real Estate Funds. As such, there may exist conflicts of interest where the general partners in the capacity as general partners for other Wells Real Estate Funds may be in competition with the Partnership for tenants in similar geographic markets. 3. INVESTMENT IN JOINT VENTURES The 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 IX, X, XI, and REIT Joint Venture $ 3,073,671 9% $ 3,191,093 9% Fund X and XI Associates 2,285,461 42 2,359,273 42 Fund XI, XII, and REIT Joint Venture 7,917,646 26 8,148,261 26 ----------- ----------- $13,276,778 $13,698,627 =========== ===========
The following is a roll forward of the Partnership's investment in joint ventures for the years ended December 31, 2001 and 2000:
2001 2000 ----------- ----------- Investment in joint ventures, beginning of year $13,698,627 $14,093,790 Equity in income of joint ventures 959,631 967,900 Distributions from joint ventures (1,381,480) (1,363,063) ----------- ----------- Investment in joint ventures, end of year $13,276,778 $13,698,627 =========== ===========
FUND IX, X, XI, AND REIT JOINT VENTURE On March 20, 1997, Wells Fund IX and Wells Fund X entered into a joint venture agreement. The joint venture, Fund IX and X Associates, was formed to acquire, develop, operate, and sell real properties. On March 20, 1997, Wells Fund IX contributed a 5.62-acre tract of real property in Knoxville, Tennessee, and improvements thereon, known as the Alstom Power Building, to the Fund IX and X Associates joint F-11 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 April 1, 1998, Wells Fund X purchased a one-story office and warehouse building, known as the Iomega Building, in Ogden, Utah. On June 11, 1998, Fund IX and X Associates was amended and restated to admit the Partnership and the Operating Partnership. The joint venture was renamed 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 July 1, 1998, Wells Fund X contributed the Iomega Building to Fund IX, X, XI, and REIT Joint Venture. During 1999, the Partnership and Wells Fund IX made additional capital contributions to the Fund IX, X, XI, and REIT Joint Venture; during 2000, Wells Fund IX and Wells Fund X made additional capital contributions to the Fund IX, X, XI, and REIT Joint Venture. Ownership interests were recomputed accordingly. 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 sets, 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 =========== ===========
F-12 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 =========== =========== ========== ========== ===========
F-13 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 =========== =========== ===========
Fund X and XI Associates The joint venture, Fund X and XI Associates, was formed on July 17, 1998 to acquire, develop, operate, and sell real properties. 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. 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 Building. During 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 Building. F-14 Following are the financial statements for Fund X and XI Associates: Fund X and XI Associates (A Georgia Joint Venture) Balance Sheets December 31, 2001 and 2000
Assets 2001 2000 ---------- ---------- Investment in joint ventures $5,443,159 $5,618,953 Due from affiliates 155,826 149,218 ---------- ---------- Total assets $5,598,985 $5,768,171 ========== ========== Liabilities and Partners' Capital Liabilities: Partnership distributions payable $ 155,826 $ 149,218 ---------- ---------- Partners' capital: Wells Real Estate Fund X 3,157,698 3,259,680 Wells Real Estate Fund XI 2,285,461 2,359,273 ---------- ---------- Total partners' capital 5,443,159 5,618,953 ---------- ---------- Total liabilities and partners' capital $5,598,985 $5,768,171 ========== ==========
Fund X and XI Associates (A Georgia Joint Venture) Statements of Income for the Years Ended December 31, 2001, 2000 and 1999
2001 2000 1999 -------- -------- -------- Equity in income of joint ventures $434,257 $447,193 $436,158 Expenses 0 0 0 -------- -------- -------- Net income $434,257 $447,193 $436,158 ======== ======== ======== Net income allocated to Wells Real Estate Fund X $251,923 $259,034 $252,966 ======== ======== ======== Net income allocated to Wells Real Estate Fund XI $182,334 $188,159 $183,192 ======== ======== ========
F-15 Fund X and XI Associates (A Georgia Joint Venture) Statements of Partners' Capital for the Years Ended December 31, 2001, 2000, and 1999
Wells Real Wells Real Total Estate Estate Partners' Fund X Fund XI Capital ----------- ----------- ----------- Balance, December 31, 1998 $ 3,420,137 $ 2,476,784 $ 5,896,921 Net income 252,966 183,192 436,158 Partnership distributions (332,022) (240,442) (572,464) ----------- ----------- ----------- Balance, December 31, 1999 3,341,081 2,419,534 5,760,615 Net income 259,034 188,159 447,193 Partnership distributions (340,435) (248,420) (588,855) ----------- ----------- ----------- Balance, December 31, 2000 3,259,680 2,359,273 5,618,953 Net income 251,923 182,334 434,257 Partnership distributions (353,905) (256,146) (610,051) ----------- ----------- ----------- Balance, December 31, 2001 $ 3,157,698 $ 2,285,461 $ 5,443,159 =========== =========== ===========
Fund X and XI 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 $ 434,257 $ 477,193 $ 436,158 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of joint ventures (434,257) (477,193) (436,158) ----------- ----------- ----------- Net cash provided by operating activities 0 0 0 Cash flows from investing activities: Distributions received from joint ventures 603,443 581,936 572,285 Cash flows from financing activities: Distributions to joint venture partners (603,443) (581,936) (572,285) ----------- ----------- ----------- Net increase in cash and cash equivalents 0 0 0 Cash and cash equivalents, beginning of year 0 0 0 ----------- ----------- ----------- Cash and cash equivalents, end of year $ 0 $ 0 $ 0 =========== =========== ===========
Fund X and XI Associates' investment and percentage ownership in joint ventures at December 31, 2001 and 2000 are summarized as follows: 2001 2000 -------------------- -------------------- Amount Percent Amount Percent ---------- -------- ---------- ------- Wells/Orange County Associates $3,534,638 56% $3,647,758 56% Wells/Fremont Associates 1,908,521 22 1,971,195 22 ---------- ---------- $5,443,159 $5,618,953 ========== ========== F-16 The following is a roll forward of Fund X and XI Associates' investment in joint ventures for the years ended December 31, 2001 and 2000: 2001 2000 ----------- ----------- Investment in joint venture, beginning or year $ 5,618,953 $ 5,760,615 Equity in income of joint venture 434,257 447,193 Distributions from joint venture (610,051) (588,855) ----------- ----------- Investment in joint venture, end of year $ 5,443,159 $ 5,618,953 =========== =========== Wells/Orange County Associates 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 =========== ===========
F-17 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 =========== =========== ===========
F-18 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 ========= ========= =========
F-19 Wells/Fremont Associates 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 ========== ==========
F-20 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 =========== =========== ===========
F-21 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 Partnership entered into a joint venture with Wells Fund XII and the Operating Partnership. On May 18, 1999, the joint venture purchased a 169,510-square foot, two-story manufacturing and office building, known as the 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. F-22 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 =========== ===========
F-23 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 ============ ============ ============ ============
F-24 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 ============ ============ ============
4. INCOME TAX BASIS NET INCOME AND PARTNERS' CAPITAL The Partnership's income tax basis net income for the years ended December 31, 2001, 2000, and 1999 is calculated as follows:
2001 2000 1999 ------------ ------------ ----------- Financial statement net income $ 870,350 $ 895,989 $ 630,528 Increase (decrease) in net income resulting from: Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes 230,508 139,862 135,648 Expenses deducted for financial reporting purposes, capitalized for income tax purposes 364 475 502 Rental income accrued for financial reporting purposes in excess of amounts for income tax purposes (62,828) (91,551) (62,570) ----------- ----------- ----------- Income tax basis net income $ 1,038,394 $ 944,775 $ 704,108 =========== =========== ===========
The Partnership's income tax basis partners' capital at December 31, 2001, 2000, and 1999 is computed as follows: F-25
2001 2000 1999 ------------ ------------ ------------ Financial statements partners' capital $ 13,301,079 $ 13,739,534 $ 14,100,063 Increase (decrease) in partners' capital resulting from: Depreciation expense for financial reporting purposes in excess of amounts for income tax purposes 551,176 320,668 180,806 Capitalization of syndication costs for income tax purposes, which are accounted for as cost of capital for financial reporting purposes 2,035,389 2,035,389 2,035,389 Accumulated rental income accrued for financial reporting purposes in excess of amounts for income tax purposes (228,057) (165,229) (73,678) Accumulated expenses deducted for financial reporting purposes, capitalized for income tax purposes 1,688 1,324 849 Partnership's distributions payable 328,150 326,952 275,737 ------------ ------------ ------------ Income tax basis partners' capital $ 15,989,425 $ 16,258,638 $ 16,519,166 ============ ============ ============
5. RENTAL INCOME The future minimum rental income due from the Partnership's respective ownership interest in the joint ventures under noncancelable operating leases at December 31, 2001 is as follows: Year ended December 31: 2002 $ 1,465,847 2003 1,456,532 2004 1,297,358 2005 1,133,206 2006 1,139,365 Thereafter 954,745 ----------- $ 7,447,053 =========== Four tenants contributed 17%, 14%, 14%, and 14% of rental income. In addition, four tenants will contribute 21%, 19%, 17%, and 13% of future minimum rental income. The future minimum rental income due 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. F-26 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 2004 0 2005 0 2006 0 Thereafter 0 ----------- $ 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 2005 0 2006 0 Thereafter 0 ----------- $ 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. F-27 6. 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 $ 237,855 $ 239,787 $ 244,260 $ 238,774 Net income 216,980 211,567 223,695 218,108 Net income allocated to Class A limited partners 339,634 334,218 352,822 335,154 Net loss allocated to Class B limited partners (122,654) (122,651) (129,127) (117,046) Net income per weighted average Class A limited partner unit outstanding $ 0.25 $ 0.25 $ 0.26 $ 0.25 Net loss per weighted average Class B limited partner unit outstanding (a) (0.39) (0.39) (0.41) (0.38) Distribution per weighted average Class A limited partner unit outstanding 0.24 0.24 0.24 0.26
(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 the use of a weighted average to compute the number of units outstanding for each quarter and the year
2000 Quarters Ended -------------------------------------------------------- March 31 June 30 September 30 December 31 ----------- ----------- ------------ ----------- Revenues $ 237,447 $ 241,195 $ 250,198 $ 247,010 Net income 212,249 217,494 236,236 230,010 Net income allocated to Class A limited partners 334,569 340,881 365,268 340,829 Net loss allocated to Class B limited partners (122,320) (123,387) (129,032) (110,819) Net income per weighted average Class A limited partner unit outstanding (a) $ 0.25 $ 0.25 $ 0.27 $ 0.25 Net loss per weighted average Class B limited partner unit outstanding (a) (0.39) (0.39) (0.41) (0.35) Distribution per weighted average Class A limited partner unit outstanding 0.23 0.23 0.24 0.24
(a) The totals of the four quarterly amounts for the year ended December 31, 2000 do not equal the totals for the year. This difference results from the use of a weighted average to compute the number of units outstanding for each quarter and the year. 7. COMMITMENTS AND CONTINGENCIES Management, after consultation with legal counsel, is not aware of any significant litigation or claims against the Partnership or Wells Partners. In the normal course of business, the Partnership or Wells Partners may become subject to such litigation or claims. F-28 EXHIBIT INDEX ------------- (Wells Real Estate Fund XI, L.P.) The following documents are filed as exhibits to this report. Those exhibits previously filed and incorporated herein by reference are identified below by an asterisk. For each such asterisked exhibit, there is shown below the description of the previous filing. Exhibits which are not required for this report are omitted. Exhibit Number Description of Document ------ ----------------------- *3(a) Amended and Restated Agreement of Limited Partnership of Wells Real Estate Fund XI, L.P. (Exhibit 3(a) to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *3(b) Certificate of Limited Partnership of Wells Real Estate Fund XI, L.P. (Exhibit 3(c) to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(a) Leasing and Tenant Coordinating Agreement with Wells Management Company, Inc. (Exhibit 10(d) to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(b) Management Agreement with Wells Management Company, Inc. (Exhibit 10(e) to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(c) Custodial Agency Agreement with The Bank of New York (Exhibit 10(f) to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(d) Joint Venture Agreement of Fund IX and Fund X Associates dated March 20, 1997 (Exhibit 10(g) to Post-Effective Amendment No. 1 to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(e) Lease Agreement for the ABB Building dated December 10, 1996, between Wells Real Estate Fund IX, L.P. and ABB Flakt, Inc. (Exhibit 10(kk) to Post-Effective Amendment No. 13 to Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., as amended to date, Commission File No. 33-83852) *10(f) Development Agreement relating to the ABB Building dated December 10, 1996, between Wells Real Estate Fund IX, L.P. and ADEVCO Corporation (Exhibit 10(ll) to Post-Effective Amendment No. 13 to Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., as amended to date, Commission File No. 33-83852) *10(g) Owner-Contractor Agreement relating to the ABB Building dated November 1, 1996, between Wells Real Estate Fund IX, L.P. and Integra Construction, Inc. (Exhibit 10(mm) to Post-Effective Amendment No. 13 to Form S-11 Registration Statement of Wells Real Estate Fund VIII, L.P. and Wells Real Estate Fund IX, L.P., as amended to date, Commission File No. 33-83852) *10(h) Agreement for the Purchase and Sale of Real Property relating to the Lucent Technologies Building dated May 30, 1997, between Fund IX and Fund X Associates and Wells Development Corporation (Exhibit 10(k) to Post-Effective Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(i) Net Lease Agreement for the Lucent Technologies Building dated May 30, 1997 (Exhibit 10(l) to Post-Effective Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(j) Development Agreement relating to the Lucent Technologies Building dated May 30, 1997, between Wells Development Corporation and ADEVCO Corporation (Exhibit 10(m) to Post-Effective Amendment No. 2 to Form S-11 Registration Statement of Wells Real Estate Fund X, L.P. and Wells Real Estate Fund XI, L.P., as amended to date, Commission File No. 333-7979) *10(k) First Amendment to Net Lease Agreement for the Lucent Technologies Building dated March 30, 1998 (Exhibit 10.10(a) to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(l) Amended and Restated Joint Venture Agreement of The Fund IX, Fund X, Fund XI and REIT Joint Venture (the "IX-X-XI-REIT Joint Venture") dated July 11, 1998 (Exhibit 10.4 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(m) Agreement for the Purchase and Sale of Real Property relating to the Ohmeda Building dated November 14, 1997 between Lincor Centennial, Ltd. and Wells Real Estate Fund X, L.P. (Exhibit 10.6 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(n) Agreement for the Purchase and Sale of Property relating to the 360 Interlocken Building dated February 11, 1998 between Orix Prime West Broomfield Venture and Wells Development Corporation (Exhibit 10.7 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(o) Purchase and Sale Agreement relating to the Iomega Building dated February 4, 1998 with SCI Development Services Incorporated (Exhibit 10.11 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(p) Lease Agreement for the Iomega Building dated April 9, 1996 (Exhibit 10.12 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(q) Agreement for the Purchase and Sale of Property relating to the Fairchild Building dated June 8, 1998 (Exhibit 10.13 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(r) Restatement of and First Amendment to Agreement for the Purchase and Sale of Property relating to the Fairchild Building dated July 1, 1998 (Exhibit 10.14 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(s) Joint Venture Agreement of Wells/Fremont Associates (the "Fremont Joint Venture") dated July 15, 1998 between Wells Development Corporation and Wells Operating Partnership, L.P. (Exhibit 10.17 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(t) Joint Venture Agreement of Fund X and Fund XI Associates dated July 15, 1998 (Exhibit 10.18 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(u) Agreement for the Purchase and Sale of Joint Venture Interest relating to the Fremont Joint Venture dated July 17, 1998 between Wells Development Corporation and Fund X and Fund XI Associates (Exhibit 10.19 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(v) Lease Agreement for the Fairchild Building dated September 19, 1997 between the Fremont Joint Venture (as successor in interest by assignment) and Fairchild Technologies USA, Inc. (Exhibit 10.20 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(w) First Amendment to Joint Venture Agreement of Wells/Fremont Associates dated October 8, 1998 (Exhibit 10(w) to Form 10-K of Wells Real Estate Fund X, L.P. for the fiscal year ended December 31, 1998, Commission File No. 0-23719) *10(x) Purchase and Sale Agreement and Joint Escrow Instructions relating to the Cort Furniture Building dated June 12, 1998 between the Cort Joint Venture (as successor in interest by assignment) and Spencer Fountain Valley Holdings, Inc. (Exhibit 10.21 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(y) First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions relating to the Cort Furniture Building dated July 16, 1998 between the Cort Joint Venture (as successor in interest by assignment) and Spencer Fountain Valley Holdings, Inc. (Exhibit 10.22 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(z) Joint Venture Agreement of Wells/Orange County Associates (the "Cort Joint Venture") dated July 27, 1998 between Wells Development Corporation and Wells Operating Partnership, L.P. (Exhibit 10.25 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(aa) Agreement for the Purchase and Sale of Joint Venture Interest relating to the Cort Joint Venture dated July 30, 1998 between Wells Development Corporation and Fund X and Fund XI Associates (Exhibit 10.26 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(bb) First Amendment to Joint Venture Agreement of Wells/Orange County Associates dated September 1, 1998 (Exhibit 10(dd) to Form 10-K of Wells Real Estate Fund X, L.P. for the fiscal year ended December 31, 1998, Commission File No. 0-23719) *10(cc) Temporary Lease Agreement for remainder of the ABB Building dated September 10, 1998 between the IX-X-XI-REIT Joint Venture and Associates Housing Finance, LLC (Exhibit 10.35 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(dd) Amended and Restated Joint Venture Partnership Agreement of The Wells Fund XI - Fund XII - REIT Joint Venture (Exhibit 10.29 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-83933) *10(ee) Agreement of Sale and Purchase relating to the EYBL CarTex Building (Exhibit 10.54 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099) *10(ff) Agreement of Purchase and Sale for the Sprint Building (Exhibit 10.5 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657) *10(gg) Agreement of Sale and Purchase for the Johnson Matthey Building (Exhibit 10.6 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657) *10(hh) Fifth Amendment to Lease for the Johnson Matthey Building (Exhibit 10.7 to Form S-11 Registration Statement of Wells Real Estate Fund XII, L.P., as amended to date, Commission File No. 33-66657) *10(ii) Agreement of Purchase and Sale relating to the Gartner Building (Exhibit 10.63 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32009) *10(jj) Lease Agreement for the Gartner Building (Exhibit 10.64 to Form S-11 Registration Statement of Wells Real Estate Investment Trust, Inc., as amended to date, Commission File No. 333-32099)