Prepared by R.R. Donnelley Financial -- Supplement #1
Table of Contents
FILED PURSUANT TO        
RULE 424 (B) (3)          
REGISTRATION NO: 333-85848
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUPPLEMENT NO. 1 DATED AUGUST 14, 2002 TO THE PROSPECTUS
DATED JULY 26, 2002
 
This document supplements, and should be read in conjunction with, the prospectus of Wells Real Estate Investment Trust, Inc. dated July 26, 2002. When we refer to the “prospectus” in this supplement, we are also referring to any and all supplements to the prospectus. Unless otherwise defined in this supplement, capitalized terms used in this supplement shall have the same meanings as set forth in the prospectus.
 
The purpose of this supplement is to describe the following:
 
 
(1)
 
Status of the offering of shares in Wells Real Estate Investment Trust, Inc. (Wells REIT);
 
 
(2)
 
Revisions to the “Description of Properties” section of the prospectus to describe the following real property acquisitions:
 
 
(A)
 
Acquisition of a two-story office building in San Antonio, Texas (PacifiCare San Antonio Building);
 
 
(B)
 
Acquisition of a 4.2 acre tract of land in Houston, Texas (Kerr-McGee Property);
 
 
(C)
 
Acquisition of two adjacent one-story distribution facility buildings in Duncan, South Carolina (BMG Greenville Buildings); and
 
 
(D)
 
Acquisition of a one-story office building in Suwanee, Georgia (Kraft Atlanta Building);
 
 
(3)
 
Revisions to the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section of the prospectus;
 
 
(4)
 
Unaudited Financial Statements of the Wells REIT for the quarter ended June 30, 2002; and
 
 
(5)
 
Unaudited pro forma financial statements of the Wells REIT reflecting the acquisitions of the PacifiCare San Antonio Building, the Kerr-McGee Property, the BMG Greenville Buildings and the Kraft Atlanta Building.
 
Status of the Offering
 
We commenced our initial public offering of common stock on January 30, 1998. Our initial public offering was terminated on December 19, 1999. We received approximately $132,181,919 in gross offering proceeds from the sale of 13,218,192 shares in our initial public offering. We commenced our second offering of common stock on December 20, 1999. Our second public offering was terminated on December 19, 2000. We received approximately $175,229,193 in gross offering proceeds from the sale of 17,522,919 shares in our second public offering. We commenced our third public offering of common stock on December 20, 2000. Our third public offering was terminated on July 26, 2002. We received approximately $1,292,032,232 in gross offering proceeds from the sale of 129,203,223 shares in our third public offering.
 
Pursuant to the prospectus, we commenced our fourth public offering of common stock on July 26, 2002. As of August 10, 2002, we had received gross proceeds of approximately $46,430,189 from the sale of approximately 4,643,019 shares in our fourth public

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offering. Accordingly, as of August 10, 2002, we had received aggregate gross offering proceeds of approximately $1,645,873,533 from the sale of approximately 164,587,353 shares in all of our public offerings. After payment of $57,110,749 in acquisition and advisory fees and acquisition expenses, payment of $183,457,253 in selling commissions and organization and offering expenses, and common stock redemptions of $14,137,852 pursuant to our share redemption program, as of August 10, 2002, we had raised aggregate net offering proceeds available for investment in properties of $1,391,167,679, out of which $968,778,340 had been invested in real estate properties, and $422,389,339 remained available for investment in real estate properties.
 
Description of Properties
 
As of August 10, 2002, we had purchased interests in 57 real estate properties located in 19 states, each of which was 100% leased to tenants. Below are the descriptions of our recent real property acquisitions through August 10, 2002.
 
The PacifiCare San Antonio Building
 
On July 12, 2002, Wells Operating Partnership, L.P. (Wells OP), a Delaware limited partnership formed to acquire, own, lease and operate real properties on behalf of the Wells REIT, purchased a two-story office building containing 142,500 rentable square feet located in San Antonio, Texas (PacifiCare San Antonio Building) for a purchase price of $14,650,000, plus closing costs. The PacifiCare San Antonio Building was built in 2000 and is located at 6200 Northwest Parkway, San Antonio, Texas.
 
The PacifiCare San Antonio Building is leased entirely to PacifiCare Health Systems, Inc. (PacifiCare), a corporation whose shares are traded on NASDAQ. PacifiCare is one of the leading health and consumer service companies in the United States. The services PacifiCare provides include health insurance products, pharmacy and medical management, behavioral health services, and dental and vision services. PacifiCare reported a net worth, as of December 31, 2001, of approximately $2 billion.
 
The PacifiCare lease commenced in November 2000 and expires in November 2010. The current annual base rent payable under the PacifiCare lease is $1,471,700. PacifiCare, at its option, has the right to extend the initial term of its lease for one additional five-year period at an annual base rent of $1,967,925, and two subsequent five-year terms at the then-current market rental rate. In addition, PacifiCare has an expansion option for between approximately 20,000 and 45,000 rentable square feet, which it may exercise prior to the end of the 42nd month of the initial term of the PacifiCare lease.
 
Kerr-McGee Property
 
Purchase of the Kerr-McGee Property. On July 29, 2002 Wells OP purchased the Kerr-McGee Property, which is a build-to-suit property located in Houston, Texas, for a purchase price of $1,738,044, plus closing costs. We commenced construction on a four-story office building containing approximately 100,000 rentable square feet (Kerr-McGee Project) on August 1, 2002. Wells OP obtained a construction loan in the amount of $13,700,000 from Bank of America, N.A. (BOA) to fund the construction of the Kerr-McGee Project. The loan requires monthly payments of interest only and matures on January 29, 2004. The interest rate on the loan, as of August 6, 2002, was 3.80%. The BOA loan is secured by a first priority mortgage on the Kerr-McGee Property.
 
Wells OP entered into a development agreement, an architect agreement and a construction agreement to construct the Kerr-McGee Project on the Kerr-McGee Property.

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Development Agreement.    Wells OP entered into a development agreement (Development Agreement) with Means-Knaus, LLC, a Texas limited liability company (Developer), as the exclusive development manager to supervise, manage and coordinate the planning, design, construction and completion of the Kerr-McGee Project. As compensation for the services to be rendered by the Developer under the Development Agreement, Wells OP is paying a development fee of $699,740. The fee is due and payable ratably as the construction and development of the Kerr-McGee Project is completed.
 
We anticipate that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Kerr-McGee Property and the planning, design, development, construction and completion of the Kerr-McGee Project will total approximately $15,760,000.
 
Construction Agreement.    Wells OP entered into a design and build construction agreement (Construction Agreement) with Hoar Construction, LLC (Contractor) for the construction of the Kerr-McGee Project. The Construction Agreement provides that Wells OP will pay the Contractor a maximum of $6,391,255 for the construction of the Kerr-McGee Project that includes all estimated fees and costs. The Contractor will be responsible for all costs of labor, materials, construction equipment and machinery necessary for completion of the Kerr-McGee Project. In addition, the Contractor will be required to secure and pay for any additional building permits which may be necessary for construction of the Kerr-McGee Project.
 
Kerr-McGee Lease.    The Kerr-McGee Property is leased to Kerr-McGee Oil & Gas Corporation, a wholly owned subsidiary of Kerr-McGee Corporation (Kerr-McGee), a Delaware corporation whose shares are publicly traded on the New York Stock Exchange (NYSE). Kerr-McGee, which has guaranteed the Kerr-McGee lease, operates a worldwide business in oil and gas exploration and production, and titanium dioxide pigment production and marketing. It has oil fields in the Gulf of Mexico, the North Sea, the South China Sea, and onshore in the United States, Ecuador, Indonesia and Kazakhstan. Kerr-McGee reported a net worth, as of December 31, 2001, of approximately $3.1 billion.
 
The Kerr-McGee lease will commence shortly after completion of the Kerr-McGee Project, which we expect to occur in approximately July 2003. The Kerr-McGee lease will expire 11 years and one month after commencement, or approximately July 31, 2014. Kerr-McGee has the right to extend the initial term of this lease for (1) one additional 20-year period or (2) a combination of five-year terms or ten-year terms totaling not more than 20 years at 95% of the then-current market rental rate. The annual base rent payable for the Kerr-McGee lease beginning on the rent commencement date is expected to be approximately $1,655,000.
 
BMG Greenville Buildings
 
On July 31, 2002, Wells OP purchased two adjacent one-story distribution facility buildings containing 473,398 rentable square feet and 313,380 rentable square feet, respectively, located at 110 & 112 Hidden Lake Circle in Duncan, South Carolina (BMG Greenville Buildings) for a purchase price of $26,900,000, plus closing costs. The BMG Greenville Buildings were originally built in 1987.
 
The BMG Greenville Buildings are leased to BMG Direct Marketing, Inc. (BMG Marketing) and BMG Music, respectively. BMG Marketing and BMG Music are wholly owned subsidiaries of Bertelsmann AG (Bertelsmann), a German corporation with its international headquarters in Gütersloh, Germany and its U.S. headquarters in New York, New York. Bertlesmann, a guarantor on both the BMG Marketing lease and the BMG Music lease, operates in the media industry, specializing in a wide range of markets including: television and radio; book publishing; magazines and newspapers; music labels; professional information; print and media services; book and music clubs; and media e-commerce.

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Bertelsmann has operations in approximately 51 countries. Bertelsmann reported a net worth, as of June 30, 2001, of approximately $8.15 billion.
 
The BMG Marketing lease commenced in March 1988 and expires in March 2011. The current annual base rent payable under the BMG Marketing lease is $1,394,156. BMG Marketing, at its option, has the right to extend the initial term of its lease for two additional ten-year periods at 95% of the then-current market rental rate.
 
The BMG Music lease commenced in December 1987 and expires in March 2011. The current annual base rent payable under the BMG Music lease is $763,600. BMG Music, at its option, has the right to extend the initial term of its lease for two additional ten-year periods at 95% of the then-current market rental rate.
 
Kraft Atlanta Building
 
On August 1, 2002, Wells OP purchased a one-story building containing an aggregate of 87,219 rentable square feet located at 4000 Johns Creek Court in Suwanee, Georgia (Kraft Atlanta Building) for a purchase price of $11,625,000. The Kraft Atlanta Building was built in 2001.
 
Kraft Foods North America, Inc. (Kraft) leases 73,264 rentable square feet (84%) of the Kraft Atlanta Building. Kraft, a wholly owned subsidiary of Kraft Foods, Inc., a Virginia corporation whose shares are publicly traded on the NYSE, is one of the largest food and beverage companies in the world with operations in 145 countries.
 
The Kraft lease commenced in February 2002 and expires in January 2012. The annual base rent payable under the Kraft lease beginning on September 1, 2002 will be $1,263,804. Kraft, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Kraft may terminate the Kraft lease (1) at the end of the third lease year, by paying a $7,000,000 termination fee, or (2) at the end of the seventh lease year, by paying a $1,845,296 termination fee.
 
PerkinElmer Instruments, LLC (PerkinElmer) leases the remaining 13,955 rentable square feet (16%) of the Kraft Atlanta Building. PerkinElmer provides analytical solutions for the pharmaceutical, food and beverage, environmental, chemical, and semiconductor industries. PerkinElmer is a wholly owned subsidiary of PerkinElmer, Inc., a Massachusetts corporation whose shares are publicly traded on the NYSE. PerkinElmer, Inc. is a global technology company focusing on life sciences, optoelectronics and analytical instruments. PerkinElmer, Inc. operates in more than 125 countries.
 
The PerkinElmer lease commenced in December 2001 and expires in November 2016. The current annual base rent payable under the PerkinElmer lease is $194,672. PerkinElmer, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, PerkinElmer may terminate the PerkinElmer lease at the end of the 10th lease year by paying a $325,000 termination fee.
 
Property Management Fees
 
Wells Management Company, Inc. (Wells Management), an affiliate of the Wells REIT and our advisor, will be paid management and leasing fees in the amount of 4.5% of gross revenues from the PacifiCare San Antonio Building, the Kerr-McGee Property, the BMG Greenville Buildings, and the Kraft Atlanta Building subject to certain limitations. In addition, Wells Management will receive a one-time initial lease-up fee relating to the leasing of the Kerr-McGee Property equal to the first month’s rent estimated to be approximately $140,000.

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Management’s Discussion and Analysis of Financial Condition and Results of Operation
 
The following information should be read in conjunction with the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section beginning on page 101 of the prospectus.
 
Forward Looking Statements
 
This section and other sections of the prospectus supplement contain forward-looking statements, within the meaning of Section 27A of the Securities Act of 1933 and 21E of the Securities Exchange Act of 1934, including discussion and analysis of the financial condition of the Wells REIT, anticipated capital expenditures required to complete certain projects, amounts of anticipated cash distributions to stockholders in the future and certain other matters. Readers of this supplement should be aware that there are various factors that could cause actual results to differ materially from any forward-looking statements made in the supplement, which include changes in general economic conditions, changes in real estate conditions, construction costs which may exceed estimates, construction delays, increases in interest rates, lease-up risks, inability to obtain new tenants upon the expiration of existing leases, inability to invest in properties that will provide targeted rates of return and the potential need to fund tenant improvements or other capital expenditures out of operating cash flow.
 
Liquidity and Capital Resources
 
During the six months ended June 30, 2002, we received aggregate gross offering proceeds of $618,275,931 from the sale of 61,827,594 shares of our common stock. After payment of $21,406,085 in acquisition and advisory fees and acquisition expenses, payment of $65,035,665 in selling commissions and organization and offering expenses, and common stock redemptions of $6,673,412 pursuant to the our share redemption program, we raised net offering proceeds of $525,160,769 during the first two quarters of 2002, of which $344,269,118 remained available for investment in properties at quarter end.
 
During the six months ended June 30, 2001, we received aggregate gross offering proceeds of $162,606,610 from the sale of 16,260,661 shares of our common stock. After payment of $5,642,317 in acquisition and advisory fees and acquisition expenses, payment of $20,151,132 in selling commissions and organizational and offering expenses, and common stock redemptions of $1,397,561 pursuant to the our share redemption program, we raised net offering proceeds of $135,415,600 during the first two quarters of 2001, of which $3,906,869 was available for investment in properties at quarter end.
 
The significant increase in our available capital resources is due to significantly increased sales of our common stock during the first half of 2002.
 
As of June 30, 2002, we owned interests in 52 real estate properties either directly or through its interests in joint ventures. These properties are generating operating cash flow sufficient to cover our operating expenses and pay dividends to stockholders. Dividends declared for the first half of 2002 and the first half of 2001 were approximately $0.39 and $0.38 per share, respectively. In June 2002, our Board of Directors declared dividends for the third quarter of 2002 in the amount of approximately $0.19 per share.
 
Due primarily to the pace of our property acquisitions, as explained in more detail in the following paragraph, dividends paid in the first half of 2002 in the aggregate amount of $40,867,110 exceeded our Adjusted Funds From Operations for this period by $4,813,633.
 

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We acquire properties that meet our standards of quality both in terms of the real estate and the creditworthiness of the tenants. Creditworthy tenants of the type we target are becoming more and more highly valued in the marketplace and, accordingly, there is increased competition in acquiring properties with these creditworthy tenants. As a result, the purchase prices for such properties have increased with corresponding reductions in cap rates and returns on investment. In addition, changes in market conditions have caused us to add to our internal procedures for ensuring the creditworthiness of our tenants before any commitment to buy a property is made. We continue to remain steadfast in our commitment to invest in quality properties that will produce quality income for our stockholders. Accordingly, because the marketplace is now placing a higher value on our type of properties and because of the additional time it now takes in the acquisition process for us to assess tenant credit—plus our commitment to adhere to purchasing properties with tenants that meet our investment criteria—it appears likely that, in the future, we will be required to lower our dividends.
 
Cash Flows From Operating Activities
 
Our net cash provided by operating activities was $33,138,287 and $16,288,309 for the six months ended June 30, 2002 and 2001, respectively. The increase in net cash provided by operating activities was due primarily to the net income generated by additional properties acquired during 2002 and 2001.
 
Cash Flows Used In Investing Activities
 
Our net cash used in investing activities was $278,447,051 and $23,768,731 for the six months ended June 30, 2002 and 2001, respectively. The increase in net cash used in investing activities was due primarily to investments in properties and the payment of related deferred project costs, partially offset by distributions received from joint ventures.
 
Cash Flows From Financing Activities
 
Our net cash provided by financing activities was $511,632,371 and $9,257,047 for the six months ended June 30, 2002 and 2001, respectively. The increase in net cash provided by financing activities was due primarily to the raising of additional capital and the lack of debt payments which were $138.7 million in the prior year. We raised $618,275,931 in offering proceeds for the six months ended June 30, 2002, as compared to $162,606,610 for the same period in 2001. Additionally, we paid dividends totaling $40.9 million in the first half of 2002 compared to $13.8 million in the first half of 2001.
 
Results of Operations
 
As of June 30, 2002, our real estate properties were 100% leased to tenants. Gross revenues were $43,832,954 and $21,560,953 for the six months ended June 30, 2002 and 2001, respectively. Gross revenues for the six months ended June 30, 2002 and 2001 were attributable to rental income, interest income earned on funds held by the Wells REIT prior to the investment in properties, and income earned from joint ventures. The increase in revenues in 2002 was primarily attributable to the purchase of $259,535,578 in additional properties during 2002 and the purchase of $227,933,858 in additional properties during the second half of 2001 which were not owned for the full first half of 2001. The purchase of additional properties also resulted in an increase in expenses which totaled $19,296,812 for the six months ended June 30, 2002, as compared to $13,246,710 for the six months ended June 30, 2001. Expenses in 2002 and 2001 consisted primarily of depreciation, operating costs, interest expense, management and leasing fees and general and administrative costs. As a result, our net income also

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increased from $8,314,243 for the six months ended June 30, 2001 to $24,536,142 for the six months ended June 30, 2002.
 
While earnings of $0.22 per share remained stable for the six months ended June 30, 2002, compared to the six months ended June 30, 2001, earnings per share for the second quarter decreased from $0.12 per share for the three months ended June 30, 2001 to $0.11 per share for the three months ended June 30, 2002, primarily due to a substantial increase in the number of shares outstanding which was not completely matched by a corresponding increase in net income from new property investments.
 
Funds From Operations
 
Funds From Operations (“FFO”), as defined by the National Association of Real Estate Investment Trusts (“NAREIT”), generally means net income, computed in accordance with GAAP excluding extraordinary items (as defined by GAAP) and gains (or losses) from sales of property, plus depreciation and amortization on real estate assets, and after adjustments for unconsolidated partnerships, joint ventures and subsidiaries. We believe that FFO is helpful to investors as a measure of the performance of an equity REIT. However, our calculation of FFO, while consistent with NAREIT’s definition, may not be comparable to similarly titled measures presented by other REITs. Adjusted Funds From Operations (“AFFO”) is defined as FFO adjusted to exclude the effects of straight-line rent adjustments, deferred loan cost amortization and other non-cash and/or unusual items. Neither FFO nor AFFO represent cash generated from operating activities in accordance with GAAP and should not be considered as alternatives to net income as an indication of our performance or to cash flows as a measure of liquidity or ability to make distributions. The following table reflects the calculation of FFO and AFFO for the three and six months ended June 30, 2002 and 2001, respectively:
 
    
Three Months Ended
     
Six Months Ended
  
    
June 30,
2002
     
June 30,
2001
     
June 30,
2002
     
June 30,
2001
  
FUNDS FROM OPERATIONS:
                                    
Net income
   
$
13,756,478
 
   
$
5,038,898
 
   
$
24,536,142
 
   
$
8,314,243
 
Add:
Depreciation
   
 
7,158,830
 
   
 
3,206,638
 
   
 
12,903,282
 
   
 
6,393,817
 
Amortization of deferred leasing costs
   
 
78,066
 
   
 
75,837
 
   
 
150,815
 
   
 
151,673
 
Depreciation and amortization—  unconsolidated partnerships
   
 
700,689
 
   
 
504,711
 
   
 
1,406,865
 
   
 
913,674
 
    
  
  
  
Funds from operations (FFO)
   
 
21,694,063
 
   
 
8,826,084
 
   
 
38,997,104
 
   
 
15,773,407
 
Adjustments:
                                    
Loan cost amortization
   
 
249,530
 
   
 
77,142
 
   
 
424,992
 
   
 
291,899
 
Straight line rent
   
 
(2,127,906
)
   
 
(613,155
)
   
 
(3,166,284
)
   
 
(1,222,716
)
Straight line rent—unconsolidated Partnerships
   
 
(103,020
)
   
 
(71,768
)
   
 
(202,335
)
   
 
(132,246
)
    
  
  
  
Adjusted funds from operations
   
$
19,712,667
 
   
$
8,218,303
 
   
$
36,053,477
 
   
$
14,710,344
 
    
  
  
  
BASIC AND DILUTED WEIGHTED AVERAGE SHARES
   
 
126,037,819
 
   
 
42,192,347
 
   
 
110,885,641
 
   
 
38,328,405
 
    
  
  
  

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Inflation
 
The real estate market has not been affected significantly by inflation in the past three years due to the relatively low inflation rate. However, there are provisions in the majority of tenant leases which are intended to protect us from the impact of inflation. These provisions include reimbursement billings for 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.
 
Critical Accounting Policies
 
Our reported results of operations are impacted by management judgments related to application of accounting policies. A discussion of the accounting policies that management considers to be critical, in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain, is included in Footnote 1 to the financial statements of the Wells REIT contained in this supplement.
 
Financial Statements
 
Unaudited Financial Statements
 
The financial statements of the Wells REIT, as of June 30, 2002, and for the six month periods ended June 30, 2002 and June 30, 2001, which are included in this supplement, have not been audited.
 
The Pro Forma Balance Sheet of the Wells REIT, as of June 30, 2002, the Pro Forma Statement of Income for the year ended December 31, 2001, and the Pro Forma Statement of Income for the six months ended June 30, 2002, which are included in this supplement, have not been audited.

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INDEX TO FINANCIAL STATEMENTS
 
Wells Real Estate Investment Trust, Inc. and Subsidiary
   
Page
    
  
10
  
11
  
12
  
13
  
14
Wells Real Estate Investment Trust, Inc. and Subsidiary
     
    
  
26
  
27
  
29
  
30

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED BALANCE SHEETS
 
    
June 30,
2002
     
December 31, 2001
  
    
(unaudited)
         
ASSETS
                  
REAL ESTATE, at cost:
                  
Land
   
$
110,330,449
 
   
$
86,246,985
 
Building and improvements, less accumulated depreciation of $37,717,737 in 2002 and $24,814,454 in 2001
   
 
689,490,969
 
   
 
472,383,102
 
Construction in progress
   
 
16,081,841
 
   
 
5,738,573
 
    
  
Total real estate
   
 
815,903,259
 
   
 
564,368,660
 
INVESTMENT IN JOINT VENTURES
   
 
76,217,870
 
   
 
77,409,980
 
CASH AND CASH EQUIVALENTS
   
 
341,909,775
 
   
 
75,586,168
 
INVESTMENT IN BONDS
   
 
22,000,000
 
   
 
22,000,000
 
ACCOUNTS RECEIVABLE
   
 
10,709,104
 
   
 
6,003,179
 
NOTES RECEIVABLE
   
 
5,149,792
 
   
 
0
 
DEFERRED LEASE ACQUISITION COSTS, net
   
 
1,790,608
 
   
 
1,525,199
 
DEFERRED PROJECT COSTS
   
 
14,314,914
 
   
 
2,977,110
 
DUE FROM AFFILIATES
   
 
1,897,309
 
   
 
1,692,727
 
DEFERRED OFFERING COSTS
   
 
1,392,934
 
   
 
0
 
PREPAID EXPENSES AND OTHER ASSETS, net
   
 
1,881,308
 
   
 
718,389
 
    
  
Total assets
   
$
1,293,166,873
 
   
$
752,281,412
 
    
  
LIABILITIES AND SHAREHOLDERS’ EQUITY
                  
LIABILITIES:
                  
Notes payable
   
$
15,658,141
 
   
$
8,124,444
 
Obligation under capital lease
   
 
22,000,000
 
   
 
22,000,000
 
Accounts payable and accrued expenses
   
 
11,840,214
 
   
 
8,727,473
 
Dividends payable
   
 
4,538,635
 
   
 
1,059,026
 
Deferred rental income
   
 
1,013,544
 
   
 
661,657
 
Due to affiliates
   
 
2,106,790
 
   
 
2,166,161
 
    
  
Total liabilities
   
 
57,157,324
 
   
 
42,738,761
 
    
  
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP
   
 
200,000
 
   
 
200,000
 
    
  
SHAREHOLDERS’ EQUITY:
                  
Common shares, $.01 par value; 125,000,000 shares authorized, 145,589,053 shares issued and 144,366,772 outstanding at June 30, 2002, and 83,761,469 shares issued and 83,206,429 shares outstanding at December 31, 2001
   
 
1,455,890
 
   
 
837,614
 
Additional paid-in capital
   
 
1,290,858,515
 
   
 
738,236,525
 
Cumulative distributions in excess of earnings
   
 
(43,991,669
)
   
 
(24,181,092
)
Treasury stock, at cost, 1,222,381 shares at June 30, 2002 and 555,040 shares at December 31, 2001
   
 
(12,223,808
)
   
 
(5,550,396
)
Other comprehensive loss
   
 
(289,379
)
   
 
0
 
    
  
Total shareholders’ equity
   
 
1,235,809,549
 
   
 
709,342,651
 
    
  
Total liabilities and shareholders’ equity
   
$
1,293,166,873
 
   
$
752,281,412
 
    
  
 
See accompanying condensed notes to financial statements.
 

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WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
 
    
Three Months Ended
   
Six Months Ended
    
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
REVENUES:
                            
Rental income
   
$
21,833,652
   
$
9,851,167
   
$
38,571,815
   
$
19,711,252
Equity in income of joint ventures
   
 
1,271,863
   
 
809,481
   
 
2,478,686
   
 
1,519,194
Interest income
   
 
1,534,636
   
 
93,092
   
 
2,648,351
   
 
193,007
Take out fee
   
 
0
   
 
137,500
   
 
134,102
   
 
137,500
    
  
  
  
    
 
24,640,151
   
 
10,891,240
   
 
43,832,954
   
 
21,560,953
    
  
  
  
EXPENSES:
                            
Depreciation
   
 
7,158,830
   
 
3,206,638
   
 
12,903,282
   
 
6,393,817
Operating costs, net of reimbursements
   
 
1,439,299
   
 
783,244
   
 
2,063,997
   
 
1,874,428
Management and leasing fees
   
 
1,003,587
   
 
552,188
   
 
1,903,082
   
 
1,117,902
Administrative costs
   
 
592,426
   
 
584,184
   
 
1,121,457
   
 
759,291
Interest expense
   
 
440,001
   
 
648,946
   
 
880,002
   
 
2,809,373
Amortization of deferred financing costs
   
 
249,530
   
 
77,142
   
 
424,992
   
 
291,899
    
  
  
  
    
 
10,883,673
   
 
5,852,342
   
 
19,296,812
   
 
13,246,710
    
  
  
  
NET INCOME
   
$
13,756,478
   
$
5,038,898
   
$
24,536,142
   
$
8,314,243
    
  
  
  
BASIC AND DILUTED EARNINGS PER SHARE
   
$
0.11
   
$
0.12
   
$
0.22
   
$
0.22
    
  
  
  
BASIC AND DILUTED WEIGHTED AVERAGE SHARES
   
 
126,037,819
   
 
42,192,347
   
 
110,885,641
   
 
38,328,405
    
  
  
  
 
See accompanying condensed notes to financial statements.
 

11

Table of Contents
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
FOR THE YEAR ENDED DECEMBER 31, 2001
AND FOR THE SIX MONTHS ENDED JUNE 30, 2002 (UNAUDITED)
 
    
Common Stock Shares
   
Common Stock Amount
  
Additional
Paid-In
Capital
    
Cumulative
Distributions in Excess of Earnings
    
Retained
Earnings
    
Treasury Stock Shares
    
Treasury Stock Amount
     
Other Comprehensive Income
    
Total
Shareholders’
Equity
  
BALANCE, December 31, 2000
   
31,509,807
   
$
315,097
  
$
275,573,339
 
  
$
(9,133,855
)
  
$
0
 
  
(141,297
)
  
$
(1,412,969
)
   
$
0
 
  
$
265,341,612
 
Issuance of common stock
   
52,251,662
   
 
522,517
  
 
521,994,103
 
  
 
0
 
  
 
0
 
  
0
 
  
 
0
 
   
 
0
 
  
 
522,516,620
 
Treasury stock purchased
   
0
   
 
0
  
 
0
 
  
 
0
 
  
 
0
 
  
(413,743
)
  
 
(4,137,427
)
   
 
0
 
  
 
(4,137,427
)
Net income
   
0
   
 
0
  
 
0
 
  
 
0
 
  
 
21,723,967
 
  
0
 
  
 
0
 
   
 
0
 
  
 
21,723,967
 
Dividends ($.76 per share)
   
0
   
 
0
  
 
0
 
  
 
(15,047,237
)
  
 
(21,723,967
)
  
0
 
  
 
0
 
   
 
0
 
  
 
(36,771,204
)
Sales commissions and discounts
   
0
   
 
0
  
 
(49,246,118
)
  
 
0
 
  
 
0
 
  
0
 
  
 
0
 
   
 
0
 
  
 
(49,246,118
)
Other offering expenses
   
0
   
 
0
  
 
(10,084,799
)
  
 
0
 
  
 
0
 
  
0
 
  
 
0
 
   
 
0
 
  
 
(10,084,799
)
    
  
 
 
 
 
 
  
 
BALANCE, December 31, 2001
   
83,761,469
   
 
837,614
  
 
738,236,525
 
  
 
(24,181,092
)
  
 
0
 
  
(555,040
)
  
 
(5,550,396
)
   
 
0
 
  
 
709,342,651
 
Issuance of common stock
   
61,827,594
   
 
618,276
  
 
617,657,655
 
  
 
0
 
  
 
0
 
  
0
 
  
 
0
 
   
 
0
 
  
 
618,275,931
 
Treasury stock purchased
   
0
   
 
0
  
 
0
 
  
 
0
 
  
 
0
 
  
(667,341
)
  
 
(6,673,412
)
   
 
0
 
  
 
(6,673,412
)
Net income
   
0
   
 
0
  
 
0
 
  
 
0
 
  
 
24,536,142
 
  
0
 
  
 
0
 
   
 
0
 
  
 
24,536,142
 
Dividends ($.39 per share)
   
0
   
 
0
  
 
0
 
  
 
(19,810,577
)
  
 
(24,536,142
)
  
0
 
  
 
0
 
   
 
0
 
  
 
(44,346,719
)
Sales commissions and discounts
   
0
   
 
0
  
 
(58,958,984
)
  
 
0
 
  
 
0
 
  
0
 
  
 
0
 
   
 
0
 
  
 
(58,958,984
)
Other offering expenses
   
0
   
 
0
  
 
(6,076,681
)
  
 
0
 
  
 
0
 
  
0
 
  
 
0
 
   
 
0
 
  
 
(6,076,681
)
Gain/(loss) on interest rate swap
   
0
   
 
0
  
 
0
 
  
 
0
 
  
 
0
 
  
0
 
  
 
0
 
   
 
(289,379
)
  
 
(289,379
)
    
  
 
 
 
 
 
  
 
BALANCE, June 30, 2002 (unaudited)
   
145,589,063
   
$
1,455,890
  
$
1,290,858,515
 
  
$
(43,991,669
)
  
$
0
 
  
(1,222,381
)
  
$
(12,223,808
)
   
$
(289,379
)
  
$
1,235,809,549
 
    
  
 
 
 
 
 
  
 
 
See accompanying condensed notes to financial statements.
 

12

Table of Contents
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
 
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
(UNAUDITED)
 
    
Six Months Ended
  
    
 
 
June 30,
2002
 
 
   
 
 
June 30,
2001
 
 
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net income
   
$
24,536,142
 
   
$
8,314,243
 
Adjustments to reconcile net income to net cash provided by operating activities:
                  
Equity in income of joint venture
   
 
(2,478,686
)
   
 
(1,519,194
)
Depreciation
   
 
12,903,282
 
   
 
6,393,817
 
Amortization of deferred financing costs
   
 
424,992
 
   
 
291,899
 
Amortization of deferred leasing costs
   
 
150,815
 
   
 
151,674
 
Changes in assets and liabilities:
                  
Accounts receivable
   
 
(4,705,925
)
   
 
(1,304,851
)
Due from affiliates
   
 
(30,532
)
         
Deferred rental income
   
 
351,887
 
   
 
(285,776
)
Accounts payable and accrued expenses
   
 
3,112,741
 
   
 
425,824
 
Prepaid expenses and other assets, net
   
 
(1,017,517
)
   
 
3,525,288
 
Due to affiliates
   
 
(108,912
)
   
 
295,385
 
    
  
Net cash provided by operating activities
   
 
33,138,287
 
   
 
16,288,309
 
    
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                  
Investments in real estate
   
 
(259,535,578
)
   
 
(3,784,088
)
Investment in joint venture
   
 
0
 
   
 
(16,126,925
)
Deferred project costs paid
   
 
(22,008,219
)
   
 
(5,642,317
)
Distributions received from joint ventures
   
 
3,496,746
 
   
 
1,784,599
 
Deferred lease acquisition costs paid
   
 
(400,000
)
   
 
0
 
    
  
Net cash used in investing activities
   
 
(278,447,051
)
   
 
(23,768,731
)
    
  
CASH FLOWS FROM FINANCING ACTIVITIES:
                  
Proceeds from note payable
   
 
7,533,697
 
   
 
21,398,850
 
Repayment of note payable
   
 
0
 
   
 
(138,763,187
)
Dividends paid
   
 
(40,867,110
)
   
 
(13,795,534
)
Issuance of common stock
   
 
618,275,931
 
   
 
162,606,610
 
Sales commissions paid
   
 
(58,958,984
)
   
 
(15,314,860
)
Offering costs paid
   
 
(6,817,978
)
   
 
(4,836,272
)
Treasury stock purchased
   
 
(6,673,412
)
   
 
(1,397,561
)
Deferred financing costs paid
   
 
(859,773
)
   
 
(640,999
)
    
  
Net cash provided by financing activities
   
 
511,632,371
 
   
 
9,257,047
 
    
  
NET INCREASE IN CASH AND CASH EQUIVALENTS
   
 
266,323,607
 
   
 
1,776,625
 
CASH AND CASH EQUIVALENTS, beginning of year
   
 
75,586,168
 
   
 
4,298,301
 
    
  
CASH AND CASH EQUIVALENTS, end of period
   
$
341,909,775
 
   
$
6,074,926
 
    
  
SUPPLEMENTAL SCHEDULE OF NONCASH INVESTING ACTIVITIES:
                  
Deferred project costs applied to real estate assets
   
$
10,068,319
 
   
$
5,516,763
 
    
  
Deferred project costs applied to joint ventures
   
$
0
 
   
$
671,961
 
    
  
Deferred project costs due to affiliate
   
$
512,044
 
   
$
335,667
 
    
  
Interest rate swap
   
$
(289,379
)
   
$
0
 
    
  
Deferred offering costs due to affiliate
   
$
1,392,934
 
   
$
731,573
 
    
  
Other offering costs due to affiliate
   
$
201,811
 
   
$
287,715
 
    
  
 
See accompanying condensed notes to financial statements.
 
 

13

Table of Contents
WELLS REAL ESTATE INVESTMENT TRUST, INC.
AND SUBSIDIARY
CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2002
(UNAUDITED)
 
1.    SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 
(a)
 
General
 
Wells Real Estate Investment Trust, Inc. (the “Company”) is a Maryland corporation formed on July 3, 1997, which qualifies as a real estate investment trust (“REIT”). Substantially all of the Company’s business is conducted through Wells Operating Partnership, L.P. (“Wells OP”), a Delaware limited partnership organized for the purpose of acquiring, developing, owning, operating, improving, leasing, and otherwise managing income producing commercial properties for investment purposes on behalf of the Company. The Company is the sole general partner of Wells OP.
 
On January 30, 1998, the Company commenced its initial public offering of up to 16,500,000 shares of common stock at $10 per share pursuant to a Registration Statement on Form S-11 filed under the Securities Act of 1933. The Company commenced active operations on June 5, 1998, upon receiving and accepting subscriptions for 125,000 shares. The Company terminated its initial public offering on December 19, 1999 at which time gross proceeds of approximately $132,181,919 had been received from the sale of approximately 13,218,192 shares. The Company commenced its second public offering of shares of common stock on December 20, 1999, which was terminated on December 19, 2000 after receipt of gross proceeds of approximately $175,229,193 from the sale of approximately 17,522,919 shares from the second public offering. The Company commenced its third public offering of the shares of common stock on December 20, 2000. As of June 30, 2002, the Company has received gross proceeds of approximately $1,148,480,413 from the sale of approximately 114,848,041 shares from its third public offering. Accordingly, as of June 30, 2002, the Company has received aggregate gross offering proceeds of approximately $1,455,891,526 from the sale of 145,589,153 shares of its common stock to investors. After payment of $50,528,371 in acquisition and advisory fees and acquisition expenses, payment of $163,576,134 in selling commissions and organization and offering expenses, capital contributions to joint ventures and acquisitions expenditures by Wells OP of $885,294,095 for property acquisitions, and common stock redemptions of $12,223,808 pursuant to the Company’s share redemption program, the Company was holding net offering proceeds of $344,269,118 available for investment in properties, as of June 30, 2002.
 
(b)
 
Properties
 
As of June 30, 2002, the Company owned interests in 52 properties listed in the table below through its ownership in Wells OP. As of June 30, 2002, all of these properties were 100% leased.

14

Table of Contents
 
Property
Name
   
Tenant
   
Property
Location
   
%
Owned
     
Purchase
Price
     
Square
Feet
   
Annual
Rent
  
MFS Phoenix
   
Massachusetts Financial Services Company
   
Phoenix, AZ
   
100%
 
   
$
25,800,000
 
   
148,605
   
$
2,347,959
 
                                         
TRW Denver
   
TRW, Inc.
   
Aurora, CO
   
100%
 
   
$
21,060,000
 
   
108,240
   
$
2,870,709
 
                                         
Agilent Boston
   
Agilent Technologies, Inc.
   
Boxborough, MA
   
100%
 
   
$
31,742,274
 
   
174,585
   
$
3,578,993
 
                                         
Experian/TRW
   
Experian Information Solutions, Inc.
   
Allen, TX
   
100%
 
   
$
35,150,000
 
   
292,700
   
$
3,438,277
 
                                         
BellSouth Ft. Lauderdale
   
BellSouth Advertising and Publishing Corporation
   
Ft. Lauderdale, FL
   
100%
 
   
$
6,850,000
 
   
47,400
   
$
747,033
 
                                         
Agilent Atlanta
   
Agilent Technologies, Inc.
Koninklijke Philips Electronics N.V.
   
Alpharetta, GA
   
100%
 
   
$
15,100,000
 
   
66,811
34,396
   
$
$
1,344,905
692,391
 
 
                                         
Travelers Express Denver
   
Travelers Express Company, Inc.
   
Lakewood, CO
   
100%
 
   
$
10,395,845
 
   
68,165
   
$
1,012,250
 
                                         
Dana Kalamazoo
   
Dana Corporation
   
Kalamazoo, MI
   
100%
 
   
$
41,950,000
(1)
   
147,004
   
$
1,842,800
 
                                         
Dana Detroit
   
Dana Corporation
   
Farmington Hills, MI
   
100%
 
   
 
(see above) 
(1)
   
112,480
   
$
2,330,600
 
                                         
Novartis Atlanta
   
Novartis Opthalmics, Inc.
   
Duluth, GA
   
100%
 
   
$
15,000,000
 
   
100,087
   
$
1,426,240
 
                                         
Transocean Houston
   
Transocean Deepwater Offshore Drilling, Inc.
Newpark Drilling Fluids, Inc.
   
Houston, TX
   
100%
 
   
$
22,000,000
 
   
103,260
52,731
   
$
$
2,110,035
1,153,227
 
 
                                         
Arthur Andersen
   
Arthur Andersen LLP
   
Sarasota, FL
   
100%
 
   
$
21,400,000
 
   
157,700
   
$
1,988,454
 
                                         
Windy Point I
   
TCI Great Lakes, Inc.
The Apollo Group, Inc.
Global Knowledge Network
Various other tenants
   
Schaumburg, IL
   
100%
 
   
$
32,225,000
(2)
   
129,157 28,322 22,028
8,884
   
$
$
$
$
2,067,204
477,226
393,776
160,000
 
 
 
 
                                         
Windy Point II
   
Zurich American Insurance
   
Schaumburg, IL
   
100%
 
   
$
57,050,000
(2)
   
300,034
   
$
5,091,577
 
                                         
Convergys
   
Convergys Customer Management Group, Inc.
   
Tamarac, FL
   
100%
 
   
$
13,255,000
 
   
100,000
   
$
1,248,192
 
                                         
ADIC
   
Advanced Digital Information Corporation
   
Parker, CO
   
68.2%
 
   
$
12,954,213
 
   
148,204
   
$
1,222,683
 
                                         
Lucent
   
Lucent Technologies, Inc.
   
Cary, NC
   
100%
 
   
$
17,650,000
 
   
120,000
   
$
1,800,000
 
                                         
Ingram Micro
   
Ingram Micro, L.P.
   
Millington, TN
   
100%
 
   
$
21,050,000
 
   
701,819
   
$
2,035,275
 
                                         
Nissan (3)
   
Nissan Motor Acceptance Corporation
   
Irving, TX
   
100%
 
   
$
42,259,000
(4)
   
268,290
   
$
4,225,860
(5)
                                         
IKON
   
IKON Office Solutions, Inc.
   
Houston, TX
   
100%
 
   
$
20,650,000
 
   
157,790
   
$
2,015,767
 
                                         
State Street
   
SSB Realty, LLC
   
Quincy, MA
   
100%
 
   
$
49,563,000
 
   
234,668
   
$
6,922,706
 
                                         
AmeriCredit
   
AmeriCredit Financial Services Corporation
   
Orange Park, FL
   
68.2%
 
   
$
12,500,000
 
   
85,000
   
$
1,336,200
 
                                         
Comdata
   
Comdata Network, Inc.
   
Brentwood, TN
   
55.0%
 
   
$
24,950,000
 
   
201,237
   
$
2,458,638
 
                                         
AT&T Oklahoma
   
AT&T Corp.
Jordan Associates, Inc.
   
Oklahoma City, OK
   
55.0%
 
   
$
15,300,000
 
   
103,500
25,000
   
$
$
1,242,000
294,500
 
 
                                         
Metris Minnesota
   
Metris Direct, Inc.
   
Minnetonka, MN
   
100%
 
   
$
52,800,000
 
   
300,633
   
$
4,960,445
 
                                         
Stone & Webster
   
Stone & Webster, Inc.
SYSCO Corporation
   
Houston, TX
   
100%
 
   
$
44,970,000
 
   
206,048
106,516
   
$
$
4,533,056
2,130,320
 
 
                                         
Motorola Plainfield
   
Motorola, Inc.
   
S. Plainfield, NJ
   
100%
 
   
$
33,648,156
 
   
236,710
   
$
3,324,428
 
                                         
Quest
   
Quest Software, Inc.
   
Irvine, CA
   
15.8%
 
   
$
7,193,000
 
   
65,006
   
$
1,287,119
 
                                         
Delphi
   
Delphi Automotive Systems, LLC
   
Troy, MI
   
100%
 
   
$
19,800,000
 
   
107,193
   
$
1,955,524
 
                                         
Avnet
   
Avnet, Inc.
   
Tempe, AZ
   
100%
 
   
$
13,250,000
 
   
132,070
   
$
1,516,164
 
                                         
Siemens
   
Siemens Automotive Corp.
   
Troy, MI
   
56.8%
 
   
$
14,265,000
 
   
77,054
   
$
1,374,643
 
                                         
Motorola Tempe
   
Motorola, Inc.
   
Tempe, AZ
   
100%
 
   
$
16,000,000
 
   
133,225
   
$
1,843,834
 
                                         
ASML
   
ASM Lithography, Inc.
   
Tempe, AZ
   
100%
 
   
$
17,355,000
 
   
95,133
   
$
1,927,788
 
                                         
Dial
   
Dial Corporation
   
Scottsdale, AZ
   
100%
 
   
$
14,250,000
 
   
129,689
   
$
1,387,672
 
                                         
Metris Tulsa
   
Metris Direct, Inc.
   
Tulsa, OK
   
100%
 
   
$
12,700,000
 
   
101,100
   
$
1,187,925
 
                                         
Cinemark
   
Cinemark USA, Inc.
The Coca-Cola Company
   
Plano, TX
   
100%
 
   
$
21,800,000
 
   
65,521
52,587
   
$
$
1,366,491
1,354,184
 
 
                                         
Gartner
   
The Gartner Group, Inc.
   
Ft. Myers, FL
   
56.8%
 
   
$
8,320,000
 
   
62,400
   
$
830,656
 
                                         
Videojet Technologies Chicago
   
Videojet Technologies, Inc.
   
Wood Dale, IL
   
100%
 
   
$
32,630,940
 
   
250,354
   
$
3,376,746
 
                                         
Johnson Matthey
   
Johnson Matthey, Inc.
   
Wayne, PA
   
56.8%
 
   
$
8,000,000
 
   
130,000
   
$
854,748
 
                                         
Alstom Power Richmond (3)
   
Alstom Power, Inc.
   
Midlothian, VA
   
100%
 
   
$
11,400,000
 
   
99,057
   
$
1,213,324
 
                                         
Sprint
   
Sprint Communications Company, L.P.
   
Leawood, KS
   
56.8%
 
   
$
9,500,000
 
   
68,900
   
$
1,102,404
 
                                         
EYBL CarTex
   
EYBL CarTex, Inc.
   
Fountain Inn, SC
   
56.8%
 
   
$
5,085,000
 
   
169,510
   
$
550,908
 
                                         
Matsushita (3)
   
Matsushita Avionics Systems Corporation
   
Lake Forest, CA
   
100
%
   
$
18,431,206
 
   
144,906
   
$
2,005,464
 
                                         
AT&T Pennsylvania
   
Pennsylvania Cellular Telephone Corp.
   
Harrisburg, PA
   
100
%
   
$
12,291,200
 
   
81,859
   
$
1,442,116
 
                                         
PwC
   
PricewaterhouseCoopers, LLP
   
Tampa, FL
   
100
%
   
$
21,127,854
 
   
130,091
   
$
2,093,382
 
                                         
Cort Furniture
   
Cort Furniture Rental Corporation
   
Fountain Valley, CA
   
44.0
%
   
$
6,400,000
 
   
52,000
   
$
834,888
 
                                         
Fairchild
   
Fairchild Technologies U.S.A., Inc.
   
Fremont, CA
   
77.5
%
   
$
8,900,000
 
   
58,424
   
$
920,144
 

15

Table of Contents
 
Property
Name
   
Tenant
   
Property
Location
   
%
Owned
     
Purchase
Price
   
Square
Feet
   
Annual
Rent
Avaya
   
Avaya, Inc.
   
Oklahoma City, OK
   
3.7
%
   
$
5,504,276
   
57,186
   
$
536,977
                                     
Iomega
   
Iomega Corporation
   
Ogden, UT
   
3.7
%
   
$
5,025,000
   
108,250
   
$
659,868
                                     
Interlocken
   
ODS Technologies, L.P. and GAIAM, Inc.
   
Broomfield, CO
   
3.7
%
   
$
8,275,000
   
51,975
   
$
1,070,515
                                     
Ohmeda
   
Ohmeda, Inc.
   
Louisville, CO
   
3.7
%
   
$
10,325,000
   
106,750
   
$
1,004,520
                                     
Alstom Power Knoxville
   
Alstom Power, Inc.
   
Knoxville, TN
   
3.7
%
   
$
7,900,000
   
84,404
   
$
1,106,520
                                     
(1)
 
Dana Kalamazoo and Dana Detroit were purchased for an aggregate purchase price of $41,950,000.
 
(2)
 
Windy Point I and Windy Point II were purchased for an aggregate purchase price of $89,275,000.
 
(3)
 
Includes the actual costs incurred or estimated to be incurred by Wells OP to develop and construct the building in addition to the purchase price of the land.
 
(4)
 
Includes estimated costs for the planning, design, development, construction and completion of the Nissan Property.
 
(5)
 
Annual rent for Nissan Property does not take effect until construction of the building is completed and the tenant is occupying the building.
 
Wells OP owns interests in properties directly and through equity ownership in the following joint ventures:
 
Joint Venture
  
Joint Venture Partners
  
Properties Held by Joint Venture
Fund XIII-REIT Joint Venture
  
Wells Operating Partnership, L.P.
Wells Real Estate Fund XIII, L.P.
  
AmeriCredit
ADIC
Fund XII-REIT Joint Venture
  
Wells Operating Partnership, L.P.
Wells Real Estate Fund XII, L.P.
  
Siemens
AT&T Oklahoma
Comdata
Fund XI-XII-REIT Joint Venture
  
Wells Operating Partnership, L.P.
Wells Real Estate Fund XI, L.P.
Wells Real Estate Fund XII, L.P.
  
EYBL CarTex
Sprint
Johnson Matthey
Gartner
Fund IX-X-XI-REIT Joint Venture
  
Wells Operating Partnership, L.P.
Wells Real Estate Fund IX, L.P.
Wells Real Estate Fund X, L.P.
Wells Real Estate Fund XI, L.P.
  
Alstom Power Knoxville
Ohmeda
Interlocken
Avaya
Iomega
Wells/Fremont Associates Joint Venture (the “Fremont Joint Venture”)
  
Wells Operating Partnership, L.P.
Fund X-XI Joint Venture
  
Fairchild
Wells/Orange County Associates Joint Venture (the “Orange County Joint Venture”)
  
Wells Operating Partnership, L.P.
Fund X-XI Joint Venture
  
Cort Furniture
Fund VIII-IX-REIT Joint Venture
  
Wells Operating Partnership, L.P.
Fund VIII-IX Joint Venture
  
Quest
 
(c)
 
Critical Accounting Policies
 
The Company’s accounting policies have been established in accordance with accounting principles generally accepted in the United States (“GAAP”). The preparation of financial statements in conformity with GAAP requires management to use judgment in the application of accounting policies, including making estimates and assumptions.

16

Table of Contents
 
These judgments affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the dates of the financial statements and the reported amounts of revenue and expenses during the reporting periods. If our judgment or interpretation of the facts and circumstances relating to various transactions had been different, it is possible that different accounting policies would have been applied; thus, resulting in a different presentation of our financial statements. Below is a discussion of the accounting policies that we consider to be critical in that they may require complex judgment in their application or require estimates about matters which are inherently uncertain.
 
Revenue Recognition
 
The Company recognizes rental income generated from all leases on real estate assets in which the Company has an ownership interest, either directly or through investments in joint ventures, on a straight-line basis over the terms of the respective leases. If a tenant was to encounter financial difficulties in future periods, the amount recorded as a receivable may not be realized.
 
Operating Cost Reimbursements
 
The Company generally bills tenants for operating cost reimbursements, either directly or through investments in joint ventures, on a monthly basis at amounts estimated largely based on actual prior period activity, the current year budget 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 Company has an ownership interest, either directly or through investments in joint ventures, may not be recoverable. When such events or changes in circumstances are present, management assesses the potential impairment by comparing the fair market value of the asset, estimated at an amount equal to the future undiscounted operating cash flows expected to be generated from tenants over the life of the asset and from its eventual disposition, to the carrying value of the asset. In the event that the carrying amount exceeds the estimated fair market value, the Company would recognize an impairment loss in the amount required to adjust the carrying amount of the asset to its estimated fair market value. Neither the Company nor its joint ventures have recognized impairment losses on real estate assets in 2002 or 2001.
 
Deferred Project Costs
 
The Company records acquisition and advisory fees and acquisition expenses payable to Wells Capital, Inc. (the “Advisor”) by capitalizing deferred project costs and reimbursing the Advisor in an amount equal to 3.5% of cumulative capital raised to date. As the Company invests its capital proceeds, deferred project costs are applied to real estate assets, either directly or through contributions to joint ventures, and depreciated over the useful lives of the respective real estate assets. Acquisition and advisory fees and acquisition expenses paid as of June 30, 2002, amounted to $50,528,371 and represented approximately 3.5% of capital contributions received. These fees are allocated to specific properties as they are purchased or developed and are included in capitalized assets of the joint venture, or real estate assets. Deferred project costs at June 30, 2002 and December 31, 2001, represent fees paid, but not yet applied to properties.
 
Deferred Offering Costs
 
The Advisor expects to continue to fund 100% of the organization and offering costs and recognize related expenses, to the extent that such costs exceed 3% of cumulative capital raised, on behalf of the Company. Organization and offering costs include items such as legal and accounting fees, marketing and promotional costs, and printing costs, and specifically exclude sales costs and underwriting commissions. The Company records offering costs by accruing deferred offering costs, with an offsetting liability included in due to affiliates, at an amount equal to the lesser of 3% of cumulative capital raised to date or actual costs incurred from third-parties less reimbursements paid to the Advisor. As the actual equity is raised, the Company reverses the deferred offering costs accrual and recognizes a charge to stockholders’ equity upon reimbursing the Advisor. As of June 30, 2002, the

17

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Advisor had paid organization and offering expenses on behalf of the Company in an aggregate amount of $27,886,146, of which the Advisor had been reimbursed $25,572,034, which did not exceed the 3% limitation. Deferred offering costs in the accompanying balance sheet represent costs incurred by the Advisor which will be reimbursed by the Company.
 
(d)
 
Distribution Policy
 
The Company will make distributions each taxable year (not including a return of capital for federal income tax purposes) equal to at least 90% of its real estate investment trusts’ taxable income. The Company intends to make regular quarterly distributions to stockholders. Distributions will be made to those stockholders who are stockholders as of the record date selected by the Directors. The Company currently calculates quarterly dividends based on the daily record and dividend declaration dates; thus, stockholders are entitled to receive dividends immediately upon the purchase of shares.
 
Dividends to be distributed to the stockholders are determined by the Board of Directors and are dependent on a number of factors related to the Company, including funds available for payment of dividends, financial condition, capital expenditure requirements and annual distribution requirements in order to maintain the Company’s status as a REIT under the Code. Operating cash flows are expected to increase as additional properties are added to the Company’s investment portfolio.
 
(e)
 
Income Taxes
 
The Company has made an election under Section 856 (C) of the Internal Revenue Code of 1986, as amended (the “Code”), to be taxed as a Real Estate Investment Trust (“REIT”) under the Code beginning with its taxable year ended December 31, 1998. As a REIT for federal income tax purposes, the Company generally will not be subject to federal income tax on income that it distributes to its shareholders. If the Company fails to qualify as a REIT in any taxable year, it will then be subject to federal income tax on its taxable income at regular corporate rates and will not be permitted to qualify for treatment as a REIT for federal income tax purposes for four years following the year during which qualification is lost. Such an event could materially adversely affect the Company’s net income and net cash available to distribute to shareholders. However, the Company believes that it is organized and operates in such a manner as to qualify for treatment as a REIT and intends to continue to operate in the foreseeable future in such a manner so that the Company will remain qualified as a REIT for federal income tax purposes.
 
(f)
 
Employees
 
The Company has no direct employees. The employees of the Advisor and Wells Management Company, Inc. (Wells Management), an affiliate of the Company and the Advisor, perform a full range of real estate services including leasing and property management, accounting, asset management and investor relations for the Company. The Company has reimbursed the Advisor and Wells Management for allocated salaries, wages and other payroll related costs totaling $683,535 and $254,000 for the six months ended June 30, 2002 and 2001, respectively and $366,380 and $163,725 for the three months ended June 30, 2002 and 2001, respectively.
 
(g)
 
Insurance
 
Wells Management Company, Inc., an affiliate of the Company and the Advisor, carries comprehensive liability and extended coverage with respect to all the properties owned directly or indirectly by the Company. In the opinion of management, the properties are adequately insured.
 
(h)
 
Competition
 
The Company will experience competition for tenants from owners and managers of competing projects, which may include its affiliates. As a result, the Company may be required to provide free rent, reduced charges for tenant improvements and other inducements, all of which may have an adverse impact on results of operations. At the time the Company elects to dispose of its properties, the Company will also be in competition with sellers of similar properties to locate suitable purchasers for its properties.

18

Table of Contents
 
(i)
 
Statement of Cash Flows
 
For the purpose of the statement of cash flows, the Company considers all highly liquid debt instruments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents include cash and short-term investments.
 
(j)
 
Basis of Presentation
 
Substantially all of the Company’s business is conducted through Wells OP. On December 31, 1997, Wells OP issued 20,000 limited partner units to the Advisor in exchange for a capital contribution of $200,000. The Company is the sole general partner in Wells OP; consequently, the accompanying consolidated balance sheet of the Company includes the amounts of the Company and Wells OP. The Advisor, a limited partner, is not currently receiving distributions from its investment in Wells OP.
 
The consolidated financial statements of the Company have been prepared in accordance with instructions to Form 10-Q and do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. These quarterly statements have not been examined by independent accountants, but in the opinion of the Board of Directors, the statements for the unaudited interim periods presented include all adjustments, which are of a normal and recurring nature, necessary to present a fair presentation of the results for such periods. Results for interim periods are not necessarily indicative of full year results. For further information, refer to the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001.
 
2    INVESTMENT IN JOINT VENTURES
 
(a)
 
Basis of Presentation
 
As of June 30, 2002, the Company owned interests in 17 properties in joint ventures with related entities through its ownership in Wells OP, which owns interests in seven such joint ventures. The Company does not have control over the operations of these joint ventures; however, it does exercise significant influence. Accordingly, investment in joint ventures is recorded using the equity method.
 
(b)
 
Summary of Operations
 
The following information summarizes the operations of the unconsolidated joint ventures in which the Company, through Wells OP, had ownership interests as of June 30, 2002 and 2001, respectively. There were no additional investments in joint ventures made by the Company during the three months and six months ended June 30, 2002.
 
    
Total Revenues
   
Net Income
   
Wells OP’s Share of Net Income
    
Three Months Ended
   
Three Months Ended
   
Three Months Ended
    
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
Fund IX-X-XI-REIT Joint Venture
   
$
1,436,601
   
$
1,087,746
   
$
619,173
   
$
734,418
   
$
22,982
   
$
27,258
Cort Joint Venture
   
 
208,707
   
 
198,881
   
 
140,206
   
 
131,374
   
 
61,224
   
 
57,367
Fremont Joint Venture
   
 
227,023
   
 
225,178
   
 
140,944
   
 
135,990
   
 
109,237
   
 
105,398
Fund XI-XII-REIT Joint Venture
   
 
859,027
   
 
847,767
   
 
545,009
   
 
499,960
   
 
309,363
   
 
283,792
Fund XII-REIT Joint Venture
   
 
1,483,224
   
 
1,102,873
   
 
852,672
   
 
587,864
   
 
468,646
   
 
310,812
Fund VIII-IX-REIT Joint Venture
   
 
309,605
   
 
313,539
   
 
147,998
   
 
155,320
   
 
23,370
   
 
24,854
Fund XIII-REIT Joint Venture
   
 
707,919
   
 
0
   
 
406,236
   
 
0
   
 
277,041
   
 
0
    
  
  
  
  
  
    
 
$5,232,106
   
 
$3,775,984
   
 
$2,852,238
   
 
$2,244,926
   
 
$1,271,863
   
$
809,481
    
  
  
  
  
  

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Table of Contents
 
    
Total Revenues
   
Net Income
   
Wells OP’s Share of Net Income
    
Six Months Ended
   
Six Months Ended
   
Six Months Ended
    
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
   
June 30,
2002
   
June 30,
2001
Fund IX-X-XI-REIT Joint Venture
   
$
2,815,660
   
$
2,181,096
   
$
1,173,441
   
$
1,372,853
   
$
43,554
   
$
50,954
Cort Joint Venture
   
 
420,713
   
 
398,468
   
 
269,956
   
 
265,127
   
 
117,882
   
 
115,773
Fremont Joint Venture
   
 
452,184
   
 
450,356
   
 
276,892
   
 
278,602
   
 
214,602
   
 
215,928
Fund XI-XII-REIT Joint Venture
   
 
1,717,246
   
 
1,689,191
   
 
1,042,158
   
 
1,014,237
   
 
591,560
   
 
575,710
Fund XII-REIT Joint Venture
   
 
3,154,087
   
 
1,896,195
   
 
1,658,185
   
 
1,033,184
   
 
911,372
   
 
519,445
Fund VIII-IX-REIT Joint Venture
   
 
633,351
   
 
580,923
   
 
308,694
   
 
260,352
   
 
48,744
   
 
41,384
Fund XIII-REIT Joint Venture
   
 
1,408,567
   
 
0
   
 
807,910
   
 
0
   
 
550,972
   
 
0
    
  
  
  
  
  
    
$
10,601,808
   
$
7,196,229
   
$
5,537,236
   
$
4,224,355
   
$
2,478,686
   
$
1,519,194
    
  
  
  
  
  
 
3.    INVESTMENTS IN REAL ESTATE
 
As of June 30, 2002, the Company, through its ownership in Wells OP, owns 35 properties directly. The following describes acquisitions made directly by Wells OP during the three months ended June 30, 2002.
 
The Travelers Express Denver Building
 
On April 10, 2002, Wells OP purchased the Travelers Express Denver Building, a one-story office building containing 68,165 rentable square feet located in Lakewood, Jefferson County, Colorado for a purchase price of $10,395,845, excluding closing costs. Travelers Express Building is 100% leased to Travelers Express Company, Inc. (“Travelers Express”). The Travelers Express lease is a net lease that commenced in April 2002 and expires in March 2012. The current annual base rent payable under the Travelers Express lease is $1,012,250. Travelers Express, at its option, has the right to extend the initial term of its lease for two additional five-year terms. Base rent for the first renewal term shall be $19.00 per square foot for years 1-3 and $20.50 per square foot for years 4-5. The base rent for the second renewal term shall be at the then-current market rental rate.
 
The Agilent Atlanta Building
 
On April 18, 2002, Wells OP purchased the Agilent Atlanta Building, a two-story office building containing 101,207 rentable square feet located in Alpharetta, Fulton County, Georgia for a purchase price of $15,100,000, excluding closing costs. The Agilent Atlanta Building is leased to Agilent Technologies, Inc. (“Agilent”) and Koninklijke Philips Electronics N.V. (“Philips”).
 
The Agilent lease is a net lease that covers approximately 66,811 square feet commencing in September 2001 and expiring in September 2011. The initial annual base rent payable under the Agilent lease is $1,344,905. Agilent, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Agilent may terminate the lease at the end of the seventh lease year by paying a $763,650 termination fee.
 
The Philips lease is a net lease that covers approximately 34,396 rentable square feet commencing in September 2001 and expiring in September 2011. The current annual base rent payable under the Philips lease is $692,391. Philips, at its option, has the right to extend the initial term of its lease for either (1) one additional three-year period, or (2) one additional five-year period, at the then-current market rental rate. In addition, Philips may terminate the lease at the end of the seventh lease year by paying a $393,146 termination fee.

20

Table of Contents
 
The BellSouth Ft. Lauderdale Building
 
On April 18, 2002, Wells OP purchased the BellSouth Ft. Lauderdale Building, a one-story office building containing 47,400 rentable square feet located in Ft. Lauderdale, Broward County, Florida for a purchase price of $6,850,000, excluding closing costs. The BellSouth Ft. Lauderdale Building is 100% leased to BellSouth Advertising and Publishing Corporation (“BellSouth”). The BellSouth lease is a net lease that commenced in July 2001 and expires in July 2008. The current annual base rent payable under the BellSouth lease is $747,033. BellSouth, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
The Experian/TRW Buildings
 
On May 1, 2002, Wells OP purchased the Experian/TRW Buildings, two two-story office buildings containing 292,700 rentable square feet located in Allen, Collin County, Texas for a purchase price of $35,150,000, excluding closing costs. The Experian/TRW Buildings are both 100% leased to Experian, Inc. (“Experian”). The Experian lease is a net lease that commenced in April 1993 and expires in October 2010. The current annual base rent payable under the Experian lease is $3,438,277. Experian, at its option, has the right to extend the initial term of its lease for four additional five-year periods at 95% of the then-current market rental rate. TRW, Inc., the original tenant on the Experian lease, assigned its interest in the Experian lease to Experian in 1996 but remains as an obligor of the Experian lease.
 
The Agilent Boston Building
 
On May 3, 2002, Wells OP purchased the Agilent Boston Building, a three-story office building containing 174,585 rentable square feet located in Boxborough, Middlesex County, Massachusetts for a purchase price of $31,742,274, excluding closing costs. In addition, Wells OP has assumed the obligation, as the landlord, to provide Agilent $3,407,496 for tenant improvements. The Agilent Boston Building is 100% leased to Agilent Technologies, Inc. (“Agilent”). The Agilent Boston lease is a net lease that commenced in September 2001 and expires in September 2011. The current annual base rent payable under the Agilent Boston lease is $3,578,993. Agilent, at its option, has the right to extend the initial term of its lease for one additional five-year period at a rate equal to the greater of (1) the then-current market rental rate, or (2) 75% of the annual base rent in the final year of the initial term of the Agilent Boston lease. In addition, Agilent may terminate the lease at the end of the seventh lease year by paying a $4,190,000 termination fee.
 
The TRW Denver Building
 
On May 29, 2002, Wells OP purchased the TRW Denver Building, a three-story office building containing 108,240 rentable square feet located in Aurora, Arapahoe County, Colorado for a purchase price of $21,060,000, excluding closing costs. The TRW Denver Building is 100% leased to TRW, Inc. (“TRW”). The TRW lease is a net lease that commenced in October 1997 and expires in September 2007. The current annual base rent payable under the TRW lease is $2,870,709. TRW, at its option, has the right to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate.
 
The MFS Phoenix Building
 
On June 5, 2002, Wells OP purchased the MFS Phoenix Building, a three-story office building containing 148,605 rentable square feet located in Phoenix, Maricopa County, Arizona for a purchase price of $25,800,000, excluding closing costs. The MFS Phoenix Building is 100% leased to Massachusetts Financial Services Company (“MFS”). The MFS lease is a net lease that commenced in April 2001 and expires in July 2011. The current annual base rent payable under the MFS lease is $2,347,959. MFS, at its option, has the right to extend the initial term of its lease for two additional five-year periods at 95% of the then-current market rental rate.
 
4.    NOTE RECEIVABLE
 
In connection with the purchase of the TRW Denver Building, Wells OP acquired a note receivable from the building’s sole tenant, TRW, Inc., in the amount of $5,210,000. The loan was made to fund above-standard tenant

21

Table of Contents
 
improvement costs to the building. The note receivable will be fully amortized over the remaining lease term, which expires September 2007, at 11% interest with TRW making monthly loan payments of $107,966.
 
5.    NOTES PAYABLE
 
Wells OP has established four secured lines of credit with SouthTrust Bank totaling $72,140,000 which are secured by first priority mortgages against the Cinemark, ASML, Dial, PwC, Motorola Tempe, Alstom Power Richmond and Avnet Buildings. Notes payable at June 30, 2002 consists of (i) $7,655,600 of draws on a $7,900,000 line of credit from SouthTrust Bank secured by a first mortgage on the Alstom Power Richmond Building and (ii) $8,002,541 outstanding on the construction loan from Bank of America, N.A.(Bank of America) which is being used to fund the development of the Nissan Property.
 
6.    INTEREST RATE SWAP
 
Wells OP entered into an interest rate swap agreement with Bank of America in an attempt to hedge its interest rate exposure on the Bank of America construction loan for the Nissan Property. The interest rate swap became effective January 15, 2002 and terminates on June 15, 2003, the maturity date of the construction loan. The notional amount of the interest rate swap is the balance outstanding on the construction loan on the payment date, which is the fifteenth of each month. The interest rate swap agreement involves the exchange of amounts based on a fixed interest rate for amounts based on a variable interest rate over the life of the loan agreement without an exchange of the notional amount upon which the payments are based. Wells OP, as the fixed rate payer, has an interest rate of 5.9%. Bank of America, the variable rate payer, pays at a rate equal to U.S. dollar LIBOR on the payment date. During the six months ended June 30, 2002, Wells OP made interest payments totaling approximately $23,100 under the terms of the interest rate swap. At June 30, 2002, the estimated fair value of the interest rate swap was ($289,379).
 
On January 1, 2001, the Company adopted SFAS No. 133, as amended by SFAS No. 137 and No. 138 Accounting for Derivative Instruments and Hedging Activities. The effect of adopting the SFAS No. 133 did not have a material effect on the Company’s consolidated financial statements.
 
7.    DUE TO AFFILIATES
 
Due to affiliates consists of amounts due to the Advisor for acquisitions and advisory fees and acquisition expenses, deferred offering costs, and other operating expenses paid on behalf of the Company. Also included in due to affiliates is the amount due to the Fund VIII-IX Joint Venture related to the Matsushita lease guarantee, which is explained in greater detail in the financial statements and footnotes included in the Company’s Form 10-K for the year ended December 31, 2001. Payments of $601,963 have been made as of June 30, 2002 toward funding the obligation under the Matsushita agreement.
 
8.    COMMITMENTS AND CONTINGENCIES
 
Take Out Purchase and Escrow Agreement
 
An affiliate of the Advisor (“Wells Exchange”) has developed a program (the “Wells Section 1031 Program”) involving the acquisition by Wells Exchange of income-producing commercial properties and the formation of a series of single member limited liability companies for the purpose of facilitating the resale of co-tenancy interests in such real estate properties to be owned in co-tenancy arrangements with persons (“1031 Participants”) who are looking to invest the proceeds from a sale of real estate held for investment in another real estate investment for purposes of qualifying for like-kind exchange treatment under Section 1031 of the Code. Each of these properties will be financed by a combination of permanent first mortgage financing and interim loan financing obtained from institutional lenders.

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Following the acquisition of each property, Wells Exchange will attempt to sell co-tenancy interests to 1031 Participants, the proceeds of which will be used to pay off the interim financing. In consideration for the payment of a take out fee to the Company, and following approval of the potential property acquisition by the Company’s Board of Directors, it is anticipated that Wells OP will enter into a contractual relationship providing that, in the event that Wells Exchange is unable to sell all of the co-tenancy interests in that particular property to 1031 Participants, Wells OP will purchase, at Wells Exchange’s cost, any co-tenancy interests remaining unsold at the end of the offering period. As a part of the initial transaction in the Wells Section 1031 Program, Wells OP entered into a take out purchase and escrow agreement dated April 16, 2001 providing, among other things, that Wells OP would be obligated to acquire, at Wells Exchange’s cost, any unsold co-tenancy interests in the building known as the Ford Motor Credit Complex which remained unsold at the expiration of the offering of Wells Exchange, which was extended to April 15, 2002. Wells OP was compensated for its takeout commitment in the amount of $137,500 in 2001 and $134,102 in 2002. On April 12, 2002, Wells Exchange paid off the interim financing on the Ford Motor Credit Complex. Pay off of the loan triggered the release of Wells OP from its prior obligations under the take out purchase and escrow agreement relating to such property.
 
9.    SUBSEQUENT EVENTS
 
The ISS Atlanta Buildings
 
On July 1, 2002, Wells OP purchased two five-story buildings containing a total of 238,600 rentable square feet located in Atlanta, Georgia for a purchase price of $40,500,000, excluding closing costs. The ISS Atlanta Buildings were acquired by assigning to Wells OP an existing ground lease with the Development Authority of Fulton County (“Development Authority”). Fee simple title to the land upon which the ISS Atlanta Buildings are located is held by the Development Authority, which issued Development Authority of Fulton County Taxable Revenue Bonds (“Bonds”) totaling $32,500,000 in connection with the construction of these buildings. The Bonds, which entitle Wells OP to certain real property tax abatement benefits, were also assigned to Wells OP at the closing. Fee title interest to the land will be transferred to Wells OP upon payment of the outstanding balance on the Bonds, either by prepayment by Wells OP or at the expiration of the ground lease on December 1, 2015.
 
The entire rentable area of the ISS Atlanta Buildings is leased to Internet Security Systems, Inc., a Georgia corporation (“ISS”). The ISS Atlanta lease is a net lease that commenced in November 2000 and expires in May 2013. The current annual base rent payable under the ISS Atlanta lease is $4,623,445. ISS, at its option, has the right to extend the initial term of its lease for three additional five-year periods at 95% of the then-current market rental rate.
 
The PacifiCare San Antonio Building
 
On July 12, 2002, Wells OP purchased the PacifiCare San Antonio Building, a two-story office building containing 142,500 rentable square feet located in San Antonio, Texas for a purchase price of $14,650,000, excluding closing costs. The PacifiCare San Antonio Building is 100% leased to PacifiCare Health Systems, Inc. (“PacifiCare”). The PacifiCare lease is a net lease that commenced on November 20, 2000 and expires on November 30, 2010. The current annual base rent payable under the PacifiCare lease is $1,471,700. PacifiCare, at its option, has the right to extend the initial term of its lease for three additional five-year periods. Monthly base rent for the first renewal term will be $163,994 and monthly base rent for the second and third renewal terms will be the then-current market rental rate.
 
The Kerr McGee Property
 
On July 29, 2002, Wells OP purchased the Kerr McGee Property, a 4.2-acre tract of land located in Houston, Harris County, Texas for a purchase price of $1,738,044, excluding closing costs. Wells OP has entered into agreements to construct a four-story office building containing approximately 100,000 rentable square feet (the “Kerr McGee Project”) on the Kerr McGee Property. It is currently anticipated that the aggregate of all costs and expenses to be incurred by Wells OP with respect to the acquisition of the Kerr McGee Property and the planning, design, development, construction and completion of the Kerr McGee Project will total approximately $15,760,000.

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Table of Contents
 
The entire 100,000 rentable square feet of the Kerr McGee Project will be leased to Kerr McGee Oil & Gas Corporation (“Kerr McGee”), a wholly owned subsidiary of Kerr McGee Corporation. The initial term of the Kerr McGee lease will extend 11 years and 1 month beyond the rent commencement date. Construction on the building is scheduled to be completed by July 2003. The rent commencement date will occur no later than July 1, 2003. Kerr McGee has the right to extend the initial term of this lease for one additional period of twenty years or the option to extend the initial term for any combination of additional periods of ten years or five years for a total additional period of not more than twenty years. The base rental rate will be 95% of the existing market rate. The initial annual base rent payable under the Kerr McGee lease will be calculated as 10.5% of project costs.
 
Wells OP obtained a construction loan in the amount of $13,700,000 from Bank of America to fund the construction of a building on the Kerr McGee Property. The loan requires monthly payments of interest only and matures on January 29, 2004. The interest rate on the loan as of August 6, 2002 was 3.80%. The Bank of America loan is secured by a first priority mortgage on the Kerr McGee Property.
 
The BMG Greenville Building
 
On July 31, 2002, Wells OP purchased the BMG Greenville Buildings, two one-story office buildings containing 786,778 rentable square feet located in Duncan, Spartanburg County, South Carolina for a purchase price of $26,900,000, excluding closing costs. The BMG Greenville Buildings are leased to BMG Direct Marketing, Inc. (“BMG Marketing”) and BMG Music (“BMG Music”).
 
The BMG Marketing lease is a net lease that covers approximately 473,398 square feet commencing in March 1988 and expiring in March 2011. The initial annual base rent payable under the BMG Marketing lease is $1,394,156. BMG Marketing, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The BMG Music lease is a net lease that covers approximately 313,380 rentable square feet commencing in December 1987 and expiring in March 2011. The current annual base rent payable under the BMG Music lease is $763,600. BMG Music, at its option, has the right to extend the initial term of its lease for two consecutive ten-year periods at 95% of the then-current market rental rate.
 
The Kraft Atlanta Building
 
On August 1, 2002, Wells OP purchased the Kraft Atlanta Building, a one-story office building containing 87,219 rentable square feet located in Suwanee, Forsyth County, Georgia for a purchase price of $11,625,000, excluding closing costs. The Kraft Atlanta Building is leased to Kraft Foods North America, Inc. (“Kraft”) and PerkinElmer Instruments, LLC (“PerkinElmer”).
 
The Kraft lease is a net lease that covers approximately 73,264 square feet commencing in February 2002 and expiring in January 2012. The initial annual base rent payable under the Kraft lease is $1,263,804. Kraft, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, Kraft may terminate the lease (1) at the end of the third year by paying a $7,000,000 termination fee, or (2) at the end of the seventh lease year by paying a $1,845,296 termination fee.
 
The PerkinElmer lease is a net lease that covers approximately 13,955 rentable square feet commencing in December 2001 and expiring in November 2016. The current annual base rent payable under the PerkinElmer lease is $194,672. PerkinElmer, at its option, has the right to extend the initial term of its lease for two additional five-year periods at the then-current market rental rate. In addition, PerkinElmer may terminate the lease at the end of the tenth lease year by paying a $325,000 termination fee.
 
Issuance of Common Stock
 
From July 1, 2002 through August 7, 2002, the Company raised $170,921,990 through the issuance of 17,092,199 shares of common stock in the Company.

24

Table of Contents
 
The Fourth Offering of Common Stock
 
The Company terminated it third public offering and commenced its fourth public offering of common stock on July 26, 2002, the effective date of the Registration Statement initially filed with the Securities and Exchange Commission on April 8, 2002. The Company is offering up to an aggregate of $3,300,000,000 (330,000,000 shares) of which $3,000,000,000 (300,000,000 shares) are being offered to the public and $300,000,000 (30,000,000 shares) are being offered pursuant to the dividend reinvestment plan.

25

Table of Contents
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
SUMMARY OF UNAUDITED PRO FORMA FINANCIAL STATEMENTS
 
This pro forma information should be read in conjunction with the financial statements and notes of Wells Real Estate Investment Trust, Inc. included in its annual report on Form 10-K for the year ended December 31, 2001 and quarterly report on Form 10-Q for the period ended June 30, 2002. In addition, this pro forma information should be read in conjunction with the financial statements and notes of certain acquired properties included in various Form 8-Ks filed in the previous two years.
 
The following unaudited pro forma balance sheet as of June 30, 2002 has been prepared to give effect to the third quarter 2002 acquisitions of the PacifiCare San Antonio Building, the Kerr McGee Property, the BMG Greenville Buildings and the Kraft Atlanta Building (collectively, the “Recent Acquisitions”) by Wells OP as if the acquisitions occurred on June 30, 2002.
 
The following unaudited pro forma statement of income for the six months ended June 30, 2002 has been prepared to give effect to the first and second quarter 2002 acquisitions of the Arthur Andersen Building, the Transocean Houston Building, Novartis Atlanta Building, the Dana Corporation Buildings, the Travelers Express Denver Buildings, the Agilent Atlanta Building, the BellSouth Ft. Lauderdale Building, the Experian/TRW Buildings, the Agilent Boston Building, the TRW Denver Building, the MFS Phoenix Building (collectively, the “2002 Acquisitions”) and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Kerr McGee Property had no operations during the six months ended June 30, 2002.
 
The following unaudited pro forma statement of income for the year ended December 31, 2001 has been prepared to give effect to the 2001 acquisitions of the Comdata Building, the AmeriCredit Building, the State Street Bank Building, the IKON Buildings, the Ingram Micro Building, the Lucent Building, the ADIC Buildings, the Convergys Building, the Windy Point Buildings (collectively, the “2001 Acquisitions”), the 2002 Acquisitions and the Recent Acquisitions as if the acquisitions occurred on January 1, 2001. The Nissan Property, the Travelers Express Denver Buildings and the Kerr McGee Property had no operations during 2001.
 
Wells OP is a Delaware limited partnership that was organized to own and operate properties on behalf of the Wells Real Estate Investment Trust, Inc., a Maryland corporation. As the sole general partner of Wells OP, Wells Real Estate Investment Trust, Inc. possesses full legal control and authority over the operations of Wells OP. Accordingly, the accounts of Wells OP are consolidated with the accompanying pro forma financial statements of Wells Real Estate Investment Trust, Inc.
 
These unaudited pro forma financial statements are prepared for informational purposes only and are not necessarily indicative of future results or of actual results that would have been achieved had the acquisitions of the 2001 Acquisitions, 2002 Acquisitions and the Recent Acquisitions been consummated as of January 1, 2001.
 

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Table of Contents
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA BALANCE SHEET
 
JUNE 30, 2002
 
(Unaudited)
 
ASSETS
 
         
Pro Forma Adjustments
       
         
Recent Acquisitions
       
    
Wells Real
Estate
Investment
Trust, Inc (e)
   
Other
     
PacifiCare
San Antonio
     
Kerr
McGee
     
BMG
Greenville
     
Kraft
Atlanta
     
Pro Forma
Total
REAL ESTATE ASSETS, at cost:
                                                           
Land
   
$
110,330,449
  
$
0
 
   
$
2,450,000
(a)
   
$
1,738,044
(a)
   
$
1,600,000
(a)
   
$
2,700,000
(a)
   
$
119,163,936
           
 
0
 
   
 
99,709
(b)
   
 
70,734
(b)
   
 
65,116
(b)
   
 
109,884
(b)
       
Buildings, less accumulated depreciation of $37,717,737
   
 
689,490,969
   
 
0
 
   
 
12,239,827
(a)
   
 
0
 
   
 
25,087,017
(a)
   
 
8,975,771
(a)
   
 
737,677,992
           
 
0
 
   
 
498,132
(b)
   
 
0
 
   
 
1,020,983
(b)
   
 
365,293
(b)
       
Construction in progress
   
 
16,081,841
   
 
0
 
   
 
0
 
   
 
379,901
(a)
   
 
0
 
   
 
0
 
   
 
16,461,742
    
  
  
  
  
  
  
Total real estate assets
   
 
815,903,259
   
 
0
 
   
 
15,287,668
 
   
 
2,188,679
 
   
 
27,773,116
 
   
 
12,150,948
 
   
 
873,303,670
    
  
  
  
  
  
  
CASH AND CASH EQUIVALENTS
   
 
341,909,775
   
 
145,053,219
(c)
   
 
(14,689,827
)(a)
   
 
(2,103,115
)(a)
   
 
(14,984,256
)(a)
   
 
(11,675,771
)(a)
   
 
438,433,162
           
 
(5,076,863
)(d)
                                           
INVESTMENT IN JOINT VENTURES
   
 
76,217,870
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
76,217,870
INVESTMENT IN BONDS
   
 
22,000,000
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
22,000,000
ACCOUNTS RECEIVABLE
   
 
10,709,104
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
10,709,104
DEFERRED LEASE ACQUISITION COSTS, net
   
 
1,790,608
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
1,790,608
DEFERRED PROJECT COSTS
   
 
14,314,914
   
 
5,076,863
(d)
   
 
(597,841
)(b)
   
 
(70,734
)(b)
   
 
(1,086,099
)(b)
   
 
(475,177
)(b)
   
 
17,161,926
DEFERRED OFFERING COSTS
   
 
1,392,934
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
1,392,934
DUE FROM AFFILIATES
   
 
1,897,309
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
1,897,309
NOTE RECEIVABLE
   
 
5,149,792
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
5,149,792
PREPAID EXPENSES AND OTHER ASSETS, net
   
 
1,881,308
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
1,881,308
    
  
  
  
  
  
  
Total assets
   
$
1,293,166,873
   
$
145,053,219
 
   
$
0
 
   
$
14,830
 
   
$
11,702,761
 
   
$
0
 
   
$
1,449,937,683
    
  
  
  
  
  
  
 

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Table of Contents
 
LIABILITIES AND SHAREHOLDERS’ EQUITY
 
           
Pro Forma Adjustments
       
           
Recent Acquisitions
       
    
Wells Real
Estate
Investment
Trust, Inc (e)
     
Other
       
PacifiCare
San Antonio
   
Kerr
McGee
     
BMG
Greenville
     
Kraft
Atlanta
   
Pro Forma
Total
  
LIABILITIES:
                                                             
Accounts payable and accrued expenses
   
$
11,840,214
 
   
$
0
 
     
$
0
   
$
14,830
(a)
   
$
0
 
   
$
0
   
$
11,855,044
 
Notes payable
   
 
15,658,141
 
   
 
0
 
     
 
0
   
 
0
 
   
 
11,702,761
(a)
   
 
0
   
 
27,360,902
 
Obligations under capital lease
   
 
22,000,000
 
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
22,000,000
 
Dividends payable
   
 
4,538,635
 
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
4,538,635
 
Due to affiliates
   
 
2,106,790
 
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
2,106,790
 
Deferred rental income
   
 
1,013,544
 
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
1,013,544
 
    
  
    
  
  
  
  
Total liabilities
   
 
57,157,324
 
   
 
0
 
     
 
0
   
 
14,830
 
   
 
11,702,761
 
   
 
0
   
 
68,874,915
 
    
  
    
  
  
  
  
COMMITMENTS AND CONTINGENCIES
                                                             
MINORITY INTEREST OF UNIT HOLDER IN OPERATING PARTNERSHIP
   
 
200,000
 
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
200,000
 
    
  
    
  
  
  
  
SHAREHOLDERS’ EQUITY:
                                                             
Common shares, $.01 par value; 125,000,000 shares authorized, 145,589,053 shares issued and 144,366,772 outstanding at June 30, 2002
   
 
1,455,890
 
   
 
145,053
(c)
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
1,600,943
 
Additional paid-in capital
   
 
1,290,858,515
 
   
 
144,908,166
(c)
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
1,435,766,681
 
Cumulative distributions in excess of earnings
   
 
(43,991,669
)
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
(43,991,669
)
Treasury stock, at cost, 1,222,381 shares
   
 
(12,223,808
)
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
(12,223,808
)
Other comprehensive loss
   
 
(289,379
)
   
 
0
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
(289,379
)
    
  
    
  
  
  
  
Total shareholders’ equity
   
 
1,235,809,549
 
   
 
145,053,219
 
     
 
0
   
 
0
 
   
 
0
 
   
 
0
   
 
1,380,862,768
 
    
  
    
  
  
  
  
Total liabilities and shareholders’ equity
   
$
1,293,166,873
 
   
$
145,053,219
 
     
$
0
   
$
14,830
 
   
$
11,702,761
 
   
$
0
   
$
1,449,937,683
 
    
  
    
  
  
  
  
 
(a)
 
Reflects Wells Real Estate Investment Trust, Inc.’s purchase price for the land, building and liabilities assumed.
 
(b)
 
Reflects deferred project costs applied to the land and building at approximately 4.07% of the purchase price.
 
(c)
 
Reflects capital raised through issuance of additional shares subsequent to June 30, 2002 through Kraft Atlanta acquisition date.
 
(d)
 
Reflects deferred project costs capitalized as a result of additional capital raised described in note (c) above.
 
(e)
 
Historical financial information derived from quarterly report on Form 10-Q
 
The accompanying notes are an integral part of this statement.
 

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Table of Contents
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE YEAR ENDED DECEMBER 31, 2001
 
(Unaudited)
 
         
Pro Forma Adjustments
       
    
Wells Real
Estate
                 
Recent Acquisitions
       
    
Investment
   
2001
     
2002
     
PacifiCare
     
BMG
     
Kraft
       
    
Trust, Inc. (f)
   
Acquisitions
     
Acquisitions
     
San Antonio
     
Greenville
     
Atlanta
     
Pro Forma
Total
REVENUES:
                                                           
Rental income
   
$
44,204,279
   
$
11,349,076
(a)
   
$
14,846,431
(a)
   
$
1,556,473
(a)
   
$
2,445,210
(a)
   
$
18,429
(a)
   
$
74,419,898
Equity in income of joint ventures
   
 
3,720,959
   
 
1,111,850
(b)
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
4,832,809
Interest income
   
 
1,246,064
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
1,246,064
Take out fee
   
 
137,500
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
137,500
    
  
  
  
  
  
  
    
 
49,308,802
   
 
12,460,926
 
   
 
14,846,431
 
   
 
1,556,473
 
   
 
2,445,210
 
   
 
18,429
 
   
 
80,636,271
    
  
  
  
  
  
  
EXPENSES:
                                                           
Depreciation and amortization
   
 
15,344,801
   
 
5,772,761
(c)
   
 
5,356,374
(c)
   
 
509,518
(c)
   
 
1,044,320
(c)
   
 
31,137
(c)
   
 
28,058,911
Interest
   
 
3,411,210
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
3,411,210
Operating costs, net of reimbursements
   
 
4,128,883
   
 
2,854,275
(d)
   
 
1,505,269
(d)
   
 
0
 
   
 
0
 
   
 
5,452
(d)
   
 
8,493,879
Management and leasing fees
   
 
2,507,188
   
 
510,708
(e)
   
 
668,090
(e)
   
 
70,041
(e)
   
 
110,034
(e)
   
 
829
(e)
   
 
3,866,890
General and administrative
   
 
973,785
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
973,785
Amortization of deferred financing costs
   
 
770,192
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
770,192
Legal and accounting
   
 
448,776
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
448,776
    
  
  
  
  
  
  
    
 
27,584,835
   
 
9,137,744
 
   
 
7,529,733
 
   
 
579,559
 
   
 
1,154,354
 
   
 
37,418
 
   
 
46,023,643
    
  
  
  
  
  
  
NET INCOME
   
$
21,723,967
   
$
3,323,182
 
   
$
7,316,698
 
   
$
976,914
 
   
$
1,290,856
 
   
$
(18,989
)
   
$
34,612,628
    
  
  
  
  
  
  
EARNINGS PER SHARE, basic and diluted
   
$
0.43
                                                
$
0.22
    
                                               
WEIGHTED AVERAGE SHARES, basic and diluted
   
 
50,520,853
                                                
 
158,872,092
    
                                               
 
(a)
 
Rental income is recognized on a straight-line basis.
 
(b)
 
Reflects Wells Real Estate Investment Trust, Inc.’s equity in income of Wells XII-REIT Joint Venture related to the acquisition of the Comdata Building and equity in income of Wells XIII-REIT Joint Venture related to the acquisition of the AmeriCredit Building and the ADIC Building.
 
(c)
 
Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.
 
(d)
 
Consists of nonreimbursable operating expenses.
 
(e)
 
Management and leasing fees are calculated at 4.5% of rental income.
 
(f)
 
Historical financial information derived from annual report on Form 10-K
 
The accompanying notes are an integral part of this statement.

29

Table of Contents
 
WELLS REAL ESTATE INVESTMENT TRUST, INC.
 
PRO FORMA STATEMENT OF INCOME
 
FOR THE SIX MONTHS ENDED JUNE 30, 2002
 
(Unaudited)
 
         
Pro Forma Adjustments
       
    
Wells Real
Estate
          
Recent Acquisitions
       
    
Investment
   
2002
     
PacifiCare
     
BMG
     
Kraft
     
Pro Forma
    
Trust, Inc. (e)
   
Acquisitions
     
San Antonio
     
Greenville
     
Atlanta
     
Total
REVENUES:
                                                  
Rental income
   
$
38,571,815
   
$
7,307,774
(a)
   
$
778,237
(a)
   
$
1,222,605
(a)
   
$
651,493
(a)
   
$
48,531,924
Equity in income of joint ventures
   
 
2,478,686
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
2,478,686
Interest income
   
 
2,648,351
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
2,648,351
Take out fee
   
 
134,102
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
134,102
    
  
  
  
  
  
    
 
43,832,954
   
 
7,307,774
 
   
 
778,237
 
   
 
1,222,605
 
   
 
651,493
 
   
 
53,793,063
    
  
  
  
  
  
EXPENSES:
                                                  
Depreciation and amortization
   
 
12,903,282
   
 
2,588,546
(b)
   
 
254,759
(b)
   
 
522,160
(b)
   
 
186,821
(b)
   
 
16,455,568
Interest
   
 
880,002
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
880,002
Operating costs, net of reimbursements
   
 
2,063,997
   
 
300,018
(c)
   
 
0
 
   
 
0
 
   
 
79,067
(c)
   
 
2,443,082
Management and leasing fees
   
 
1,903,082
   
 
328,850
(d)
   
 
35,021
(d)
   
 
55,017
(d)
   
 
29,317
(d)
   
 
2,351,287
General and administrative
   
 
1,121,457
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
1,121,457
Amortization of deferred financing costs
   
 
424,992
   
 
0
 
   
 
0
 
   
 
0
 
   
 
0
 
   
 
424,992
    
  
  
  
  
  
    
 
19,296,812
   
 
3,217,414
 
   
 
289,780
 
   
 
577,177
 
   
 
295,205
 
   
 
23,676,388
    
  
  
  
  
  
NET INCOME
   
$
24,536,142
   
$
4,090,360
 
   
$
488,457
 
   
$
645,428
 
   
$
356,288
 
   
$
30,116,675
    
  
  
  
  
  
EARNINGS PER SHARE, basic and diluted
   
$
0.22
                                       
$
0.19
    
                                      
WEIGHTED AVERAGE SHARES, basic and diluted
   
 
110,885,641
                                       
 
158,872,092
    
                                      
 
(a)
 
Rental income is recognized on a straight-line basis.
 
(b)
 
Depreciation expense on the buildings is recognized using the straight-line method and a 25-year life.
 
(c)
 
Consists of nonreimbursable operating expenses.
 
(d)
 
Management and leasing fees are calculated at 4.5% of rental income.
 
(e)
 
Historical financial information derived from quarterly report on Form 10-Q
 
The accompanying notes are an integral part of this statement.

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